The Effect of Business Strategy on Business Performance in the Tourism Sector in West Java: The Mediating Role of Competitive Advantage and the Moderating Role of Government Policy

Abstract

The tourism sector plays an important role in the economy of West Java, but the performance of tourism MSMEs is not optimal. This study analyzes the influence of market orientation, entrepreneurial orientation, and corporate reputation on the business performance of tourism MSMEs, with competitive advantage as a mediating variable and government policy as a moderating variable. Data were collected through a survey of 403 tourism MSMEs, including owners/managers of tourist destinations, hotels or lodgings, restaurants or eateries, souvenir and craft shops, travel agents (tour and travel bureaus), and transportation service businesses domiciled in West Java. The analysis used Structural Equation Modelling based on Partial Least Squares (SEM-PLS). The results show that market orientation, entrepreneurial orientation, and corporate reputation have a positive and significant effect on the competitive advantage and business performance of tourism MSMEs in West Java, where competitive advantage is the main determinant of performance and mediates the influence of entrepreneurial orientation and corporate reputation, but does not significantly mediate the relationship between market orientation and performance. Market orientation strengthens differentiation, market responsiveness, and value creation; entrepreneurial orientation, encourages innovation, proactivity, and risk-taking; while reputation strengthens trust and competitive position as strategic assets. Government policies have been shown to strengthen the influence of entrepreneurial orientation on business performance, but do not significantly moderate the effects of market orientation and corporate reputation. Empirically, tourism MSMEs are relatively adaptive and innovative, but still face challenges related to quality consistency, business scale, and competitive pressures. Therefore, business performance is largely determined by internal capabilities, while improvements in policy design and implementation remain necessary to build an adaptive, competitive, and sustainable tourism ecosystem.