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Micro, small and medium enterprises (MSME – Indonesian: UMKM – Usaha Micro, Kecil dan Menengah) are the key to increase growth, create employment, act as the source of people’s income, to fulfil the need of goods and services, to increase the added values which eventually influence the economic growth. This research is aimed to explain how business environment and capability influence the competitive advantage which plays an important role that determines the business performance of MSME. The total sample able to be collected with web-based design is 56 MSME/UMKM from all over Indonesia. The analysis technique used is structural equation modeling (SEM). The study proves that business environment does not significantly influence the business performance of MSME/UMKM. However, this variable contributes significant indirect influence with a greater level than its direct influence. The finding indicates that improvement in business environment will be able to boost the business performance if it is combined with the improvement in competitive advantage of the MSME/UMKM.

The success of the business cannot be separated from an implementation and utilization of information technology encouraging the creation of a competitive business which can be seen from the effectiveness of its supporting system. Currently, many business owners are inspired to improve their business with digitalization. The 4.0 industry revolution does not only occur in the government environment but also transpires other businesses with traditional culture background. A unique custom contributes advantages to Yogyakarta Special Region (Daerah Istimewa Yogyakarta) which produces traditional hand-drawn batik. The batik pieces are then processed into kemben. This study aims to find out the role of customer satisfaction in order to improve competitiveness through product quality, service quality, and price. This study used a snowball sampling method of 200 respondents analyzed using SEM (Structural Equation Modeling). The result showed that product quality and price affect customer satisfaction through service quality. Eventually, the increasing product quality will provide benefits for Micro Small Medium Enterprises (MSMEs) of kemben in Yogyakarta Special Region and bring improvement for the local economy.