The Role of Organizational Learning and Product Innovation as Mediation Variables in MSMEs in Indonesia

Abstract

Micro, Small, and Medium Enterprises (MSMEs) are the backbone of the Indonesian economy, but they still face limitations in resources, technology access, and innovation capacity in maintaining sustainable competitive advantage (SCA). One relevant strategy to overcome these challenges is open innovation (OI), namely openness to external knowledge to accelerate the innovation process and strengthen competitiveness. However, the effectiveness of OI in creating SCA does not occur automatically, but requires appropriate mediating mechanisms, such as organizational learning (OL) and product innovation (PI). The research method uses a quantitative approach with a causality design. Primary data were collected through a survey of 300 MSMEs in the manufacturing and innovation-based service sectors in Indonesia, and analyzed using Structural Equation Modeling–Partial Least Squares (SEM-PLS). The results show that OI has a significant positive effect on SCA and encourages an increase in LOXP, LOXT, and PI. However, only LOXT contributes significantly to SCA and mediates the OI–SCA relationship. In contrast, LOXP and PI are not proven to be significant on SCA. These findings confirm that MSMEs are more effective in gaining sustainable competitive advantage through exploitation, namely the utilization of existing knowledge and resources, rather than solely focusing on exploring new ideas or product innovation. This research contributes theoretically by enriching the innovation management literature in the context of MSMEs in developing countries, while also highlighting the practical importance for MSMEs to balance openness to innovation strategies with exploitation-oriented organizational learning. Further research is recommended to examine other mediating factors, such as absorptive capacity or dynamic capabilities, and to broaden the sector and regional contexts to gain a more comprehensive understanding.