Business Agility Mediates Product Innovation and Digital Marketing Effects on MSME Competitiveness

Abstract

The competitiveness of micro, small, and medium enterprises (MSMEs) increasingly depends on their ability to innovate, utilize digital technology, and respond rapidly to dynamic market changes. This study aims to examine the effects of product innovation and digital marketing on MSME competitiveness, with business agility as a mediating variable. An explanatory quantitative approach was employed using survey data collected from 115 MSME owners or managers in Purworejo Regency who were selected through purposive sampling. Data were collected through structured questionnaires and analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) with SmartPLS 4.0. The results indicate that product innovation has a positive and significant effect on MSME competitiveness (β = 0.420; p < 0.001), whereas digital marketing has no significant direct effect (β = 0.231; p = 0.073). Product innovation (β = 0.216; p = 0.008) and digital marketing (β = 0.669; p < 0.001) positively and significantly affect business agility. Business agility also positively affects MSME competitiveness (β = 0.333; p < 0.001). Furthermore, business agility partially mediates the relationship between product innovation and competitiveness (β = 0.072; p = 0.017) and fully mediates the relationship between digital marketing and competitiveness (β = 0.223; p = 0.003). These findings confirm that digital marketing alone is insufficient to create competitive advantage. MSMEs must strengthen their adaptive capabilities, responsiveness to market information, and strategic decision-making to transform product innovation and digital marketing into sustainable competitiveness.