The Effect of Business Environment and Resource Adequacy on SME Performance

ABSTRACT


INTRODUCTION
Small and Medium Enterprises (SMEs) are the backbone of Indonesia's dynamic and rapidly growing economy.These firms play a critical role in driving economic growth, fostering innovation, and creating employment opportunities in various sectors [1], [2].Recognizing the important role of SMEs, it is imperative to examine the various factors that contribute to their performance.Among these factors, business environment and resource adequacy emerge as key determinants that shape the trajectory of SMEs in Indonesia.The performance of SMEs in Indonesia is influenced by various factors, including the business environment, resource adequacy, and the adoption of technology.The business environment plays a significant role in shaping the performance of SMEs.For instance, the adoption of social media has been found to have a positive correlation with the business environment and the economic performance of SMEs [3].However, the study also found that social media adoption does not mediate the relationship between the environmental factor and business performance of SMEs [3].Another study found that the industrial environment, including factors such as the power of new competitors, bargaining power competition, has a positive and significant influence on the financial performance of SMEs [4].The adequacy of resources, including technology, organization, and external environment, has been found to have a positive and significant relationship with SME business performance [5].For instance, technology factors were found to be positively and significantly related to SME business performance.The adoption of Technology 4.0 has been found to mediate the relationship between Technology-Organization-Environment (TOE) and SME business performance [5].This suggests that the adoption of advanced technology can enhance the performance of SMEs.
Environmental factors such as environmental dynamism, dynamic managerial capabilities, and deliberate organizational learning have been found to have a considerable effect on dynamic capability, which in turn affects firm performance [6].Additionally, eco-innovation and environmental collaboration have been found to improve the financial, social, and environmental performance of SMEs [7].SMEs in Indonesia also face external challenges such as natural disasters, which can impact their performance.For example, post-earthquake impact has been found to be positively and significantly related to fear of failure, which can influence SME performance [8].Government support adaptability and academic transfer knowledge have been found to have a positive and significant influence on the innovation capability and marketing performance of SMEs [9].
Indonesia's business environment is dynamic and driven by a variety of factors, including changes in the country's economy, laws and regulations, rivalry in the market, and advances in technology.In light of this, SMEs operate in a complicated environment where their capacity for innovation, adaptation, and efficient use of resources determines their level of success.In order to determine their combined influence on the performance of SMEs in Indonesia, this study aims to investigate the complex relationships between resource sufficiency and the business environment.This study's primary goal is to provide a thorough examination of the variables that affect SMEs' performance in Indonesia, with an emphasis on the business climate and the availability of sufficient resources.

SME Performance
Small and Medium-Sized Enterprises (SMEs) play a crucial role in economies around the world by generating jobs and advancing economic growth.The concept of SME performance is complex and includes market share, financial metrics, innovation, and overall competitiveness.Understanding the determinants of SME performance is essential for devising effective strategies to foster their growth and sustainability [10]- [13].

Business Environment and SMEs
The state of the economy, which includes GDP growth, inflation rates, and exchange rates, has a significant effect on the performance of SMEs.Increased consumer spending is frequently correlated with favorable economic conditions, which supports the expansion and profitability of SMEs.On the other hand, economic downturns can present difficulties for SMEs, highlighting the necessity of adaptability and resilience.For SMEs, the operating environment is shaped by the regulatory framework.Clear and encouraging regulatory environments can lower entrance barriers, boost corporate confidence, and encourage innovation.Agile methods for compliance and adaptability are, on the other hand, required when SME expansion is impeded by bureaucratic obstacles and regulatory uncertainties [14]- [16].
One factor influencing SME behavior is market rivalry.Strong rivalry can encourage efficiency and creativity, which boosts SME success.Excessive competition, however, can also present difficulties, requiring strategic differentiation and a thorough comprehension of market dynamics.To be competitive at a time of exponential technological change, SMEs need to embrace innovation.Technology adoption and access can expand market reach, improve operational efficiency, and improve overall performance.Thus, one of the key factors affecting the success of SMEs is their technological readiness [17]- [19].

Resource Adequacy and SMEs
For SMEs, having access to financial resources is essential.Sufficient finance makes capital, technological, and expansion investments possible, which enhances performance.However, difficulties getting finance can impede expansion.For SMEs, financial management and a variety of funding sources are therefore essential.One important factor influencing SME performance is the availability of skilled human resources [20]- [22].More creativity and productivity are a result of motivated and well-trained workers.To guarantee a skilled and driven workforce, SMEs need to make investments in talent retention, training, and recruitment tactics.For SMEs, technology is a game-changer.Using automation, cuttingedge technologies, and digital tools can improve competitiveness and streamline processes.Resource adequacy, however, may be hampered by obstacles to deploying and accessing technology, such as gaps in expertise and cost [23], [24].

Design & Sample
This study adopts a quantitative research design to systematically investigate the interactions between business environment, resource adequacy, and SME performance in Indonesia.The structured approach enables empirical analysis of the relationships, thus providing valuable insights into the specific factors affecting SMEs in the Indonesian context.

Sampling
To ensure the representativeness of this study, a stratified random sampling technique will be used.The strata will include various industries and regions in Indonesia, reflecting the diversity of SMEs, with 240 SMEs being sampled.

Data Collection
Primary data will be collected through a structured survey distributed to SMEs across the selected strata.The survey instrument will be designed to capture information on business environment, resource availability, and performance metrics.Survey questions will be carefully crafted to ensure clarity and relevance, focusing on quantitative measures where possible.
Complementing the primary data, secondary data will be collected from relevant sources, including government reports, industry publications, and academic literature.This secondary data will provide additional context and validation for the primary findings.

Data Analysis
Quantitative data analysis will be conducted using SPSS statistical techniques, with a primary focus on regression analysis.Regression models will be built to assess the relationship between independent and dependent variables.Covariates and control variables will be included to increase the robustness and reliability of the findings.

RESULTS AND DISCUSSION
The data for this study was collected through a structured survey distributed to a sample of Small and Medium Enterprises (SMEs) in various industries in Indonesia.The survey aimed to gather information on the business environment, resource adequacy, and performance of SMEs.After rigorous data cleaning and validation, a robust data set was compiled for analysis.
Descriptive Baser on table 1.The mean SME performance of 78.5% indicates a relatively high level, suggesting that surveyed SMEs, on average, operate robustly, with a standard deviation of 12.3%, signifying moderate variability, and a broad range from 45% to 95%, showcasing a diverse spectrum of high and low performers.With a mean of 5.6, surveyed SMEs perceive economic conditions slightly above the midpoint, suggesting a generally positive outlook.The low standard deviation of 1.2 indicates consistent perceptions, and the range of 3 to 7 reflects a moderate diversity in outlook, with some expressing more optimism or caution.A mean of 4.2 reveals a generally positive perception of the regulatory framework among SMEs, with a low standard deviation of 0.9 indicating uniform opinions.The range of 2 to 6 signifies a narrow spread of perceptions, with most SMEs expressing a moderately favorable view.
The mean value of 8.9 suggests a high perceived level of market competition among SMEs, with an elevated standard deviation of 2.5 indicating substantial diversity in perceptions.The wide range of 5 to 13 underscores varied experiences, with some SMEs operating in highly competitive markets.With a mean of 6.

Regression Results
The positive coefficient of 2.34% indicates a significant and positive relationship between perceived economic conditions and SME performance.A 1% improvement in economic conditions is associated with a 2.34% increase in SME performance.This underscores the critical role of macroeconomic stability in fostering a conducive environment for SMEs.The statistically significant p-value (< 0.05) reinforces the robustness of this relationship.The positive coefficient of 1.12% suggests a favorable impact of the regulatory framework on SME performance.A 1% improvement in the regulatory environment corresponds to a 1.12% increase in SME performance.This highlights the importance of supportive regulations in nurturing SME growth.The highly significant p-value (< 0.01) indicates the strong statistical significance of this relationship.
The negative coefficient of -3.20% reveals a negative relationship between perceived market competition and SME performance.A 1% increase in market competition is associated with a 3.20% decrease in SME performance.This underscores the challenges posed by intense market competition, requiring strategic responses from SMEs.The highly significant p-value (< 0.001) emphasizes the substantial impact of competition on SME performance.
The positive coefficient of 2.78% indicates a positive relationship between technological advances and SME performance.A 1% improvement in technological advances corresponds to a 2.78% increase in SME performance.
This highlights the transformative impact of technology adoption on SME growth.The statistically significant pvalue (< 0.01) underscores the importance of embracing technological innovations.
The positive coefficient of 0.45% suggests a positive impact of financial resources on SME performance.A 1% increase in financial resources is associated with a 0.45% increase in SME performance.This underscores the significance of adequate funding for SME growth.The statistically significant p-value (< 0.05) reinforces the importance of financial resources in SME development.The positive coefficient of 1.92% indicates a positive relationship between human resources and SME performance.A 1% increase in human resources corresponds to a 1.92% increase in SME performance.This underscores the pivotal role of a skilled and motivated workforce in enhancing SME competitiveness.The highly significant pvalue (< 0.01) emphasizes the statistical robustness of this relationship.
The positive coefficient of 2.15% suggests a positive relationship between technological resources and SME performance.A 1% increase in technological resources is associated with a 2.15% increase in SME performance.This highlights the importance of advanced technological infrastructure for SME success.The statistically significant p-value (< 0.05) reinforces the robustness of this relationship.The intercept value of 70.8% represents the estimated SME performance when all independent variables are zero.The highly significant p-value (< 0.001) indicates that the intercept is statistically different from zero, confirming the validity of the regression model.

Discussion
The positive relationship between perceived economic conditions and SME performance aligns with the understanding that a stable economic environment provides a foundation for business growth.Policymakers should prioritize measures to enhance economic stability to foster a conducive environment for SMEs.Additionally, the positive impact of a favorable regulatory framework underscores the need for regulations that balance compliance with innovation, supporting SMEs in navigating the regulatory landscape [15], [16].
The negative relationship between market competition and SME performance highlights the challenges posed by intense competition.SMEs should employ strategic differentiation, innovation, and efficiency measures to thrive in competitive markets.Policymakers can contribute by creating policies that promote fair competition and provide support for SMEs to enhance their competitive edge [14], [25].
The positive relationships with technological advances, financial resources, human resources, and technological resources underscore the multifaceted nature of resources essential for SME success.Embracing technology, ensuring adequate funding, investing in human capital, and having advanced technological infrastructure contribute significantly to SME performance.Policymakers should focus on creating an ecosystem that facilitates technology adoption, provides access to funding, and supports skill development.

CONCLUSION
This study delves into the complex interplay of factors shaping the performance of Small and Medium Enterprises (SMEs) in Indonesia.The empirical analysis highlights the critical role of economic stability, supportive regulatory frameworks, strategic responses to market competition, and investments in technology and resources for SME success.Policymakers are encouraged to craft policies that foster economic stability, balance regulatory compliance with innovation, and promote fair competition.Business practitioners should strategically navigate competitive markets, prioritize resource management, and embrace technological advancements.The academic community is prompted to further explore sector-specific nuances and the long-term impacts of identified factors on SMEs.As Indonesia continues its economic development journey, understanding and addressing these dynamics are pivotal for the prosperity of SMEs and, consequently, the nation.