The Impact of Social Media and Innovation on SME Business Performance: The Mediating Role of Competitive Advantage in West Java, Indonesia

Abstract

Small and Medium Enterprises (SMEs) play a critical role in Indonesia's economic development; however, increasing market competition and rapid digital transformation require SMEs to enhance their competitiveness and business performance continuously. This study examines the effects of social media and innovation on SME business performance, with competitive advantage serving as a mediating variable. A quantitative explanatory research design was employed using survey data collected from 400 SME owners in West Java Province, Indonesia, selected through purposive sampling. The data were analyzed using descriptive statistics and Partial Least Squares Structural Equation Modeling (PLS-SEM) to examine both direct and indirect relationships among the variables. The findings reveal that social media and innovation have positive and significant effects on competitive advantage. Innovation exhibits a stronger influence on competitive advantage than social media, indicating its strategic role in creating differentiation and sustaining competitiveness. Furthermore, social media, innovation, and competitive advantage positively and significantly influence business performance. The coefficient of determination indicates that social media and innovation explain 56.3% of the variance in competitive advantage, while social media, innovation, and competitive advantage jointly explain 63.4% of the variance in business performance. These findings support the Resource-Based View (RBV), suggesting that digital capabilities and innovation-oriented resources constitute important sources of sustainable competitive advantage and superior organizational performance. The study contributes to the literature on SME development and digital transformation by demonstrating the strategic importance of integrating social media utilization and innovation to enhance business performance.