Abstract

This study is to investigate the role of HRM, OL, KM capability in increasing innovation of SMEs in Central Java, Indonesia. This study used 128 SMEs in the fashion creative industry in Jepara, Indonesia, and Semarang, Indonesia. Besides, it used a questionnaire distributed to the owners of SMEs. For data analysis, this study used descriptive statistics and SEM with PLS program. This study found that HRM do not affect KM but affects innovation. Organizational Learning (OL) is also able to strengthen KM and innovation. KM capability also significantly affects innovation. The capability of SMEs to adapt and explore knowledge, innovate, think creatively, which is strong and conducts exploration and exploitation of OL is very important in responding to changes in the very competitive environment. The challenges of SMEs in the industrial revolution 4.0 include economic globalization and the digital economy. SMEs need to be more intensive in increasing their intellectual capital (IC), knowledge management (KM), and dynamic abilities to improve performance.

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