Policy Framework to Improve MSME Competitiveness and Financial Performance with Indonesia’s Asta Cita Vision Goals

Micro, small, and medium enterprises (MSMEs) are recognized as the cornerstone of Indonesia’s economy, especially in the agriculture, fisheries, and tourism sectors. Given Asta Cita’s ambitious vision for the country, which emphasizes inclusive and sustainable development, MSMEs are under increasing pressure to improve their competitiveness and financial performance. This research aims to develop and empirically evaluate a comprehensive policy framework that identifies digitalization, sustainable development, and innovation as the primary catalysts for MSME progress, with government support as a mediating variable, grounded in dynamic capabilities and institutional theories. A quantitative methodology was used to collect primary data from 435 MSME respondents in North Sulawesi, which was then analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM). The findings show that digitalization, sustainable practices, and innovation have a substantial, positive impact on the financial performance of MSMEs. However, government support cannot mediate the influence of digitalization, sustainable development, and innovation on improving economic performance. This shows that internal organizational competencies are more important than external interventions in achieving financial success. The results of this study underscore the need for MSMEs to prioritize technology integration, incorporate sustainability into their business frameworks, and continue innovating to maintain resilience and competitiveness.