Developing MSMEs' competitive advantage through enterprise risk management and dynamic capabilities in Surabaya and Lampung

Micro, Small, and Medium Enterprises (MSMEs) in Indonesia play a vital role in the economy, accounting for almost 99% of business units and contributing significantly to Gross Domestic Product (GDP) and employment. Amidst rapid market dynamics, especially after the COVID-19 pandemic, MSMEs face the challenge of managing risks and increasing dynamic capabilities to maintain competitive advantage. This study examines the effect of implementing Enterprise Risk Management (ERM) to increase the dynamic capabilities and competitive advantage of MSMEs in Surabaya and Lampung, Indonesia. The research methodology used a qualitative approach with in-depth interviews with the MSME owners. Data were analyzed using a three-level coding model to understand how ERM implementation affects MSME business strategies and decisions facing market threats and opportunities. The results of this study indicate that ERM implementation positively affects MSMEs' dynamic capabilities.