Sustainable Business Model Innovation in Indonesia's Muslimah Fashion Industry: Evidence from Small and Medium Enterprises

Abstract

This study examines how dynamic capabilities, institutional stakeholder pressure, and consumer sustainability expectations shape sustainable design and green marketing practices, and how these strategies contribute to sustainable business model innovation and organizational outcomes in Indonesia's Muslimah fashion sector. Focusing on urban-based small and medium enterprises serving predominantly middle- and upper-market segments, the study draws on survey data from 212 business owners and senior managers. Data were analyzed using covariance-based structural equation modeling with bootstrapped estimates to account for multivariate nonnormality. The results indicate that dynamic capabilities significantly enhance both sustainable design and green marketing practices, while consumer expectations and institutional stakeholder pressure strongly influence sustainability-oriented strategies. Sustainable design and green marketing both positively affect sustainable business model innovation, with green marketing exerting a stronger influence. Sustainable business model innovation, in turn, improves environmental performance, operational resilience, and brand credibility. The findings extend dynamic capabilities and stakeholder perspectives to a culturally embedded and underexplored context, highlighting the role of moral legitimacy and credibility in sustainability-driven business model innovation within Muslimah fashion markets. They also offer practical insights for modest fashion enterprises seeking to align sustainability, trust, and competitive performance.