Digital Innovation Model for Eco-Friendly Business: SMEs Strategy to Face Market Disruption

Small and medium enterprises (SMEs) face increasing pressure to remain competitive amid digital transformation and growing environmental concerns. Digital green innovation has become a strategic pathway for SMEs to achieve both sustainability and resilience in disruptive markets. This study investigates how government support and green absorptive capacity (GAC) influence digital green innovation performance (DGI) in SMEs. It further examines the mediating role of efficient and integrated business model innovation in strengthening this relationship. The study focuses on SMEs in the culinary and fashion sectors in Bandung and Cirebon, Indonesia, given their significant contributions to the regional economy and their ongoing challenges in digital and green transformation. A quantitative, exploratory design was employed. Data were collected through structured surveys and interviews with 200 SME owners and managers. The data were analyzed using Structural Equation Modeling (SEM) with a Partial Least Squares (PLS) approach. Both government support and GAC significantly enhance DGI performance. GAC demonstrates a stronger direct effect compared to government support. In addition, efficient and integrated business model innovations partially mediate these relationships. It highlights that external and internal resources must be translated into concrete business practices to generate substantial impact. The combination of government support, green absorptive capacity, and business model innovation provides an effective strategy for SMEs to sustain competitiveness in dynamic markets.