Sme Business Performance Measurement in Agriculture; The Role of Innovation and Risk Assessment

Abstract

The aims of this study was to analyze the effects of innovation, risk assessment and business strategic toward business performance in SME. Innovation and risk measurement in SMEs has become the concern of the Indonesian government in developing this institution, however, this policy has not been supported by detailed studies. This research closes this gap by measuring these two factors' role in Indonesian SMEs' business performance. We conducted a survey involving 206 SME in agriculture in Indonesia. Variables in this study are innovation and risk assessment as independent variables, business strategy as an intervening variable and business performance as the dependent variable. We use the Structural Equation Model with Partially Least Square (PLS) to test hypotheses. Our findings show that innovation related with new product development and marketing strategy are important for SME’s business performance. In this study, we conclude that innovation and risk assessment have a positive effect to business strategy and business strategy has a positive effect to business performance. The policy implication of this study is that Indonesia’s government should facilitate SME to improve their capacity to conduct innovation and risk measurement.