Related with the emerging concept about absorptive capacity, this study aims to explore the relationship between dimensions of absorptive capacity: acquisition, assimilation, transformation and exploitation to innovation performance by taking case in informal small-medium enterprises. This survey is very crusial to be done concern with how the circumstance of informal business innovation ability, which part of absorptive capacity that influence the most and which part which is the less, so that leverage innovation program for informal business can be done effectively. Respondents of this study were got from various type of 40 business owners. Data was analyzed using multiple regression analysis by t test and F test. The result shows that the value of the coefficient of determination is 0.646, means that the variable acquisition, assimilation, transformation, exploitation accounted for 64.6% influence to the variable innovation capability and other variables remaining constant 35.4% influenced by other variables which is not included in this study. It means simultaneously they influence significantly on innovation capability.
Keywords: Absorptive Capacity, Innovation strategy, Informal sector business