The article, titled “Green Innovation as a Strategy for Strengthening the Competitiveness of Micro, Small, and Medium Enterprises,” draws on national and international scholarly literature published between 2021 and 2026. Its findings highlight how environmental responsibility can become part of a practical business strategy rather than simply a response to environmental regulations.
Why Green Innovation Matters for Indonesian MSMEs
MSMEs play a major role in Indonesia's economy by supporting employment, local livelihoods, and economic activity across communities. The article cites previous research estimating that Indonesian MSMEs contribute approximately 61% of national gross domestic product and absorb the majority of the domestic workforce.
However, business growth also brings environmental challenges. The literature cited by Muchtar and colleagues estimates that MSME activities generated approximately 216 million tons of carbon dioxide emissions in 2022.
These figures illustrate a challenge facing small businesses: maintaining economic growth while responding to increasing expectations for environmentally responsible production and consumption.
Green innovation offers one approach to addressing both concerns. It involves developing or improving products, production processes, technologies, and management practices to reduce environmental impacts while maintaining business value.
For MSMEs, this approach can include using recyclable materials, reducing production waste, improving energy efficiency, and incorporating environmental considerations into purchasing, supply chains, and marketing.
Four Ways Green Innovation Can Strengthen Competitiveness
Muchtar, Hidayat, and Mildayanti organize the literature around four mechanisms connecting green innovation with MSME competitiveness.
1. Reducing operating costs
Cleaner production methods and more efficient energy use can reduce spending on raw materials, electricity, and waste management. These savings can help businesses improve their operating margins and allocate resources more effectively.
For MSMEs operating with limited financial reserves, incremental improvements in resource efficiency may provide a practical starting point for adopting sustainable business practices.
2. Differentiating products
Environmentally responsible products can help businesses distinguish their offerings from conventional alternatives. Products made with more sustainable materials or manufactured through cleaner processes may appeal to consumers who consider environmental impacts when making purchasing decisions.
According to the literature reviewed in the article, this differentiation may also create opportunities for premium pricing and improve a business's position when negotiating with customers or other market participants. Actual pricing opportunities, however, depend on consumer demand, product quality, and market conditions.
3. Expanding market access
Green innovation can support market development when businesses combine environmental improvements with product development and marketing.
The authors discuss research on Chinese small and medium-sized enterprises that links a culture of green innovation with stronger market performance through product and marketing innovation. Research involving Indonesian MSMEs has also associated green innovation with sustainability performance and the development of the green economy.
These findings suggest that environmental initiatives can contribute to business development when they respond to customer needs and are supported by appropriate marketing strategies.
4. Building reputation and customer trust
Consistent environmental responsibility can help businesses strengthen their brand image and relationships with stakeholders. Waste reduction, responsible sourcing, and transparent sustainability practices may signal that a business takes its environmental responsibilities seriously.
Over time, these practices may support customer trust and loyalty. Such benefits are more likely to be sustained when environmental commitments are reflected in everyday business operations rather than used only as promotional messages.
Green Transformation Does Not Always Require Large Investments
One important insight from the review is that MSMEs do not necessarily need expensive technology or large-scale capital projects to begin adopting green innovation.
Smaller businesses can start with changes suited to their resources, such as reviewing raw-material suppliers, reducing unnecessary packaging, improving production workflows, managing waste more effectively, or adjusting product design.
The authors also highlight the complementary roles of three dimensions of green innovation:
- Green product innovation: Developing products that use environmentally preferable materials or generate less harmful waste.
- Green process innovation: Improving production efficiency, energy use, and waste management.
- Green management innovation: Integrating environmental responsibility into purchasing, supply-chain management, workplace practices, and marketing.
These dimensions can reinforce one another. For example, a business that reduces material waste may lower costs while developing a product with a more distinctive environmental profile. When supported by suitable marketing, that product may reach new customer segments and strengthen the company's reputation.
The review therefore presents green innovation as a medium- to long-term business strategy rather than a one-time environmental initiative.
Financial and Institutional Support Remains Important
Despite its potential benefits, green innovation can be difficult for MSMEs to implement. The article identifies limited capital, inadequate access to technology, low levels of green-technology literacy, and insufficient policy support as important barriers.
Muchtar and colleagues emphasize the need for coordinated support from business owners, financial institutions, universities, and government agencies.
Financial institutions could help by offering flexible green-financing options suited to the scale and cash-flow conditions of small businesses. Government programs could complement these efforts through appropriate incentives, digitalization support, and vocational training.
Universities can contribute through research, business mentoring, and practical training that helps entrepreneurs identify affordable improvements and evaluate their results.
For MSME owners, a gradual approach may be more feasible than attempting a complete transformation immediately. Initial improvements in products and production processes can help businesses develop the knowledge and operational capabilities needed for more advanced investments in digital technology and sustainable production.
Further Research Needed to Measure Business Outcomes
The article is a conceptual literature review, not an experiment or a survey of newly recruited MSME respondents. The authors examined peer-reviewed journal articles and conference proceedings published between 2021 and 2026, using targeted searches on green innovation, MSME competitiveness, and sustainable entrepreneurship.
They then organized the literature thematically around cost efficiency, product differentiation, market access, and reputation.
Because the paper relies on existing publications, it does not establish direct causal relationships or quantify how much each mechanism contributes to competitiveness. The strength of these relationships may also differ across industries, regions, and business sizes.
The authors recommend future empirical research using primary data from Indonesian MSMEs across different sectors and regions. Such research could assess which green practices deliver the greatest business benefits and how financing, training, and digitalization influence the adoption process.
Overall, the review by Muchtar, Hidayat, and Mildayanti of Universitas Negeri Makassar presents green innovation as a potential source of competitive advantage for MSMEs. Its central insight is that environmental responsibility and business performance need not be competing priorities. With practical implementation, adequate capabilities, and coordinated institutional support, sustainability practices can become part of a business strategy for long-term competitiveness.
Author Profiles
Yulnita Muchtar is affiliated with the Department of Entrepreneurship, Faculty of Economics and Business, Universitas Negeri Makassar, Indonesia. Her corresponding-author contact is yulnita.muchtar@unm.ac.id. The article identifies her research context as entrepreneurship, green innovation, and MSME competitiveness.
Rahmat Hidayat is affiliated with the Department of Entrepreneurship, Faculty of Economics and Business, Universitas Negeri Makassar. His contribution appears in the article's examination of green innovation and sustainable business competitiveness.
Mildayanti is also affiliated with the Department of Entrepreneurship, Faculty of Economics and Business, Universitas Negeri Makassar, contributing to the review of green innovation as a strategy for MSME development.
Research Source
Article title: Green Innovation as a Strategy for Strengthening the Competitiveness of Micro, Small, and Medium Enterprises
Authors: Yulnita Muchtar, Rahmat Hidayat, and Mildayanti
Journal: International Journal of Sustainable Applied Sciences (IJSAS)
Publication details: Volume 4, Issue 9, 2026, pp. 1289-1296
DOI: https://doi.org/10.59890/ijsas.v4i9.64
Official journal website: http://ijsasjournal.my.id/index.php/ijsas
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