Abstract
The purpose of this research is: 1) to analyse the influence of external environment, internal environment, and motivation on SMEs product innovation; 2) to analyse the influence of external environment, internal environment, and motivation on competitiveness; 3) to analyse the influence of product innovation on the competitiveness; 4) to analyse the influence of external environment, internal environment, and motivation on competitiveness through product innovation. The population of this study is the business owners of 120 Lasem Batik Tulis (batik tulis means hand-drawn batik) SMEs in Rembang. It consists of 82 SME members of batik cooperatives and 38 SMEs of BNI incorporated in Kampoeng BNI, Bagan Village, Rembang; all of them were selected to be the objects in this study. The result of this analysis shows that: 1) external environment, internal environment, and motivation have significant effect on product innovation; 2) internal environment has a significant effect on competitiveness while external environment and motivation have insignificant effect on competitiveness; 3) product innovation has a significant effect on competitiveness; 4) product innovation can mediate the influence of external environment, internal environment, and motivation on competitiveness.
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