ENHANCING BUSINESS PERFORMANCE IN HANDCRAFT MSMES: THE INTERPLAY OF ENTREPRENEURIAL LEADERSHIP, INNOVATION, AND THE MEDIATING ROLE OF PHYSICAL ENVIRONMENT
The balance between leadership, innovation, and physical environment in MSMEs is the main point in increasing business performance. Most studies previously conducted in relevance to this problem were performed in developed countries. Thus, the current research was an attempt at filling this gap by studying entrepreneurial leadership and innovation that may have an influence on the performance of a business, using physical environment as the mediating variable, within the context of 462 handicraft MSMEs in Lamongan Regency, East Java, Indonesia. This study adopts a quantitative explanatory approach and applies the SEM method with Smart PLS 3. The data collection is carried out by using an online survey of a stratified random sample with 285 respondents. The result of this study states that entrepreneurial leadership does not affect business performance but negatively influences the physical environment, while innovation has a strong influence on business performance, and the physical environment mediates it slightly. The novelty of this study is the identification of the interlink between leadership, innovation, and workspace management in the craft sector. This suggests that innovation and improvement of physical infrastructure by MSMEs leadership, with support from policy, may lead to enhanced competitiveness.
Environment, Innovation, Leadership, MSMEs, Performance.