The Impact of Islamic Business Ethics on the Sustainable Competitive Advantage of SMEs: An Empirical Study
DOI:
https://doi.org/10.66931/jmb-44Keywords:
Islamic business ethics, sustainable competitive advantage, SMEs, customer trust, business sustainabilityAbstract
This study examines the impact of Islamic business ethics on the sustainable competitive advantage of small and medium enterprises (SMEs) in Lumajang Regency. The research is grounded in the argument that ethical business conduct is not merely a normative religious obligation, but also a strategic resource that can strengthen long-term business performance. Using a qualitative approach with a case study design, this study explores how the implementation of Islamic business ethics is reflected in everyday business practices and how it contributes to the sustainability of competitive advantage. Data were collected through in-depth interviews, observation, and documentation involving SME owners, employees, and customers. The data were analyzed using data condensation, data display, and conclusion drawing/verification. The findings show that Islamic business ethics, particularly honesty, trustworthiness, fairness, and responsibility, plays a significant role in building customer trust, strengthening loyalty, enhancing business reputation, and supporting long-term relationships with consumers. These elements collectively form an intangible basis for sustainable competitive advantage. The study also reveals that ethical values are operationalized through simple but consistent practices, such as transparent pricing, truthful product information, fair service, and responsible complaint handling. Theoretically, this study contributes to the literature by positioning Islamic business ethics as a strategic intangible resource in explaining sustainable competitive advantage. Practically, the findings suggest that SME development should integrate ethical capacity alongside technical and economic strengthening. This study highlights the importance of value-based business practices in enhancing the resilience and sustainability of SMEs in a competitive market environment.
References
Ahmad, M., Wu, Q., & Khattak, M. S. (2023). Intellectual capital, corporate social responsibility and sustainable competitive performance of small and medium-sized enterprises: mediating effects of organizational innovation. Kybernetes, 52(10), 4014–4040. https://doi.org/10.1108/K-02-2022-0234
Al-Hakimi, M. A., Saleh, M. H., Borade, D. B., Hasan, M. B., & Sharma, D. (2023). Competitor orientation and SME performance in competitive environments: the moderating effect of marketing ethics. Journal of Entrepreneurship in Emerging Economies, 15(6), 1490–1511. https://doi.org/10.1108/JEEE-12-2021-0486
Alam, M. A., Rooney, D., Lundmark, E., & Taylor, M. (2023). The Ethics of Sharing: Does Generosity Erode the Competitive Advantage of an Ecosystem Firm? MA Alam et al. Journal of Business Ethics, 187(4), 821–839. https://doi.org/10.1007/s10551-022-05228-5
Astuti, A., Mulianingsih, F., Purnomo, A., & Saputra, D. (2025). Integration of Religious Moderation in Social Studies Education for Strengthening Disaster Resilience and Sustainable Economic Development in Vulnerable Communities. Educational Process: International Journal, 18, e2025436. https://doi.org/10.22521/edupij.2025.18.436
Astuty, E., Sudirman, I. D., & Aryanto, R. (2024). Sustainable resilience strategy: unleash the micro-businesses’s potential in the digitalization and sustainability era. Cogent Business & Management, 11(1), 2313672. https://doi.org/10.1080/23311975.2024.2313672
Atobishi, T., & Podruzsik, S. (2025). Ethical Entrepreneurial Leadership and Corporate Sustainable Development: A Resource-Based View of Competitive Advantage in Small and Medium Enterprises. Sustainability, 17(13), 6109. https://doi.org/10.3390/su17136109
Badwan, N. (2025). Role of supply chain partnership, cross-functional integration, responsiveness and resilience on competitive advantages: empirical evidence from Palestine. The TQM Journal, 37(5), 1385–1417. https://doi.org/10.1108/TQM-12-2023-0402
Buenafe, K. A., Bandico, X. S., Neri, L. A. W., & Manala-O, S. D. (2025). Why halal certification remains elusive: evidence from foodservice businesses in the Philippines. Cogent Business & Management, 12(1), 2582802. https://doi.org/10.1080/23311975.2025.2582802
Cutcliffe, J. R., & McKenna, H. P. (2004). Expert qualitative researchers and the use of audit trails. Journal of Advanced Nursing, 45(2), 126–133. https://doi.org/10.1046/j.1365-2648.2003.02874.x
Darmawan, D. (2025). Customer Confidence as a Business Asset: The Role of Transparency and Data Ethics in Loyalty and Reputational Resilience. International Journal of Service Science, Management, Engineering, and Technology, 7(3), 35–44.
Elgarhy, S. D., & Abou-Shouk, M. (2023). Effects of entrepreneurial orientation, marketing, and innovation capabilities, on market performance: The mediating effect of sustainable competitive advantage. International Journal of Contemporary Hospitality Management, 35(6), 1986–2004. https://doi.org/10.1108/IJCHM-04-2022-0508
Gammelgaard, B. (2017). The qualitative case study. The International Journal of Logistics Management, Vol. 28, pp. 910–913. Emerald Publishing Limited. https://doi.org/10.1108/IJLM-09-2017-0231
Insan, A., & Nuzil, N. R. (2025). The Influence of Financial Literacy and Market Orientation on Sustainable Business Competitiveness in Improving UMKM Performance (Study on MSMEs in Malang City). Al-Kharaj: Journal of Islamic Economic and Business, 7(2).
Ismaeel, M., & Blaim, K. (2012). Toward applied Islamic business ethics: responsible halal business. Journal of Management Development, 31(10), 1090–1100. https://doi.org/10.1108/02621711211281889
Khan, S. Z., Yang, Q., & Waheed, A. (2019). Investment in intangible resources and capabilities spurs sustainable competitive advantage and firm performance. Corporate Social Responsibility and Environmental Management, 26(2), 285–295. https://doi.org/10.1002/csr.1678
Lahmar, A., & Al Qaruty, R. (2026). Mitigating risks in the halal supply chain: a bibliometric review of the role of technologies. Journal of Islamic Marketing, 1–26. https://doi.org/10.1108/JIMA-07-2025-0412
Liu, H., Ma, S., AlWadi, B. M., Alam, F., & Zhang, Y. (2025). Exploring the nexus between corporate social responsibility and consumer green behavior: the interplay of corporate image, service quality, customer trust and satisfaction. Social Responsibility Journal, 21(4), 751–775. https://doi.org/10.1108/SRJ-03-2024-0189
Melewar, T. C., Foroudi, P., Gupta, S., Kitchen, P. J., & Foroudi, M. M. (2017). Integrating identity, strategy and communications for trust, loyalty and commitment. European Journal of Marketing, 51(3), 572–604. https://doi.org/10.1108/EJM-08-2015-0616
Miles, M. B., & Huberman, A. M. (1984). Drawing valid meaning from qualitative data: Toward a shared craft. Educational Researcher, 13(5), 20–30. https://doi.org/10.3102/0013189X013005020
Morse, J. M., Barrett, M., Mayan, M., Olson, K., & Spiers, J. (2002). Verification strategies for establishing reliability and validity in qualitative research. International Journal of Qualitative Methods, 1(2), 13–22. https://doi.org/10.1177/160940690200100202
Purnomo, S., & Purwandari, S. (2025). A comprehensive micro, small, and medium enterprise empowerment model for developing sustainable tourism villages in rural communities: A perspective. Sustainability, 17(4), 1368. https://doi.org/10.3390/su17041368
Radhakrishnan, M. R. K., & Vanithamani, D. R. M. R. (2025). Investigation Study On The Factors That Influence The Quality Management And Challenges For Its Adaptation: From Msme & Indian Perspective. TPM–Testing, Psychometrics, Methodology in Applied Psychology, 32(S7 (2025): Posted 10 October), 128–139.
Rizkita, M. A., Winarno, A., & Suwono, H. (2025). Harnessing Sustainability and Innovation in Micro, Small, and Medium Enterprises: Strategies and Challenges for Competitive Advantage. International Journal of Sustainable Development & Planning, 20(6). https://doi.org/10.18280/ijsdp.200630
Romero, D., Kwan, A., & Suchman, L. (2019). Methodologic approach to sampling and field-based data collection for a large-scale in-depth interview study: The Social Position and Family Formation (SPAFF) project. PloS One, 14(1), e0210776. https://doi.org/10.1371/journal.pone.0210776
Santoso, A. S., Faizi, F., Sagita, A. S., Hariyanti, D. H., & Takidah, E. (2026). Islamic business ethics and organizational ambidexterity: a new paradigm for business performance in Islamic business. International Journal of Ethics and Systems, 1–30. https://doi.org/10.1108/IJOES-09-2025-0525
Sarwar, M. (2025). The Application of Shariah in Multicultural Societies: Challenges and Opportunities. AL-JAMEI Research Journal, 2(2), 317–324.
Shailendra, M. D. (2024). The Role of Micro, Small, and Medium Enterprises (MSMEs) in India in Achieving Sustainable Development Goals (SDGs). Sustainable Development Goals & Business Sustainability, 228(4), 545–549.
Smallbone, D., & Welter, F. (2001). The role of government in SME development in transition economies. International Small Business Journal, 19(4), 63–77. https://doi.org/10.1177/0266242601194004
Sobirin, S., Taking, M. I., Burchanuddin, A., Karim, A., & Mandala, S. (2023). Potential analysis of the agricultural sector in the development of an agropolitan area in Maros Regency. Nongye Jixie Xuebao/Transactions of the Chinese Society of Agricultural Machinery, 54(8).
Sulaeman, S., Herianingrum, S., Ryandono, M. N. H., Napitupulu, R. M., Hapsari, M. I., Furqani, H., & Bahari, Z. (2025). Islamic business ethics in the framework of higher ethical objective (Maqasid al-Shariah): a comprehensive analysis and future research directions. International Journal of Ethics and Systems, 1–29. https://doi.org/10.1108/IJOES-12-2024-0398
Sulaiman, E., & Novandari, W. (2025). Value-Based Innovative Image to Increase Consumer Preferences in MSMEs Product Purchase Decisions. PaperASIA, 41(5b), 235–246. https://doi.org/10.59953/paperasia.v41i5b.612
Supatminingsih, T., Hasan, M., Farhan, M., Yunus, A., Handayani, A. A., & Susanti. (2025). The role of innovation and technology in MSME performance: the importance of Muslim entrepreneurs’ motivation in open innovation. Cogent Business & Management, 12(1), 2504127.
Susiang, M. I. N., Siswanti, I., Permana, D., & Wibowo, M. W. (2024). Effects of competitive intelligence and halal integrity on Halalan Tayyiban implementation strategy in Indonesian MSMEs: the mediating role of halal orientation strategy. Journal of Islamic Marketing.
Tlaiss, H. A. (2015). How Islamic business ethics impact women entrepreneurs: Insights from four Arab Middle Eastern countries. Journal of Business Ethics, 129(4), 859–877.
Vasani, S., & Abdulkareem, A. M. (2024). MSME market presence and competitiveness in a global economy. Cogent Economics & Finance, 12(1), 2416992.
Vrbka, J. (2020). The use of neural networks to determine value based drivers for SMEs operating in the rural areas of the Czech Republic. Oeconomia Copernicana, 11(2), 325–346.
Winkler, T. (2023). A concept for evaluating value-oriented frameworks in software engineering. Vienna University of Economics and Business (Doctoral Thesis).
Xiong, X., Zheng, L.-W., Ding, Y., Chen, Y.-F., Cai, Y.-W., Wang, L.-P., … Yu, K.-D. (2025). Breast cancer: pathogenesis and treatments. Signal Transduction and Targeted Therapy, 10(1), 49.
Yan, X., Espinosa-Cristia, J. F., Kumari, K., & Cioca, L. I. (2022). Relationship between corporate social responsibility, organizational trust, and corporate reputation for sustainable performance. Sustainability, 14(14), 8737.
Zulgani, Z., Junaidi, J., Hastuti, D., Rustiadi, E., Pravitasari, A. E., & Asfahani, F. R. (2023). Understanding the emergence of rural agrotourism: a study of influential factors in jambi province, indonesia. Economies, 11(7), 180.
