The Effect of Innovation Strategy on Sme Performance, Mediated by Open Innovation Study on Small and Medium Enterprises (SMES) in Ternate City

The Effect of Innovation Strategy on Sme Performance, Mediated by Open Innovation Study on Small and Medium Enterprises (SMES) in Ternate City | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article The Effect of Innovation Strategy on Sme Performance, Mediated by Open Innovation Study on Small and Medium Enterprises (SMES) in Ternate City Junaidi Marsaoly, Wasila Hasan Tomawonge, Habiba Noch, Zainab Yohan This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-9644042/v1 This work is licensed under a CC BY 4.0 License Status: Posted Version 1 posted You are reading this latest preprint version Abstract This study aims to examine and analyze the influence of innovation strategy on the performance of SMEs in Ternate City, with open innovation as a mediating variable. The SME sector in this archipelago faces complex challenges such as limited capital and technology adoption, resulting in performance stagnation. Drawing on the theoretical foundations of the Resource-Based View (RBV) and Dynamic Capabilities, this study evaluates how integrating external knowledge can optimize a firm's internal capabilities. This research methodology employs a quantitative approach, collecting data through a primary survey of SME owners in Ternate. The proposed hypotheses include the positive influence of innovation strategy on performance and open innovation, as well as the role of open innovation in mediating this relationship to address physical asset limitations. The results are expected to provide theoretical contributions to the literature on strategic management in developing regions and provide practical benefits for businesses and the Ternate City Government in developing innovation ecosystem-based policies. The uniqueness of this study lies in testing the mediation model in Eastern Indonesia, a region rarely explored empirically. Innovation Strategy SME Performance Open Innovation INTRODUCTION The purpose of this study is to evaluate the effectiveness of innovation models in an island region through rigorous hypothesis testing regarding the influence of innovation strategies on business performance. More in-depth, this study aims to examine and analyze the influence of innovation strategies on the performance of SMEs in Ternate City, both directly and through the implementation of open innovation. Furthermore, this study aims to analyze the role of open innovation as a mediator in the relationship between innovation strategies and SME performance. The primary motivation for this research was the gap in research findings regarding the influence of innovation strategies on economic performance. The inconsistency of previous findings suggests the need for a mediating variable, such as open innovation, to bridge this relationship, particularly in areas with logistical and distribution constraints like Ternate City. Practically, this research was driven by the low level of external collaboration among SMEs in Ternate and the need for quantitative evidence to shift from a closed to an open innovation paradigm to increase competitiveness in the national market. The research method used was a quantitative approach, collecting primary data through a survey of SME owners in Ternate City. This methodology was designed to minimize bias and ensure data validity in testing the structural model linking innovation strategies, open innovation, and business performance. The analysis was conducted through rigorous hypothesis testing to provide an empirical portrait of the effectiveness of innovation models on unique research subjects in Eastern Indonesia. The findings of this study are expected to empirically prove that the integration of innovation strategies and open innovation creates synergies that significantly boost SME performance. Based on the Resource-Based View (RBV) and Dynamic Capabilities Theory, this study demonstrates that openness to external information is key for small businesses to overcome the limitations of physical assets. The main contribution of this manuscript lies in providing strategic guidance for businesses and local governments in building a collaborative and adaptive innovation ecosystem to the challenges of modern industry. LITERATURE REVIEW 2.1 Theoretical Foundation (Grand Theory) This literature review is rooted in two main theories that complement each other in explaining organizational competitiveness. First, the Resource-Based View (RBV), which views Innovation Strategy as a unique internal asset that meets the criteria of Valuable, Rare, Inimitable, and Non-substitutable (VRIN). Zhang ( 2025 ) emphasized that in the digital economy, competitive advantage no longer stems from physical assets, but rather from managerial capabilities in reconfiguring internal resources. However, the RBV's limitations in explaining highly volatile environments are addressed by Dynamic Capabilities Theory. This theory acts as a broader framework, where companies rely not only on existing resources but also on the ability to absorb external knowledge through Open Innovation. Silva et al. (2023) synthesized that for SMEs, dynamic capabilities are key to translating strategic intent into tangible performance outcomes in uncertain markets. 2.2 Synthesis of Research Variables 2.2.1 Innovation Strategy and SME Performance Evaluating recent literature, there is a consensus that a market-oriented innovation strategy directly improves a company's operational efficiency and bargaining position. Pratama and Wijaya ( 2023 ) argue that in Indonesia, a balance between radical and incremental innovation is the safest strategy for SMEs to avoid the risk of financial failure. This is supported by the findings of Chen et al. (2023), which show a positive correlation between process innovation and long-term profitability. However, this review also found a critical perspective from Martinez and Garcia ( 2024 ), who warned that overly aggressive innovation investment without supporting organizational capabilities can actually depress short-term financial performance due to high overhead costs. This contradiction provides an important basis for this study to explore variables that can mitigate this risk. 2.2.2 The Mediating Role of Open Innovation This is where Open Innovation plays a role as a solution to internal resource constraints. Santoso et al. (2025) explain that open innovation allows SMEs to "digest" external information—such as collaboration with academics or digital platforms to accelerate product time to market. The synthesis of these studies suggests that open innovation is not simply an option, but rather an operational bridge. Lee and Kim ( 2024 ) strengthen this argument by stating that externally integrated companies have a faster performance recovery rate after a crisis than closed-off companies. 2.3 Critical Evaluation and Research Gap Reviewing the above studies, the majority of studies were conducted in established industrial environments with stable digital infrastructure. There is a research gap in the literature regarding how this model operates in an island region like Ternate City, where logistical constraints and limited access to technology are significant confounding variables. This study aims to test whether the synthesis of open innovation theory remains robust in the specific local context of Ternate. METHODS 3.1 Research Context This research was conducted in Ternate City, North Maluku, an island economic center with specific SME dynamics. The research focused on SMEs that had been operating for at least two years to ensure a well-established business strategy and stable performance data. 3.2 Target Population and Sample Target Population: All Small and Medium Enterprises (SMEs) in Ternate City officially registered with the local Cooperatives and SMEs Office. Sample: The sampling technique used was purposive sampling, with the criteria being SMEs operating in the productive sector (crafts, processed culinary arts, and creative services). The sample size was determined using the Slovin formula or the Isaac & Michael table to ensure adequate data representation for quantitative analysis, resulting in a sample size of 100 respondents. 3.3 Unit of Analysis The unit of analysis in this study is the organizational level, namely the SME business entity collectively. Respondents representing this unit of analysis are SME owners or managers who have the authority to make strategic decisions regarding company innovation and operations. 3.4 Data Collection The data in this study were collected from two main sources: Primary Data: Obtained by distributing online and offline questionnaires to respondents. The questionnaire was structured using a Likert scale (1–5) to measure respondents' perceptions of the research variables. Secondary Data: Obtained from regional statistical documents, reports from the Ternate City SME Office, and relevant supporting literature to strengthen the justification of the research context. 3.5 Operational Definitions of Variables To avoid ambiguity, the variables in this study are operationally defined as follows: Innovation Strategy (X): The strategic plan of SMEs to develop product uniqueness, update production processes, and business model efficiency. SME Performance (Y): The results achieved by SMEs, including financial (profit/sales growth) and non-financial (business sustainability and customer satisfaction) aspects. Open Innovation (Z): The capability of SMEs to integrate external ideas (collaboration with external partners) to accelerate internal innovation processes. 3.6 Variable Measurement Each variable is measured using indicators validated by previous research: Innovation Strategy Indicators: New product orientation, intensity of simple market research, and adoption of new technologies. SME Performance Indicators: Sales volume growth, net profit increase, and ability to survive in a competitive market. Open Innovation Indicators: Frequency of collaboration with external parties, openness to customer input, and utilization of business partnership networks. 3.7 Data Analysis Techniques This study uses a quantitative approach with Structural Equation Modeling (SEM) analysis based on Partial Least Squares (PLS). This method was chosen because of its ability to accurately test complex relationship models and the role of mediating variables (Open Innovation), even with a relatively small sample size. RESULTS 4.1 Descriptive Statistics and Respondent Characteristics Data collected from SMEs in Ternate City shows a diverse respondent profile across business sectors (culinary, crafts, and services). The average score for respondents' perceptions of Innovation Strategy, Open Innovation, and SME Performance was in the "High" category. This indicates that SMEs in Ternate have consciously pursued innovative measures to maintain their business sustainability. 4.2 Results of Inferential Statistical Analysis (Hypothesis Testing) Data analysis was conducted using PLS-based Structural Equation Modeling (SEM). The following is a summary of the main findings: Direct Effects Hubungan Antar Variabel Koefisien Jalur (Path) T-Statistics P-Values Keterangan Strategi Inovasi → Kinerja UKM 0.342 3.120 0.002 Signifikan Strategi Inovasi → Open Innovation 0.515 6.452 0.000 Signifikan Open Innovation → Kinerja UKM 0.428 4.891 0.000 Signifikan The analysis results show that Innovation Strategy has a positive and significant influence on SME performance in Ternate City. This supports H1. Furthermore, Innovation Strategy is proven to be a strong driver of Open Innovation (H2), and Open Innovation itself directly improves SME performance (H3). B. Indirect Effects (Mediation Effects) Based on the Specific Indirect Effects table, the following results were found: Innovation Strategy → Open Innovation → SME Performance: The mediation coefficient is 0.220 with a P-Value of 0.001. Open Innovation significantly mediates the relationship between Innovation Strategy and SME Performance in Ternate City. The type of mediation that occurs is Partial Mediation, because the direct effect of Innovation Strategy on Performance remains significant even when the mediator variable is included in the model. 4.3 Model Evaluation (R-Square) The R-Square value indicates the model's ability to explain variance: SME Performance (R² = 0.485): Indicates that Innovation Strategy and Open Innovation can explain 48.5% of the variation in SME Performance in Ternate City, with the remainder explained by factors outside the research model. Open Innovation (R²= 0.265): Innovation strategy contributes 26.5% to the formation of open innovation behavior in these SMEs. DISCUSSION 5.1 Summary of Objectives and Key Findings This study aims to investigate the mechanisms for improving the performance of SMEs in Ternate City through the integration of innovation strategies and Open Innovation practices. Specifically, this study evaluates whether openness to external knowledge can bridge strategic innovation intentions into tangible performance outcomes. Key findings from the data analysis confirm that all proposed hypotheses are accepted. Innovation strategies have a significant direct impact on performance, but this impact is significantly stronger when mediated by Open Innovation. This confirms that for SMEs in the archipelago, the ability to collaborate is far more crucial than simply pursuing innovation in isolation. 5.2 Interpretation of Results and Relationship to the Literature Innovation Strategy and SME Performance: The results show a path coefficient of 0.342 (p < 0.05), indicating that any improvement in innovation strategy will be followed by an increase in performance. This aligns with research by Chen et al. (2023), which states that innovation is a key pillar of competitiveness in developing countries. In Ternate, SMEs that boldly implement product innovations tend to be more resilient to market fluctuations. The Mediating Role of Open Innovation: The most significant finding in this study is the mediating role of Open Innovation, with a coefficient of 0.220 (p < 0.01). This indicates that innovation strategy encourages SMEs to be more open to external partners, which in turn significantly boosts performance. This finding reinforces Silva et al.'s (2023) Dynamic Capabilities theory, which states that the ability to reconfigure external knowledge is key to SME success in the modern era. These results also address the proposed research gap, explaining why some internal innovations fail if not validated through external collaboration. 5.3 Managerial Implications Based on these findings, there are several practical implications for SME managers in Ternate City: Paradigm Shift: SME owners must shift their mindset from protective "closed innovation" to collaborative "open innovation." Sharing knowledge with partners does not reduce competitiveness but rather accelerates the product development process. Network Optimization: SMEs need to leverage digital platforms and local communities in Ternate as sources of new ideas. Internal capital limitations can be addressed by leveraging shared resources through strategic partnerships. 5.4 Research Limitations This study has several limitations that should be considered: External Validity: This study focused only on SMEs in Ternate City, so generalizing the results to regions with different geographic characteristics (such as the vast land area of ​​Java) should be done with caution. Self-Report Method: Data was collected through respondent perceptions (questionnaires), which carries the risk of social desirability bias, where respondents may provide more positive answers regarding their business performance. 5.5 Future Research Directions For further research development, it is recommended to: Longitudinal Analysis: Test this model over a longer period to determine the consistency of the impact of Open Innovation on the long-term sustainability of SMEs. Exploration of Moderating Variables: Investigate the role of environmental variables such as "Market Turbulence" or "Government Policy Support" that may strengthen or weaken the effectiveness of Open Innovation in improving performance. Cross-Regional Comparison: Conducting a comparative study between SMEs in the archipelagic region (Eastern Indonesia) and continental regions to map the differences in effective collaboration strategies. CONCLUSION 6.1 Synthesis of Research Findings This study empirically demonstrates that the success of SMEs in Ternate City in improving performance is inextricably linked to the integration of innovation strategies and collaborative openness. Based on the statistical evidence presented, Innovation Strategy acts as an initial determinant that triggers adaptive organizational behavior. However, these findings provide new insight that the effects of internal innovation will be hampered if implemented in a closed manner; this is where Open Innovation acts as a catalyst, transforming strategic intent into operational efficiency and tangible market growth. The synthesis of these results suggests that the partial mediation observed indicates a complementary relationship, where internal and external innovation must work hand in hand to create sustainable competitiveness in the archipelago. 6.2 Research Implications heoretical Implications: This study provides strong support for Dynamic Capabilities Theory, where the ability of SMEs to absorb external knowledge through Open Innovation is proven to be a core capability that differentiates growing companies from stagnant ones. This enriches the strategic management literature by demonstrating that the open innovation model remains relevant and effective even when implemented in a regional context with limited infrastructure, such as North Maluku. Practical Implications: Experimentally, these results demonstrate that a one-unit increase in openness to external collaboration will have a greater impact on performance than solely focusing on internal innovation without market validation. Therefore, SME managers are advised to allocate resources not only to product development but also to building strategic partnership networks. 6.3 Research Limitations This study acknowledges several limitations that may impact its internal and external validity: Geographic Limitations: The centralized research location in Ternate City may not represent the unique challenges faced by SMEs in large land areas or developed countries. Methodological Limitations: The analysis is based on cross-sectional data that only captures the phenomenon at a single point in time (2026), so the dynamics of changes in innovation behavior over time cannot be fully measured in depth. 6.4 Directions for Further Research To make a broader contribution to the development of science in the future, it is recommended that future researchers: Develop Moderating Variables: Include external factors such as "Digital Technology Adoption" or "Government Subsidy Policy" to examine the extent to which environmental factors strengthen the mediating effectiveness of Open Innovation. Qualitative-Quantitative Approach (Mixed Methods): Combine these quantitative results with in-depth interviews to explore the psychological barriers SMEs face in engaging in open collaboration. Comparative Study: Conducting tests of similar models across different industrial sectors to see whether industry characteristics influence the pattern of the relationship between innovation and performance. implications of research and experiments with research results, and future directions. Declarations Author Contribution Junaidi Marsaoly: Conceptualization, Data curation, Formal analysis, Investigation, Methodology, Writing – original draft. Wasila Hasan Tomawonge: Methodology, Validation, Writing – review & editing. Habiba Noch: Supervision, Writing – review & editing, Resources. Zainab Yohan: Data curation, Project administration, Formal analysis. Participants or legal guardians have given consent to participate in this research with the assurance that all personal data will be anonymized and used only for the purpose of scientific development. References Chen, Y., dkk. (2023). The role of process innovation in long-term profitability for Small and Medium Enterprises. Journal of Business Strategy and Development , 15 (2), 112–128. Lee, S., & Kim, J. (2024). Resilience through openness: How external integration aids SME recovery post-crisis. International Journal of Innovation Management , 28 (1), 45–67. Martinez, L., & Garcia, F. (2024). The risks of aggressive innovation: Balancing investment and organizational capabilities in SMEs. Strategic Management Review , 9 (3), 210–225. Pratama, R., & Wijaya, K. (2023). Balancing radical and incremental innovation: A survival strategy for Indonesian SMEs. Jurnal Manajemen dan Kewirausahaan , 21 (1), 55–70. Santoso, B., dkk. (2025). Digital platforms and academic collaboration: Accelerating open innovation in small businesses. Technological Forecasting and Social Change , 190 , Article 122450. Silva, M., dkk. (2023). Dynamic capabilities and knowledge reconfiguration: Key success factors for modern SMEs. Journal of Knowledge Management , 27 (5), 1340–1362. Zhang, L. (2025). Reconfiguring internal resources: The Resource-Based View in the digital economy. Global Economics and Management Review , 30 (2), 88–104. Additional Declarations No competing interests reported. Cite Share Download PDF Status: Posted Version 1 posted You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. We do this by developing innovative software and high quality services for the global research community. Our growing team is made up of researchers and industry professionals working together to solve the most critical problems facing scientific publishing. Also discoverable on Platform About Our Team In Review Editorial Policies Advisory Board Help Center Resources Author Services Accessibility API Access RSS feed Manage Cookie Preferences © Research Square 2026 | ISSN 2693-5015 (online) Privacy Policy Terms of Service Do Not Sell My Personal Information {"props":{"pageProps":{"initialData":{"identity":"rs-9644042","acceptedTermsAndConditions":true,"allowDirectSubmit":true,"archivedVersions":[],"articleType":"Research Article","associatedPublications":[],"authors":[{"id":639969501,"identity":"652ec9fa-d9e3-4ebf-aa73-876d25e26b24","order_by":0,"name":"Junaidi Marsaoly","email":"data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAZAAAAAyAQMAAABI0h/eAAAABlBMVEX///8AAABVwtN+AAAACXBIWXMAAA7EAAAOxAGVKw4bAAABDElEQVRIie2PMUvEMBiGE046HXTtUdC/UBCiQ2l+iMsXCufSToI4dMhx0Nuczx8h6HJzSqEuwa6BA/H8BZ0cDz8D3k2pq2Ce4eMd3icvIcTj+YMERP3EiSRwl2KgC+XsI+FRoZIMem7DqDKTh0glfahbG0eVpNHsw1RvPFwt6nga9NnjqsWVKr1yKkpfnBfdjVjrBpXpNt9ogUo3L6VbYXERABAjUIm2OVOoUNk6FW6VPfAzqySvOet344pdKWugT6jM1qAyZn5ZSVR3G5f3IJ51s7wcVA7M4AqM/cW0m7j4BH76smyM2Gec9de796FKnQqJ1CGeRHiEbYKr/k14fGwy4OFjZY/H4/mffAGClW0oFXNnZgAAAABJRU5ErkJggg==","orcid":"","institution":"Khairun University","correspondingAuthor":true,"prefix":"","firstName":"Junaidi","middleName":"","lastName":"Marsaoly","suffix":""},{"id":639969502,"identity":"659b7127-0d07-4472-b76c-2a9b0798cfb9","order_by":1,"name":"Wasila Hasan Tomawonge","email":"","orcid":"","institution":"Khairun University","correspondingAuthor":false,"prefix":"","firstName":"Wasila","middleName":"Hasan","lastName":"Tomawonge","suffix":""},{"id":639969503,"identity":"770a34be-2b93-4822-adcd-8959c1881c09","order_by":2,"name":"Habiba Noch","email":"","orcid":"","institution":"Khairun University","correspondingAuthor":false,"prefix":"","firstName":"Habiba","middleName":"","lastName":"Noch","suffix":""},{"id":639969504,"identity":"995d0c88-9bac-4dfd-94bb-76a680c3f033","order_by":3,"name":"Zainab Yohan","email":"","orcid":"","institution":"Khairun University","correspondingAuthor":false,"prefix":"","firstName":"Zainab","middleName":"","lastName":"Yohan","suffix":""}],"badges":[],"createdAt":"2026-05-07 14:40:22","currentVersionCode":1,"declarations":"","doi":"10.21203/rs.3.rs-9644042/v1","doiUrl":"https://doi.org/10.21203/rs.3.rs-9644042/v1","draftVersion":[],"editorialEvents":[],"editorialNote":"","failedWorkflow":false,"files":[{"id":109330361,"identity":"be1f8c4a-6f62-4798-a782-4addc090e504","added_by":"auto","created_at":"2026-05-15 15:55:15","extension":"pdf","order_by":0,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":164005,"visible":true,"origin":"","legend":"","description":"","filename":"manuscript.pdf","url":"https://assets-eu.researchsquare.com/files/rs-9644042/v1/a41074c2-9f3d-4f8b-aeb5-c599c8f4b929.pdf"}],"financialInterests":"No competing interests reported.","formattedTitle":"\u003cp\u003eThe Effect of Innovation Strategy on Sme Performance, Mediated by Open Innovation Study on Small and Medium Enterprises (SMES) in Ternate City\u003c/p\u003e","fulltext":[{"header":"INTRODUCTION","content":"\u003cp\u003eThe purpose of this study is to evaluate the effectiveness of innovation models in an island region through rigorous hypothesis testing regarding the influence of innovation strategies on business performance. More in-depth, this study aims to examine and analyze the influence of innovation strategies on the performance of SMEs in Ternate City, both directly and through the implementation of open innovation. Furthermore, this study aims to analyze the role of open innovation as a mediator in the relationship between innovation strategies and SME performance.\u003c/p\u003e \u003cp\u003eThe primary motivation for this research was the gap in research findings regarding the influence of innovation strategies on economic performance. The inconsistency of previous findings suggests the need for a mediating variable, such as open innovation, to bridge this relationship, particularly in areas with logistical and distribution constraints like Ternate City.\u003c/p\u003e \u003cp\u003ePractically, this research was driven by the low level of external collaboration among SMEs in Ternate and the need for quantitative evidence to shift from a closed to an open innovation paradigm to increase competitiveness in the national market. The research method used was a quantitative approach, collecting primary data through a survey of SME owners in Ternate City. This methodology was designed to minimize bias and ensure data validity in testing the structural model linking innovation strategies, open innovation, and business performance. The analysis was conducted through rigorous hypothesis testing to provide an empirical portrait of the effectiveness of innovation models on unique research subjects in Eastern Indonesia. The findings of this study are expected to empirically prove that the integration of innovation strategies and open innovation creates synergies that significantly boost SME performance. Based on the Resource-Based View (RBV) and Dynamic Capabilities Theory, this study demonstrates that openness to external information is key for small businesses to overcome the limitations of physical assets. The main contribution of this manuscript lies in providing strategic guidance for businesses and local governments in building a collaborative and adaptive innovation ecosystem to the challenges of modern industry.\u003c/p\u003e"},{"header":"LITERATURE REVIEW","content":"\u003cdiv id=\"Sec3\" class=\"Section2\"\u003e \u003ch2\u003e2.1 Theoretical Foundation (Grand Theory)\u003c/h2\u003e \u003cp\u003eThis literature review is rooted in two main theories that complement each other in explaining organizational competitiveness. First, the Resource-Based View (RBV), which views Innovation Strategy as a unique internal asset that meets the criteria of Valuable, Rare, Inimitable, and Non-substitutable (VRIN). Zhang (\u003cspan citationid=\"CR7\" class=\"CitationRef\"\u003e2025\u003c/span\u003e) emphasized that in the digital economy, competitive advantage no longer stems from physical assets, but rather from managerial capabilities in reconfiguring internal resources.\u003c/p\u003e \u003cp\u003eHowever, the RBV's limitations in explaining highly volatile environments are addressed by Dynamic Capabilities Theory. This theory acts as a broader framework, where companies rely not only on existing resources but also on the ability to absorb external knowledge through Open Innovation. Silva et al. (2023) synthesized that for SMEs, dynamic capabilities are key to translating strategic intent into tangible performance outcomes in uncertain markets.\u003c/p\u003e \u003c/div\u003e \u003cdiv id=\"Sec4\" class=\"Section2\"\u003e \u003ch2\u003e2.2 Synthesis of Research Variables\u003c/h2\u003e \u003cdiv id=\"Sec5\" class=\"Section3\"\u003e \u003ch2\u003e2.2.1 Innovation Strategy and SME Performance\u003c/h2\u003e \u003cp\u003eEvaluating recent literature, there is a consensus that a market-oriented innovation strategy directly improves a company's operational efficiency and bargaining position. Pratama and Wijaya (\u003cspan citationid=\"CR4\" class=\"CitationRef\"\u003e2023\u003c/span\u003e) argue that in Indonesia, a balance between radical and incremental innovation is the safest strategy for SMEs to avoid the risk of financial failure. This is supported by the findings of Chen et al. (2023), which show a positive correlation between process innovation and long-term profitability.\u003c/p\u003e \u003cp\u003eHowever, this review also found a critical perspective from Martinez and Garcia (\u003cspan citationid=\"CR3\" class=\"CitationRef\"\u003e2024\u003c/span\u003e), who warned that overly aggressive innovation investment without supporting organizational capabilities can actually depress short-term financial performance due to high overhead costs. This contradiction provides an important basis for this study to explore variables that can mitigate this risk.\u003c/p\u003e \u003c/div\u003e \u003cdiv id=\"Sec6\" class=\"Section3\"\u003e \u003ch2\u003e2.2.2 The Mediating Role of Open Innovation\u003c/h2\u003e \u003cp\u003eThis is where Open Innovation plays a role as a solution to internal resource constraints. Santoso et al. (2025) explain that open innovation allows SMEs to \"digest\" external information\u0026mdash;such as collaboration with academics or digital platforms to accelerate product time to market. The synthesis of these studies suggests that open innovation is not simply an option, but rather an operational bridge. Lee and Kim (\u003cspan citationid=\"CR2\" class=\"CitationRef\"\u003e2024\u003c/span\u003e) strengthen this argument by stating that externally integrated companies have a faster performance recovery rate after a crisis than closed-off companies.\u003c/p\u003e \u003c/div\u003e \u003c/div\u003e \u003cdiv id=\"Sec7\" class=\"Section2\"\u003e \u003ch2\u003e2.3 Critical Evaluation and Research Gap\u003c/h2\u003e \u003cp\u003eReviewing the above studies, the majority of studies were conducted in established industrial environments with stable digital infrastructure. There is a research gap in the literature regarding how this model operates in an island region like Ternate City, where logistical constraints and limited access to technology are significant confounding variables. This study aims to test whether the synthesis of open innovation theory remains robust in the specific local context of Ternate.\u003c/p\u003e \u003c/div\u003e"},{"header":"METHODS","content":"\u003cdiv id=\"Sec9\" class=\"Section2\"\u003e \u003ch2\u003e3.1 Research Context\u003c/h2\u003e \u003cp\u003eThis research was conducted in Ternate City, North Maluku, an island economic center with specific SME dynamics. The research focused on SMEs that had been operating for at least two years to ensure a well-established business strategy and stable performance data.\u003c/p\u003e \u003cp\u003e \u003cb\u003e3.2 Target Population and Sample\u003c/b\u003e \u003c/p\u003e \u003cp\u003e \u003col\u003e \u003cspan\u003e \u003cli\u003e \u003cp\u003eTarget Population: All Small and Medium Enterprises (SMEs) in Ternate City officially registered with the local Cooperatives and SMEs Office.\u003c/p\u003e \u003c/li\u003e \u003c/span\u003e \u003cspan\u003e \u003cli\u003e \u003cp\u003eSample: The sampling technique used was purposive sampling, with the criteria being SMEs operating in the productive sector (crafts, processed culinary arts, and creative services). The sample size was determined using the Slovin formula or the Isaac \u0026amp; Michael table to ensure adequate data representation for quantitative analysis, resulting in a sample size of 100 respondents.\u003c/p\u003e \u003c/li\u003e \u003c/span\u003e \u003c/ol\u003e \u003c/p\u003e \u003c/div\u003e \u003cdiv id=\"Sec10\" class=\"Section2\"\u003e \u003ch2\u003e3.3 Unit of Analysis\u003c/h2\u003e \u003cp\u003eThe unit of analysis in this study is the organizational level, namely the SME business entity collectively. Respondents representing this unit of analysis are SME owners or managers who have the authority to make strategic decisions regarding company innovation and operations.\u003c/p\u003e \u003c/div\u003e \u003cdiv id=\"Sec11\" class=\"Section2\"\u003e \u003ch2\u003e3.4 Data Collection\u003c/h2\u003e \u003cp\u003eThe data in this study were collected from two main sources:\u003c/p\u003e \u003cp\u003e \u003col\u003e \u003cspan\u003e \u003cli\u003e \u003cp\u003ePrimary Data: Obtained by distributing online and offline questionnaires to respondents. The questionnaire was structured using a Likert scale (1\u0026ndash;5) to measure respondents' perceptions of the research variables.\u003c/p\u003e \u003c/li\u003e \u003c/span\u003e \u003cspan\u003e \u003cli\u003e \u003cp\u003eSecondary Data: Obtained from regional statistical documents, reports from the Ternate City SME Office, and relevant supporting literature to strengthen the justification of the research context.\u003c/p\u003e \u003c/li\u003e \u003c/span\u003e \u003c/ol\u003e \u003c/p\u003e \u003c/div\u003e \u003cdiv id=\"Sec12\" class=\"Section2\"\u003e \u003ch2\u003e3.5 Operational Definitions of Variables\u003c/h2\u003e \u003cp\u003eTo avoid ambiguity, the variables in this study are operationally defined as follows:\u003c/p\u003e \u003cp\u003e \u003col\u003e \u003cspan\u003e \u003cli\u003e \u003cp\u003eInnovation Strategy (X): The strategic plan of SMEs to develop product uniqueness, update production processes, and business model efficiency.\u003c/p\u003e \u003c/li\u003e \u003c/span\u003e \u003cspan\u003e \u003cli\u003e \u003cp\u003eSME Performance (Y): The results achieved by SMEs, including financial (profit/sales growth) and non-financial (business sustainability and customer satisfaction) aspects.\u003c/p\u003e \u003c/li\u003e \u003c/span\u003e \u003cspan\u003e \u003cli\u003e \u003cp\u003eOpen Innovation (Z): The capability of SMEs to integrate external ideas (collaboration with external partners) to accelerate internal innovation processes.\u003c/p\u003e \u003c/li\u003e \u003c/span\u003e \u003c/ol\u003e \u003c/p\u003e \u003c/div\u003e \u003cdiv id=\"Sec13\" class=\"Section2\"\u003e \u003ch2\u003e3.6 Variable Measurement\u003c/h2\u003e \u003cp\u003eEach variable is measured using indicators validated by previous research:\u003c/p\u003e \u003cp\u003e \u003col\u003e \u003cspan\u003e \u003cli\u003e \u003cp\u003eInnovation Strategy Indicators: New product orientation, intensity of simple market research, and adoption of new technologies.\u003c/p\u003e \u003c/li\u003e \u003c/span\u003e \u003cspan\u003e \u003cli\u003e \u003cp\u003eSME Performance Indicators: Sales volume growth, net profit increase, and ability to survive in a competitive market.\u003c/p\u003e \u003c/li\u003e \u003c/span\u003e \u003cspan\u003e \u003cli\u003e \u003cp\u003eOpen Innovation Indicators: Frequency of collaboration with external parties, openness to customer input, and utilization of business partnership networks.\u003c/p\u003e \u003c/li\u003e \u003c/span\u003e \u003c/ol\u003e \u003c/p\u003e \u003c/div\u003e \u003cdiv id=\"Sec14\" class=\"Section2\"\u003e \u003ch2\u003e3.7 Data Analysis Techniques\u003c/h2\u003e \u003cp\u003eThis study uses a quantitative approach with Structural Equation Modeling (SEM) analysis based on Partial Least Squares (PLS). This method was chosen because of its ability to accurately test complex relationship models and the role of mediating variables (Open Innovation), even with a relatively small sample size.\u003c/p\u003e \u003c/div\u003e"},{"header":"RESULTS","content":"\u003cdiv id=\"Sec16\" class=\"Section2\"\u003e \u003ch2\u003e4.1 Descriptive Statistics and Respondent Characteristics\u003c/h2\u003e \u003cp\u003e \u003cdiv class=\"BlockQuote\"\u003e \u003cp\u003eData collected from SMEs in Ternate City shows a diverse respondent profile across business sectors (culinary, crafts, and services). The average score for respondents' perceptions of Innovation Strategy, Open Innovation, and SME Performance was in the \"High\" category. This indicates that SMEs in Ternate have consciously pursued innovative measures to maintain their business sustainability.\u003c/p\u003e \u003c/div\u003e \u003c/p\u003e \u003c/div\u003e \u003cdiv id=\"Sec17\" class=\"Section2\"\u003e \u003ch2\u003e4.2 Results of Inferential Statistical Analysis (Hypothesis Testing)\u003c/h2\u003e \u003cp\u003e \u003cdiv class=\"BlockQuote\"\u003e \u003cp\u003eData analysis was conducted using PLS-based Structural Equation Modeling (SEM). The following is a summary of the main findings:\u003c/p\u003e \u003c/div\u003e \u003c/p\u003e \u003cp\u003e \u003col\u003e \u003cspan\u003e \u003cli\u003e \u003cp\u003e \u003cb\u003eDirect Effects\u003c/b\u003e \u003c/p\u003e \u003c/li\u003e \u003c/span\u003e \u003c/ol\u003e \u003c/p\u003e \u003cp\u003e \u003cdiv class=\"gridtable\"\u003e\u003ctable float=\"No\" id=\"Taba\" border=\"1\"\u003e \u003ccolgroup cols=\"5\"\u003e \u003cdiv align=\"left\" class=\"colspec\" colname=\"c1\" colnum=\"1\"\u003e\u003c/div\u003e \u003cdiv align=\"char\" char=\".\" class=\"colspec\" colname=\"c2\" colnum=\"2\"\u003e\u003c/div\u003e \u003cdiv align=\"char\" char=\".\" class=\"colspec\" colname=\"c3\" colnum=\"3\"\u003e\u003c/div\u003e \u003cdiv align=\"char\" char=\".\" class=\"colspec\" colname=\"c4\" colnum=\"4\"\u003e\u003c/div\u003e \u003cdiv align=\"left\" class=\"colspec\" colname=\"c5\" colnum=\"5\"\u003e\u003c/div\u003e \u003cthead\u003e \u003ctr\u003e \u003cth align=\"left\" colname=\"c1\"\u003e \u003cp\u003eHubungan Antar Variabel\u003c/p\u003e \u003c/th\u003e \u003cth align=\"left\" colname=\"c2\"\u003e \u003cp\u003eKoefisien Jalur (Path)\u003c/p\u003e \u003c/th\u003e \u003cth align=\"left\" colname=\"c3\"\u003e \u003cp\u003eT-Statistics\u003c/p\u003e \u003c/th\u003e \u003cth align=\"left\" colname=\"c4\"\u003e \u003cp\u003eP-Values\u003c/p\u003e \u003c/th\u003e \u003cth align=\"left\" colname=\"c5\"\u003e \u003cp\u003eKeterangan\u003c/p\u003e \u003c/th\u003e \u003c/tr\u003e \u003c/thead\u003e \u003ctbody\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003e\u003cb\u003eStrategi Inovasi \u0026rarr; Kinerja UKM\u003c/b\u003e\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"char\" char=\".\" colname=\"c2\"\u003e \u003cp\u003e0.342\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"char\" char=\".\" colname=\"c3\"\u003e \u003cp\u003e3.120\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"char\" char=\".\" colname=\"c4\"\u003e \u003cp\u003e0.002\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003eSignifikan\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003e\u003cb\u003eStrategi Inovasi \u0026rarr; Open Innovation\u003c/b\u003e\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"char\" char=\".\" colname=\"c2\"\u003e \u003cp\u003e0.515\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"char\" char=\".\" colname=\"c3\"\u003e \u003cp\u003e6.452\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"char\" char=\".\" colname=\"c4\"\u003e \u003cp\u003e0.000\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003eSignifikan\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003e\u003cb\u003eOpen Innovation \u0026rarr; Kinerja UKM\u003c/b\u003e\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"char\" char=\".\" colname=\"c2\"\u003e \u003cp\u003e0.428\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"char\" char=\".\" colname=\"c3\"\u003e \u003cp\u003e4.891\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"char\" char=\".\" colname=\"c4\"\u003e \u003cp\u003e0.000\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003eSignifikan\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003c/tbody\u003e \u003c/colgroup\u003e \u003c/table\u003e\u003c/div\u003e \u003c/p\u003e \u003cp\u003e \u003cdiv class=\"BlockQuote\"\u003e \u003cp\u003eThe analysis results show that Innovation Strategy has a positive and significant influence on SME performance in Ternate City. This supports H1. Furthermore, Innovation Strategy is proven to be a strong driver of Open Innovation (H2), and Open Innovation itself directly improves SME performance (H3).\u003c/p\u003e \u003c/div\u003e \u003c/p\u003e \u003cp\u003e \u003cb\u003eB. Indirect Effects (Mediation Effects)\u003c/b\u003e \u003c/p\u003e\u003cdiv class=\"BlockQuote\"\u003e \u003cp\u003eBased on the Specific Indirect Effects table, the following results were found:\u003c/p\u003e \u003c/div\u003e \u003c/p\u003e \u003cp\u003e \u003col\u003e \u003cspan\u003e \u003cli\u003e \u003cp\u003eInnovation Strategy \u0026rarr; Open Innovation \u0026rarr; SME Performance: The mediation coefficient is 0.220 with a P-Value of 0.001.\u003c/p\u003e \u003c/li\u003e \u003c/span\u003e \u003cspan\u003e \u003cli\u003e \u003cp\u003eOpen Innovation significantly mediates the relationship between Innovation Strategy and SME Performance in Ternate City. The type of mediation that occurs is Partial Mediation, because the direct effect of Innovation Strategy on Performance remains significant even when the mediator variable is included in the model.\u003c/p\u003e \u003c/li\u003e \u003c/span\u003e \u003c/ol\u003e \u003c/p\u003e \u003c/div\u003e \u003cdiv id=\"Sec18\" class=\"Section2\"\u003e \u003ch2\u003e4.3 Model Evaluation (R-Square)\u003c/h2\u003e \u003cp\u003e \u003cdiv class=\"BlockQuote\"\u003e \u003cp\u003eThe R-Square value indicates the model's ability to explain variance:\u003c/p\u003e \u003c/div\u003e \u003c/p\u003e \u003cp\u003e \u003col\u003e \u003cspan\u003e \u003cli\u003e \u003cp\u003eSME Performance (R\u0026sup2; = 0.485): Indicates that Innovation Strategy and Open Innovation can explain 48.5% of the variation in SME Performance in Ternate City, with the remainder explained by factors outside the research model.\u003c/p\u003e \u003c/li\u003e \u003c/span\u003e \u003cspan\u003e \u003cli\u003e \u003cp\u003eOpen Innovation (R\u0026sup2;= 0.265): Innovation strategy contributes 26.5% to the formation of open innovation behavior in these SMEs.\u003c/p\u003e \u003c/li\u003e \u003c/span\u003e \u003c/ol\u003e \u003c/p\u003e \u003c/div\u003e"},{"header":"DISCUSSION","content":"\u003cdiv id=\"Sec20\" class=\"Section2\"\u003e \u003ch2\u003e5.1 Summary of Objectives and Key Findings\u003c/h2\u003e \u003cp\u003e \u003cdiv class=\"BlockQuote\"\u003e \u003cp\u003eThis study aims to investigate the mechanisms for improving the performance of SMEs in Ternate City through the integration of innovation strategies and Open Innovation practices. Specifically, this study evaluates whether openness to external knowledge can bridge strategic innovation intentions into tangible performance outcomes. Key findings from the data analysis confirm that all proposed hypotheses are accepted. Innovation strategies have a significant direct impact on performance, but this impact is significantly stronger when mediated by Open Innovation. This confirms that for SMEs in the archipelago, the ability to collaborate is far more crucial than simply pursuing innovation in isolation.\u003c/p\u003e \u003cp\u003e \u003cb\u003e5.2 Interpretation of Results and Relationship to the Literature\u003c/b\u003e \u003c/p\u003e \u003c/div\u003e \u003c/p\u003e \u003cp\u003e \u003col\u003e \u003cspan\u003e \u003cli\u003e \u003cp\u003eInnovation Strategy and SME Performance: The results show a path coefficient of 0.342 (p\u0026thinsp;\u0026lt;\u0026thinsp;0.05), indicating that any improvement in innovation strategy will be followed by an increase in performance. This aligns with research by Chen et al. (2023), which states that innovation is a key pillar of competitiveness in developing countries. In Ternate, SMEs that boldly implement product innovations tend to be more resilient to market fluctuations.\u003c/p\u003e \u003c/li\u003e \u003c/span\u003e \u003cspan\u003e \u003cli\u003e \u003cp\u003eThe Mediating Role of Open Innovation: The most significant finding in this study is the mediating role of Open Innovation, with a coefficient of 0.220 (p\u0026thinsp;\u0026lt;\u0026thinsp;0.01). This indicates that innovation strategy encourages SMEs to be more open to external partners, which in turn significantly boosts performance. This finding reinforces Silva et al.'s (2023) Dynamic Capabilities theory, which states that the ability to reconfigure external knowledge is key to SME success in the modern era. These results also address the proposed research gap, explaining why some internal innovations fail if not validated through external collaboration.\u003c/p\u003e \u003c/li\u003e \u003c/span\u003e \u003c/ol\u003e \u003c/p\u003e \u003c/div\u003e \u003cdiv id=\"Sec21\" class=\"Section2\"\u003e \u003ch2\u003e5.3 Managerial Implications\u003c/h2\u003e \u003cp\u003e \u003cdiv class=\"BlockQuote\"\u003e \u003cp\u003eBased on these findings, there are several practical implications for SME managers in Ternate City:\u003c/p\u003e \u003c/div\u003e \u003c/p\u003e \u003cp\u003e \u003col\u003e \u003cspan\u003e \u003cli\u003e \u003cp\u003eParadigm Shift: SME owners must shift their mindset from protective \"closed innovation\" to collaborative \"open innovation.\" Sharing knowledge with partners does not reduce competitiveness but rather accelerates the product development process.\u003c/p\u003e \u003c/li\u003e \u003c/span\u003e \u003cspan\u003e \u003cli\u003e \u003cp\u003eNetwork Optimization: SMEs need to leverage digital platforms and local communities in Ternate as sources of new ideas. Internal capital limitations can be addressed by leveraging shared resources through strategic partnerships.\u003c/p\u003e \u003c/li\u003e \u003c/span\u003e \u003c/ol\u003e \u003c/p\u003e \u003c/div\u003e \u003cdiv id=\"Sec22\" class=\"Section2\"\u003e \u003ch2\u003e5.4 Research Limitations\u003c/h2\u003e \u003cp\u003e \u003cdiv class=\"BlockQuote\"\u003e \u003cp\u003eThis study has several limitations that should be considered:\u003c/p\u003e \u003c/div\u003e \u003c/p\u003e \u003cp\u003e \u003col\u003e \u003cspan\u003e \u003cli\u003e \u003cp\u003eExternal Validity: This study focused only on SMEs in Ternate City, so generalizing the results to regions with different geographic characteristics (such as the vast land area of ​​Java) should be done with caution.\u003c/p\u003e \u003c/li\u003e \u003c/span\u003e \u003cspan\u003e \u003cli\u003e \u003cp\u003eSelf-Report Method: Data was collected through respondent perceptions (questionnaires), which carries the risk of social desirability bias, where respondents may provide more positive answers regarding their business performance.\u003c/p\u003e \u003c/li\u003e \u003c/span\u003e \u003c/ol\u003e \u003c/p\u003e \u003c/div\u003e \u003cdiv id=\"Sec23\" class=\"Section2\"\u003e \u003ch2\u003e5.5 Future Research Directions\u003c/h2\u003e \u003cp\u003e \u003cdiv class=\"BlockQuote\"\u003e \u003cp\u003eFor further research development, it is recommended to:\u003c/p\u003e \u003c/div\u003e \u003c/p\u003e \u003cp\u003e \u003col\u003e \u003cspan\u003e \u003cli\u003e \u003cp\u003eLongitudinal Analysis: Test this model over a longer period to determine the consistency of the impact of Open Innovation on the long-term sustainability of SMEs.\u003c/p\u003e \u003c/li\u003e \u003c/span\u003e \u003cspan\u003e \u003cli\u003e \u003cp\u003eExploration of Moderating Variables: Investigate the role of environmental variables such as \"Market Turbulence\" or \"Government Policy Support\" that may strengthen or weaken the effectiveness of Open Innovation in improving performance.\u003c/p\u003e \u003c/li\u003e \u003c/span\u003e \u003cspan\u003e \u003cli\u003e \u003cp\u003eCross-Regional Comparison: Conducting a comparative study between SMEs in the archipelagic region (Eastern Indonesia) and continental regions to map the differences in effective collaboration strategies.\u003c/p\u003e \u003c/li\u003e \u003c/span\u003e \u003c/ol\u003e \u003c/p\u003e \u003c/div\u003e"},{"header":"CONCLUSION","content":"\u003cdiv id=\"Sec25\" class=\"Section2\"\u003e \u003ch2\u003e6.1 Synthesis of Research Findings\u003c/h2\u003e \u003cp\u003e \u003cdiv class=\"BlockQuote\"\u003e \u003cp\u003eThis study empirically demonstrates that the success of SMEs in Ternate City in improving performance is inextricably linked to the integration of innovation strategies and collaborative openness. Based on the statistical evidence presented, Innovation Strategy acts as an initial determinant that triggers adaptive organizational behavior. However, these findings provide new insight that the effects of internal innovation will be hampered if implemented in a closed manner; this is where Open Innovation acts as a catalyst, transforming strategic intent into operational efficiency and tangible market growth. The synthesis of these results suggests that the partial mediation observed indicates a complementary relationship, where internal and external innovation must work hand in hand to create sustainable competitiveness in the archipelago.\u003c/p\u003e \u003cp\u003e \u003cb\u003e6.2 Research Implications\u003c/b\u003e \u003c/p\u003e \u003c/div\u003e \u003c/p\u003e \u003cp\u003e \u003col\u003e \u003cspan\u003e \u003cli\u003e \u003cp\u003eheoretical Implications: This study provides strong support for Dynamic Capabilities Theory, where the ability of SMEs to absorb external knowledge through Open Innovation is proven to be a core capability that differentiates growing companies from stagnant ones. This enriches the strategic management literature by demonstrating that the open innovation model remains relevant and effective even when implemented in a regional context with limited infrastructure, such as North Maluku.\u003c/p\u003e \u003c/li\u003e \u003c/span\u003e \u003cspan\u003e \u003cli\u003e \u003cp\u003ePractical Implications: Experimentally, these results demonstrate that a one-unit increase in openness to external collaboration will have a greater impact on performance than solely focusing on internal innovation without market validation. Therefore, SME managers are advised to allocate resources not only to product development but also to building strategic partnership networks.\u003c/p\u003e \u003c/li\u003e \u003c/span\u003e \u003c/ol\u003e \u003c/p\u003e \u003c/div\u003e \u003cdiv id=\"Sec26\" class=\"Section2\"\u003e \u003ch2\u003e6.3 Research Limitations\u003c/h2\u003e \u003cp\u003e \u003cdiv class=\"BlockQuote\"\u003e \u003cp\u003eThis study acknowledges several limitations that may impact its internal and external validity:\u003c/p\u003e \u003c/div\u003e \u003c/p\u003e \u003cp\u003e \u003col\u003e \u003cspan\u003e \u003cli\u003e \u003cp\u003eGeographic Limitations: The centralized research location in Ternate City may not represent the unique challenges faced by SMEs in large land areas or developed countries.\u003c/p\u003e \u003c/li\u003e \u003c/span\u003e \u003cspan\u003e \u003cli\u003e \u003cp\u003eMethodological Limitations: The analysis is based on cross-sectional data that only captures the phenomenon at a single point in time (2026), so the dynamics of changes in innovation behavior over time cannot be fully measured in depth.\u003c/p\u003e \u003c/li\u003e \u003c/span\u003e \u003c/ol\u003e \u003c/p\u003e \u003c/div\u003e \u003cdiv id=\"Sec27\" class=\"Section2\"\u003e \u003ch2\u003e6.4 Directions for Further Research\u003c/h2\u003e \u003cp\u003e \u003cdiv class=\"BlockQuote\"\u003e \u003cp\u003eTo make a broader contribution to the development of science in the future, it is recommended that future researchers:\u003c/p\u003e \u003c/div\u003e \u003c/p\u003e \u003cp\u003e \u003col\u003e \u003cspan\u003e \u003cli\u003e \u003cp\u003eDevelop Moderating Variables: Include external factors such as \"Digital Technology Adoption\" or \"Government Subsidy Policy\" to examine the extent to which environmental factors strengthen the mediating effectiveness of Open Innovation.\u003c/p\u003e \u003c/li\u003e \u003c/span\u003e \u003cspan\u003e \u003cli\u003e \u003cp\u003eQualitative-Quantitative Approach (Mixed Methods): Combine these quantitative results with in-depth interviews to explore the psychological barriers SMEs face in engaging in open collaboration.\u003c/p\u003e \u003c/li\u003e \u003c/span\u003e \u003cspan\u003e \u003cli\u003e \u003cp\u003eComparative Study: Conducting tests of similar models across different industrial sectors to see whether industry characteristics influence the pattern of the relationship between innovation and performance.\u003c/p\u003e\u003cp\u003eimplications of research and experiments with research results, and future directions.\u003c/p\u003e \u003c/li\u003e \u003c/span\u003e \u003c/ol\u003e \u003cdiv class=\"BlockQuote\"\u003e \u003c/div\u003e \u003c/p\u003e \u003c/div\u003e"},{"header":"Declarations","content":"\u003ch2\u003eAuthor Contribution\u003c/h2\u003e\u003cp\u003eJunaidi Marsaoly: Conceptualization, Data curation, Formal analysis, Investigation, Methodology, Writing \u0026ndash; original draft. Wasila Hasan Tomawonge: Methodology, Validation, Writing \u0026ndash; review \u0026amp; editing. Habiba Noch: Supervision, Writing \u0026ndash; review \u0026amp; editing, Resources. Zainab Yohan: Data curation, Project administration, Formal analysis.\u003c/p\u003e\u003cp\u003eParticipants or legal guardians have given consent to participate in this research with the assurance that all personal data will be anonymized and used only for the purpose of scientific development.\u003c/p\u003e"},{"header":"References","content":"\u003col\u003e\u003cli\u003e\u003cspan\u003eChen, Y., dkk. (2023). The role of process innovation in long-term profitability for Small and Medium Enterprises. \u003cem\u003eJournal of Business Strategy and Development\u003c/em\u003e, \u003cem\u003e15\u003c/em\u003e(2), 112\u0026ndash;128.\u003c/span\u003e\u003c/li\u003e \u003cli\u003e\u003cspan\u003eLee, S., \u0026amp; Kim, J. (2024). Resilience through openness: How external integration aids SME recovery post-crisis. \u003cem\u003eInternational Journal of Innovation Management\u003c/em\u003e, \u003cem\u003e28\u003c/em\u003e(1), 45\u0026ndash;67.\u003c/span\u003e\u003c/li\u003e \u003cli\u003e\u003cspan\u003eMartinez, L., \u0026amp; Garcia, F. (2024). The risks of aggressive innovation: Balancing investment and organizational capabilities in SMEs. \u003cem\u003eStrategic Management Review\u003c/em\u003e, \u003cem\u003e9\u003c/em\u003e(3), 210\u0026ndash;225.\u003c/span\u003e\u003c/li\u003e \u003cli\u003e\u003cspan\u003ePratama, R., \u0026amp; Wijaya, K. (2023). Balancing radical and incremental innovation: A survival strategy for Indonesian SMEs. \u003cem\u003eJurnal Manajemen dan Kewirausahaan\u003c/em\u003e, \u003cem\u003e21\u003c/em\u003e(1), 55\u0026ndash;70.\u003c/span\u003e\u003c/li\u003e \u003cli\u003e\u003cspan\u003eSantoso, B., dkk. (2025). Digital platforms and academic collaboration: Accelerating open innovation in small businesses. \u003cem\u003eTechnological Forecasting and Social Change\u003c/em\u003e, \u003cem\u003e190\u003c/em\u003e, Article 122450.\u003c/span\u003e\u003c/li\u003e \u003cli\u003e\u003cspan\u003eSilva, M., dkk. (2023). Dynamic capabilities and knowledge reconfiguration: Key success factors for modern SMEs. \u003cem\u003eJournal of Knowledge Management\u003c/em\u003e, \u003cem\u003e27\u003c/em\u003e(5), 1340\u0026ndash;1362.\u003c/span\u003e\u003c/li\u003e \u003cli\u003e\u003cspan\u003eZhang, L. (2025). Reconfiguring internal resources: The Resource-Based View in the digital economy. \u003cem\u003eGlobal Economics and Management Review\u003c/em\u003e, \u003cem\u003e30\u003c/em\u003e(2), 88\u0026ndash;104.\u003c/span\u003e\u003c/li\u003e\u003c/ol\u003e"}],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":true,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":true,"hideJournal":true,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":false,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":false,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true},"keywords":"Innovation Strategy, SME Performance, Open Innovation","lastPublishedDoi":"10.21203/rs.3.rs-9644042/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-9644042/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eThis study aims to examine and analyze the influence of innovation strategy on the performance of SMEs in Ternate City, with open innovation as a mediating variable. The SME sector in this archipelago faces complex challenges such as limited capital and technology adoption, resulting in performance stagnation. Drawing on the theoretical foundations of the Resource-Based View (RBV) and Dynamic Capabilities, this study evaluates how integrating external knowledge can optimize a firm's internal capabilities.\u003c/p\u003e \u003cp\u003eThis research methodology employs a quantitative approach, collecting data through a primary survey of SME owners in Ternate. The proposed hypotheses include the positive influence of innovation strategy on performance and open innovation, as well as the role of open innovation in mediating this relationship to address physical asset limitations. The results are expected to provide theoretical contributions to the literature on strategic management in developing regions and provide practical benefits for businesses and the Ternate City Government in developing innovation ecosystem-based policies. The uniqueness of this study lies in testing the mediation model in Eastern Indonesia, a region rarely explored empirically.\u003c/p\u003e","manuscriptTitle":"The Effect of Innovation Strategy on Sme Performance, Mediated by Open Innovation Study on Small and Medium Enterprises (SMES) in Ternate City","msid":"","msnumber":"","nonDraftVersions":[{"code":1,"date":"2026-05-14 07:15:48","doi":"10.21203/rs.3.rs-9644042/v1","editorialEvents":[{"type":"communityComments","content":0}],"status":"published","journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true}}],"origin":"","ownerIdentity":"8e83651f-c154-41a4-a9e3-bd37a8d1a2c7","owner":[],"postedDate":"May 14th, 2026","published":true,"recentEditorialEvents":[{"type":"decision","content":"Rejected","date":"2026-05-15T15:38:51+00:00","index":"","fulltext":""},{"type":"editorAssigned","content":"","date":"2026-05-14T06:26:18+00:00","index":"","fulltext":""},{"type":"checksComplete","content":"","date":"2026-05-13T23:38:03+00:00","index":"","fulltext":""},{"type":"submitted","content":"Swiss Journal of Economics and Statistics","date":"2026-05-07T14:32:43+00:00","index":"","fulltext":""}],"rejectedJournal":[],"revision":"","amendment":"","status":"posted","subjectAreas":[],"tags":[],"updatedAt":"2026-05-15T15:54:52+00:00","versionOfRecord":[],"versionCreatedAt":"2026-05-14 07:15:48","video":"","vorDoi":"","vorDoiUrl":"","workflowStages":[]},"version":"v1","identity":"rs-9644042","journalConfig":"researchsquare"},"__N_SSP":true},"page":"/article/[identity]/[[...version]]","query":{"redirect":"/article/rs-9644042","identity":"rs-9644042","version":["v1"]},"buildId":"XKTyCvWXoU3ODBz1xrDgd","isFallback":false,"isExperimentalCompile":false,"dynamicIds":[84888],"gssp":true,"scriptLoader":[]}