How Financial Literacy, Innovation Capability, and Human Capital Affect Competitive Advantage and Performance: Evidence from Creative MSMEs

Abstract

This paper provides new insights by testing the effect of financial literacy, innovation capability, and human capital on MSMEs’ competitive advantage and performance. By utilizing convenience sampling, 114 creative MSMEs in Jember, Indonesia, were involved as samples. The data was analyzed using path analysis. The results revealed that: a) financial literacy has no significant direct effect on competitive advantage; b) innovation capability has positive and significant direct effect on competitive advantage, c) human capital has positive and significant direct effect on competitive advantage; d) financial literacy has positive and significant direct effect on MSMEs performance; e) innovation capability has positive and significant direct effect on MSMEs performance; f) human capital has positive and significant direct effect on MSMEs performance; g) competitive advantage has positive and significant direct effect on MSMEs performance; h) competitive advantage mediates the indirect effect of innovation capability on MSMEs performance, and i) competitive advantage mediates the indirect effect of human capital on MSMEs performance. These results provide new insight for creative MSMEs in improving their competitive advantage and MSMEs performance in this competitive and disruptive era. The limitations of this study, first, the varied subsector of creative MSMEs may lead to biased results; second, the data was collected in certain subdistricts in Jember. Future research should involve distinguished subsector and wider scope of samples.