The value of intellectual capital in improving MSMEs’ competitiveness, financial performance, and business sustainability

Abstract

Intellectual capital is now recognized as a factor influencing organizational progress. However, many Micro, Small and Medium Enterprises (MSME’s) in Indonesia still need to understand the importance of intellectual capital to support their organizational performance. This study aims to strengthen intellectual capital succession in MSME’s in Indonesia to improve their competitiveness, financial performance, and sustainability. The population of this study is all MSME’s players in Indonesia. At the same time, the research sample selection is carried out using the criteria, namely MSME’s that have been running their business for at least ten years and use technology in business activities. The calculation of the minimum number of samples was determined from this research method using the SEM (Structural Equation Modeling) analysis test by carrying out several tests, namely composite reliability, coefficient determination, and hypothesis testing. Scientific tests found that human capital affects structural capital, relational capital, and the competitiveness of MSME’s in Indonesia. Structural and relational capital mediate the strong relationship between human capital and the competitiveness of MSME’s in Indonesia. Structural and relational capital can also mediate the strong relationship between human capital and the continuity of MSME’s businesses in Indonesia. Meanwhile, the relationship between human capital and the financial performance of MSME’s in Indonesia can only be weakly mediated by structural and relational capital. These findings certainly provide new evidence about the importance of intellectual capital for the sustainability and competitiveness of today’s MSME’s businesses.

IMPACT STATEMENT

This study aims to strengthen intellectual capital succession in MSMEs in Indonesia to improve their competitiveness, financial performance, and sustainability. In this study, the authors formulate empirical references and findings related to improving the quality of MSMEs to compete and survive through the influence of human capital on structural capital, relational capital and the competitiveness of MSMEs in Indonesia. Scientific tests found that human capital affects structural capital, relational capital, and the competitiveness of MSMEs in Indonesia. Structural and relational capital mediate the strong relationship between human capital and the competitiveness of MSMEs in Indonesia. Structural and relational capital can also mediate the strong relationship between human capital and the continuity of MSME businesses in Indonesia. Meanwhile, the relationship between human capital and the financial performance of MSMEs in Indonesia can only be weakly mediated by structural and relational capital.

Keywords:

• Financial performance
• intellectual capital
• sustainability organization
• sustainability smes
• strategic sustainability

JEL CLASSIFICATION:

• M2
• M4

REVIEWING EDITOR:

• David McMillan, University of Stirling, UK

SUBJECTS:

• Public finance
• corporate finance
• investment & securities
• public & nonprofit management

Acknowledgments

The author remembers to thank the respondents and all parties who have provided support so that this research can be completed properly.

Authors’ contributions

Anwar Hariyono and I Made Narsa: Conceptualization. Anwar Hariyono: Data Curation. Anwar Hariyono and I Made Narsa: Formal Analysis. Anwar Hariyono: Investigation. Anwar Hariyono and I Made Narsa: Methodology. I Made Narsa: Validation. Anwar Hariyono: Visualization. Anwar Hariyono and I Made Narsa: Writing original draft. Anwar Hariyono and I Made Narsa: Writing-review & editing.

Ethical approval

1. We abide by the Economic and Social research Council’s Framework for Research Ethics

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Ethical considerations

All participants provided informed consent before participating in this study. The confidentiality of my research data as a doctoral student at my university (Universitas Airlangga) is maintained throughout the research process, and the data is only used for academic research purposes.

Data availability statement

The data that support the findings of this study are available from the corresponding author, [author initials], upon reasonable request.

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

The authors are not received no direct funding for this research

Notes on contributors

Anwar Hariyono

Anwar Hariyono is a lecturer with a master’s degree in the accounting study program, Faculty of Economics and Business, Muhammadiyah University of Gresik. The research focus includes financial accounting and management accounting. Apart from being a lecturer, the writer also has additional assignments as Vice Chancellor at Muhammadiyah University of Gresik. Currently the author is continuing his doctoral school in accounting at Airlangga University, Surabaya. This research is one of the research projects of the author’s dissertation.

I. Made Narsa

I Made Narsa is an active professor at the Department of Accounting, Universitas Airlangga Indonesia. I Made Narsa has a research focus on financial accounting and management accounting. I Made Narsa has produced many research results in reputable international journals and also in the form of books.