The Impact of External Pressures on the Eco-Innovation Adoption of Micro, Small, and Medium Enterprise (MSME) in Indonesia

Abstract

The concept of eco-innovation has been recognized as a robust mechanism for sustainable business innovation models of micro, small, and medium enterprises (MSME). However, less attention has been paid to the application of eco-innovation to MSME performance, although MSMEs may benefit more from eco-innovation practices than larger firms. This creates an innovation gap between MSMEs and large companies. This paper attempts to fill this gap by examining the impact of external pressures on the adoption of ecoinnovation in MSMEs and its impact on the performance and competitiveness of company products. Quantitative data analysis is used in this research as the objective is to gain an in-depth understanding of the impact of eco-innovation on the performance of MSMEs in the manufacturing sector. The respondents in this research are Indonesian citizens and business owners in the fashion industry. This study uses a Partial Least Squares Structural Equation Modeling (PLS-SEM) approach to assess and estimate correlations between variables. The results show that the eco-innovation practices in the company is influenced by external pressures. This paper uses institutional theory to explain the drivers of ecoinnovation adoption in Indonesia. The paper concludes that coercive pressures and mimetic pressures have a significant and positive impact on the adoption of eco-innovation. The study of the fashion industry can be a potential opportunity to deepen discussions with different types of eco-innovation that require a holistic view and company capabilities.

Keywords:Fashion industries, Eco-innovation, Green company, MSMEs performance