The Impact of External Integration and Internal Integration to Product Innovation and Competitive Advantage on Small and Medium Enterprises (SMEs)

Abstract

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.

How Do Supply Chain Integration and Product Innovation Capability Drive Sustainable Operational Performance?

“…Throughout the product development process, the integration of different departments, such as marketing, manufacturing, design, engineering, and quality assurance, ensures that all aspects of product development are aligned and optimized. In summary, by nurturing collaboration, cross-functional cooperation, resource optimization, streamlined processes, innovation, and continuous improvement, organizations can enhance their product development capabilities [23,52], and we propose the following hypothesis: Hypothesis 2: Internal integration has a positive impact on the product development of manufacturing organizations.…”

“…External integration sanctions organizations to gain knowledge about customers' needs and shares this product design requirement with suppliers [53]. This type of integration is known to be more effective in constructing collaboration with customers and suppliers [52]. Because of EI, new product innovation processes are closely linked between customers and suppliers [53].…”

“…External integration or collaboration between companies and external parties increases innovation capability in new product development [54][55][56], and external integration helps advance the capabilities usually possessed by suppliers and customers [57], where the purchasing and manufacturing department's staff need to make sure suppliers understand the design and new products' manufacturing process. Khair, Zaid [58], He, Lai [55], and Purnama, Wardana [52] also recommended that by implementing external integration, product innovation capability is enhanced.…”

“…Manufacturing organizations can gain a deep understanding of the customers' preferences and obtain information from customers by involving them in the process, and this customer integration allows companies to adopt a customer-centric approach to product development, resulting in higher customer satisfaction [52]. Companies can gather customer opinions on features, functionalities, usability, and aesthetics during the product development phase, and the incorporation of such customer feedback early on can prevent costly design flaws and enhance product relevance, which increases the chances of product success and acceptance.…”

“…Supplier integration improves supply chain efficiency, promotes continuous innovation and iteration in product development risk mitigation, and enables the development of more innovative and technologically advanced products [23]. That is why enterprises are advised to increase their internal capacity to absorb external information from suppliers [52]. A hypothesis proposed from the above argument is as follows:…”