Does AI Utilization Drive Competitive Advantage and Sustainable Performance in Indonesian Manufacturing?

Abstract—In light of the Making Indonesia 4.0 agenda and growing demands for sustainability compliance, this paper investigates how the use of artificial intelligence (AI) impacts competitive advantage and sustainable company performance in Indonesia's manufacturing industry. AI utilization is operationalized as a second-order construct with three dimensions: reconfiguration capacity, seizing capacity, and sensing capacity. It is based on the Resource-Based View and dynamic capabilities framework. A standardized questionnaire was used to gather data from 208 senior and general managers in Indonesian manufacturing companies. Partial Least Squares Structural Equation Modeling (PLS-SEM) with SmartPLS 4.0 was used for analysis. Two of the four hypotheses are supported by the results. AI-enabled process reconfiguration is the main source of competitive differentiation in this sample, as demonstrated by the large and significant impact that reconfiguring capacity has on competitive advantage (β = 0.802, p < 0.001). In turn, sustainable business performance in the economic, environmental, and social dimensions is significantly predicted by competitive advantage (β = 0.620, p < 0.001). Positive but statistically insignificant avenues to competitive advantage are shown by seizing and sensing capacities, indicating that organizational infrastructure rather than technology restricts their conversion into market outcomes. 64.3% of the variance in sustainable performance and 77.4% of the variance in competitive advantage are explained by the model. These results suggest that in the Indonesian industrial setting, measurable competitive and sustainability improvements are driven by reconfiguring capacity rather than widespread adoption of AI.