Enhancing Msmes’ Sustainability Through Digital Adoption and Green Orientation: The Role of Green Product Innovation

Abstract

Micro, Small, and Medium Enterprises (MSMEs) face difficulties in combining sustainable practices with digital technology to maintain competitiveness amid increasing environmental demands and digital changes. This study aims to analyse the impact of digital technology adoption, green dynamic capability, and green market orientation on the sustainable performance of MSMEs, with green product innovation as a mediating factor. This research uses a quantitative methodology, collecting primary data from 105 MSME owners or managers in Yogyakarta through an online questionnaire, which was then analysed using Partial Least Squares-Structural Equation Modelling (PLS-SEM). The findings show that the use of digital technology, green dynamic capabilities, and green market orientation significantly increase green product innovation and sustainable performance, with green dynamic capabilities having the most significant impact. Green product innovation fully mediates the relationship between green market orientation and sustainable performance, highlighting the importance of MSMEs' ability to develop environmentally friendly products to improve sustainable performance. These findings theoretically enrich sustainable business theory and provide practical implications for MSMEs to accelerate digital adoption, develop green capabilities, and promote environmentally friendly product innovation to improve sustainable competitiveness.