Human Capital and SME Internationalization: The Mediating Role of Digital Capability in Teak Wood Craft SMEs

Abstract

Background and Aims: Despite growing interest in SME internationalization, limited attention has been paid to the mediating mechanisms that convert human capital into global outcomes, particularly in traditional manufacturing sectors. This study examines human capital's role in the internationalization of MSMEs in the teak craft sector, investigating its direct impact on international outcomes and the mediating role of digital capability in transforming resources into global competitiveness. Study Design: This research employs a quantitative explanatory survey design to test the structural relationships among human capital, digital capability, and internationalization. Place and Duration of Study: The study was conducted in Bojonegoro Regency, East Java, Indonesia, an area recognized for its local resource endowments and teak woodcraft production. Data collection was carried out over several months. Methodology: Data were collected from 150 owners or managers of teak woodcraft MSMEs using a five-point Likert scale. The constructs were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) to evaluate measurement validity and reliability, and to test direct and mediating effects. Results: Human capital exerts a strong, positive, and significant effect on digital capability, which in turn significantly influences internationalization. While human capital also directly affects internationalization, its direct effect is smaller than the indirect pathway. Crucially, digital capability serves as a significant partial mediator in the relationship between human capital and internationalization. Conclusion: Human capital alone is insufficient for optimal international success; firms must strategically develop digital capability. Theoretically, this study extends the Resource-Based View by positioning digital capability as a dynamic conversion mechanism that operationalizes human capital into international competitiveness. Practically, these findings guide policymakers and SME practitioners in designing targeted digital training programs. Socially, enhancing digital skills among artisans supports cultural heritage preservation while fostering sustainable economic empowerment.