This study aims to analyze the influence of external integration and internal integration to product innovation and competitive advantage. The research was conducted on a sample of 180 manager small and medium enterprises (SMEs) in East Java clothing taken with stratified cluster sampling technique. Selection of sample areas based on areas that have the potential development of the industry. Data collection was done by using questionnaire that has been tested for its validity and reliability. Data analysis used Structural Equation Modeling (SEM) analysis with help of AMOS version 21 program. Based on the analysis of SEM, it was found that the first, external integration influence on product innovation SMEs and affect the competitive advantage of SMEs. Second, the internal integration effect on product innovation SMEs and affect the competitive advantage of SMEs. Third, product innovation SMEs effect on the competitive advantage of SMEs. In this respect, the company needs to build a collaboration of external integration and internal integration in order to improve product innovation and competitive advantage of SMEs.