Nowadays, Small and medium enterprises (SMEs) play essential role for the development of the economy. Thus, any improvement on the performance of such organizations may contribute significantly on overall economy. The purpose of this paper is to analyze the effect of business sphere on competitive advantage and business performance. In addition we study the effects of the competitive advantage on business performance of SMEs through a quantitative approach and by considering 50 businessman SMEs built by Surabaya Trade Service Department. Data collection in this study was prepared by distributing questionnaires. Data analysis technique used in this research is SEM analysis with PLS. The results indicate that: (1) business sphere influences on business performance of SMEs under the Surabaya Trade Service Department; (2) business sphere has substantial influence on competitive advantage of SMEs in the Surabaya Trade Service Department; (3) competitive advantage sphere has substantial influence to business performance of SMEs built by Surabaya Trade Service Department.