In this paper we present the results of an empirical study on small and medium enterprises (SMEs) in the food processing industry in Indonesia. The purpose of this paper is to analyze the correlation between competitive forces, competitive strategy, and business performance of these SMEs. We provide a description of SMEs in the food processing industry in Indonesia based on a field survey that was carried out in three provinces, namely Jakarta, Banten and West Java. The primary data collected was analyzed by regression and correlation analysis using the path analytical approach. The relationship between competitive forces and competitive strategy as well as the relationship between competitive strategy and business performance was examined. Using the path analytical model, we conclude that competitive forces influence the business performance of SMEs in the food processing industry with competitive strategy as a moderating factor. JEL Classification: L66, O31, Q12, Q13