External Support, Innovation, and Digital Transformation in Village-Owned Enterprises for Sustainable Rural Development Amid the COVID-19 Crisis

¹ Department of Accounting, Faculty of Economics and Business, Universitas Muhammadiyah Yogyakarta, Indonesia
² Department of Management, College of Business Administration (COBA), University of Sharjah, Sharjah, United Arab Emirates
³ School of Business and Economics, Universiti Brunei Darussalam, Brunei Darussalam

^* Corresponding author: r.yaya@umy.ac.id

Abstract

This study analyses the effect of innovation and digital transformation on the performance of Village-Owned Enterprises (VOEs) in Indonesia and explores how the external support can moderate the effect to encourage sustainable rural development in the face of the COVID-19 crisis. Data on 145 VOEs were collected using a web-based survey in various provinces and evaluated using Structural Equation Modelling (SEM). The results prove that innovation can be significant and positively related to VOE performance, and the strategic role of product, service, process, and organizational innovation is essential to maintain resilience under disruption conditions. On the other hand, online marketing through digital transformation does not present a strong correlation with VOE performance, so there are difficulties in the adaptation and integration of digital technologies in order to achieve success. In addition, the external support, including government initiatives, institutional assistance, and community engagement, does not have a substantial moderating effect on the relationship between innovation, digital transformation, and performance outcomes. These findings indicate that innovation continues to be a key performance driver, although more adjustment of external support mechanisms to digital transformation strategies is necessary to make sustainable rural enterprise growth in the post-pandemic situation possible.