The influence of green product and green process innovation on financial performance and the role of sustainable business strategy as a mediator

Abstract

This study examines the impact of green product and green process innovation on the financial performance of export-oriented SMEs in Bali Province, with sustainable business strategy as a mediating variable. Grounded in the Resource-Based View (RBV) paradigm, the research emphasizes the role of distinctive resources in achieving a competitive advantage. A quantitative approach was employed, involving a survey of 452 export-oriented SME actors in Bali. Data were analyzed using Partial Least Squares-Structural Equation Modeling to explore the relationships between green innovation, sustainable business strategy, and financial performance. The results indicate that both green product innovation and green process innovation significantly and positively influence export financial performance. Furthermore, sustainable business strategy mediates the relationship between green innovation (both product and process) and financial performance. These findings highlight the importance of integrating sustainable practices to amplify the financial benefits of green innovation. The study provides actionable insights for SME actors and policymakers, suggesting that adopting sustainable business strategies can enhance competitiveness in the global market. Recommendations include fostering green innovation and embedding sustainability into core business strategies to improve financial outcomes. This research contributes to the theoretical framework by integrating green innovation and sustainable strategy concepts within the context of export-oriented SMEs.