Abstract
This study investigates how social media adoption, conceptualized as a form of digital network capability, affects the business performance of bamboo woven craft SMEs in Bali Province, Indonesia, while examining the mediating role of product innovation and the moderating role of government support. Employing a quantitative approach, data were collected from 260 SME owners who actively utilize social media platforms across four districts/cities in Bali, selected through purposive sampling, and analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) with SmartPLS. The results indicate that social media adoption exerts a positive and significant influence on both business performance and product innovation. Product innovation, in turn, positively affects performance and partially mediates the relationship between social media adoption and business performance. Notably, government support negatively moderates the link between social media adoption and product innovation, suggesting an institutional substitution effect. The findings further reveal that digital interaction networks enabled through social media provide valuable information and knowledge resources that underpin innovation and performance outcomes. While the cross-sectional design limits causal inference and the geographic concentration constrains generalizability, future research should adopt longitudinal approaches and explore digital interaction intensity, network characteristics, and social media analytics capabilities to better understand network-based innovation processes. By integrating the Resource-Based View, Dynamic Capability Theory, and a digital network perspective, this study contributes novel evidence on network-based innovation in SMEs and clarifies the nuanced role of government support in shaping digital innovation outcomes within culturally embedded industries.