Dynamic Capabilities and SMES Performance: The Mediating Effect of Innovation (Study of SMES in Indonesia)

The purpose of this study is to analyze the relationship between dynamic capabilities and SME performance, dynamic capabilities with innovation, and innovation with SME performance.In addition to analyzing whether innovation can mediate the relationship of dynamic capabilities with SME performance.The research data to be used is SME data in Indonesia with primary data through questionnaires and secondary data published by the Government of Indonesia.The research sample is 350 SMEs in Indonesia.The method used is the causality method to determine the relationship between variables and to determine the direct effects and indirect effects of dynamic capabilities on the performance of SMEs, data analysis techniques using SEM.The results of this study indicate that (1) there is a positive relationship between dynamic capabilities and SMEs performance, (2) there is a positive relationship between dynamic capabilities and innovation (3) there is a positive relationship between innovation and SMEs performance (4) there is a positive relationship between dynamic capabilities and SMEs performance through innovation as mediation.