Business Strategy and Small and Medium Enterprises (SMEs) Performance: The Moderating Role of the Business Environment

Abstract

Enhancing performance is a crucial approach to ensuring the sustainability of small and medium-sized enterprises (SMEs). The primary focus is on improving SME performance to promote more effective growth. Therefore, the objective of this study is to examine the factors contributing to enhancing SME performance. In empirical research conducted in Indonesia, specifically in South Sumatra Province in 2021, where the contribution to GRDP was only 1.72% compared to other provinces above 10% (Jakarta, East Java, and West Java), the aim is to validate the hypotheses. Through a self-administered survey, 109 eligible questionnaires were collected from SME businesses for this study. Additionally, data analysis employed the Partial Least Square-Structural Equation Modeling (PLS-SEM) technique. The findings of this study indicate the acceptance of the relationship between business strategy and SME performance. Similarly, it is hypothesized that the business environment, acting as a moderator, strengthens the impact of business strategy on SME performance. Insights from this study on the effectiveness of small and medium-sized enterprises (SMEs) in South Sumatra, Indonesia, provide valuable input for future decision-making.