Improving MSMEs Performance through Human Capital, Financial Literacy and Competitive Advantage

Abstract

Aims: This study aimed to ascertain the effect of Human Capital and Financial Literacy on MSME Performance with Competitive Advantage as a mediating variable. Study design:  This study was quantitative. The methods of analysis employed in this research were outer and inner models, bootstrapping analysis, and specific indirect effects. Place and Duration of Study: The study's sample, was MSMEs in Banyumas Regency, Central Java, Indonesia. Moreover, the duration of this study was 3 months. Methodology: This study utilized Structural Equation Modeling (SEM) based on Partial Least Square (PLS), which consists of the inner model and the outer model. With a mediation test using indirect effect. Purposive sampling, which used 162 respondents, was the sampling strategy employed in this study. Results: The research results confirmed the positive and significant impacts that human capital, financial literacy, and competitive advantage have on MSMEs' performance. Additionally, the outcomes of the mediating test confirmed that the relationship between MSME performance and human capital has been mediated by competitive advantage. However, the study's findings indicate that financial literacy has no effect on competitive advantage. Furthermore, the outcomes demonstrated that the connection between Financial Literacy and MSME Performance has not been mediated by Competitive Advantage. Conclusion: This research shows that several factors, such as Human Capital, and Competitive Advantage affect MSMEs' Performance. The results were based on the resource-based theory's concept that managing a business's human capital will create a competitive advantage that will increase an MSME’s performance. Therefore, MSMEs need to pay attention to their human capital competencies. Findings from this research show there is human capital can create competitive advantages that are used in facing competition to improve MSME performance.