Improving MSMEs Performance through Human Capital, Financial Literacy and Competitive Advantage

Aims: This study aimed to ascertain this effect of Human Capital and Financial Literacy on MSME Performance with Competitive Advantage as a mediating variable.

Study Design: This study was quantitative. The methods of analysis employed in this research were outer and inner models, bootstrapping analysis, and specific indirect effects.

Place and Duration of Study: The study's sample, which was MSMEs in Banyumas Regency, Central Java, Indonesia. Moreover, the duration of this study was 3 months.

Methodology: This study utilized Structural Equation Modeling (SEM) based on Partial Least Square (PLS), this consists of the inner model and the outer model. With a mediation test using indirect effect. Purposive sampling, which used 162 respondents, was the sample strategy employed in this study.

Results: The results showed how Human Capital and Competitive Advantage have a positive and significant effect on the Performance of MSMEs. Furthermore, the mediating test results showed that Competitive advantage has been able to mediate the connection between Human Capital and MSME Performance. However, the results of this study found that Financial Literacy has no effect on MSME Performance and Competitive Advantage. In addition, the results showed that Competitive Advantage has not been able to mediate the relationship between Financial Literacy and MSME Performance.

Conclusion: This research shows that a number of factors, such as Competitive Advantage and Human Capital, affect MSMEs' Performance. The results were in accordance with Resource Based Theory's concept that managing an organization’s human capital, will create a competitive advantage that will increase organizational performance. Therefore, MSMEs need to pay attention to their human capital competencies because. Findings from this research show there is human capital can create competitive advantages that are used in facing competition to improve MSME performance.