FACTORS INFLUENCING SME INNOVATION IN LOCAL GOVERNMENT: THE CASE OF SMES IN NAGARI

This paper aims to understand what factors explain the strategy of SME product innovation in Nagari (village) in Minangkabau. SME product innovation strategy is an essential achievement in an intensely competitive market in Indonesia. However, there is little research that investigates SME innovation in terms of Nagari (village) in Minangkabau. For a long time, SMEs in Nagari is seen as “backward” and “laggards.” This is unfortunate because Nagari has been expected to become a new source of economic growth in West Sumatra. Also, Nagari has been identified as a manifestation of Minangkabau values, which directly implements Minangkabau wisdom. Small and Medium Enterprise (SME) has become an essential issue in Indonesia as an emerging market economy. The present study examines the relationship between innovationrelated concepts (i.e., organizational structure, creativity, and risk-taking) and SME innovation implementation. A purposive sampling technique was used to select the respondents for this study. A total of 60 SMEs in Nagari constituted the sample. The results showed that among the innovation-related concepts, two variables were found to be significant predictors of SME innovation implementation. Creativity contributed 46.9% to SME innovation implementation, while Risk-Taking contributed an additional 17.1%. It was found that creativity has a strong link with SME innovation implementation. This may indicate the importance of SME policies that provide opportunities for creativity in Nagari. The position of Nagari's flagship product innovation based on the Internal External matrix is in quadrant V, where the position shows that the internal condition is strong and the external is high. This indicates that Nagari's flagship product innovation can compete with its business environment. The development strategy that must be carried out by Nagari's flagship product innovation is an intensive strategy consisting of market penetration, market development, and product development.