Abstract

This study aims to: (1) determine the effect of market orientation on competitive advantage; (2) to know the effect of innovation on competitive advantage; (3) to know the influence of market orientation and product innovation together to competitive advantage; (4) the effect of market orientation on the performance of SMEs, (5) to know the effect of product innovation on the performance of SMEs, (6) to know the effect of competitive advantage on SMEs performance, and (7) to know the effect of market orientation, product innovation, and competitive advantage together SMEs.

This research uses an explorative design that aims to conduct a search and reveal the factors that can be estimated as the cause of the occurrence of a condition that is not yet known the cause and the mechanism.The population in this study is the SMEs in Batam city with the type of production business with a population of 153 SMEs. The number of samples was determined using a saturated sample technique in which the entire population in the study was sampled. So the number of samples in this study was as many as 153 SMEs.

From the results of the study found that market orientation has a positive and significant impact on competitive advantage. Product innovation has a positive and significant impact on competitive advantage. Market orientation and product innovation together have a positive and significant impact on competitive advantage with R2 value of 83%. The dominant variable influencing competitive advantage is product innovation with regression coefficient value 0,62. Market orientation has a positive and significant effect on SME's performance. Product innovation has a positive and significant effect on SME's performance. Competitive advantage positively and significantly influence to SMEs performance, market orientation, product innovation and competitive advantage together have positive and significant influence to SMEs performance with R2 value equal to 90%. The dominant variable affecting the performance of SMEs is the advantage of competing with the value of regression coefficient 0.47.

This research offers implementation to SMEs to improve market orientation and product innovation so that it will increase competitive advantage which impact on SMEs performance.