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Drivers and
Halal standard implementation in impact on
food manufacturing SMEs: performance

its drivers and impact

on performance
Ida Giyanti and Anita Indrasari Received 26 November 2019
Revised 11 March 2020
Industrial Engineering Study Program, Faculty of Engineering, Universitas Setia Accepted 19 May 2020
Budi, Surakarta, Indonesia, and
Wahyudi Sutopo and Eko Liquiddanu
Department of Industrial Engineering, Faculty of Engineering, Universitas Sebelas
Maret, Surakarta, Indonesia

Abstract
Purpose – The purpose of this paper is to investigate the drivers of the depth of halal standard
implementation in the halal-certified food manufacturing small- and medium-sized enterprises (SMEs). The
second aim of this paper is to empirically examine the effect of halal standard practices on the SME’s
performance.
Design/methodology/approach – Of the 143 halal-certified SMEs in Solo Raya, Province of Central
Java, Indonesia, 83 were willing to take part in the present research. The survey was carried out by an on-site
visit to the targeted respondents. A structured questionnaire was used to gather primary data. Partial least
square structural equation model was then used to analyze the collected data.
Findings – The results proved that internal motivation and organization commitment positively affect halal
standard implementation, while external pressures do not. The external pressures influence the depth of halal
standard implementation through internal motivation as a mediating variable. Furthermore, the depth of
halal standard implementation leads to the improvement of operational performance. The improvement of
operational performance can further encourage the increase of market performance and financial
performance.
Research limitations/implications – The first limitation of this research is about the samples in which
they are small-sized and restricted to food manufacturing SMEs. Another limitation is the subjectivity of
SME’s managers when evaluating performance, which may provide imprecise measures of performance.
Practical implications – The findings suggest the notion that success of halal standard implementation
depends on the capabilities of SMEs to convert the external pressures into internal motivation. Moreover,
food-manufacturing SMEs should consider halal standard as an innovative tool to be applied in their daily
operation and production as the halal standard has a significant role in influencing SME’s performance.
Originality/value – To the best of the authors’ knowledge, this research is the first attempt in integrating
drivers, halal standard implementation and performance in the specific context of food manufacturing SMEs
in Indonesia.
Keywords Halal certification, Halal drivers, Halal food standard, Performance, PLS-SEM,
Small and Medium Enterprises (SMEs)

This research was financially supported by the Directorate of Research and Public Service, Ministry
of Research, Technology and Higher Education, the Republic of Indonesia through “Penelitian Journal of Islamic Marketing
Kerjasama Perguruan Tinggi (PKPT)” scheme in the fiscal year 2019 (Contract No. 228/SP2H/LT/ © Emerald Publishing Limited
1759-0833
DRPM/2019 and 004/LPPM-USB/Pekerti/V/2019). DOI 10.1108/JIMA-11-2019-0243
JIMA Paper type Research paper

1. Introduction
Halal, as one type of the food management systems to guarantee the quality of food safety,
has gained great attention in practice as well as in research. Practically, nowadays the halal
food market is still growing, both from the supply and demand side. From the supply side,
an increasing number of food manufacturers around the world, from small enterprises to
large companies, have been adopting halal standard into their operations and productions
(Lever and Miele, 2012). State of the Global Islamic Economy Report on 2018/2019 noted that
halal food has more companies than any other sector of the Islamic economy (Thomson
Reuters and Dinar Standard, 2018). More and more products are offered to the market as
ingredients are increasingly halal certified. In the demand side, Thomson Reuters and Dinar
Standard (2019) reported that in 2018, global Muslim spends about US$1.4tn on food and
beverage. It is forecasted to rise to US$2.0tn by 2024. Additionally, Hexa Research predicted
that in 2024, the global halal food market will reach US$2.55tn (Cooper, 2017). Interestingly,
the growing market demand for halal products (“meat and money”) does not solely come
from Muslim consumers (Wilson, 2012; Wilson and Liu, 2010). Previous research studies
revealed that even non-Muslim consumers give a positive perception of halal products (Aziz
and Chok, 2013; Golnaz et al., 2010; Haque et al., 2015; Ismail and Nasiruddin, 2014; Mathew
et al., 2014; Rezai et al., 2012; Teng and Wan Jusoh, 2013; Wibowo and Ahmad, 2016). For
non-Muslims, the halal logo describes that the product is hygienic and meets quality
standards (Rezai et al., 2012).
A review of prior studies regarding drivers, practices and outcomes of halal food
standard as depicted in Table 1 reveals that halal research has stimulated increasing
attention from many scholars. The prior research studies regarding halal food standard can
be divided into four streams. First, research studies concerning the drivers of halal practices
(Ab Talib, 2017; Ab Talib et al., 2015, 2016b; Ahmad et al., 2017; Azmi et al., 2016; Din and
Daud, 2014; Shuhada et al., 2018; Soltanian et al., 2016; Viverita et al., 2017). Second, studies
focusing on the halal implementation (A’Diat et al., 2018; Bahron, 2016; Daud et al., 2011;
Dewantara et al., 2018; Perdani et al., 2018; Shariff et al., 2014). Third, research studies
concerned with the outcome of implementing halal standard (Ab Talib, 2017; Mohamed
et al., 2014; Tahir et al., 2016; Yusuf et al., 2016). While the fourth stream explored the
relationship between two variables, namely, how drivers affect halal practices (Ab Talib and
Ai Chin, 2018; Zailani et al., 2015) and effect of halal practices on performances (Ab Talib
et al., 2016a; Ab Talib et al., 2017; Aldista et al., 2017; Rafiki and Wahab, 2013; Salindal, 2019;
Zailani et al., 2019).
The review indicated that systematic empirical evidence integrating the drivers, halal
food standard implementation and performance is lacking. Although the work of
Kafetzopoulos and Gotzamani (2014) provides empirical evidence on the linkage of
important factors, food quality implementation and performance, but instead of halal food
standard, they are concerned with International Organization for Standardization (ISO) 9001
and Hazard Analysis of Critical Control Point (HACCP) system. Additionally, as listed in
Table 1, prior studies on the drivers and the outcome of halal standard implementation in
the context of Indonesia barely exists. To generalize their research’s result, Ab Talib et al.
(2017) suggested testing their model for other halal standards in other countries, including
Indonesia.
According to Pew Research Center (2019), in 2015, Indonesia was the top country with
the largest Muslim population and made up 12.6% of the global Muslim population. Having
the biggest Muslim population in the world, Indonesia cannot only become target market for
 Research variable(s) Variable’s
Author(s) Theme Method Industry Country Driver Practices Outcome relationship

Ab Talib et al. Motivation and limitation Literature review Food Not specific  – – –
(2015) of halal certification
Azmi et al. (2016) Adoption factors of halal Literature review Food Malaysia  – – –
standards
Viverita et al. Motivations and Survey Food SMEs Indonesia  – – –
(2017) challenges for halal
certification
Ab Talib et al. External motivation for Literature review Food Not specific  – – –
(2016a) halal certification
Ahmad et al. Critical success factors for Deep interview Food SMEs Malaysia  – – –
(2017) effective halal
implementation
Din and Daud Critical success factors for Interview and Food Malaysia  – – –
(2014) halal implementation literature review
Soltanian et al. Motivational factors of Survey SMEs Malaysia  – – –
(2016) halalpreneurs
Shuhada et al. Motivational factors of Literature review SMEs Malaysia  – – –
(2018) halal certification
A’Diat et al. Implementation of halal Case study Beef floss SME Indonesia –  – –
(2018) standard
Dewantara et al. Implementation of halal Case study Tofu SME Indonesia –  – –
(2018) standard
Bahron (2016) Level of halal Survey Food and Malaysia –  – –
implementation beverage
industry
Daud et al. (2011) Implementation of halal Survey Halal companies Malaysia –  – –
standard
Perdani et al. Implementation of halal Case study Bakery SME Indonesia –  – –
(2018) standard
Shariff et al. Implementation of halal Case study Chocolate SME Malaysia –  – –
(2014) standard
(continued)

food standard
the drivers, practices
Previous research on
Table 1.
impact on

and outcome of halal

performance
Drivers and
 JIMA

Table 1.
Research variable(s) Variable’s
Author(s) Theme Method Industry Country Driver Practices Outcome relationship

Tahir et al. (2016) Benefits of halal Survey Food SMEs Malaysia – –  –

certification
Mohamed et al. Impact of halal Long Survey Large companies Malaysia – –  –
(2014) certification on business
financial performance
Yusuf et al. Halal certification and Literature review Food companies Malaysia – –  –
(2016) business growth
Ab Talib (2017) Motivation and benefits of Literature review Food Not specific  –  –
halal certification
Ab Talib and Ai External and internal Survey Food Malaysia   – 
Chin (2018) motivation for halal manufacturer
implementation
Zailani et al. Drivers of halal strategy Survey Halal food firms Malaysia   – 
(2015)
Ab Talib et al. Relationship of halal Survey Large and small Malaysia –   
(2017) certification and business enterprises
performance
Salindal (2019) Effect of halal certification Survey Food companies Philippines –   
on innovative and market
performance
Zailani et al. Effect of halal strategy on Survey Large and small Malaysia –   
(2019) financial performance enterprises
(Ab Talib et al., Linking halal certification Conceptual Halal industry Not specific –   
2016a) and logistic performance model
Aldista et al. Effect of halal practice on Case study Logistic Indonesia –   
(2017) quantity order received
Rafiki and Impact of halal branding Survey SMEs Indonesia –   
Wahab (2013) on small firms
performance

Note: “” indicates the author(s) have discussed it

halal products but also can seize this opportunity of becoming key player in halal industry. Drivers and
As a big market of halal food and beverage, Indonesian Muslim consumers spent about US impact on
$170.2bn in 2017 and it is projected to reach US$247.8bn in 2025 (Statista, 2020). Among the
Organization of Islamic Cooperation countries, Indonesia became the biggest spenders for
performance
halal food and beverages by spending US$173bn in 2018 (Thomson Reuters and Dinar
Standard, 2019).
Indonesian Government has actually realized the importance of halal standard
implementation since 1989 by the establishment of halal certification body, namely, the
Assessment Institute for Foods, Drugs and Cosmetics-Indonesian Council of Ulama
(LPPOM-MUI). In the past, halal certification in Indonesia was still voluntary. Halal
certification for all products circulated and traded in Indonesia become mandatory since the
enactment of Law No 33 year 2014 concerning Halal Product Assurances (HPA). Five years
after its issuance, the HPA law would be effectively implemented for all products circulated
and traded in Indonesia, including small and medium-sized enterprise’s (SME) products.
The enactment of HPA law gives opportunities for halal industry development. Recently,
the seriousness of Indonesian Government in developing halal food industry is indicated by
the launching of Islamic Economics Masterplan 2019-2024 with the goal of Indonesia
becoming a major producer in the global halal industry by 2024. As one of its initiatives,
Indonesian Government has invested US$18m to build Halal Lifestyle District, a 21,000 m2
industrial park.
Moreover, research regarding halal standard implementation focusing on food
manufacturing SMEs is still little explored. Realizing the above-mentioned gap and based on
the suggestion of Ab Talib et al. (2017), this research aims to investigate the drivers of the
depth of halal standard implementation in food manufacturing SMEs and to examine the
impacts of these practices on the SME’s performance. More specifically, the objectives of this
study are to:

identify the drivers of the depth of halal standard implementation;

identify the impact of halal standard implementation on the performance; and

identify the mediating effect of operational performance in the relationship between
halal standard implementation and market performance as well as financial
performance.

There are some important judgments to focus research efforts on SMEs. The role of SMEs in
Indonesia is unquestionably because of the better contribution to the Indonesian economy in
comparison to those of large-sized enterprises. They have contributed to developing of
Indonesia economies as SMEs account for 60% of Indonesian Product Domestic Bruto
(Coordinating Ministry for Economics Affair of The Republic of Indonesia, 2019). They have
also contributed to reducing the unemployment rate. Data from the Ministry of Cooperation
and SMEs revealed that the labor absorbed by SMEs reached to 116.6 million people in the
year 2017 (Ministry of Cooperation and Small and Medium Enterprise of The Republic of
Indonesia, 2017).
The growing demand and positive perceptions of halal food provide opportunities for
Indonesia food manufacturers including food manufacturing SMEs. SMEs in Indonesia, as
one of the backbones of the economy, can take this opportunity so that SME’s products are not
only able to host their own country but also be able to dominate the global halal market. To
satisfy the demand for halal food products, SME’s products must be halal-certified. However,
despite their contribution, SMEs are one of the business entities facing several challenges
associated with regulations (Siaw and Rani, 2012), including regulations on the halal standard.
JIMA To be halal-certified, SMEs encounter various constraints, such as certification cost (Ab Talib
et al., 2015; Maryati et al., 2016; Prabowo et al., 2015; Viverita et al., 2017), halal certification
procedures (Ab Talib et al., 2015; Maryati et al., 2016; Viverita et al., 2017), socialization and
standard information across region (Prabowo et al., 2015) and top management commitment
and human resource competencies (Ab Talib et al., 2015; Prabowo et al., 2015). Most SMEs
are also characterized by scarcity of resources, inadequate technology and lack of technical
expertise (Singh et al., 2008). Because of those miscellaneous barriers, the halal certification
rate of Indonesian SME’s products is still very low. The LPPOM-MUI noted that halal-
certified products produced by food manufacturing SMEs are only about 10%.
Understanding the linkage between drivers and the depth of halal standard implementation
in halal-certified food manufacturing SMEs is needed as it gives a comprehensive
explanation behind the success of halal standard implementation. Likewise, examining
whether halal standard implementation guarantees a better performance for SMEs may
motivate non-certified SMEs to be halal-certified and allure halal-certified SMEs to
continuously implement the halal standard.

2. Theoretical background
To attain the specified purposes, this research implements two established theory,
specifically the technology–organization–environment (TOE) framework (DePietro et al.,
1990) and the resource-based view (RBV) theory (Barney, 1991). First, the TOE framework
points out three factors influencing the adoption process of technological innovations,
namely, technology, organization and environment. The technological context involves the
availability of technologies to the organization, while the organizational context represents
the attributes of the organization. The environmental context refers to external factors
influencing the technological innovation. External factors can be emerged from competition,
stakeholder pressures and the government regulatory. According to the TOE, innovative
practices can be effectively implemented when there is the right balance of internal and
external drivers. The TOE framework has been applied in several types of organizational
innovation adoption. The TOE framework is also appropriate as the underlying theory for
identifying halal practice initiatives (Ngah et al., 2015, 2017). Based on the above
justifications, this study adopts the TOE framework to explain the drivers of halal standard
implementation. In terms of technological drivers, this research refers to Ngah et al. (2015,
2017).
Second, this research used RBV as an underlying theory highlighting the effect of firm’s
resources on competitive advantage. The RBV is focused on the relationships between a
firm’s resources and firm performance (Barney, 1991). The RBV theory assumes that rather
than deriving from market and industry structures, competitive advantage derives from a
firm’s internal resources. RBV has enticed the thought of research studies in various
disciplines, including halal research studies. For example, based on RBV, Ab Talib et al.
(2017) made a connection between halal food certification and business performance. Ab
Talib et al. (2017) argued that halal certification becomes a type of resource to achieve
sustainable competitive advantage. Likewise, Zailani et al. (2019) used RBV to analyze the
role of halal culture in moderating the relationship of halal orientation strategy and financial
performance of halal food firms. They found that halal culture, as a unique firm’s resource
that is hard to mimic, moderates the relationship between the production process and the
financial performance of the firm. To sum up, based on the RBV theory, this means that
halal food standard implementation can be used as a firm’s resource to boost its business
performance.
3. Conceptual framework and hypotheses development Drivers and
The proposed model in this study comprises three major parts: impact on
(1) the drivers of halal standard implementation; performance
(2) the depth of halal standard implementation; and
(3) three performance measurements.

Figure 1 illustrates the proposed conceptual model. The conceptual model is intended for
causal–predictive analysis. Because of the limited literature that has discussed all different
possible relations as depicted in conceptual model, some hypotheses in this study are
developed based on related other areas of certification or standard implementation.
The first relation that is developed from the TOE framework investigates the drivers of
the depth of halal standard implementation in food manufacturing SMEs. The first relation
also examines the concept whether internal drivers mediates the relationship of external
pressures and the depth of halal standard implementation, as suggested by Ambrose and
Kulik (1999) and further applied by Jang and Lin (2008) in their study of ISO 9000
motivation. The second relation evaluates the impact of halal standard implementation on
the operational performance of SMEs. The third relation examines the effect of operational
performance as a mediation variable in the linkage between halal standard implementation
and organizational performance. Organizational performances are expressed by market
performance and financial performance. The second and third relations were derived from
the framework of Ab Talib et al. (2017) that is based on the RBV theory.

3.1 Drivers and the depth of halal standard implementation

Like Good Manufacturing Practice (GMP) and HACCP, halal food standard is a type of
certification regarding food safety standards (Aziz and Chok, 2013; Mohd Nawi and Mohd Nasir,
2014). The implementation of quality and food safety standards, including halal standard, is
intended to avoid various problems, such as product failures, safety and health issue, consumer
protests and costs of failure (van der Spiegel et al., 2007). Many scholars have argued that despite
their advantages, the implementation of quality and food safety standard is not always
accomplishing its aim. To ensure the success of quality and food safety standard implementation,
many authors have described various factors relating to their successful implementation. These

Internal Market
Motives Performance
(INMV) (MRKT)

External Depth of Halal Operational

Pressures Implementation Performance
(EXPR) (HLIM) (OPRS)

Organization Financial
Commitment Performance Figure 1.
(ORGZ) (FINC) Conceptual model
JIMA factors are commonly called critical factors or drivers. The critical factors are those factors that
should be effectively managed to assure the successful implementation of a system (Fotopoulos
et al., 2009). Another word for critical factors is drivers that are motives that urge organizations to
adopt certain concepts (Hoffman, 2001).
In the context of halal food standard, there are miscellaneous reasons for implementation.
The reasons for quality certification can be classified into proactive and reactive approaches
(Rubio-Andrada et al., 2011). Moreover, Rubio-Andrada et al. (2011) explained that a
proactive approach refers to the desire of organizations to ameliorate their internal
operations, processes and productivity, whereas a reactive approach merges as a reaction
from external enforcement, such as laws, consumer demand and industry rivalry. This
approach has been adopted by Ab Talib and Ai Chin (2018) to investigate the motives of
Malaysian food firms to implement halal food standard. Ab Talib and Ai Chin (2018) linked
proactive approaches as internal motivations while reactive approaches are associated with
external motivations. Similarly, Zailani et al. (2015) also classified the drivers of halal
strategy adoption into two aspects, internal and external. This study adopts the framework
of Ab Talib and Ai Chin (2018) and Zailani et al. (2015) as a base for classifying drivers for
halal standard implementation into internal motivations and external pressures.
Zailani et al. (2015), in a study on 137 halal food firms in Malaysia, revealed that internal
factors such as perceived business benefit and halal integrity significantly affect the
adoption of the halal strategy. In the context of Indonesian food manufacturing SMEs,
Rafiki and Abdul Wahab (2016) highlighted the significant effect of SME’s owner
motivation to the obtainment of halal certification in Indonesia. Similarly, Viverita et al.
(2017) revealed that increasing sales or profits, offering security in products consumption,
market expansion and self-awareness of the business owner become the significant factors
for the decision of SMEs in Greater Area Jakarta of Indonesia to get the halal certification.
Furthermore, Ab Talib and Ai Chin (2018) concluded that the internal factors should be
prioritized for more sustainable implementation of halal food standard. In addition to the
halal standard, internal motivations are also considered to be the most important parameter
affecting the successful implementation of other quality standards such as ISO 9000 (Arauz
and Suzuki, 2004; Gotzamani and Tsiotras, 2002) and ISO 9001 (Psomas et al., 2010).
On the other hand, many studies have delineated that the reason for many organizations to
implement halal food standard is also affected by external pressures. It means that their
motivation to implement halal food standard is a result of pressure from the government,
consumer or market demand and competitive intensity (Ab Talib et al., 2016b) and not truly
raising the level of food quality management. Empirical research by Ab Talib and Ai Chin (2018)
and Zailani et al. (2015) showed that consumer pressure or halal market demand and government
regulation significantly affect the food firms to implement halal food standard. Findings from
past research regarding food quality standard have highlighted the important effect of
competitive intensity in forcing food firms to implement food quality standard (Escanciano and
Santos-Vijande, 2014). Based on the above, this study formulates the following hypotheses:

H1a. Internal motives positively affect the depth of halal standard implementation.
H1b. External pressures positively influence the depth of halal standard
implementation.
Employee and managerial commitment are also considered as important factors for halal
standard implementation (Ab Talib et al., 2015; Ahmad et al., 2017; Din and Daud, 2014). In
other food quality standards such as HACCP and ISO 9001, employee and company
attributes became the critical factors affecting the effectiveness of the standards (Fotopoulos
et al., 2009; Kafetzopoulos and Gotzamani, 2014). Because of the small size of SMEs in this Drivers and
research, employee and managerial commitment are merged as organization commitment. impact on
Ab Talib and Ai Chin (2018) found a positive and significant relationship between
organization commitment and halal food standard implementation among halal-certified
performance
food manufacturers. With the commitment, an organization can maintain halal integrity.
Zailani et al. (2015) point out that halal integrity significantly and positively affects the
extent of halal strategy. Hence, this paper suggests this following hypothesis:

H1c. Organization commitment positively influences the depth of halal standard

implementation.
Although some scholars have investigated the internal motives and external pressures
affecting halal standard implementation, past studies about halal practices have not yet
examined the path of external pressures, internal motives and behavior. In this study, the
behavior is portrayed as halal standard implementation. Ambrose and Kulik (1999) asserted
that internal motives mediate the effect of external motives on employee behavior. In the
context of certification, Jang and Lin (2008) adopted the theory suggested by Ambrose and
Kulik (1999). In their study, Jang and Lin (2008) confirmed that internal motives fully mediate
the linkage between external motives and the depth of ISO 9000 implementation. Analogous to
the variable relationship by Jang and Lin (2008), the following hypothesis is proposed:

H2. Internal motives mediate the relationship between external pressures and the depth
of halal standard implementation.

3.2 Depth of halal standard implementation and performance

Food Safety Management System (FSMS) is intended to produce safe foods and to
demonstrate how food safety has been set out and applied. This is in line with halal
standard as one of the FSMS. The present study proposes the hypothesis to examine how
the depth of halal standard practice affects SME’s performance. Numerous studies have
demonstrated that halal standard implementation positively and significantly influences the
performance of an organization (Ab Talib et al., 2017; Aldista et al., 2017; Rafiki and Wahab,
2013; Salindal, 2019; Zailani et al., 2019). Many scholars also concurred that halal standard
implementation can influence non-financial performance (Ab Talib et al., 2017; Salindal,
2019) and financial performance (Ab Talib et al., 2017; Zailani et al., 2019). Especially for
Indonesian food manufacturing SMEs, based on subjective measures, there were significant
differences concerning financial and non-financial measures between halal certified and
non-certified SMEs (Giyanti and Indriastiningsih, 2019). In this study, non-financial
performance is measured using operational and market performance.
The halal standard is a structured and documented food quality system. Like in ISO
certification for food quality standard, well-documented procedures can not only generate more
effective job instructions but also manage all factors regarding food manufacturing process,
leading to improved operational performance (Kafetzopoulos and Gotzamani, 2014).
Furthermore, Ab Talib et al. (2017) confirmed that halal certification positively influences
operational performance. Salindal (2019) argued that halal certification also leads to innovative
performance as one type of operational performance. According to Kafetzopoulos and
Gotzamani (2014), operational performance of food quality standard implementation includes
productivity, process efficiency and effectiveness. Thus, this hypothesis is postulated:

H3a. The depth of halal standard implementation positively affects operational performance.
JIMA Operational performance in the study of Ab Talib et al. (2017) includes market
performance, such as market share. In this study, market performance is distinguished
from the operational performance as conducted by Jang and Lin (2008). Regarding the
market aspect, several previous empirical studies have proven that market
performance was improved as a result of the halal standard implementation. For
example, the market expansion of frozen food in Malaysia has reached to 100% after
obtaining halal certificates (Liow, 2012). Additionally, halal certification could also be
used as a tool to gain customer’s trust, expand market share and in turn boost company
performance (Yusuf et al., 2016).
Furthermore, Wilson (2014) argued that halal becomes an opportunity to expand the
products and brands, making it a niche marketing approach. Having the greatest
Muslim population around the world, religion is very important to Indonesian Muslims
and trickles down to their consumption patterns. According to Vanany et al. (2019), the
intentions of Indonesian Muslim to consume halal food were significantly affected by
religious self-identity and moral obligations. Halal-conscious consumers are more risk-
averse, so that they are likely to be more picky in the selection and purchase of food
(Wilson and Liu, 2011). It means that halal standard implementation gives value-added
to the product, thus attracting consumers. Based on the findings discussed previously,
current research tests the hypothesis as follows:

H3b. The depth of halal standard practice has a positive effect on market performance.
Evidence from past empirical research studies indicated that financial performance was also
increased because of the halal standard implementation. For example, halal certification of
large companies listed on the Bursa Malaysia positively correlated to corporate financial
performance in the long term (Mohamed et al., 2014). In their research of 210 halal-certified
food processing firms in Malaysia, Ab Talib et al. (2017) found that halal food certification
positively and significantly affects financial performance. Furthermore, halal culture in an
organization moderates the relationship between halal orientation strategy and financial
performance (Zailani et al., 2019). Based on the preceding explanations, current study
formulates the hypothesis as follows:

H3c. The depth of halal standard implementation positively influences financial performance.

3.3 Relationship among different dimensions of performance

In the context of certification and organization performance, the study of Jang and Lin
(2008) and Kafetzopoulos and Gotzamani (2014) proposed that different facets of
organization performance are related. Specifically, concerning halal standard, Ab Talib
et al. (2017) believed that halal certification enables an organization to improve
operational performance and hence results in better financial performance.
Furthermore, Salindal (2019) showed that the compliance to halal certification positively
affects innovative performance and subsequently the innovative performance
improvements lead to market performance. Hence, the present study postulates these
hypotheses:

H4a. Operational performance influences market performance in a positive direction.

H4b. Operational performance positively influences financial performance.
The results of Ab Talib et al. (2017) indicated that, rationally, halal standard implementation Drivers and
per se would not instantaneously affect financial performance because it needs impact on
comprehensive operational executions. Similarly, the study carried out by Salindal (2019)
performance
revealed that halal certification indirectly affects market performance through innovative
performance as a mediating variable. Based on the performance relationship of Ab Talib
et al. (2017), Jang and Lin (2008), Kafetzopoulos and Gotzamani (2014) and Salindal (2019),
this study proposes that the depth of halal standard implementation has positive impacts on
SME’s operational performance. Afterwards, the indirect effects of the halal standard
implementation to the improvements of market and financial performances can be expected
through the mediation of operational performance. Consequently, this study hypothesizes
the following:

H5a. Operational performance mediates the link between halal standard

implementation and market performance.
H5b. Operational performance mediates the link between halal standard
implementation and financial performance.

4. Research methodology
As this study intends to evaluate the link between the drivers, halal standard
implementation and performance, a quantitative research design was applied. A survey
methodology by a means of a structured questionnaire was used. The research was
performed in three phases. First, a set of questions was drafted based on the review of past
literature and derived from various published questionnaires that were similar to this study.
The questionnaire consists of four sections, namely, the information of respondents’
demographic and SMEs’ profile, drivers of halal standard implementation, the assessment of
halal standard implementation depth and the subjective assessment of the SME managers
regarding the performance of SMEs. Except for basic information of respondents’
demographic and SMEs’ profile, measurement indicators were evaluated by using a six-
point Likert scale. Before collecting main data, content validity was evaluated following the
procedure of Cooper and Schindler (2014). Content validity is aimed to check the phrases,
section order, clarity, relevance, sufficiency and overall structure of the questionnaire. The
questionnaire was pre-tested to five owners of halal-certified SMEs who had experiences in
halal implementation for more than five years. The survey instrument was also evaluated
by the expert staff of the Provincial Cooperatives and SME Office of Central Java, who are
responsible for the development of SMEs regarding halal certification. There are only minor
modifications of the question items related to their clarity and length.
Second, the on-site survey was conducted to gather primary data from SME’s managers
around Solo Raya. Solo Raya includes seven districts, namely, Surakarta, Sukoharjo, Sragen,
Karanganyar, Boyolali, Wonogiri and Klaten. Solo Raya was targeted as a survey area
because the culinary potential of Solo Raya is very diverse and interesting (Saeroji and
Wijaya, 2017). In addition, Solo Raya has a great opportunity as a halal tourism destination
in Indonesia because of its attractions and amenities (Saeroji et al., 2019). Halal tourism
adheres to the values of Islam where the goods and services are halal-compliant (Mohsin
et al., 2016). As a potential region for halal tourism destinations, local entrepreneurs of SMEs
in Solo Raya must take advantage of this opportunity by providing local halal food for
tourists as the availability of halal culinary influences the choice of the destination (Bon and
Hussain, 2010).
JIMA The on-the-spot survey was used to increase the response rate of respondents and the
utility level of the questionnaire. Afterwards, the collected data were analyzed using
appropriate statistical tests to assure their sufficiency for further analysis.

4.1 Measure of constructs

The scales for the drivers of halal standard implementation were adopted from the study of
Ab Talib (2017), Ab Talib et al. (2015, 2016a), Ab Talib and Ai Chin (2018), Fotopoulos et al.
(2009) and Kafetzopoulos and Gotzamani (2014). The respondents were requested to specify
the motives of their organization in implementing the halal standard. A six-point Likert
scale was used to evaluate each question statement, where “1” being not important at all and
“6” referring to very important. Items for the depth of halal standard implementation were
developed based on HAS 23000. There are 11 criteria listed in HAS 23000 document, namely,
halal policy, halal management team, training and education, raw materials, products,
production facilities, written procedures for critical activity, traceability, handling of
products that do not meet criteria, internal audit and management review (LPPOM-MUI,
2008). The respondents were requested to specify their perception about the depth of halal
standard implementation. A six-point Likert scale was used to examine each question
statement, ranging from 1 (no implementation at all) to 6 (full implementation). With regard
to performance measures, Ab Talib et al. (2017) have identified two facets of organization
performance, namely, operational and financial performance. To completely assess
organization achievement from halal standard implementation, this study also considers
another variable of performance based on the study conducted by Salindal (2019), namely,
market performance. The scales for operational performance were derived from Ab Talib
et al. (2017) and Kafetzopoulos and Gotzamani (2014). The items for market performance
were adapted from Kafetzopoulos and Gotzamani (2014) and Salindal (2019), while the
measures of financial performance were developed from Ab Talib et al. (2017),
Kafetzopoulos and Gotzamani (2014) and Zailani et al. (2019). The respondents were
requested to specify their perceptions of different types of performance following halal
standard implementation. A six-point Likert scale was used to judge the organization
performances, with “1” being very significant decline and “6” being very significant
increase.

4.2 Sample and data collection procedure

The population of this study consisted of the halal-certified food manufacturing SMEs in
Solo Raya. The population sample was obtained from the directory of LPPOM MUI that can
be accessed in the website of www.halalmui.org and www.halaljateng.or.id. The total
number of halal-certified SMEs on the directory was 143. Because of the small sampling
frame, all the halal-certified SMEs were contacted by phone call and a direct visit to confirm
their willingness to be the respondent of this study. Then data collection was conducted by
visiting the respondents. Respondent criteria for this study are the one who has great
influence in the organization and also comprehensive knowledge about daily operation and
production (Zailani et al., 2015). For SMEs, the respondents were mostly the owners and few
of them are the personnel responsible for the daily production of the SMEs. Out of the 143
contacted respondents, 83 were amenable to participate in this study by completing the
questionnaire, yielding in an effective response rate of 58.04% (Hair et al., 2010).

4.3 Data analysis

Causal relationships between constructs were analyzed by a means of partial least squares
structural equation modeling (PLS-SEM) method. PLS-SEM is an alternative to the
covariance-based SEM and was initially developed by Wold (1980) for conditions in which Drivers and
theoretical basis is weak. PLS-SEM approach was chosen because of the exploratory nature impact on
of this research (Hair et al., 2010) in which the purpose of this study is to predict the
relationship of various variables with low theoretical basis. This is in harmony with the
performance
purpose of PLS-SEM design. Jöreskog (1982) and Hair et al. (2017) revealed that PLS-SEM
was initially designed for prediction purposes in high complexity conditions but low
theoretical support. Furthermore, PLS-SEM can accommodate small sample size (Chin, 1998;
Davcik, 2014; Hair et al., 2014). Besides, many scholars in the area of halal standard have
also broadly used PLS-SEM to analyze complicated structural equation models with
multiple latent variables (Ab Talib et al., 2017; Ab Talib and Ai Chin, 2018; Ngah et al., 2017;
Zailani et al., 2015; Zailani et al., 2019). The SmartPLS 3.2.8 software by Ringle et al. (2015)
was used to analyze the research data. Data analysis was conducted in two stages involving
the assessment of the measurement model and the test of the structural model (Hulland,
1999). As this study aims to estimate the linkage between multiple constructs, it is necessary
to test the predictive relevance of the model using the blindfolding method (Hair et al., 2010).

5. Results and discussion

5.1 Sample profile
The sample size of 83 in this study surpassed the threshold value of the sample requirement
suggested by Chin (1998). As a rule of thumb, there are two approaches that can be used to
determine the sample size:
(1) first, construct with the highest number of indicators multiplied by ten
observations; and
(2) second, ten observations multiplied with the endogenous construct that has the
largest number of exogenous constructs (Chin, 1998).

Following this rule, the minimum sample size for this study is ranging from 30 to 80.
Out of the total respondent SMEs, 90.36% are Muslim owned and 9.64% are non-Muslim
owned. Majority of the respondents (95.18%) were owners while the remainders were
managers. A large percentage of the surveyed SMEs (74.69%) were just established within
the past decade. Moreover, a significant portion of SMEs (93.98%) had experience in halal
implementation for five years or less.

5.2 Measurement model evaluation

PLS-SEM is not so sensitive to sample size so that it does not strictly need to meet the
assumption of multivariate normal of the sample data (Henseler and Sarstedt, 2013).
Therefore, the quality of the measurement model can be evaluated without checking the
basic assumption of normality. The PLS-SEM measurement model was assessed according
to Hair et al. (2014) involving internal consistency, indicator reliability, convergent validity
and discriminant validity.
The model’s internal consistency reliability was assessed by evaluating the composite
reliability (CR). CR was selected instead of the usual Cronbach’s alpha (CA) because CA is
likely to underestimate the internal consistency reliability (Hair et al., 2014). As stated by
Hair et al. (2014), the threshold value of CR is greater than 0.70. As tabulated in Table 2, the
CR values of all construct were ranging between 0.854 (OPRS) and 0.955 (ORGZ), thus
indicating internal consistency reliability.
Subsequently, indicator reliability was evaluated by checking the outer factor loadings of
each indicator on its associated construct. The outer factor loading of 0.70 or more is
JIMA suggested by Hair et al. (2014) to ensure substantial reliability. As shown in Table 3, a
strong majority of the indicator’s outer loadings are considered highly satisfactory because
they surpass the borderline value of 0.70. However, there are two indicators having loading
values less than 0.70, namely, HLIM5 (0.672) and HLIM7 (0.672). As these two indicators
surpass the acceptable threshold value of 0.60, they are considered adequate (Hair et al.,
2017). Besides, the removal of HLIM5 and HLIM7 did not significantly improve the CR value
(Hair et al., 2014), thus for further analysis, these two indicators were still retained.
To examine the convergent validity, this study refers to the average variance extracted
(AVE) criterion. To achieve a significant convergent validity, AVE value should be more

Construct CR CA AVE

ORGZ 0.955 0.929 0.876

EXPR 0.927 0.843 0.864
FINC 0.930 0.899 0.768
HLIM 0.919 0.899 0.590
INMV 0.859 0.755 0.671
Table 2. MRKT 0.885 0.828 0.659
Internal consistency OPRS 0.854 0.772 0.594

Construct Indicator Factor loading

ORGZ ORGZ1 Employee involvement 0.949

ORGZ2 Employee commitment 0.926
ORGZ3 Teamwork among halal team 0.932
EXPR EXPR1 Consumer 0.927
EXPR2 Competitive intensity 0.933
FINC FINC1 Sales volume 0.898
FINC2 Sales revenue 0.866
FINC3 Net profit margin 0.909
FINC4 Cash flow 0.830
HLIM HLIM1 Halal policy 0.798
HLIM2 Training and education 0.829
HLIM3 Raw material 0.766
HLIM4 Production facility 0.858
HLIM5 Written procedure 0.672
HLIM6 Traceability 0.793
HLIM7 Handling of non-conformance 0.672
HLIM8 Internal audit 0.734
INMV INMV1 Product quality improvement 0.846
INMV2 Improve the image of SME 0.802
INMV3 Improvement of processes 0.808
MRKT MRKT1 Customer number 0.856
MRKT2 Customer loyalty 0.766
MRKT3 Customer trust 0.806
MRKT4 Customer satisfaction 0.817
OPRS OPRS1 Raw material handling 0.816
OPRS2 Internal production process 0.792
Table 3. OPRS3 Production capacity 0.761
Indicator reliability OPRS4 Product quality 0.710
than 0.50 (Hair et al., 2010). The minimum value of AVE in present study is 0.590 (Table 2). Drivers and
This value surpasses the required cut-off value of 0.50, yielding in an adequate convergent impact on
validity level.
Hair et al. (2010) recommended two approaches to assess the discriminant validity:
performance
indicators cross-loading and the Fornell–Larcker criterion (Fornell and Larcker, 1981). An
evaluation of the indicators cross-loadings was performed by comparing the outer factor
loadings of an indicator on the corresponding construct with its loadings on other
constructs. Table 4 denotes that all the indicators (in italic) loaded higher on its associated
construct and loaded lower on other constructs, confirming that the first principle of
discriminant validity was satisfied. According to the Fornell–Larcker criterion, every
construct is truly unique and individually measured if the square root of AVE of each
construct is more than its correlation with any other construct. The result for discriminant
validity according to Fornell–Larcker criterion is tabulated in Table 5. From Table 5, the
square root of the AVE (italic diagonal elements) is higher than the inter construct
correlations. This reveals that every construct is different from each other and gives strong
proof for discriminant validity. Although indicators cross-loading and Fornell–Larcker
criterion are acceptable to evaluate the discriminant validity of a PLS model, these two
techniques have limitations. Henseler et al. (2015) performed a Monte Carlo simulation to
demonstrate that lack of discriminant validity is better detected by the hetrotrait-monotrait
(HTMT) ratio. The threshold value for HTMT is 0.90 or below. Table 6 denotes that 0.897 is

Indicator ORGZ EXPR FINC HLIM INMV MRKT OPRS

ORGZ1 0.949 0.638 0.111 0.696 0.755 0.331 0.432

ORGZ2 0.926 0.706 0.255 0.597 0.694 0.330 0.390
ORGZ3 0.932 0.649 0.196 0.590 0.671 0.282 0.406
EXPR1 0.697 0.927 0.285 0.485 0.657 0.526 0.479
EXPR2 0.621 0.933 0.165 0.532 0.663 0.313 0.403
FINC1 0.053 0.125 0.898 0.056 0.082 0.397 0.453
FINC2 0.160 0.230 0.866 0.108 0.187 0.357 0.415
FINC3 0.160 0.175 0.909 0.043 0.082 0.349 0.372
FINC4 0.307 0.308 0.830 0.166 0.220 0.366 0.481
HLIM1 0.474 0.334 0.128 0.798 0.468 0.203 0.364
HLIM2 0.540 0.473 0.046 0.829 0.543 0.205 0.273
HLIM3 0.465 0.493 0.179 0.766 0.525 0.268 0.419
HLIM4 0.574 0.406 0.060 0.858 0.567 0.203 0.362
HLIM5 0.511 0.382 0.163 0.672 0.569 0.305 0.327
HLIM6 0.448 0.382 0.060 0.793 0.515 0.257 0.355
HLIM7 0.564 0.360 0.007 0.672 0.528 0.237 0.303
HLIM8 0.542 0.507 0.029 0.734 0.625 0.338 0.226
INMV1 0.758 0.627 0.214 0.586 0.846 0.420 0.515
INMV2 0.547 0.504 0.165 0.534 0.802 0.441 0.447
INMV3 0.547 0.603 0.033 0.622 0.808 0.357 0.453
MRKT1 0.298 0.314 0.255 0.288 0.386 0.856 0.442
MRKT2 0.056 0.121 0.301 0.185 0.240 0.766 0.404
MRKT3 0.422 0.470 0.431 0.335 0.507 0.806 0.496
MRKT4 0.274 0.499 0.365 0.252 0.433 0.817 0.498
OPRS1 0.210 0.320 0.401 0.272 0.323 0.375 0.816
OPRS2 0.462 0.448 0.322 0.520 0.520 0.296 0.792
OPRS3 0.303 0.312 0.471 0.290 0.376 0.524 0.761 Table 4.
OPRS4 0.373 0.385 0.317 0.249 0.558 0.537 0.710 Cross loading
JIMA the largest HTMT correlation ratio, indicating that discriminant validity has been
established between a given pair of reflective constructs.

5.3 Structural model evaluation

Having assessed the measurement model adequately, then the structural model was
evaluated. There are three procedures for structural model assessment, namely:
(1) multicollinearity assessment;
(2) coefficient of determination; and
(3) predictive relevance.

At the structural level, multicollinearity potentially occurs. The assessment of multicollinearity

was done to examine whether there are correlations between constructs because this could lead to
bias conclusions and interpretations (Hair et al., 2014). To identify potential collinearity problem,
the variance inflation factor (VIF) value was used. In a well-fitting model, the structural VIF
coefficients should not be greater than 4.0 (Garson, 2016). The inner VIF values of this model are
less than 4.0 (Table 7), verifying that multicollinearity is not an issue. Thus, further assessment of
the model is suitable to be done.
The coefficient of determination (R2) reflects how much the variance of endogenous
constructs can be explained by exogenous constructs. R2 values of 0.25, 0.50 and 0.75
indicate a weak, modest and significant predictive accuracy, respectively (Hair et al., 2014).
In present study, the HLIM R2 value is 0.550. It means that the INMV, EXPR and ORGZ
constructs moderately explain 55.0% of the variance of HLIM construct. The R2 values for
OPRS, MRKT and FINC are 0.185, 0.335 and 0.259, respectively. The findings imply that the
HLIM construct weakly predicts 18.5% of the variance of OPRS construct. Subsequently,
the HLIM and OPRS constructs also weakly predict 33.5% and 25.9% of the variance of
MRKT and FINC constructs, respectively.

Construct ORGZ EXPR FINC HLIM INMV MRKT OPRS

ORGZ 0.936
EXPR 0.708 0.930
FINC 0.195 0.241 0.876
HLIM 0.674 0.547 0.109 0.768
Table 5. INMV 0.757 0.710 0.165 0.712 0.819
Fornell–Larcker MRKT 0.337 0.449 0.421 0.331 0.493 0.812
criterion OPRS 0.438 0.474 0.496 0.430 0.577 0.571 0.771

Construct ORGZ EXPR FINC HLIM INMV MRKT OPRS

ORGZ
EXPR 0.803
FINC 0.226 0.276
HLIM 0.732 0.626 0.143
INMV 0.897 0.885 0.204 0.857
Table 6. MRKT 0.367 0.520 0.480 0.376 0.614
HTMT ratio OPRS 0.515 0.590 0.583 0.517 0.754 0.698
 Besides estimating R2, an additional model fit assessment was performed to measure Drivers and
predictive relevance (Q2). The Q2 illustrates the model sufficiency in predicting the manifest impact on
indicators of each latent construct. The Q2 value was obtained using the blindfolding performance
procedure in PLS (Hair et al., 2014). Paths of a model have predictive relevance if they have
Q2 above zero (Hair et al., 2014). In this study, the Q2 values for HLIM, OPRS, MRKT and
FINC are 0.272, 0.095, 0.195 and 0.172, respectively, which are higher than the cut-off value.
In sum, the structural model of this study exhibited predictive relevance.

5.4 Hypotheses testing

After evaluating the measurement and structural model, a bootstrapping approach with
5,000 resamplings and a one-tailed test was done to test the proposed hypotheses. Overall, as
depicted in Table 8, one research (H4) is supported, and two (H1 and H3) are partially
supported. The hypothesized structural model is shown in Figure 2.
For mediating effect testing, this paper refers to Nitzl et al.’s (2016) procedures. As stated by
Nitzl et al. (2016), full mediation occurs if the direct effect is insignificant while the indirect effect is
significant. It means that only the indirect effect through the mediation variable exists. As depicted
in Table 9, all the direct paths are not significant; therefore, full mediations were established.

5.5 Discussion
Drawing on the TOE framework and RBV theory, this study develops a model that
broadens our knowledge regarding the drivers of halal standard implementation in food
manufacturing SMEs and their impact on performance. In this study, the performance
variable comprises operational, market and financial performances. Furthermore, this study
is also intended to assess the mediating effect of:

Construct ORGZ EXPR FINC HLIM INMV MRKT OPRS

ORGZ 2.718
EXPR 2.338 1.000
FINC
HLIM 1.227 1.227 1.000
INMV 2.735
MRKT Table 7.
OPRS 1.227 1.227 Inner VIF values

Hypothesis Path Path coefficient p-value t-value Decision

H1a INMV ! HLIM 0.483 0.021** 2.041 Supported

H1b EXPR ! HLIM 0.028 0.396 0.265 Not supported
H1c ORGZ ! HLIM 0.328 0.073* 1.450 Supported
H3a HLIM ! OPRS 0.430 0.000*** 4.602 Supported
H3b HLIM ! MRKT 0.105 0.242 0.699 Not Supported
H3c HLIM ! FINC 0.128 0.198 0.848 Not supported
H4a OPRS ! MRKT 0.525 0.000*** 5.004 Supported
H4b OPRS ! FINC 0.551 0.000*** 4.567 Supported
Table 8.
Notes: t-values are computed through bootstrapping procedure with 83 cases and 5,000 samples; *p < 0.10; Path coefficient and
**p < 0.05; ***p < 0.01 (one tailed) hypotheses testing
JIMA

Figure 2.
Structural model with
path coefficients and
adjusted R2 values

Hypothesis Path Direct effect Indirect effect Type of mediation Decision

H2 EXPR ! INMV ! HLIM 0.028 0.343** Full mediation Supported

H5a HLIM ! OPRS ! MRKT 0.105 0.226*** Full mediation Supported
Table 9. H5b HLIM ! OPRS ! FINC 0.128 0.237*** Full mediation Supported
Analysis of
mediating effect Notes: INMV and OPRS are the mediating constructs. **p < 0.05; ***p < 0.01 (one tailed)

internal motivation in the relationship of external pressure and halal standard

implementation; and

operational performance in the linkage between halal standard implementation and
business performances as expressed by market and financial performance.

5.5.1 Objective 1: identify the drivers of the depth of halal standard implementation. As for
the drivers of halal standard implementation, our result suggests that while internal motivations
significantly influence halal standard implementation in food manufacturing SMEs (H1a: b =
0.483, r = 0.021), external pressures do not (H1b: b = 0.028, r = 0.396). This is consistent with
previous research of Jang and Lin (2008) which perceived that internal motivation positively
correlated with ISO 9000 implementation whereas external motivation insignificantly affected
ISO 9000 implementation. These results indicate that internal motivation is more important than
external pressure for halal standard implementation. In their research, Ab Talib and Ai Chin
(2018) found that halal-certified Malaysian food manufacturers were also proactive or internally
driven in implementing halal food standard. Thus, this study supports the findings of Ab Talib
and Ai Chin (2018). The potential explanation of the insignificant effect of external pressure for
halal standard implementation is that before the enactment of Law No. 33 of 2014, halal
certification was still voluntary. Another great barrier to the halal certification is lack of
awareness about halal status among Indonesian Muslims. Their awareness to verify the validity Drivers and
of product’s halalness is at a low level. There is limited socialization to check the validity of the impact on
halal logo embedded on product package (Giyanti et al., 2019; Giyanti and Suparti, 2018).
Generally, Indonesian Muslims assume that all non-pork and non-alcohol food products are halal
performance
in-nature. Even though this supposition may have been correct in the past, several food products
today are not halal.
The next finding from this research is that internal motives fully mediate the link between
external pressures and the depth of halal standard implementation (H2). This result confirms the
study of Jang and Lin (2008) that patronized the mediating role of internal motives on the
relationship between external motives and the depth of ISO 9000 standard implementation. The
finding suggests the notion that the success of halal standard implementation depends on the
capability of the organization to transform external pressures into internal motivation. As SMEs
usually have simple organizational structures in which the owner has dominant role in the
decision-making, the internal motivation for halal standard implementation must come from the
owner. This is in line with Rafiki and Abdul Wahab (2016) who highlighted that SME’s owner
motivation has the significance effect to the obtainment of halal certification in Indonesia.
With regard to organizational commitment (H1c: b = 0.328, r = 0.073), this study is in
harmony with previous research emphasizing the role of organizational commitment in affecting
halal standard implementation (Ab Talib and Ai Chin, 2018). Food manufacturing SMEs are
portrayed to have a small number of employees, simple organizational structures and informal
working culture. These characteristics allow the effectiveness of knowledge sharing among all
employees so that their commitment regarding halal standard implementation will be increased.
5.5.2 Objective 2: identify the impact of halal standard implementation on the
performance. Hypotheses testing showed that the depth of halal standard implementation
makes a significant contribution to operational performance (H3a: b = 0.430, r = 0.000) but
a non-significant direct effect to market performance (H3b: b = 0.105, r = 0.242) and
financial performance (H3c: b = 0.128, r = 0.198). In terms of operational performance,
this result is in line with Ab Talib et al. (2017) and Salindal (2019). Following halal standard
in the daily food production can improve raw material handling, internal production
process, production capacity and product quality (Ab Talib et al., 2017; Kafetzopoulos and
Gotzamani, 2014). Regarding market performance, the finding of this study is consistent
with past research of Salindal (2019) which concluded that halal certification cannot directly
influence the market performance. Interestingly, this study found that halal standard
implementation has a negative effect to financial performance. This result contradicts with
Ab Talib et al. (2017) and on the other hand, confirms past research by Zailani et al. (2019).
The potential reason for this is that from the view point of food SMEs, halal certification is
perceived as an overhead cost, thus increasing production cost. Most of the respondents in
this study are new in halal certification. For registration of halal certification, SMEs were
charged a fee of IDR 2.5m per product class. Instead of being financially beneficial, this halal
certification cost affected the cash flow of SMEs in the short term. Thus, most food SMEs in
Indonesia are still reluctant toward halal certification because they perceive the cost of halal
certification as a burden (Giyanti and Indriastiningsih, 2018).
5.5.3 Objective 3: identify the mediating effect of operational performance in the relation-
ship between halal standard implementation and market performance as well as financial
performance. H4a and H4b revealed that operational performance makes a notable positive
contribution to market performance as well as financial performance. Referring to the
procedure of Nitzl et al. (2016), these exploratory results indicate that operational
performance fully mediates the link between halal standard implementation with market
performance (H5a) and financial performance (H5b). These findings do not indicate that the
JIMA depth of halal standard implementation does not affect the market and financial
performances. The full mediations of operational performance on the linkage between the
depth of halal standard implementation toward the market performance and financial
performance suggest that the depth of halal practice improves operational performance.
Subsequently, operational performance improvement makes a better market performance
and financial performance. These findings are in line with Salindal (2019). The study carried
out by Salindal (2019) revealed that halal certification indirectly affects market performance
through operational performance as a mediating variable. These findings also confirmed the
study of Ab Talib et al. (2017) who argued that it is not halal standard practice, per se, that
causes better financial performance, but it is the related improvement on all aspects of
operational process, which consecutively lead to better financial performance. Hence, it can
be summarized that operational performance becomes a determinant of market performance
and financial performance. Therefore, Indonesian food manufacturing SMEs should not
assert that they have implemented halal standard and have had halal certification, because
halal certification itself is not enough to make them become competitive.

5.6 Theoretical contributions

Research on the drivers of halal standard implementation and its impact on the performance is
particularly important as halal sector is a fast-growing industry. Theoretically, this research
provides a framework for the connection between drivers, depth of halal standard
implementation and performance. By applying the TOE framework regarding the drivers of
halal standard implementation, this research results further support the suitability and relevance
of the TOE framework in halal research (Ngah et al., 2015, 2017). This study also extends the
TOE framework by examining the path of external pressures, internal motives and halal
standard implementation (H2). The research results deepened the knowledge about the enablers
of halal standard implementation in food manufacturing SMEs. Furthermore, this study also
reinforces the suitability and relevance of the RBV theory in halal research (Ab Talib et al., 2017;
Zailani et al., 2019). Based on the concept of RBV, the findings of this study demonstrated that
halal standard implementation as one of a type of firm resources is capable of affecting the
performance of food manufacturing SMEs. The conceptual framework of the current research
provides a foundation for future research studies in the topic of halal operation management.

5.7 Practical implications

The findings of this research are beneficial for food manufacturing SMEs and government,
especially the government institution under the Ministry of Cooperation and SMEs. The first
finding of this research is the role of internal motivation and organizational commitment for
the depth of halal standard implementation. The empirical evidence from this study would
direct the concern of SMEs’ owners or managers on ensuring the effective implementation of
halal standard by focusing on the significance drivers. Furthermore, internal motivations
fully mediate the effect of external pressure on halal standard implementation. This finding
suggests the notion that for external-driven SMEs, success of halal standard implementation
depends on whether external pressure can be converted into internal motives or not. The
transformation will be successful if management and all employees support it. To motivate food
SMEs regarding halal standard implementation, halal awareness among food SMEs’ managers
needs to be improved. Prabowo et al. (2015) revealed that food services in Indonesia were less-
concerned with achieving halal certification because of a lack of socialization and information,
leading to a lack of knowledge and awareness. Increasing halal awareness such as socialization,
campaign and training could be conducted by the government. In the forum of halal socialization,
campaign and training, the government may also invite SME managers who have successfully
implemented halal standard to share their success story to their colleagues. The success story Drivers and
sharing session might encourage the SMEs’ managers toward halal certification. impact on
The second finding is that there is a significant positive contribution of the halal
standard implementation toward operational performance. Subsequently, full mediation
performance
exists in the link between halal standard implementation and performance of the halal-
certified food manufacturing SMEs through the variable of operational performance. Based
on these results, food manufacturing SMEs should consider halal standard as an innovative
tool to be applied in their operation and production as the standard has a significant role in
influencing SME’s performance. SME’s managers should set up their halal assurance
system with the assistance, technically as well as financially, from government.

6. Conclusion and future work

Understanding the drivers and impacts of halal standard implementation is a crucial quest in
halal research. In contrast to prior studies, this research becomes the first attempt in integrating
drivers, halal standard implementation and performance in the specific context of food
manufacturing SMEs in Indonesia. This relationship has been barely established in prior halal
standard research. The model was empirically validated using the PLS-SEM method using
data from 83 food manufacturing SMEs in Solo Raya. Regarding drivers of halal standard
implementation, the results indicate internal motivation and organization commitment
positively affect halal standard implementation. Moreover, the study also proved that internal
motives fully mediate the link between external pressure and the halal standard practice. With
regard to the outcome, the research results confirm several previous studies in which halal
implementation standard has positive influences on operational performance. Furthermore, the
operational performance fully mediates the link between halal standard implementation with
market performance and financial performance. This empirical evidence is expected to provide
additional confidence and motivation for food manufacturing SME’s managers to be able to
comply with halal certification standards to improve the performance of SMEs.
Although this study is the first attempt in examining halal standard implementation in
the Indonesia context, as with other empirical studies, this research also has weaknesses.
The first limitation is about the samples in which they are small-sized and limited to food
manufacturing SMEs. Future research on halal food standard should use a larger sample
and wider geographical area coverage to better validate the present research in different
settings. The second limitation is the subjectivity of SME’s managers in evaluating
performance which may provide unclear measures of performance. Performance data in this
study uses perceptual data because most SMEs do not have good administration related to
their daily production processes. Besides, most of the surveyed SMEs are new in the halal
standard implementation. This qualitative data may result in a biased response that has the
potential to damage the conclusion of the hypothesis test results. Further research may use
actual performance measure based on a longitudinal survey to capture a substantial
understanding of the impact of the halal standard implementation.

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Further reading
Chin, W.W. (2010), “How to write up and report PLS analyses”, in Vinzi, V., Chin, W., Henseler, J. and
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Mohamed Yunos, R., Mahmood, C.F.C. and Abdul Mansor, N.H. (2014), ““Compliance to halal
certification – Its impact on business financial performance”, Recent Trends in Social and
Behaviour Sciences – Proceedings of the 2nd International Congress on Interdisciplinary Behavior
and Social Sciences, ICIBSoS 2013, pp. 499-503.

Corresponding author
Ida Giyanti can be contacted at: idhag7181@gmail.com

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