How Internal Capability Matters in Increasing Firm Performance? An Empirical Analysis of Interfirm Network in Indonesia’s High-Tech Industry using Multi-Mediation Model

Abstract

This study aims to determine the different effects of the multi-mediating role of innovation capability, foreign ownership, export, and royalty expense in the firm’s network on the performance of Indonesia’s high-tech firms. This study uses data from the high-tech industry with a total sample of 2,578 firms from the Indonesian Central Statistics Agency. The study results prove that there is a positive and significant effect of the Interfirm network on firm performance. The interfirm network also positively and significantly influences Innovation Capability, Export Participation, Foreign Ownership, and Royalty Expense. Innovation capability and foreign ownership as part of internal capability also positively and significantly influence firm performance both directly and as a mediator. However, external capability has a negative influence as shown by exports and royalty expenses on firm performance, either directly or indirectly, as a mediator. Internal capability has an important influence on firm performance compared to external capability. Firms should have internal knowledge transfer rather than depending on the market. Innovation capability has the best mediating role compared to other mediating variables and the best strategy that the firm can do is to implement an interfirm network strategy in maximizing the firm's performance. Thus, the study results provide input to firms in the high-tech industry to optimally utilize their interfirm network to optimize firm performance. Further research is needed to see the effect of each type of industry in the high-tech industry and outside this industry.