OISAA Journal of Indonesia Emas Vol. 6 No. 1, 2023, pp. 1-11 1 DOES THE COMPETITIVENESS REALLY AFFECT THE SMES FIRM PERFORMANCE? Muhammad Masyhuri 1,2 1 Doctoral School of Faculty Business and Economics, University of Pecs, Hungary 2 STIE GICI Business School, Depok, Indonesia masyhuri.muhammad@gmail.com ABSTRACT Competitiveness factors are important for the performance of small and medium enterprises (SMEs) not only in advanced countries but also in emerging economies. This study aims to investigate the impact of SMEs competitiveness factors on firm performance in Indonesia context through a quantitative analysis approach by applying structural equation model (SEM) path analysis. The result shows a significant causal relationship between the variables in Indonesian SMEs. Keywords: competitiveness, firm performance, SMEs, Indonesia, SEM Received 16 March 2022 Accepted 5 July 2022 INTRODUCTION Competitiveness and firms performance notions have become famous terms around the world today [1], [2]. Based on theory and ample empirical evidence, the stronger and appropriate competitive factors, the better firm performance results [3], [4]. Meanwhile, the small and medium-sized enterprises (SMEs) roles have been viewed and a national economies backbones around the world, both in advanced and developing countries, especially during the current pandemic crisis [5]. According to the IFC analysis report [6], by 2030 it is projected SMEs to be able to provide of the new jobs created worldwide- about 3.3 million in emerging economies. In addition, in the East Asia and Pacific region, SMEs account about 33% of total SMEs worldwide [6] and generate more than 40% of Asia's GDP [7]. In Indonesia SMEs accounted for almost 100% of all existing firms and contributed between 58 to 61% of gross domestic product (GDP). Interestingly, women own about 42.84% of SMEs, although the ratio of female to male entrepreneurs in MSEs varies by province [8]. Although the importance role of SMEs in the economic growth of countries is acknowledged, the sustainability or failure rates of SMEs have been quite high when it comes to competing and increasing their performance, especially among young start-up companies [9]–[11]. In other words, such SMEs have problems relating to competitiveness and also with the firm performance [12]–[15]. This raises the following important question for this study: what competitive factors should SMEs possess to be sustainable? Does a competitive factor really affect its performance? This study aims to examine the impact of SMEs competitiveness factors on firm performance in Indonesia’s SMEs as an emerging country. According to IMF and MSCI report [16], Indonesia is classified as emerging markets in the Asian continent; and categorised as middle-income countries with growing economies and ranked 50th place in the global competitiveness index [17]. This study attempts to fill the gap of the scarce literatures of competitiveness studies for the SMEs in an emerging market.