Business Performance of Leather MSMEs: The Role of Intellectual Capital, Innovation Capability, and Entrepreneurial Orientation

Research Aims: This study aims to analyse the influence of intellectual capital and innovation capability on business performance in the leather MSME sector in Garut Regency, with entrepreneurial orientation as a mediating variable. Design/methodology/approach: The study applied a quantitative approach through survey techniques. A total of 106 MSME respondents were selected using purposive sampling. Data were collected from leather MSME owners and analysed using Partial Least Squares Structural Equation Modelling (PLS-SEM) with SmartPLS 3.0 software. This analysis was employed to examine the relationships among intellectual capital, innovation capacity, entrepreneurial orientation, and business performance. Research Findings: The results indicated that intellectual capital and innovation capability significantly influenced entrepreneurial orientation. Furthermore, intellectual capital and entrepreneurial orientation positively affected business performance, whereas innovation capability did not directly impact business performance. Additionally, entrepreneurial orientation did not mediate the relationship between intellectual capital and business performance, but successfully mediated the relationship between innovation capability and business performance. Theoretical Contribution/Originality: This study contributed to the literature by integrating intellectual capital and innovation capability as key determinants of MSME business performance, particularly in the leather industry. The findings provided empirical evidence supporting the importance of entrepreneurial orientation in enhancing the adaptability and sustainability of MSMEs in dynamic market environments. This study offers originality by focusing on leather MSMEs in Garut Regency an underexplored yet high-potential sector, thereby filling a research gap and offering contextual insights for similar traditional industries in emerging economies.