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Innovation and Market Orientation: The Effect on Competitive Advantage and Marketing Performance (A Study of Natural-Based Craft Industry in Semarang Regency, Central Java, Indonesia)

Having the ability to innovate avoids business players from situations of declining competitiveness that are preceded by a comfort zone situation by past successes. Various studies related to the improvemen of marketing performance in general and specifically for competitive advantage in small and medium enterprises have been carried out by relating it to innovation. In business phenomena, creative industry is unique in that it is largely supported by social, cultural, local wisdom, environmental sustainability factors and other uniqueness combined with science and technology. In Central Java, Indonesia, alone, there are several regions which have natural-based craft centers that are feasible to be further developed; one of which is Semarang Regency with the type of water hyacinthbased industry. This research seeks to explore the role of innovation and market orientation on competitive advantage and its impact on marketing performance of natural resource-based craftsmen in Central Java. This research intends to examine the model of researches that have been previously carried out empirically with regard to product innovation and competitive advantage to lead to optimal marketing performance. The analysis results of all hypotheses are supported and in line with several previous studies. Test of empirical analysis shows that innovation and market orientation has a positive significant effect on competitive advantage; similarly, competitive advantage has a positive significant impact on marketing performance. Business players in this natural handicraft industry stated that there is a collective awareness of the importance of performing innovation and observing the market conditions as an effort to keep their business survive and developing, which further will give an impact on their marketing performance as measured by sales volume and the increasing number of customers. Keywords—Innovation, market orientation, competitive advantage, marketing performance