The Effect of Entrepreneurial Orientation and Entrepreneurial Competence on the Competitive Advantage of Carpentry MSMEs in Timor-Leste: The Mediating Role of Innovation and the Moderating Role of Government Support

Abstract

This study aims to examine the factors influencing competitive advantage among Micro, Small, and Medium Enterprises (MSMEs) in the carpentry sector (furniture production) in Timor-Leste. Specifically, this research investigates the effect of entrepreneurial orientation and entrepreneurial competence on competitive advantage, with innovation as a mediating variable and government support as a moderating variable. The study is grounded in the Resource-Based View (RBV) and Dynamic Capabilities Theory, in which innovation is conceptualized as a dynamic capability that transforms organizational resources into sustainable competitive advantage. A quantitative approach with an explanatory research design was employed. Data were collected through a survey of 145 MSME owners operating in the carpentry sector across 12 municipalities in Timor-Leste. The data were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) to test direct, mediating, and moderating relationships among latent constructs. The findings of this study are expected to contribute to the theoretical development of RBV and Dynamic Capabilities Theory in explaining competitive advantage in traditional MSMEs. Practically, this research provides insights for policymakers and business practitioners in strengthening innovation capabilities and enhancing the competitiveness of the carpentry sector in developing countries.