The role of traditional knowledge-based dynamic capabilities to improve the sustainable performance of weaving craft in Indonesia

Purpose Indonesian woven craft small- and medium-sized enterprises (SMEs) have encountered several difficulties in sustaining their success in the digital era. The performance of the business is contingent upon its ability to gain competitive advantage through traditional knowledge capabilities. The purpose of this research is to study the role of traditional knowledge management processes towards competitive advantage and sustainable performance for woven craft SMEs. Design/methodology/approach This research used a quantitative approach with a survey strategy. Confirmatory research was conducted to test five hypotheses to determine the causal relationship of four variables, namely, traditional knowledge management, dynamic capabilities, competitive advantage and sustainable performance. This study used a purposive sampling strategy and gathered data from 385 respondents. The sample was selected based on predetermined criteria, including operation for more than five years and entrepreneurial activity using traditional knowledge as a resource to manage product innovation. The analytical technique used was structural equation modelling with the support of the AMOS programme. Findings The findings indicated that traditional knowledge management processes directly affect dynamic capabilities and sustainable performance. This study also found traditional knowledge management processes play a significant role in enhancing competitive advantage mediated by dynamic capabilities. However, traditional knowledge management processes have no significant effect on competitive advantage. Hence, there is a significant effect contributed by the relationship between traditional knowledge management processes and sustainable performance. Therefore, in the context of craft woven SMEs, the higher the traditional knowledge-based capabilities, the higher their sustainable performance. Originality/value The novelty shows a direct relationship between traditional knowledge management processes and sustainable performance. This study also found traditional knowledge management processes meditated by dynamic capabilities have a relationship with competitive advantage. Traditional knowledge management processes will trigger an increase in dynamic capability which is a source of business development; those conditions will increase sustainable performance. Traditional knowledge-based capability is an antecedent of sustainable performance. The benefits of this research can be used as scientific literature regarding the link between traditional knowledge management processes, competitive advantage and sustainable performance. The results of this study can also be used as a basis for empowering traditional woven craft SMEs in Indonesia.