The Strategic Linking of Entrepreneurial Competence, Innovation Capability, and Performance of SMEs in Bali

Abstract

Entrepreneurial competence and innovation capability are pivotal determinants of entrepreneurial performance, particularly within dynamic and resource-constrained environments such as Bali’s tourism-driven economy. Understanding the interplay between these variables offers essential insights for enhancing SME sustainability and competitiveness. This study aims to investigate the influence of entrepreneurial competence on innovation capability and entrepreneurial performance and examine the mediating role of innovation capability in this relationship. The research employed a quantitative approach, collecting data via online questionnaires from SME in Bali. A total of 168 valid responses were obtained from a population of 36,387 SME, with a sample determined using Slovin’s formula. Data were analyzed using structural equation modelling with a partial least squares approach through WarpsPLS 7.0. Measurement instruments consisted of validated multi-item constructs assessed on a five-point Likert scale. The findings reveal that entrepreneurial competence exerts a significant effect on both innovation capability and entrepreneurial performance. Moreover, innovation capability significantly contributes to entrepreneurial performance and partially mediates the relationship between competence and performance. These results highlight innovation as a strategic channel through which internal competencies translate into superior entrepreneurial outcomes, thereby confirming the relevance of the dynamic capabilities and resource-based frameworks in SME contexts. The empirical insights support policy and institutional interventions that promote integrated entrepreneurial education and innovation-oriented ecosystems. These findings offer a robust basis for theoretical advancement and practical application in shaping competitive and adaptive SME sectors in volatile economic environments.