The Influence of Business Capital, Innovation, and Market Orientation through Competitive Advantage and Government Support

Abstract

This study examines the influence of business capital, innovation, and market orientation on the performance of Small and Medium Enterprises (SMEs) in Berau Regency, East Kalimantan, Indonesia, with competitive advantage as a mediating variable and government support as a moderating factor. Using a quantitative, causal-explanatory research design and Partial Least Squares-Structural Equation Modeling (PLS-SEM), data were collected from 120 SMEs across 13 sub-districts. The findings reveal that both business capital and innovation significantly impact SME performance and competitive advantage. However, competitive advantage mediates only the relationship between innovation and performance—not business capital. Market orientation also positively contributes to competitive positioning. Although government support is conceptually critical, its practical impact remains limited by bureaucratic and alignment challenges. The study recommends strengthening managerial capacity, technology access, and policy responsiveness to improve SME competitiveness and sustainability.