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ABSTRACT
Indonesian small and medium enterprises (SMEs) are increasing but face many challenges in developing their business. This study proposes a combination of open innovation (01) and engagement theory. Preliminary interviews were conducted with local government officials (external stakeholders) and managers of craft SMEs in Sleman. The results show that the biggest challenge for handicraft SMEs in Sleman is the lack of innovation in marketing and production. This study aims to analyze open innovation in the craft industry with the support and participation of various parties using the basic theory of involvement. This study uses 200 handicraft SMEs manager respondents in Sleman. The method used in this research is quantitative. The analysis tool used is PLS-SEM. The research results show that the 01 model is acceptable, and all the proposed hypotheses are supported: Resource Constraints affect 01 limitation; the Engagement Mechanism affects the limitations of 01; and Knowledge barriers affect 01 limitation.
Keywords: Open innovation; engagement theory; SMEs performance.
1. INTRODUCTION
As part of the Industrial Revolution 4.0, SMEs are starting to use digital media to support their business goals and activities. This digital media can improve company performance (Dirgiatmo et al., 2020). SMEs can achieve superior innovation results in their performance (Oshima & Toma, 2023). Namely, SMEs must develop a solid and appropriate strategy to encourage employees to always be creative. This is generally referred to as an organizational culture for innovation, and it emerges when someone leads it with a broad vision and can convey it to employees. Leaders will encourage employee collaboration while giving them the freedom to innovate. Companies are also directed to consistently create, communicate and provide value to customers and provide them with the best service (Kubberod etai., 2019). Sometimes, open innovation in SMEs cannot always stand alone. This open innovation must be combined with other factors, such as entrepreneurship.
Entrepreneurship promotion is needed first before investigating the open innovation strategy of SMEs. As a result, entrepreneurship has proven successful in realizing open innovation and became the essence of the early strategy for SMEs that focused on rapid international expansion (Mawson & Brown, 2017). The National Economic and Industrial Committee stated that SMEs are a sector that has great potential, and around 98.7% of businesses in Indonesia are...