THE INFLUENCE OF DIGITAL TECHNOLOGY USAGE AND ENTREPRENEURIAL ORIENTATION ON FIRM PERFORMANCE WITH THE MEDIATING ROLE OF COMPETITIVE ADVANTAGE: EVIDENCE FROM MSMES IN INDONESIA

Abstract

Micro, Small, and Medium Enterprises (MSMEs) play a crucial role in Indonesia’s economy, contributing more than 60% to the GDP and absorbing nearly the entire national workforce. However, many MSMEs still face challenges in adopting digital technologies due to limited digital literacy and unequal infrastructure distribution. This situation has caused MSMEs to lag in competitiveness, particularly during the digital disruption era and the COVID-19 crisis, when many businesses were forced to shut down due to the inability to transform. This study aims to examine the influence of digital technology usage and entrepreneurial orientation on firm performance, with competitive advantage serving as a mediating variable. The research was conducted among food-sector MSMEs in East Java using a quantitative approach through a survey of 155 respondents, analyzed with the PLS-SEM method. The results reveal that both digital technology usage and entrepreneurial orientation positively affect competitive advantage. Digital technology directly enhances firm performance, while the direct impact of entrepreneurial orientation is relatively weaker. Competitive advantage functions as a partial mediator that strengthens the relationship between the two independent variables and MSME performance. These findings highlight the strategic importance of digital adoption and entrepreneurial orientation in building sustainable competitive advantage, which ultimately drives business performance improvement in an increasingly competitive environment.