Abstract
There are many small and medium-sized embroidery companies in East Java Province that in stagnation or only survive without any change in company size due to their low production capabilities. The solutions through increasing technological capabilities and an active role of government regulation that has been carried out so far. Based on the objectives of this study, the survey related to Technology Capability, Government Regulation, and Production Capability was tested for 83 small and medium-sized embroidery entrepreneurs in East Java Province. PLS analysis results show that the relationship between each variable proved to be significant (except for the relationship between Technology Capability on Company Size), and also there is an opposite direction relationship between the Government Regulation and Production Capability. The finding of this study is that the Government Regulations which should be able to increase Production Capability, but the difficulty to fulfill administrative requirements of business expansion permits caused many of small and medium-sized embroidery entrepreneurs are reluctant to obtain the permit.
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