The purposes of this study are to analyze source of SME competitiveness in selected industry clusters in Indonesia and to develop a theoretical model of SME competitiveness. This study employs quantitative design with multivariate model. We develop three models of estimation by using multiple regression analysis. Our models are based on Porter Model of Competitiveness (1990) which contains factor condition, demand condition, related and supporting industries and business strategy. Findings in this study idenntify sources of the competitiveness of SME in the level of innovation, entrepreneurship, human capital, financial resources, potential market and business strategy. Limitation of this study lies in the SME model of competitiveness based on cross sectional data which is not feasible for analysis of the dynamic aspect of competitiveness sources. Our findings show that SMEs need government assistance to develop marketing networks and access to financial institutions.