Enhancing innovation capability in nature-based SMEs: A fuzzy-set comparative analysis of bamboo firms in Indonesia

Geopolitical tensions and trade disruptions pose significant challenges for Indonesia’s nature-based enterprises, particularly bamboo-based SMEs. This study investigates how these SMEs can strengthen their innovation capability to support inclusive and sustainable rural development. Using purposive sampling, 20 SMEs from West Java were examined through fuzzy-set Qualitative Comparative Analysis (fsQCA) to identify multiple pathways leading to product, process, and marketing innovation. The findings demonstrate that innovation does not arise from a single determinant but from synergistic combinations of internal capabilities and external supports. Stakeholder Engagement and Hybrid Business Models frequently serve as core drivers, complemented by Regional Integration and Strategic Alignment, Community Embeddedness and Social Capital, and Cultural-Entrepreneurial Orientation. No condition is universally necessary; instead, different configurations enable similar innovation outcomes (equifinality). High-performing SMEs tend to combine external linkages with strong learning-based knowledge mobilization, manifested in adaptive leadership, product diversification, and market responsiveness, combined with context-specific institutional and regional support. In contrast, configurations lacking relational capital or cultural-entrepreneurial grounding are associated with weaker innovation performance. These findings highlight the intertwined importance of social capital, policy alignment, market connectivity, and cultural values in shaping innovation trajectories. Policy implications call for multi-stakeholder collaboration, skills strengthening, and place-based strategies to enhance innovation resilience in resource-dependent rural economies.