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The purpose of this study is to examine the influence of entrepreneurial orientation and social capital on innovation and performance capabilities in achieving competitive advantage of small and medium enterprises (SMEs). SMEs contribute significantly to the Indonesian economy, especially in the event of a monetary crisis. Some research on performance and innovation capabilities in SMEs that have been done so far have focused mainly on finance, operation and marketing aspects but have not explored the intangible assets such as entrepreneurial and social capital.Intangible assets become key success factor in improving the performance of SMES, especially in the era of ASEAN Economic Community 2016. The method used in this research is descriptive and explanatory.The sample in this study are owners of SMEs handicraft in Semarang, Jepara, Kudus, with as many as 254 respondents. Sampling is conducted on SMEs that have been operating for at least five years, having employees over 10 people and still exist to this date. Data were collected using survey method through closed and open questionnaire and interview. Data analysis was done by using structural equation model with AMOS program.The results show that there is a significant influence between entrepreneurship orientation and social capital on innovation and performance capabilities. Innovation capability has a significant influence on performance improvement and competitive advantage of SMEs.

Competitive advantages of SMEs: The roles of innovation capability, entrepreneurial orientation, and social capital