Document Type : ORIGINAL RESEARCH ARTICLE
Authors
Department of Management, Faculty of Economy and Business, Universitas Negeri Malang, Indonesia
Abstract
BACKGROUND AND OBJECTIVES: Micro, small, and medium enterprises play a vital role in Indonesia’s urban economy, contributing 60.5% to Gross Domestic Product and fostering employment and economic resilience. However, despite policy support through Law No. 20/2008 on MSMEs, performance gaps persist in secondary cities where over 60% of MSMEs fail within five years due to managerial, financial, and adaptive constraints, a critical concern for Indonesia's 98 secondary cities, housing 40% of national micro, small, and medium enterprises. This study examines how entrepreneurial orientation, owner’s education, and business capital influence MSME performance, with strategic agility as a mediating variable, in Mojokerto, East Java.
METHODS: A quantitative-explanatory design was applied using Partial Least Squares Structural Equation Modeling (PLS-SEM) in SmartPLS 4.0. Data were collected through face-to-face interviews conducted from February to March 2024 with 60 micro, small, and medium enterprise owners registered under the Badan Usaha Milik Desa or village-owned enterprises in Mojokerto Regency. Five constructs, entrepreneurial orientation (5 indicators), owner’s education level (4), business capital (4), strategic agility (4), and MSME performance (4), were measured using five-point Likert scales. The measurement model was tested for reliability and validity, followed by structural model evaluation and hypothesis testing via bootstrapping with 5,000 resamples at α = 0.05.
FINDINGS: All constructs demonstrated satisfactory validity and reliability, with indicator loadings above 0.787, composite reliability (CR) ranging from 0.878 to 0.928, and average variance extracted ranging from 0.644 to 0.766. The owner’s education level had a significant positive effect on MSME performance (β = 0.342, t = 2.203, p = 0.028), accounting for 12.6% of its variance. Entrepreneurial orientation (EO) did not significantly affect performance (β = -0.152, p = 0.296) or strategic agility (β = -0.180, p = 0.263). Likewise, business capital had no significant effect on either performance (β = 0.184, p = 0.168) or agility (β = -0.041, p = 0.755). The effect of strategic agility on performance was positive but not statistically significant (β = 0.237, p = 0.101). Mediation analysis confirmed that strategic agility did not significantly mediate any relationships (all p > 0.40).
CONCLUSION: Owner’s education level emerges as the primary determinant of MSME performance in Indonesia’s secondary cities, exerting a direct influence rather than through strategic agility. Strengthening human capital is therefore essential for urban entrepreneurial resilience. These findings suggest that while Law No. 20/2008 on MSMEs provides the legal framework for MSME development, implementation should prioritize human capital enhancement over capital provision alone. Policymakers should emphasize accessible education, managerial development, and digital literacy for MSME owners through targeted programs aligned with Presidential Regulation No. 2/2022 on Job Creation, over financial or promotional incentives.
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