Driving MSME Growth: An Integrative Model of Innovation, Local Wisdom, and Institutional Support

Abstract

Micro, Small, and Medium Enterprises face critical challenges in digital adaptation and product innovation despite their vital role in sustaining local economies. This study aims to develop an integrative model for home-based enterprise development by examining the interplay among technology, local wisdom, product uniqueness, academic collaboration, government support, entrepreneurial capability, and product innovation. Utilizing a quantitative survey design, data from home-based enterprise owners were analyzed using Partial Least Squares Structural Equation Modeling combined with Necessary Condition Analysis to evaluate causal pathways and minimum operational thresholds. The findings indicate that technology adoption, entrepreneurial capability, and continuous product innovation significantly drive business expansion. Moreover, integrating local cultural identity creates crucial product differentiation, while academic and governmental support fundamentally strengthen the innovation ecosystem. Ultimately, sustainable enterprise growth requires a holistic approach that simultaneously leverages internal capabilities and external institutional support to secure long-term competitive advantage.