Model for Increasing the Economic Competitiveness of MSMEs in the Creative Industry Sector in Indonesia

This study predicts and analyzes the mediating role of innovation capability (IC) on the relationship between digital transformation (DT) and economic competitiveness (CP) of SMEs, by proposing model construction. The survey method was carried out by distributing research instruments to 98 respondents, the collected data was used to analyze the relationship between digital transformation, innovation ability and competitiveness, also used to test hypotheses. Evaluation of predictions through structural equation models with partial least squares-structural equation modeling (PLS-SEM). The results of model measurement and the results of the evaluation of model suitability show that model suitability is achieved and guarantees model suitability. The results of the structural model path analysis show that all hypotheses are accepted, and IC has a mediating effect on the effect of digital transformation on the economic competitiveness of MSMEs. There is an important component that must be considered to strengthen the contribution of DT and IC to the improvement of CP, namely a set of competencies and resources that must be prepared. A model of increasing the economic power of MSMEs in the creative industry sector based on innovation and digital transformation capabilities involving a set of competencies including digital competencies of human resources and economic resources as fundamental inputs that strengthen them, becomes this novelty to fill the existing gap. The contribution of this research broadens the horizons on the effectiveness of highly competitive businesses in this era, where digital transformation capabilities, digital skills and innovation capabilities must be prepared.


Introduction
Micro, Small and Medium Enterprises (MSMEs) are crucial to a country's socio-economic growth and development as they are an important part of the global supply chain.In Indonesia, MSMEs support the national economy.The large contribution of MSMEs to Gross Domestic Product (GDP) in 2021 reached 61.07 percent or worth IDR 8,573.89(Kemenkeu RI, 2022).Theresilience and revival of MSMEs affect the superiority of competitiveness and national economic performance after COVID-19 (Wahdiniwaty & Firmansyah, 2022).An extraordinary phenomenon, the COVID-19 pandemic has had a serious impact on health, economy, transportation, and other industrial crises including MSME players (Saepuloh & Firmansyah, 2022;Wahdiniwaty et al., 2022).On the other hand, the development of the digital economy is underway, business digitalization in the Industrial Revolution (IR) 4.0 era shows the deviation of past expectations from MSME players, this signal has been seen with the massive progress and use of the Internet of Things (IoT) has disrupted various aspects of human life, especially in the economic field (Firmansyah, Suryana, et al., 2022), Even now it has begun to enter the era of society 5.0.The development of digital technology is very helpful for MSME players in an effort to expand their market share quickly without having to meet directly with customers (Firmansyah & Saepuloh, Available online at: https://jazindia.com-1356 -2022).This condition is an opportunity for MSME actors to rise, move up, MSMEs that are advanced, independent, and competitive and contribute to the national economy, of course, must be able to transform from conventional business to digital (Firmansyah et al., 2021).
Digital transformation is a topical issue worldwide, so important for all business actors in all sectors, because it is able to transform customer relationships, internal processes, and value creation (Zaoui & Souissi, 2020).Adaptation and transformation are the keys to success for MSMEs to survive, rise and develop in the digital era, especially where the business and market environment is rapidly changing (Firmansyah & Saepuloh, 2022a).The ability to adapt to high concepts with company-specific demands is a key factor to support SMEs to take advantage of technological opportunities in connection with the digitization process (Fechtelpeter et al., 2017).However, digital transformation is more than just the use of technology, it must also consider changes in talent, culture, and organizational structure (Kane et al., 2017).Digital transformation is the use of digital technology (Negroponte, 1995;Morze & Strutynska, 2021), which fundamentally increases the productivity and value of the company (Westerman et al., 2014).
Successful digital transformation requires organizations and actors involved to have digital literacy readiness and develop various capabilities according to the business context and needs (Reis et al., 2018), so that it is closely related to: the use and alignment of digital technology in a company, making organizational changes, enabling activities, creating and capturing new opportunities and value(e.g., (misalnya, Jeansson & Bredmar, 2019;Firmansyah & Saepuloh, 2022a).Business digital transformation as a form of business model and process innovation to find and create new ones, is relevant to the development of the renewable economy in the current digital economy era (Firmansyah, Mulyadi, et al., 2023).In today's renewable economy era, the focus of business actors and their personnel from actively competing industries around the world (Morze & Strutynska, 2021), exerts pressure to go digital before anyone else does, striving to survive and achieve competitive advantage (following, Bharadwaj, 2000;Reis et al., 2018).
The implication is that individuals and business actors need to prepare and improve digital skills and readiness that are potentially needed in this era (Firmansyah, Rifa'i, et al., 2022)., the skill needed for business processes has changed renewably along with technology is digital literacy.Digital literacy emerged alongside the evolution of the internet and demanded knowledge of how to access, search, and critically analyze information (Liu et al., 2020;Farias-Gaytan et al., 2022;Firmansyah, 2022a).Although it must be emphasized that digital transformation is not about a single technology, but a major change based on a combination of information technology, computing, communication, and connectivity (Bharadwaj et al., 2013;Cichosz et al., 2020).MSME creativity includes aspects of creativity and innovation ability to develop new ideas and methods.The process of continuous innovation is very important for business development in the modern era, in terms of profit generation and competitiveness (Marković et al., 2020).Where the creation and exploitation of knowledge plays an important role in better positioning companies in the global market so as to strengthen business performance amid intense competition.Therefore, the exploitation and integration of digital technology often affects most companies at various scales and even beyond their limits, by affecting products, business processes, sales channels, and supply chains to be able to create sustainable competitive advantages (Firmansyah & Saepuloh, 2022).The digital transformation process explains the importance of multiliteracy to support the innovation process to strengthen competitiveness (Krumsvik, 2015).Innovation is the elixir of life in the journey of one's life that is full of creativity and appropriate in taking advantage of opportunities to always grow and continue to develop.
Innovation is a firm's ability to strategically sense and respond to opportunities and threats increasing competitive advantage (C.Liu et al., 2014).Innovation as the ability to change more in accordance with the demands of the environment that occurs (Herrera, 2015).Measurement of innovation can be seen from investment into technology, innovation processes, product development and marketing, development of new sources of supply, and discovery of new markets.Relevant business innovation practices are needed in this era to improve competitiveness better (for example, Firmansyah & Saepuloh, 2022).Innovation arises from creativity, where creativity includes creative aspects of personality, motivation, intelligence, thinking style, and relevant knowledge (Mcmullan & Kenworthy, 2016).
So, the digital transformation process shows that MSME players have creativity and innovation capabilities in line with changes in the business environment.This innovation capability strengthens the relationship between digital transformation and competitiveness (Darroch & Mazerolle, 2013).nline at: le o b ila Ava -1357 -Relevant business innovation practices are needed in this era to improve entrepreneurial performance with better competitiveness (Firmansyah, Wahdiniwaty, et al., 2023).Where competitiveness is the ability for good performance (Garengo et al., 2005), for the other implies the creation and sustainability of sources of competitive advantage (Ceptureanu, 2015).On the other hand, emphasizing the competitive strategy approach (Porter et al., 2008), competitiveness is also a relative concept, relating to how competitive a firm is when compared to other industries.Ajitabh & Momaya (2004), mentioned that focusing on key competitiveness resources at the company level and classifying literature related to competitiveness within the asset-process-performance (APP) framework (Ceptureanu, 2015).
Following Firmansyah et al., (2023), which mentions the ability to carry out business digital transformation as a form of business model innovation to find and create new ones with a commitment to market orientation, both business processes and products or services that meet expectations and even exceed customer orientation as the target market that is the most important stakeholder, as well as relevant business model and process practices in line with economic development renewable in the current digital economy era, so that it will directly or indirectly strengthen competitiveness and increase competitiveness in a sustainable manner.The digital transformation process explains the importance of digital literacy and multiliteracy to support the innovation process to strengthen competitiveness (Krumsvik, 2015).In the era of digital economy, digital transformation (DT) is a new approach for companies to gain competitive advantage in the context of fierce and dynamic market competition.Technological and environmental factors drive digital transformation which has a positive impact on the ability of organizations to create innovation capabilities for their competitiveness, multiliteracy plays an important role in adopting technology and adapting the environment for successful digital transformation (Zhang et al., 2022).This research explores digital transformation and literacy practices and the role of innovation mediation to predict competitiveness of micro, small and medium enterprises (MSMEs) in the creative industry sector in West Java, Indonesia.Business potential in the region can be explored and developed along with the shift of traditional business practices, face-to-face relying on visitors who come to digital practices along with the emergence of various digital platforms as a place to market products (marketplaces) digitally or a combination of both.The existence of innovation capabilities is needed to encourage and ensure the success of business model transformation practices in a new face that is flexible and more adaptive in responding to changes in the business environment in the digital economy era in order to create new ones so that they can survive and continue to grow with better performance and competitiveness in a sustainable manner.

Materials And Methods
This research is survey research with a quantitative approach.Survey research seeks to quantitatively describe the tendencies, attitudes, or opinions of a particular population by examining a sample of that population (Creswell, 2014).Quantitative research is an approach to test objective theories by examining relationships between variables (Creswell, 2014).A total of 98 respondents became the sample of this study, selected by purposive sampling techniques developed with convenience sampling techniques related to the ease of reach of respondents ' existence with consideration of existing respondents and can participate in the research (Taherdoost, 2016;Hibberts et al., 2012;Firmansyah, 2022), however, understanding and habits of using digital technology are considered, actively participating in education and training organized by related partners, having adequate digital competence and literacy (information literacy, information and communication technology / ICT, media literacy, accustomed to digital communication and collaboration), accustomed to accessing information digitally through the internet network and the respondent's area is available stable internet network infrastructure.Therefore, respondent nominations are specifically based on criteria selected to meet certain objectives, the suitability of respondent nominations is obtained from the results of preliminary surveys.Data collection techniques, face-to-face questionnaire dissemination and Google Form dissemination through social media, but the combination of both showed better results, guaranteeing that the questionnaire criteria and answers were again accepted according to the number of questionable items related to the object studied, but the research team remained independent.
Primary data sources are used by deploying research instruments as data collectors, Likert scales ranging from 1-5 are used.Digital transformation (DT) with six statements (DT1-DT6); innovation capability (IC) with eight statements (IC1-IC8); and Competitiveness (CP) with seven statements (CP1-CP7).The collected data were analyzed with Partial least squares-structural equation modelling 4 (PLS-SEM4) selected for use in analyzing model construction.

Measurement Model
Latent variable constructs are used to check the PLS-SEM measurement model.Convergent and discriminant validity are used to measure the construct of each indicator.Discriminant validity is done to ensure that each construct is similar to the item with other latent constructs.Improvement of the model for factor analysis is possible, if the loading factor of the latent variable is not at the minimum required value (< 0,60).
The loading factor of the remaining twelve items was received, each having a value of C > 0,70 (between 0,708 and 0,844) after repairs and as many as nine items from the construct having a value of < 0,70 were discarded.In figure 1 and table 1, showing that each construct of DT, IC and CP has a value of C and CR > 0,70, and the required reliability scale is stated to be met (Hair et al., 2011), konstruk memiliki konsistensi yang baik.the construct has good consistency, see figure 1.

Figure 1: Structural model after factor improvement
In addition, validity is also acceptable (see table 1) known AVE values for all constructs are greater than 0.5, constructs have reliability (Henseler et al., 2016), all three constructs have a match with the model.The results of collinearity detection between constructions, known cutt-off is met for all constructions with a VIF value of < 3.3 for all constructs, there is no full collinearity in the model (Kock, 2017).The square root of the AVE and the correlation coefficients among the constructs were used to see the validity of the discriminant (table 2).Referring to the Fornell-Larcker criterion (Hair et al., 2019), the square root value of AVE for discriminant validity with provisions must have a value greater than the correlation of its latent variables.The test results show that the value of the diagonal square root of AVE > the value of the correlation coefficient of other latent variables on the matrix, the evaluation of discriminant validity is fulfilled.Heterotrait-Monotrait (HTMT) is an estimate of factor correlation or rather, upper limit (Henseler et al., 2016).The robustness of the HTMT correlation ratio criterion between constructions should be < 0.90 or much less than 1.Test results (table 3) all values less than 0,90 (0,676; 0,701; 0,749 < 0,90; < 1,0) these evaluation results conclude good discriminant validity.In this study, model measurements on constructs were concluded to be reliable and valid.

Model Fit Evaluation
The analysis is carried out by model evaluation, the aim is to determine the predictive power of the proposed model seen from the value of the coefficient of determination (R 2 ) of endogenous latent construction.IC has an R 2 value of 0,253, and CP has an R 2 value of 0,425 (tends to be moderate) bermakna meaning that the model has moderate predictive power so that it can reflect all endogenous constructs (Henseler et al., 2016;Hair et al., 2019: p.18).253 Note: R 2 ; f 2 , being on the threshold, SRMR; NFI, d_ULS; d_G, the criteria of the fit model.
In addition, f 2 is the ability to explain effects (Huang, 2021), in explaining dependent constructs in structural models (Hair et al., 2019).The magnitude of the effect size seen from the values of f 2 for H1 = 0,232 (moderate), H2 = 0,339 (strong), and H3 = 0,159 (weak) are all at the thresholds of 0,02, 0,15, and 0,35, as suggested (Cohen, 1988;Hair et al., 2019).It can be concluded that exogenous variables have the ability to explain endogenous variables, with the criterion of explanatory effect values being in the medium category.
The Normed fit Index (NFI) value of 0,735 is lower than the required criteria to be > 0,90, the fit model (Hu & Bentler, 1998).In this study, the evaluation and criteria for using NFI for model fit refer to Hair et al., (2021).NFI NFI has a value range between 0 to 1, the greater the NFI value, the better (Huang, 2021), NFI of 0,735 model fit is achieved.

Structural Equation Modeling Analysis
The bootstrapping procedure is performed to measure the indirect effects of the mediation role, as recommended by Hair et al., (2011).Meanwhile, the PLS-SEM path analysis model for parameter estimation of direct effects is presented in table 5.  1 and figure 1).
The verification results of direct path analysis show that all original sample values have positive values, meaning that DT and CP, DT and IC, and IC and CP have a unidirectional relationship.The findings also showed that DT with CP had a positive correlation (β = 0,423), significantly at p-value = 0,000 (t stat > 1,96), proving H1 acceptable.A positive correlation between DT and IC was also found with β = 0,503 and significant at p-value = 0,000 (t stat > 1,96), H2 was provenly accepted.IC path analysis with CP had a positive correlation with β = 0,327 and significant at p-value = 0,001 (t stat = 3,382 > 1,96), H3 proved acceptable.The results of verification and parameter estimation of the direct influence conclude all accepted hypotheses.

Mediation Role Analysis
Detection of influence from the role of intermediaries can be seen from the t value of indirect influence (Huang, 2021).A comparison of the value of 1,96 with the statistical t was carried out, the stat value > 1,96 showed there was a mediation effect.To determine the magnitude (partial or full) of the mediating effect on some relevant literature, variance of VAF values with VAF value criteria VAF >20% or VAF value >80%, as prescribed by (Hair et al., 2012;Huang, 2021).In this study, structurally, the strength of the effect size of the mediation role was obtained from the upsilon statistic (ν) YX) as nested and developed by Lachowicz et al., (2018);and Ogbeibu et al., (2021) The role of innovation capability (IC) in mediating the relationship between digital transformation (DT) and competitiveness (CP), indirect influence (IDE) seen from the VAF value of 0,0601 (< 20%), the range shows a low mediation effect (Hair et al., 2012;Huang, 2021).Meanwhile, when viewed from the effect of the IDE size obtained at 0,027, the effect of small size towards moderate.It can be concluded that H4 is proven to be acceptable, innovation ability (IC) has a mediating effect on the effect of digital transformation (DT) on competitiveness (CP), and is significant at p value = 0,021 (t stat = 2,202 > 1,96).

Discussions
Digital transformation (DT) has a correlation with innovation capability (IC) and competitiveness (CP), as well as IC with CP.Where the direction of the relationship between the three is confirmed to be positive.The courage and ability to carry out digital transformation among SMEs can be followed by their innovation and competitiveness capabilities.The existence of readiness, courage and ability to carry out digital transformation among MSME actors can foster innovation thinking and increase the ability of innovation to maintain their business existence in the digital ecosystem so as to contribute to increasing their economic competitiveness.The practice of digital transformation supported by the nline at: le o b ila Ava -1361 -ability to innovate is one of the relatively new important approaches that needs to be done incrementally on the basis of the flow of change from time to time so that businesses remain competitive in a tight and dynamic market competition.
Research findings show that digital transformation directly has a significant positive effect on competitiveness (H1).This finding is in line with the results of Firmansyah & Saepuloh (2022) research, the exploitation and integration of digital technology often affects most companies at various scales and even beyond their limits, by affecting products, business processes, sales channels, and supply chains to be able to create sustainable competitive advantages.The use and alignment of digital technology in an enterprise, making organizational change, enabling activities, creating and capturing new opportunities and value (Jeansson & Bredmar, 2019;Firmansyah & Saepuloh, 2022a).In today's renewable economy era, the focus of businesses and their personnel from actively competing industries around the world exerts pressure to go digital before anyone else does, striving to survive and achieve a competitive advantage (Morze & Strutynska, 2021;Bharadwaj, 2000;Reis et al., 2018).
The findings also show that digital transformation has a significant positive effect on innovation capabilities (H2).There is a greater influence of the influence of digital transformation on the ability to innovate than the direct influence of digital transformation on competitiveness.The practice of digital transformation as part of the ability to adapt to high concepts can simultaneously create innovation capabilities to answer company-specific demands which is a key factor to support SMEs to take advantage of technological opportunities related to the digitization process.These findings are in line with (Fechtelpeter et al., 2017;Firmansyah & Saepuloh, 2022a;Zaoui & Souissi, 2020;Wahdiniwaty et al., 2022).This finding also examines and proves the vital role of the ability of MSME actors in using and harmonizing digital technology in creating and utilizing opportunities, where the critical mindset, set of competencies and digital literacy of MSME actors' human resources can ideally guarantee the success of digital transformation practices so as to contribute to increasing the economic competitiveness of MSME actors.Empirically, there is a long enough process to succeed in digital platforms that have a wider reach with complex audience characteristics, decorated with currents, changes and shifts in demand occur rapidly.
Predictions of innovation capability were found to have a significant positive effect on competitiveness (H3).The ability to innovate is able to strengthen the economic competitiveness of economic actors.Innovation arises because of creativity that includes creative aspects of personality, motivation, intelligence, thinking style, and relevant multiliteracy.Creativity and continuous innovation ability as the key to success for business in the modern era.This finding is in line with the research of Mcmullan & Kenworthy (2016); and Darroch & Mazerolle (2013), this confirms thatrelevant business innovation practices are needed in this era to improve entrepreneurial performance with better competitiveness (Firmansyah, Wahdiniwaty, et al., 2023).This is inseparable from the readiness of MSME actors, both from the relevance of the core competencies possessed by HR to the needs of the transformation process as well as aspects of capital resources for investment and technology adoption so that the business practices carried out are able to answer the challenges of transformation and digitalization, which operate above the interests of customers (users), market flexibility and rapid technological progress are used as drivers of innovation capabilities to facilitate and bridge efforts to increase economic competitiveness.
As for the mediation path, the findings prove that innovation ability has a mediating effect on the influence of digital transformation on competitiveness (H4).This finding is reinforced by the results of research Darroch & Mazerolle, (2013);Firmansyah, Mulyadi, et al., (2023); Zhang et al., (2022); Firmansyah & Saepuloh (2022a);and Krumsvik (2015).This innovation capability strengthens the link between digital transformation and competitiveness.Toidentify and recognize opportunities for digital market expansion, it is necessary to have the courage of digital adoption in business processes.This condition increasingly intervenes in the ability of SMEs to carry out business digital transformation as a form of business model and process innovation to find and create new ones, relevant to the development of the renewable economy in the current digital economy era, so that it will directly or indirectly strengthen the competitiveness of micro and small businesses in a sustainable manner.Technological and environmental factors drive digital transformation that has a positive impact on the ability of organizations to create innovation capabilities for their competitiveness, multiliteracy plays an important role in adopting technology and adapting the environment for successful digital transformation (Zhang et al., 2022).The digital transformation process explains the importance of digital literacy and multiliteracy to support the innovation process to strengthen competitiveness.
The findings of this study prove thatsuccessful digital transformation processes explain the importance of readiness, a set of resources, digital literacy and multiliteracy to support the innovation process to Available online at: https://jazindia.com-1362 -strengthen competitiveness.Also, the digital transformation of human resources (HRDT) in the context of MSMEs with growing digital talents can trigger the growth of innovation thinking and innovation capabilities that facilitate and bridge stability, better economic competitiveness can be achieved in a sustainable manner.Therefore, the novelty of this research is the discovery of a model for increasing the economic power of MSMEs in the creative industry sector based on innovation and digital transformation capabilities, which can be constructed through the following illustration: The stability of economic competitiveness of MSME players in the creative industry sector based on innovation capabilities and digital transformation can be achieved sustainably in the digital economy era by involving a set of competencies including digital competencies, human resources and economic resources as fundamental inputs that strengthen it.

Conclusion
The results of the model measurement showed that reliability with good consistency, and the correlation coefficient between constructs for validity were met, judging from criteria C, HTMT and AVEalso found no indication of collinearity (VIF) for all constructs.The results of the evaluation of model suitability, it is known that the value of R 2 for the construct of each latent variable is in the medium category, as well as for the size of the effect f 2 all values are at the threshold, the criteria for the explanatory effect value are in the medium category.In addition, evaluation results based on SRMR, NFI, d_ULS and d_G show model fit is achieved and ensure model fit.
From the results of path analysis.Findings from the results of structural model path analysis, show that: first digital transformation directly has a significant positive effect on competitiveness (H1 is proven to be acceptable).Second,digital transformation has a significant positive effect on innovation capabilities (H2 has proven acceptance).Third, the ability of innovation has a significant positive influence on competitiveness (H3 is proven to be acceptable).Fourth, innovation capabilities have a mediating effect on the effect of digital transformation on competitiveness (H4 proved acceptable).Comprehensively, the novelty of this research is the discovery of a model for increasing the economic power of MSMEs in the creative industry sector based on innovation capabilities and digital transformation involving a set of competencies including digital competencies, human resources, and economic resources as fundamental inputs that strengthen it.
The contribution of this research, empirically it is proven that digital transformation and innovation capabilities affect economic competitiveness within small and medium enterprises in the creative industry based on hand made (crafts, souvenirs, pashion, snacks and the like) even though they are located in the area, coastal or even jaun from urban areas.This potential can be explored and developed along with the shift in traditional business practices, face-to-face relying on visitors who come to digital practices along with the emergence of various digital platforms as a place to market products (marketplace) digitally or a combination of both.Apart from the vision, mission to achieve business goals through various strategies selected to be implemented at the SME level, business digital transformation practices supported by the ability to innovate and adapt become strategic and releva approaches in this era to survive and develop with better business competitiveness.It is also expected to broaden horizons on the effectiveness of highly competitive businesses in this era, where digital transformation capabilities, digital skills and innovation capabilities must be prepared.This research is inseparable from the rigor of the methodology applied, this study has several limitations that need to be considered when interpreting the findings and conducting future research.Obstacles and success factors of digital transformation among small and medium enterprises (SMEs) in an effort to increase competitiveness are not only digital transformation and innovation capabilities that affect it, relevant multiliteracy that is potentially needed by individuals and business actors in the digital economy era, such as skills, readiness, digital competencies and skills (digital literacy), social capital, digital talent, talent management, Digital-based business training needs to be considered to strengthen economic competitiveness and ensure the accuracy of sustainable business success prediction.In addition, from a methodological aspect using a combination of other research methods, it is possible to identify and examine the size and maturity of digital.le o b ila Ava -1365 -

Figure 2 :
Figure 2: Model for increasing the economic competitiveness of MSMEs

Table 1 .
Model measurement results after modifiaction The significance value (***) of all indicators is at the level of 0,001 (p < 0.001).

Table 2 .
Discriminant Validity Test Results(Fornell-Larcker)In columns DT, IC to CP, the topmost value diagonally indicates the square root value of the AVE.

Table 4 .
Verification and Evaluation of Model Suitability

Table 5 .
Parameter Estimates of Direct Effect, Path Analysis Verification