Competitive advantage as a mediating variable of corporate social responsibility programs’ effect on SME sustainability

Abstract

The important role of small and medium enterprises (SMEs) in the economy requires SMEs to achieve business sustainability. The sustainability of SMEs can be achieved with assistance and guidance from external parties, both government and private, through corporate social responsibility (CSR) programs. This study investigates the mediating role of competitive advantage in the relationship between CSR programs and sustainability. The population of this study comprised SME owners who participated in CSR assistance programs offered by either state-owned enterprises or the private sector. This study collected quantitative data from 110 SMEs in East Java, located in the Malang, Probolinggo, Mojokerto, Kediri, and Blitar regions. Using structural equation modeling (SEM), the result was that companies or governments that provide CSR program assistance to SMEs contribute to an increase in SMEs' competitive advantage and business sustainability. Competitive advantage mediates the relationship between CSR programs and SME business sustainability. For companies or governments, providing CSR programs to SMEs requires mentoring models and CSR programs that focus on providing training to increase product innovation by creating unique products not easily imitated by competitors while maintaining competitive quality and prices. In addition, there is a need for training to increase SMEs’ understanding of compliance with legal standards in business management, the importance of establishing a comprehensive code of ethics in business management, and the role of SMEs’ contribution to charity so that business sustainability can continue to be pursued.