The Effect of Innovation on Firm Performance and Competitive Advantage

This study aimed to analyze the effect of innovation on Firm Performance mediated by competitive advantage. The sample is Small and Medium Enterprises (SMEs) in Indonesia. Data collection is done by using a mail questionnaire survey, with the number of samples are 164 respondents. The results show that innovation has a positive effect on competitive advantage. An innovation strategy can improve the bargaining position of more companies competing in the market segment of SMEs in Indonesia. This study proves that innovation strategy of SMEs in Indonesia are in the ability to make better products, in the production process by using advances in technology, as well as in the technology development and maintainance. SMEs have different competitions in the excellence of expertise and resources. Further study shows that positional advantage in the market is based on the existence of a superior customer value or achievement of lower relative costs and generate market share and superior performance. Keywords: Competitive Advantage, Firm Performance, Innovatio