DETERMINANTS OF SMALL AND MEDIUM ENTERPRISE PERFORMANCE IN EAST JAVA: A RESOURCE-BASED VIEW AND DYNAMIC CAPABILITIES PERSPECTIVE PROVINCES

Abstract

This study investigates the determinants of small and medium enterprise (SME) performance in East Java, Indonesia, within the integrated theoretical framework of the Resource-Based View (RBV) and Dynamic Capabilities Theory. Using primary data collected from 312 SME owners and managers through stratified random sampling administered across the manufacturing, trade, and service sectors, the study tests a structural model examining how human capital, access to finance, digital adoption, and entrepreneurial orientation influence SME performance, with access to finance hypothesised as a moderator of the entrepreneurial orientation-performance relationship. Data are analysed using Partial Least Squares Structural Equation Modelling (PLS-SEM) with SmartPLS 4. The measurement model demonstrates strong reliability and validity across all constructs. Structural results confirm that digital adoption (beta 0.34) and entrepreneurial orientation (beta 0.29) are the strongest predictors of SME performance, followed by human capital (beta 0.21) and access to finance (beta 0.18). The moderation analysis confirms that access to finance significantly strengthens the entrepreneurial orientation-performance link (interaction term beta 0.16, p < 0.05), with financially constrained SMEs deriving substantially weaker performance returns from their entrepreneurial activities. The findings provide empirically grounded, contextually relevant guidance for SME development policy and financing programmes in one of Indonesia's largest and most economically diverse provincial economies.