How Internal Capability Matters in Increasing Firm Performance?
An Empirical Analysis of Interfirm Network in Indonesia’s High-Tech
Industry using Multi-Mediation Model
NOERLINA1,2, TIRTA NUGRAHA MURSITAMA1,3, BOTO SIMATUPANG1,
AGUSTINUS BANDUR1
1Management Department, BINUS Business School, Doctor of Research in Management,
Bina Nusantara University,
Kebon Jeruk Raya no. 27, Jakarta 11480
INDONESIA
2Information Systems Department, School of Information Systems Bina Nusantara University,
Kebon Jeruk Raya no. 27, Jakarta 11480,
INDONESIA
3International Relations Department, Faculty of Humanities,
Bina Nusantara University,
Kebon Jeruk Raya no. 27, Jakarta 11480,
INDONESIA
Abstract: - This study aims to determine the different effects of the multi-mediating role of innovation
capability, foreign ownership, export, and royalty expense in the firm’s network on the performance of
Indonesia’s high-tech firms. This study uses data from the high-tech industry with a total sample of 2,578 firms
from the Indonesian Central Statistics Agency. The study results prove that there is a positive and significant
effect of the Interfirm network on firm performance. The interfirm network also positively and significantly
influences Innovation Capability, Export Participation, Foreign Ownership, and Royalty Expense. Innovation
capability and foreign ownership as part of internal capability also positively and significantly influence firm
performance both directly and as a mediator. However, external capability has a negative influence as shown by
exports and royalty expenses on firm performance, either directly or indirectly, as a mediator. Internal
capability has an important influence on firm performance compared to external capability. Firms should have
internal knowledge transfer rather than depending on the market. Innovation capability has the best mediating
role compared to other mediating variables and the best strategy that the firm can do is to implement an
interfirm network strategy in maximizing the firm's performance. Thus, the study results provide input to firms
in the high-tech industry to optimally utilize their interfirm network to optimize firm performance. Further
research is needed to see the effect of each type of industry in the high-tech industry and outside this industry.
Keywords: - Interfirm network, firm performance, innovation capability, foreign ownership, export, royalty
expense, High-tech industry.
Received: November 15, 2022. Revised: April 23, 2023. Accepted: May 11, 2023. Published: May 23, 2023.
1 Introduction
The importance of networking both within the firm's
internal and inter-firm networks is an interesting
concern for research. The presence of this network
is expected to open opportunities to improve firm
performance in the form of opportunities for access
to external resources and knowledge. Increased
involvement in the interfirm network is expected to
drive the firm's innovation by utilizing the resources
and knowledge of the network where the firm is
located, [1]. The presence of the network also
increases the capabilities of the participating firms
that the firm obtains through learning, [2], [3], [4].
The firm's network opens opportunities for firms to
increase their learning abilities and absorptive
capacity, [5]. This capacity is obtained by firms
participating in the network through knowledge
dissemination and collective learning, which can
accumulate knowledge from various sources,
thereby increasing the absorptive capacity of the
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Noerlina, Tirta Nugraha Mursitama,
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firms involved. Given the various advantages that
interfirm networks have brought to the attention of
firms, there is increasing interest in the formation,
structure, and performance of interfirm networks,
[6], [7].
Research in strategic management has a long
history of using the resource-based view of the firm
(RBV) to explain differences in firm performance,
[8], [9]. Previous research related to this topic
includes studies that discuss about firm resources
such as the international capability of firm,
technological capability, marketing resources, group
affiliations, foreign investor, firm size, royalty
expenditures, R&D spending, advertising spending,
innovation capability, business strategy, networking,
knowledge and expertise, firm status, export
commitments, type of industry, assets, international
experience, IT investment, [10], [11], [14], [15],
[16].
From research focusing on firm resources in
optimizing the achievement of firm performance
[12],[13], study with a focus on firms in Indonesia is
still very limited, especially in the high-tech
industry. According to US statistical agencies 2004,
High-tech industry is an industry with a
classification of economic activities based on the
use of high-tech inputs such as labor on a Science,
Technology, Engineering, Mathematics basis, R&D
activities, and the use of high-tech production
methods or producing high-tech products as output,
[17]. The high-tech industry in Indonesia is one of
the industries that are the mainstay of economic
growth and is the focus of development as stated in
the 2020-2024 National Medium-Term
Development Plan, [18].
This study aims to determine the condition of
the high-tech industry in Indonesia by conducting an
empirical analysis of the effect of firm involvement
in the network on firm performance by looking at
the multi-mediating role of innovation capability,
foreign ownership, export, and royalty expense.
This study uses a dataset in the large and medium
scale manufacturing industry, which is the result of
a survey by the Indonesian Central Statistics
Agency, a statistical agency that carries out the
duties of the Indonesian government in the field of
statistics in accordance with applicable laws and
regulations. To our knowledge, there is still very
little research focusing on the high-tech industry in
Indonesia, including the limited research evidence
that addresses the role of corporate involvement in
business networks. This condition opens
opportunities for research on this topic and enriches
existing theories.
2 Theory and Hypothesis
Development
This study conceptualizes how firms have better
performance by engaging in interfirm networks. The
firm's participation in the Interfirm network will
also encourage firm innovation, attract foreign
investment, enter international markets through
exports, and transfer technology through royalty
spending. This is in line with the resource-based
theory, which states the importance of firm
resources in supporting firm performance. The main
source of firm competence is firm capability, while
the source of the firm's capabilities are the resources
owned by the firm. Utilization of firm resources in
improving firm capabilities can be divided into 2
parts, consisting of internal capability and external
capability. Internal capability is a capability that is
built based on the firm's resources such as the ability
to innovate, and foreign ownership that affects
corporate governance and the newest technology is
brought into the firm. Meanwhile, external
capability is a capability that is built based on the
availability of technology in the market, which can
be obtained through royalty payments and strategic
activities such as exporting.
In encouraging the improvement of the firm's
capabilities, both internally and externally, the firm
can cooperate with other firms to create added value
known as the interfirm network. The concept of
interfirm network focuses on the process of creating
shared value in the network between the firm and
external firm. So, firms need to participate in
interfirm networks to encourage innovation
capability, foreign ownership, export, and royalty
expense, which will optimize the firm's performance
achievement in winning the business competition.
Figure 1 shows the theoretical framework research
model. This study proposes a research hypothesis to
seek empirical justification based on the literature
review.
Fig. 1: Theoretical framework
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Firms that collaborate on networks have a great
opportunity to benefit from utilizing the network in
various ways. They not only share the costs and
risks of their activities but also gain access to new
markets and technologies, complement each other's
skills, and share knowledge, [19], [20], [21], in their
research findings, it is stated that the relationship
with the firm's business partners in the production
process that involves the value chain with a network
of foreign firms has a positive impact on increasing
the internationalization of the firm. This study
investigates how the concept of an Interfirm
Network affects local firms in developing countries.
Business groups as strength due to the presence of
networks were also stated in previous research, [16],
which explained that business groups as a form of
the inter-organizational network had produced
relational benefits between affiliated firms by
creating technological and managerial capabilities.
The presence of business groups as a network
between organizations depends on the firm's internal
capabilities, unique and specific capabilities. The
same thing was also expressed by J. Liu et al., [22],
who stated that the strength of the network in
encouraging the improvement of firm performance
is comparable and as important as increasing the
firm's competitiveness from the firm's R&D
activities. Based on the literature above, a
hypothesis is built in this study with a research
context approach to the high-tech industry in
Indonesia as a developing country.
H1. Interfirm Network has a positive and
significant impact on Firm Performance.
The importance of interfirm networks to innovation,
[23] requires more profound research on interfirm
networks and their effects on knowledge formation
processes and learning outcomes, [24]. Many
studies investigating the relationship between
knowledge transfer and interfirm networks, [23],
[25] have focused on knowledge transfer
mechanisms across interfirm, [26]. For firms
involved in internationalization strategies such as
export, the firm's relationship with other firms in a
network becomes very important. It has excellent
value for benefits, such as gaining access to
additional resources and expanding markets, [27].
Multinational firms focus on creating solid networks
with local firms and are oriented to a broader
network that can expand the firm's export prospects,
[28]. Thus, the opportunity to gain access to
knowledge resources can facilitate knowledge
transfer and therefore expand the firm's export
opportunities, [21]. Research by looking at how the
interfirm network will affect the firm's royalty
expenditures has also not been widely carried out.
Previous research related to royalty expenditures
only shows that royalty expenditures significantly
affect a firm's export competitiveness, [29].
Previous research has also seen the importance of
ownership and internationalization in the firm's
sustainability, [30]. Thus, further research is needed
to understand how networking between business
partners can affect innovation capability, export,
foreign ownership, and firm royalty expense.
H2a. Interfirm Network has a positive and
significant impact on Innovation Capability.
H2b. Interfirm Network has a positive and
significant impact on Export Participation.
H2c. Interfirm Network has a positive and
significant impact on Foreign Ownership.
H2d. Interfirm Network has a positive and
significant impact on Royalty Expense.
Regarding firm innovation, previous research stated
that management innovation and technological
innovation contributed positively and significantly
to sustainability and Firm Performance, [31].
However, other empirical research related to
innovation shows that the Innovation Capability of
firms in developing countries has less role in
supporting the internationalization performance of
firms. The effect of innovation is positive but not
significant, [32]. Yi, et al., in their research in the
manufacturing industry, stated that this relationship
could not be generalized but depends on the internal
management of the firm itself, [33]. Innovation
research is increasingly being investigated,
especially in Asian countries, [34]. This hypothesis
was built to determine the relationship between
innovation capability and firm performance in
developing countries.
H3. Innovation Capability has a positive and
significant impact on Firm Performance.
In terms of export influence, the firm's export
growth has a positive and significant impact on Firm
Performance. This explains that firms that carry out
high export activities will also get high profits so
that they can improve Firm Performance on an
ongoing basis, [35]. Research conducted by Munch
and Schaur stated the findings that export activities
increase firm sales, added value, and labor, [36]. For
SMEs, the increase in value added is three times
higher than the direct cost of exports. Based on
research at the Spanish Manufacturing firm, Firms
that carry out export activities are more productive,
more developed and have more prosperous
employees than firms that do not export. Export
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activities drive Firm Performance growth, [37].
Thus, H4 is stated as follows.
H4. Export Participation has a positive and
significant impact on Firm Performance.
Research related to firm ownership by Rashid
(2020) suggests that Foreign Ownership in a firm
has a significant positive influence on Firm
Performance, both measured in terms of financial
and market value. Zandi et al also strengthen this
finding with their research which states a positive
relationship between internal ownership structure
and external ownership, including Foreign
Ownership and Firm Performance, [39]. However,
research focusing on high-tech industries has not
been able to find references that discuss this matter.
Thus, H5 is stated as follows.
H5. Foreign Ownership has a positive and
significant impact on Firm Performance.
Regarding Royalty expense, F. J. Lin & Lai
(2020) , in their research on the key factors
influencing Technology Capability with the
construct of knowledge sharing, enrichment of
employee knowledge, cooperative relationships,
innovation, and government support, proves that
Technology Capability can improve Firm
Performance. Research conducted by Y. Chen,
Vanhaverbeke, & Du resulted in findings that
internal research and development activities and
external sources of knowledge have a positive
influence on Firm Performance, [41]. The strength
of this capability also increases influence in value
chain engagement and corporate networks. With the
incorporation of technological capability sources,
both external and internal knowledge is fundamental
in industry in developing countries. With the high
cost of access to technology in developing countries,
the expenditure of corporate royalties is a crucial
thing to consider. Therefore, the following
hypothesis was built.
H6. Royalty Expense has a positive and
significant impact on Firm Performance.
The need for a deeper understanding of how firms
search and combine various sources of knowledge
has become a major concern today, [42]. Likewise,
the recognition of the importance of the network as
a source of obtaining the firm's competitive
capabilities has received recognition in various
studies, [43]. Referring to previous research where
royalties are used as a basis for measuring the
increase in firm knowledge and technology obtained
from external sources, the study conducted by
Mursitama (2006) stated that the effect of royalty
expenditure as a form of technology transfer from
external to Firm Performance is highly dependent
on firm's internal resources, [16]. In this study,
royalty expenditure is used as a proxy for the firm's
Technology Capability. Other research also states
that the firm's Technology Capability is positively
related to performance. Firms with high technology
Capability tend to cooperate with external partners
in firm development, while firms with lower
Technology Capability tend to choose internal
development, [44]. In addition, there are also
findings that Technology Capability affects Firm
Performance indirectly through the firm's innovation
practices, [45]. The factors that mediate the
relationship between the interfirm network and firm
performance are interesting to study, especially in
developing countries, because not much has been
done, so the following hypothesis is built.
H7a. There is a mediating effect of Innovation
Capability on the relationship between Interfirm
Network and Firm Performance.
H7b. There is a mediating effect of Export
Participation on the relationship between
Interfirm Network and Firm Performance.
H7c. There is a mediating effect of Foreign
Ownership on the relationship between Interfirm
Network and Firm Performance.
H7d. There is a mediating effect of Royalty
Expense on the relationship between Interfirm
Network and Firm Performance.
3 Data and Variables
3.1 Study Context and Data
This research was conducted using data from the
high-tech industry in Indonesia as a study context
where the high-tech industry in Indonesia is one of
the industries that are the mainstay of economic
growth and is the focus of development as stated in
the 2020-2024 National Medium-Term
Development Plan, [18]. From the Making
Indonesia 4.0 roadmap there are 3 (three) of five
main sectors classified as high-tech industries,
namely industry of automotive, chemical, and
electronics. In line with the research by Tse, Yu and
Zhu, [46] where firms in developing countries still
need to learn from firms in developed countries, the
high-tech industry in Indonesia needs to develop
strategies to strengthen networks between firms to
get better management and technology transfer. Liu,
et al states that the strength of the network between
firms plays an important role in improving firm
performance and competitiveness, [22]. Therefore,
with the importance of interfirm networks in
strengthening firms, there is a need to investigate
the role of these networks in supporting the
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performance of the high-tech industry. The data in
this study are secondary data taken from official
government publications, namely the results of a
survey from the Indonesian Central Statistics
Agency (BPS). BPS publishes statistics for Medium
Large Industries (IBS), a classification of the
manufacturing industry based on the number of
workers in the firm. The research data is in the form
of cross-sectional data for the manufacturing
industry in 2017, data released in 2020. The time of
data collection (Time horizon) is a one-shot cross-
sectional, i.e., data is only taken once in a certain
period which is used to answer research questions,
[47]. The number of firms in the high-tech industry
in Indonesia is 4,903 firms, consisting of 7
industries with a two-digit International Standard
Industrial Classification (ISIC) manufacturing
industries approach, namely chemical,
pharmaceuticals, computer, electronic and optical
products, electrical equipment, machinery and
equipment, motor vehicles, trailers, and semi-
trailers, as well as other transport equipment. After
cleaning the data, the number of samples used in
further analysis is 2,578 firms.
3.1.1 Dependent Variable
We use firm performance as the dependent variable
in measuring performance in the form of firm
productivity using firm value-added data, [37].
Adopting research, [48], in this study, the definition
of Firm performance is the result of the firm's ability
to achieve its goals by using its resources to increase
its competitiveness. Performance measurement is
obtained from the value-added of output minus
input costs through the firm value-added.
3.1.2 Independent Variable
Interfirm Network. We measure the interfirm
network using the firm's revenue from the service
industry both domestically and abroad (log-
transformed). In the context of the manufacturing
industry, the interfirm network is defined as
involvement in corporate networks or interfirm in
national or international networks in the form of
being part of the inter-firm production process or
others process business, which has the effect of
strengthening the firm with broader access to
resources, [21].
3.1.3 Mediation Variables
Innovation Capability. We measure innovation
capability using a dummy measurement by giving 1
for firms that innovate and 0 for the other way
around, [49]. The innovations carried out can be
product innovation, [50], process innovation, [51]
marketing innovation, and organizational
innovation. In the context of the manufacturing
industry, innovation is mainly related to new
knowledge, technological improvement, and
business development, [46].
Foreign Ownership. We measure foreign ownership
in firms using a dummy measurement by giving 1
for firms with a foreign ownership percentage and 0
for the way around, [52]. Foreign ownership is
defined as ownership of a firm by foreign investors,
which makes the firm gain international knowledge,
technological and managerial knowledge, a better
commitment that can increase market share, thereby
increasing Firm Performance, [38].
Export. Following research from Sala-Ríos, Farré-
Perdiguer and Torres-Solé and Rachbini, [37], [52],
we use a dummy measurement by assigning 1 for
the firm that does the export activities and 0 for not
export activities. Export strategy is defined as a
strategy to expand the firm's market share by trading
products across countries. Through exports, firms
can increase their management knowledge, skill and
technological capability and finally increase their
competitiveness, [53].
Royalty Expense. Following the research from
Mursitama, [16], we use the measurement of royalty
expenditure in the form of the number of rupiah
issued by the firm to obtain information and or gain
knowledge of technology experts from outside the
firm. Royalty expense as a form of technology
capability measures the firm's ability to adapt,
improve and carry out organizational changes with
internal and external knowledge sources in the form
of technology transfers that enable firms to generate
competitive advantages, [40].
The test results on descriptive statistics can be seen
in Table 1. Table 1 displays the average, standard
deviation, and minimum and maximum values of
the data used in the study. This descriptive statistic
describes or provides an overview of the object
under study through sample data (Sugiyono, 2007).
Table 2 presents the correlation test between the
variables used in this study. This table shows that all
correlations are positive and significant, and the
most considerable correlation is between firm
performance and the interfirm network (0.658),
which means that the more interfirm networks the
firm does, the higher the firm performance
achieved.
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Table 1. Result of Descriptive Statistics
Variable
Mean
Std. Dev
Min
Max
FP
17.702
1.626
12.514
23.877
INT
15.171
2.285
7.475
22.130
INO
.619
1.183
0
4
EX
.124
.329
0
1
FO
.148
.356
0
1
RE
10.453
3.304
1.386
20.756
Note(s): FP = Firm Performance, IN = Interfirm Network, INO
= Innovation Capability, EX = Export Participation, FO =
Foreign Ownership, RE = Royalty Expense.
Table 2. Correlation between Research variables
Variable
FP
INT
INO
EX
FO
RE
FP
INT
0.658
INO
0.598
0.412
EX
0.434
0.408
0.581
FO
0.128
0.183
0.023
0.182
RE
0.505
0.567
0.336
0.318
0.091
Note(s): FP = Firm Performance, IN = Interfirm Network, INO
= Innovation Capability, EX = Export Participation, FO =
Foreign Ownership, RE = Royalty Expense.
4 Result and Discussion
Calculation of R square using the command
Seemingly unrelated regression in stata, as shown in
Table 3, where it can be seen the magnitude of the
contribution of the influence given by the
independent variable to the dependent variable
simultaneously. Interfirm network variables,
innovation capability, foreign ownership, export,
and royalty expense together affect the firm’s
performance by 80.7%. The magnitude of this
influence belongs to the category of strong
influence, [54]. Thus, it can be concluded that,
together, all the independent variables in the
research model significantly affect the firm's
performance when the firm is involved in a network
between firms, which is measured using industrial
services produced by the firm from the network. On
the other hand, it will negatively impact if the firm
does not collaborate with other firms. However,
there is a weak influence of foreign ownership on
firm performance. This means that the presence of
foreign investors has not been able to make a
maximum contribution to achieving firm
performance in the high-tech industry in Indonesia.
Table 3. Value of Coefficient of Determination (R2)
Equation
R-sq
P
Category
FP
0.807
0.000
Strong
INO
0.430
0.000
Moderate
EX
0.343
0.000
Moderate
FO
0.058
0.000
Weak
RE
0.614
0.000
Moderate
The statistical analysis results for the research
model are presented in Figure 1 and Table 4. The
results in Table 4 show that for the measurement of
the direct influence of the interfirm network as an
independent variable on the mediating variable and
the dependent variable, most of them show a
positive and significant relationship. This positive
and significant direct effect can be seen in the
influence of the interfirm network on firm
performance (H1, path coefficient = 0.358, p <
0.05), between the interfirm network and innovation
capability (H2a, path coefficient = 0.163, p < 0.05),
between the interfirm network with export
participation (H2b, path coefficient = 0.040, p <
0.05), between interfirm networks and foreign
ownership (H2c, path coefficient = 0.023, p < 0.05),
and between interfirm networks and royalty expense
(H2d, path coefficient = 0.386, p < 0.05). So, these
hypotheses are supported. This indicates that firms
in the high-tech industry need to increase
involvement in inter-firm networks to obtain better
firm performance, increase innovation, export
opportunities, obtain foreign investment, and
increase firm royalties.
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Table 4. Summary of hypothesis testing path model
Hypot
hesis
Relationsh
ip
Coefficie
nt
Std.Er
r.
z-
value
s
p>[z]
H1
INT FP
.358
.009
38.20
0.000
H2a
INT
INO
.163
.010
15.23
0.000
H2b
INT
EX
.040
.003
12.45
0.000
H2c
INT
FO
.023
.004
5.65
0.000
H2d
INT
RE
.386
.024
15.58
0.000
H3
INO
FP
.241
.017
13.89
0.000
H4
EX FP
-.525
.056
-9.23
0.000
H5
FO FP
.099
.041
2.39
0.017
H6
RE FP
-.025
.007
-3.67
0.000
H7a
INT
INO
FP
.039
.003
10.26
0.000
H7b
INT
EX FP
-.021
.002
-7.41
0.000
H7c
INT
FO FP
.002
.001
2.20
0.028
H7d
INT
RE FP
-.009
.002
-3.58
0.000
Note(s): p<0.05
A positive relationship was also found in the
relationship between innovation capability and firm
performance (H3, path coefficient = 0.241, p <
0.05), between foreign ownership and firm
performance (H5, path coefficient = 0.099, p <
0.05). So, these hypotheses are supported. This
indicates that to achieve good corporate
performance, firms in the high-tech industry need to
increase their innovation capabilities and the
presence of foreign ownership in the firm. However,
negative, and significant relationships were also
found in several hypotheses, such as between export
participation and firm performance (H4, path
coefficient = -.525, p < 0.05) and between royalty
expense and firm performance (H6, path coefficient
= -.025, p < 0.05). Thus, both hypotheses are
rejected. This indicates that firms in the high-tech
industry need to review the firm's export strategy
and the royalties incurred because it reduces firm
performance.
Meanwhile, the results of the indirect influence
hypothesis where innovation capability and foreign
ownership are proven to be significant in mediating
the relationship between the interfirm network and
firm performance (H7a, path coefficient = .039, p <
0.05, H7c, path coefficient = .002, p < 0.05). Thus,
the two hypotheses of indirect influence are
supported, while the mediating role of export
participation and royalty expense is negative and
significant (H7b, path coefficient = -.021, p < 0.05,
H7d, path coefficient = -.009, p < 0.05), thus this
hypothesis is not supported.
5 Discussion
The interfirm network greatly influences firm
performance in this research model. The interfirm
network also positively and significantly affects
Innovation Capability, Export Participation, Foreign
Ownership, and Royalty Expense. This result
provides knowledge that firm involvement in inter-
firm networks is a critical factor in improving firm
performance and increasing innovation,
involvement of foreign parties, encouraging firm
exports, and increasing firm royalties. The positive
relationship between interfirm networks and firm
performance supports previous research from
Rajaguru and Matanda in 2019, [55]. This result is
consistent with Liu, Henley and Mousavi in 2021,
[21], who stated that the relationship with external
networks positively affects firm performance,
especially firm internationalization. Therefore, firm
management in the high-tech industry needs to
understand the concept of an interfirm network in
the sense that the existence of this network opens
opportunities for firms to transfer knowledge, learn
from firm partners, share facilities and infrastructure
so that firms can set strategies optimally to focus on
developing the main functions of the firm's business
processes.
Firm performance is positively and significantly
influenced by innovation capability and foreign
ownership. This means that the firm's management
needs to focus on developing the firm's ability to
innovate, both product innovation, process
innovation, marketing innovation, and
organizational innovation. Likewise, firms need to
develop firm attractiveness to attract foreign
investors to increase foreign ownership, which
positively and significantly affects firm
WSEAS TRANSACTIONS on BUSINESS and ECONOMICS
DOI: 10.37394/23207.2023.20.99
Noerlina, Tirta Nugraha Mursitama,
Boto Simatupang, Agustinus Bandur
E-ISSN: 2224-2899
1116
Volume 20, 2023
performance. The importance of this ability to
innovate while still paying attention to market
conditions faced by the firm is in line with previous
research [56], which stated that innovation increases
the competitiveness of firms, where innovation itself
is influenced by external factors, both factors with
micro and macro-orientation levels. Meanwhile, in
terms of foreign ownership, this study supports
previous research conducted by Douma, George and
Kabir, [57], which stated that Foreign Ownership is
a positive and significant influence on Firm
Performance in various forms of Firm Performance
measurement proxies.
Innovation capability and foreign ownership
also impact mediating the relationship between the
interfirm network and firm performance. Although
the effect of this mediation is smaller than the direct
effect of the interfirm network on firm performance,
the role of this mediation still needs to be
considered by firm management in optimizing all
existing opportunities. Innovation and exports as
one of the factors that support the firm's growth
from national to international competition can be
seen from previous research, which states that Firms
need innovation Capability to be able to compete
internationally, and in winning the competition, it
needs to be supported by the strength of the firm's
capital and high-tech products that exported, [32].
Innovation capability and foreign ownership as
part of internal capability, have a positive role in
mediating the influence of the interfirm network on
firm performance, although this effect is not as large
as the direct effect of the interfirm network on the
firm's performance without mediation. This research
shows that the firm's involvement in the interfirm
network has a very important role in improving the
firm's performance. Firms that have both national
and global networks need to focus on innovating
and increasing foreign investment in effort to get
even better performance. Aspects of innovation
capability need to be improved i.e. product
innovation to meet market needs, process innovation
to improve the firm's production process more
efficiently, marketing innovation to reach a wider
market, and organizational innovation to improve
firm operations efficiently and effectively. Foreign
ownership has a positive impact because foreign
investors will bring their network into the firm,
better corporate governance, more transparency and
new technology from the home country where they
come from. In other words, there will be an internal
transfer of knowledge within the firm which can
encourage better firm performance.
From external capability, export and royalty
expenses have a negative impact in mediating the
influence of the interfirm network on firm
performance. This negative effect comes from the
internationalization costs that must be incurred by
the firm. However, with the involvement of firms in
interfirm networks, the negative impact of exports
and royalty expenses can be minimized. In other
words, the role of networking between firms helps
firms improve their ability to compete globally in
the form of exports, although they have not been
able to increase firm profits. Likewise, the strategy
of obtaining knowledge and technology from
external or market in the form of royalty expense
which indicates technology dependence from
licensing turned out to be detrimental to the firm.
Firms should have internal knowledge transfer
rather than depending on the market. Innovation
capability has the best mediating role compared to
other mediating variables and the best strategy that
the firm can do is to implement an interfirm network
strategy in maximizing the firm's performance.
6 Conclusion
Firms that collaborate on networks have an
excellent opportunity to benefit from utilizing the
network in various ways. They not only share the
costs and risks of their activities but also gain access
to new markets and technologies, complement each
other according to their respective skills, and share
knowledge, which with access to resources and
capabilities enhances performance, [19], [20]. From
the tests carried out in this study, it can be seen that,
in line with previous research, the Interfirm network
has proven to have a significant influence on firm
performance in the high-tech industry in Indonesia.
Internal capability has an important influence on
firm performance compared to external capability.
However, if the firm is involved in the interfirm
network, it will strengthen the role of external
capability.
This study proves that the firm's involvement in
interfirm networks is a critical factor in improving
firm performance and increasing innovation,
involvement of foreign parties, encouraging firm
exports, and rising firm royalties. This is in line with
several previous studies showing collaboration with
external partners allows firms to increase their
knowledge, resources and technology, [26], [58],
which in turn will encourage higher innovation and
learning capabilities, to improve firm performance,
[24].
Some of the limitations in this study are (1) the
data used in the study only uses one year of data, so
it is recommended for further research to use data of
more than one year or panel data so that the test
WSEAS TRANSACTIONS on BUSINESS and ECONOMICS
DOI: 10.37394/23207.2023.20.99
Noerlina, Tirta Nugraha Mursitama,
Boto Simatupang, Agustinus Bandur
E-ISSN: 2224-2899
1117
Volume 20, 2023
results can contribute more strongly to the firm's
managerial practices and government policy, (2)
Tests are carried out in high-tech industries without
looking at the specific industries in them, so that in
the future it is necessary to carry out statistical tests
per industry, such as specifically for the chemical,
computer, and other industries based on
international industrial classification standards
(ISIC). The importance of research by paying
attention to the specific industries because it refers
to previous research which states that the effect of
technological capabilities on a firm's value chain
depends on the characteristics of industries, [59].
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Contribution of Individual Authors to the
Creation of a Scientific Article (Ghostwriting
Policy)
The authors equally contributed in the present
research, at all stages from the formulation of the
problem to the final findings and solution.
Sources of Funding for Research Presented in a
Scientific Article or Scientific Article Itself
No funding was received for conducting this study.
Conflict of Interest
The authors have no conflict of interest to declare.
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WSEAS TRANSACTIONS on BUSINESS and ECONOMICS
DOI: 10.37394/23207.2023.20.99
Noerlina, Tirta Nugraha Mursitama,
Boto Simatupang, Agustinus Bandur
E-ISSN: 2224-2899
1120
Volume 20, 2023
