RELATIONSHIP BETWEEN HUMAN CAPITAL AND MSMES PERFORMANCE WITH COMPETITIVE ADVANTAGE AS A MEDIATION

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VOLUME 21 ISSUE 1 MARCH 2023 JURNAL APLIKASI MANAJEMEN

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JAM

J u r n a l A p l i k a s i M a n a j e m e n J o u r n a l o f A p p l i e d M a n a g e m e n t

V o l u m e 2 1 I s s u e 1 M a r c h 2 0 2 3

2 1 | 1 | 2 0 2 3

R e c e i v e d N o v e m b e r ‘ 2 2 R e v i s e d N o v e m b e r ‘ 2 2 D e c e m b e r ‘ 2 2 J a n u a r y ‘ 2 3 A c c ep t ed M a r c h ‘ 2 3

RELATIONSHIP BETWEEN HUMAN

CAPITAL AND MSMES PERFORMANCE WITH COMPETITIVE ADVANTAGE AS A

MEDIATION

M. Taufiq Noor Rokhman Ratnawati

Yayuk Ngesti Rahayu

Master of Management, Postgraduate of Wisnuwardhana University Malang, Indonesia

Abstract: The numerous batik industries in Indonesia, including the province of East Java, are evidence of the fast-paced growth of batik in that country.

Batik Businesses in East Java continue to perform poorly due to management issues that are numerous and interconnected. The resource-based theory em- phasizes internal elements in elucidating business strategy through competitive advantage as a variable that influences the impact of human capital on the performance of Batik SMEs in East Java. The sampling strategy used in this research was proportional random sampling, with numbered samples drawn from 140 East Javan batik SMEs. A structural equation modeling (SEM) study demonstrates how human capital affects MSMEs' performance and competitive advantage. The link between human capital and the success of batik MSMEs in East Java can be mediated by competitive advantage. Based on the research findings, suggestions are put forward for science. The results of this research can enrich references and scientific repertoire related to Resource- Based Theory and can be implemented in MSMEs who want to get good performance by owning, mastering, and utilizing intangible assets through human capital. Batik SMEs in East Java need to improve leadership skills to be more cooperative with employees and partners and improve relations between employees, partners, and consumers, for further researchers can conduct a study of the business environment and network (networking) efforts to improve the performance of MSMEs.

Keywords: Human Capital, Competitive Advantage, MSME Performance

CITATION

I N D E X E D I N

D O A J - D i r e c t o r y o f O p e n A c c e s s J o u r n a l s

A C I - A S E A N C i t a t i o n I n d e x S I N T A - S c i e n c e a n d T e c h n o l o g y I n d e x

D i m e n s i o n s G o o g l e S c h o l a r R e s e a c h G a t e G a r u d a

I P I - I n d o n e s i a n P u b l i c a t i o n I n d e x

I n d o n e s i a n O N E S e a r c h

C O R R ES P O N D I N G A U T H O R

R a t n a w a t i

M a s t e r o f M a n a g e m e n t , P o s t g r a d u a t e o f

W i s n u w a r d h a n a U n i v e r s i t y M a l a n g ,

I n d o n e s i a

E M A I L

r a t n a w a t i _ u n i d h a @ y a h o o . c o m

OPEN ACCESS

e I S S N 2 3 0 2 - 6 3 32 p I S S N 1 6 9 3 - 5 2 41

Rokhman, M. T. N., Ratnawati, and Rahayu, Y. N. 2023. Relationship between Human Capital and MSMEs Performance with Competitive Advantage as a Mediation. Jurnal Aplikasi Manajemen, Volume 21, Issue 1, Pages 191-204. DOI: http://dx.doi.org/10.21776/ub.jam.2023.021.1.14.

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INTRODUCTION

Batik is one of Indonesia's cultural heritage, which has high value and received UNESCO rec- ognition as a world cultural heritage. The more str- etched batik in Indonesia, the impact on the increase in batik business in Indonesia. The batik industry in Indonesia is spread across several regions, including in East Java Province, and its development faces dynamic changes in the business environment along with the era of Volatility, Uncer- tainty, Complexity, and Ambiguity (VUCA). The VUCAtrendrequiresexistingbatiktocontinuede- veloping and adapting sustainably to external de- mands. It is encouraged to change so as not to lose its competitive position in competition (Pieterse et al., 2012). The threats faced by the batik business in East Java, apart from outside the province of East Java, such as Central Java Province and the Special Region of Yogyakarta, are also from fore- ign countries, such as batik printing from China, Malaysia, and Vietnam (Dewinta et al., 2016).

Phenomenon faced by the Batik MSMEs in East Java, it is interesting to study how to improve the performance of Batik MSMEs in East Java using a Resource-Based Theory (RBT) approach.

Barney (1991) defines RBT as capabilities and resources as tangible and intangible assets used to assist and establish strategies to improve efficiency and effectiveness. Combining tangible and intangible assets is a possible tactic to boost business success (Belkaoui, 2003). One of the factors in the analysis of intellectual capital, an internal resource that businesses own made up of immaterial assets, is human capital.

Human capital development is crucial because it can be used as money to gain a competitive advantage (Grant, 2010). Employees' knowledge, abilities, intelligence, interpersonal connections, attitudes, skills, and behavior are their human capital (Schiuma and Lerro, 2008). Abdullah and So- fian (2012) explained that human capital, which includes knowledge, professional skills and experience, expertise, level of education, and employee creativity, directly affects company performance.

Khalique and Shaari (2013) revealed that human capital is a component of intellectual capital which mainly includes knowledge, education, skills, loyalty to the organization, and employee motivation.

Kamukama et al. (2011) say human capital is developed to utilize aspects of employee knowledge,

education, vocational qualifications, work-related knowledgeorcompetencies,entrepreneurialspirit, innovation,andproactiveandreactivecapabilities.

Yasir et al. (2011) revealed that empowerment, professional skills, training programs, and ideas measure human capital.

The results of the previous empirical studies conducted by Rodriguez et al. (2004), Ahmad and Mushraf (2011), Abdullah and Sofian (2012), and Khalique et al. (2018) concluded that human capital influences the performance of MSMEs. Diffe- rent results were shown by an empirical study conducted by the Khalique et al. (2011) and Husnah (2013), who concluded that human capital does not affect the performance of SMEs. The differen- ce in results (research gap) opens a gap to re-exa- mine the effect of intellectual capital on the performance of MSMEs with a competitive advantage as a mediator. A company needs different resources to gain a competitive advantage. Human resources can be emphasized as one of the tools.

Chahal and Bhaksi (2015) stated that human resources are essential in establishing and maintaining organizational excellence. In addition, human capital is widely applied and practiced in various industrial sectors by looking at the strengths and we- aknesses of the company's internal resources to achieve a competitive advantage (Sharabati et al., 2010). The results of empirical studies conducted by Kamukama et al. (2011) and Chahal and Bhak- si (2015) concluded that human capital influences competitive advantage.

The MSMEs that can achieve competitive advantage can improve their performance. Micha- lic and Buhalis (2013) stated that competitive advantage is the company's ability to obtain economic benefits over its competitors' advantages in the same industrial market. MSMEs with a competitive advantage can always understand market structure changes and choose an effective marketing strategy. The results of an empirical study conducted by Minci (2018); Asyhari et al. (2018); Afiyati et al. (2019); Marini and Yuniarti (2021) concluded that competitive advantage affects the performance of MSMEs. Through a Resource-Based The- ory (RBT) approach that focuses on internal factors in explaining business strategy as an effort to improve the performance of Batik MSMEs in East Java, the uniqueness of this study is the implemen- tation of competitive advantage as a mediating in-

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193 fluence of human capital on MSME performance,

which is developed in one model and described by Resource-Based Theory as the main theory.

LITERATURE REVIEW Resource-Based Theory (RBT)

RBT is a theoretical framework for contemporary business planning. RBT explains company strategy by focusing on internal factors (Hunt and Lambe, 2000). RBT was initially a resource-Based View (RBV) or a resource-based view. RBT is a theoretical framework for contemporary business planning. RBT are capabilities and resources that can be used to choose and define company strategy. They are tangible and intangible assets (Bar- ney, 2010). With better resources and capabilities than its rivals, a business can gain a competitive advantage, according to a study on resource-based theory (RBT) (Cheng et al., 2010). To achieve and maintain a competitive advantage, Barney (1991) asserts that the RBT method to gain a company's competitive advantage must ensure that the resources held within the company are superior to those outside the company. Ireland et al. (2003) stated that a business could gain a competitive advantage and improve performance by managing its resources strategically and systematically.

Performance

Lin et al. (2008) stated that performance results from meeting a company's internal and exter- nalobjectives.Linetal.(2008)andNybakk(2012) explain that performance factors in SMEs are as- sessed based on financial performance, marketing performance, and competitiveness. Three factors, profitability, productivity, and market, are used by Camison and Villar (2012) to evaluate the success of small and medium-sized businesses. The success of SMEs can be evaluated in several ways, according to Gin and Chong (2008), including financial performance, product performance, and marketing performance. Three factors, profitability, productivity, and marketing, are used by San- chez and Marin (2005) to evaluate the success of SMEs. Sales growth, company profitability, and business productivity were used by Shahbaz et al.

(2014) to gauge various aspects of SME success.

Human Capital

The human capital is described by Choo and

Bontis (2002) as the pool of knowledge from the organization as described by the current workforce in the organization or firm when combined to ad- dress business issues. Daum (2005) stated that human capital is a source of innovation and renewal because people generate and make new and worth- while ideas. Cheng et al. (2010) noted that human capital influences employees' information, abilities, and skills. Khalique and Shaari (2013) stated that a part of intellectual capital is human capital, which primarily consists of information, education, skills, loyalty to the company, and employee motivation. The majority of other capital develop- mentcomesfromit.Kamukamaetal.(2011)stated that human capital is created by utilizing various employee knowledge, schooling, vocational qualifications, work-related knowledge or competencies, entrepreneurial spirit, creativity, and proactive and reactive abilities. The training programs, competencies, recruitment, mentorship, learning programs, individual potential, and personality are just a few quantifiable forms of human capital listed by Brinker (2000). As defined by Mayo (2000), human capital comprises individual talents, drive, and leadership.

Competitive Advantage

Kotler and Armstrong (2012) stated that the competitive advantage is a benefit over rivals attained by giving customers more for less money or having better features because the price is higher.

Michalic and Buhalis (2013) stated that competitive edge is the company's capacity to outperform its rivals economically in the same industrial market. MSMEs with a competitive edge can always recognize changes in the market structure and se- lect an efficient marketing approach. Bharadwaj et al. (1993), Bratic (2011), and Michalic and Buha- lis (2013) stated that product uniqueness, product quality, and competitive prices are a few metrics used to gauge economic advantage. Product origi- nality refers to how distinctively a company's goods are when they combine artistic principles with consumer preferences. The design quality of the company's goods is referred to as product quality.

The business's capacity to align its products' cost with the market's average cost is known as competitive pricing. Based on the phenomena, theoretical studies, and empirical studies that have been described.

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194

HYPOTHESIS DEVELOPMENT

Figure 1. Conceptual Framework Model

Perceived Ease of Use and Perceived Usefulness Ireland et al. (2003) stated that your company'ssuccesswouldimproveifyoustrategicallyand systematically manage resources. Abdullah and Sofian (2012) stated that the performance of an organization is directly influenced by its human capital, which encompasses knowledge, professional skills and experience, expertise, educational atta- inment, and employee creativity. The performance of MSMEs is influenced by human capital, according to earlier empirical works by Rodriguez et al.

(2004), Ahmad and Mushraf (2011), Abdullah and Sofian (2012), and Khalique et al. (2018). The study's hypotheses can be stated as follows in light of the conceptual structure and the specified variable relationships:

H1 : Human capital has a significant effect on MSME performance.

Human capital is a vital element to be developed because its knowledge becomes capital for increasing competitive advantage (Grant, 2010).

Berger (2008) revealed that human resources con- tribute to creating and maintaining organizational excellence. The results of an empirical study conducted by Kamukama et al. (2011) and Chahal and Bhaksi (2015) concluded that human capital has an influence on competitive advantage. The hypotheses can be formulated as follows:

H2 : Human capital has a significant effect on competitive advantage.

Michalic and Buhalis (2013) revealed that competitive advantage is the company's ability to obtain economic benefits over its competitors' advantages in the same industrial market. The results of an empirical study conducted by Minci (2018);

Asyhari et al. (2018); Afiyati et al. (2019); Marini and Yuniarti (2021) concluded that the competitive advantage affects the performance of MSMEs.

Based on the flow of thought and the variable relationships described, the hypotheses in this study can be formulated as follows:

H3 : Competitiveadvantagehasasignificanteffect on MSME performance.

Grant (2010) revealed that human capital is an important element to be developed because the knowledge becomes an asset for increasing competitive advantage (Grant, 2010). Li (2000) stated thatcompaniesthatexcelinthecompetitionwould impact high performance. The results of an empirical study conducted by Kamukama et al. (2011) and Chahal and Bhaksi (2015) concluded that human capital influences the competitive advantage, while the results of a study conducted by Minci (2018), Asyhari et al. (2018); Afiyati et al. (2019);

Marini and Yuniarti (2021) concluded that competitive advantage affects the performance of the MSMEs. The hypotheses in this study can be formulated as follows:

H4 : Competitive advantage mediates the effect of human capital on MSME performance.

Human Capital

Competitive Advantage

Performance of MSMEs

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195 METHOD

The quantitative method of explanatory research is used in this work. The influence pattern being tested is the impact of intellectual capital on the performance of MSMEs, as mediated by innovation skills. Banyuwangi Regency, Jember Reg- ency, Probolinggo City, Pasuruan City, Mojokerto City, Sidoarjo Regency, Pamekasan, Surabaya Ci- ty, Malang City, Blitar City, Tulungagung Regen- cy, Kediri City, and Madiun City are among the regions where batik SMEs conduct study. This lo- cation was chosen because it is well-known for having a distinctive batik motif representing the region's identity in the province of East Java. Actors from UMKM Batik in East Java, which created 216 written and stamped batik actors, make up the study's population. The Slovin formula determines the number of the samples (Ferdinand, 2014). The sample size is 140 performers MSMEs with a 5%

error rate. 140 Batik MSME owners were selected as the samples, and proportional random sampling

was used as the sampling method in this research.

A proportional calculation is used to determine the sample size based on the MSME in each area. The formula (population: total population) x number of samples determines the number of samples in each sub-population (category). Table 1 displays speci- fics about the demographic and sample sizes.

The structural equation modeling analysis of the study's data (SEM) to determine whether a model is feasible, a variety of fit indexes measure how well the hypothesized model fits the provided data. Once the model satisfies the requirements, it is essential to evaluate the hypothesis based on the CR (critical ratio), tested with a probability value (p). If the p-value is 0.05 or less, there is a signifi- canteffect;otherwise,thereisnosignificance.Me- anwhile, test utilizing the Baron and Kenny (1986) method will be run to see if a variable can serve as an intervening variable. The operational definiti- ons of the variables used in this study are presented in Table 2.

Tabel 1. Population and Research Sample

No Regency/City Total Population Number of Samples

1 Banyuwangi Regency 17 11

2 Jember Regency 10 7

3 Probolinggo City 15 10

4 Pasuruan City 12 8

5 Mojokerto City 13 8

6 Sidoarjo Regency 15 10

7 RegencyPamekasan 28 18

8 City of Surabaya 21 14

9 Malang city 22 14

10 City of Blitar 18 11

11 Tulungagung Regency 17 11

12 City of Kediri 14 9

13 Madiun City 14 9

Amount 216 140

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Table 2. Operational Matrix of Research Variables

Variable Indicator Items Source

Human Capital

Professional

Competence 1. Ability to design batik motifs Halim (2010); Khalique et al. (2018)

2. The ability to market batik products Social

Competence

3. Ability to build cooperation with other batik entrepreneurs

4. Ability to build trust with residents Motivation 5. more innovative in creating batik motif de-

signs

6. have ideas to be superior to competitors Leadership

ability 7. Cooperative with employees and partners 8. Likes to maintain relationships between em-

ployees, partners, and consumers.

Competitive Advantage

Product uniqueness

9. Able to create products with interesting vari- ants

Bharadwaj et al.

(1993), Bratic (2011), and

10. Able to create products with matching color combinations

Michalic and Buhalis (2013)

Product Quality

11. The quality of the resulting batik products creates beauty that cannot be found in com- peting products.

12. The quality of batik products produced with attractive colors is not easy for competitors to imitate

competitive price

13. Always offer competitive prices compared to competitors.

14. Always offer the same or even lower prices than competitors.

MSME performance

Financial performance

15. Profit achievement has increased in the last three years

Taticchi et al. (2010), Hafeez et al. (2012) 16. Increase in business capital in the last three

years Product

performance

17. The number of products produced increased in the last three years

18. Product requests increased in the last three years

Marketing performance

19. Sales growth has increased in the last three years

20. Customers have increased in the last three

years

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197 RESULTS

Characteristics of Respondents

Thecharacteristicsoftherespondentsinthis

study are related to individual characteristics or demographics of batik business owners, which can be seen in Table 3.

Table 3. Individual or Demographic Characteristics

individual characteristics Number of people) %

Gender

Man 85 60,7

Woman 55 39,3

Age

30 – 40 Years 18 8,6

41 – 50 Years 74 66,4

51 years and over 48 25

Last education

junior high school 12 8,6

high school 74 52,8

Bachelor degree) 54 38,6

Experience as an entrepreneur

1-5 years 9 6,4

6-10 years 23 16,4

11-15 years 25 17,9

15 years and over 83 59,3

Long-standing business

1-5 years 9 6,4

6-10 years 23 16,4

11-15 years 37 26.5

15 years and over 71 50,7

Table 3 showed that the characteristics of the respondents in terms of gender indicate that respondents who own batik businesses in East Java are dominated men aged 41-50 years with a high school education level, have experience as entrepreneurs 15 years and over, and businesses mana- ged for 15 years to the top. These results indicate that respondents are experienced in the batik business and can represent them in answering questions related to intellectual capital, entrepreneurial orientation, innovationcapability, andMSMEper- formance.

Instrument Testing

Beforetheinstrumentisusedtocarryoutre- search, the instrument must be tested first on a pre- determined number of respondents. The research instrument was tested by spreading a small sample of 30 respondents. The results of the validity and reliability tests showed that all item questions were declared valid and reliable because they met the validity testing criteria. Namely, Pearson product- moment correlation coefficient (r) ≥ 0.3 and fulfill reliability testing Cronbach alpha value is greater than or equal to 0.6".

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Table 4. Item Validity and Reliability Test Results

Variable Items R count Coefficient

alpha status

Human Capital X1.1.1 0.498 0.906 Reliable

X1.1.2 0.589

X1.2.1 0.812

X1.2.2 0.722

X1.3.1 0.791

X1.3.2 0.795

X1.4.1 0.738

X1.4.2 0.767

Competitive advantage Y1.1.1 0.775 0.925 Reliable

Y1.1.2 0.823

Y1.2.1 0.866

Y1.2.2 0.788

Y1.3.1 0.861

Y1.3.2 0.726

MSME performance Y2.1.1 0.735 0.810 Reliable

Y2.1.2 0.714

Y2.2.1 0.676

Y2.2.2 0.714

Y2.3.1 0.701

Y2.3.2 0.784

Confirmatory Factor Analysis Results

The indicators derived from the variables such as human capital, competitive advantage, and

MSME success are determined using factor loading values, as are the measurement findings of indicators that are latent variables with CFA.

Table 5. Factors Loading (λ) Measure Variables

Variables and Indicators FL CR p.s

Human capital -> Professional Competence 0.758 7,172 0.000

Human capital -> Social Competence 0.801 7,293 0.000

Human capital -> Motivation 0.707 6,741 0.000

Human capital -> Leadership ability 0.660 - -

Competitive advantage -> Product uniqueness 0.766 - -

Competitive advantage -> Product Quality 0.775 7,755 0.000

Competitive advantage -> competitive price 0.769 7,742 0.000

MSME performance -> Financial performance ,761 - -

MSME performance -> Product performance ,666 6,396 0.000

MSME performance -> Marketing performance ,764 6,541 0.000

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199 Table 5 showed that the variables for human

capital, competitive advantage, and MSME performance all have factor loadings (FL) values with significance levels (p) 0.05 and CR values show- ing numbers greater than 2.0. As a result, each of these indicators plays a crucial role in determining the human capital, competitive advantage, and the MSME success. Furthermore, social competence is thought to have the biggest influence on determining the human capital when evaluated from the loading factor value of each indicator. The product quality is thought to be the sign that has the biggest impact on determining competitive advantage, and

marketing performance is thought to have the biggest impact on determining MSME performance.

SEM Analysis Results

Test results with structural Equation Mod- elling (SEM) are presented in Figure 2 below. Fig- ure 2 were evaluated based on the goodness of fit indices criteria. A value above critical has been produced by the model's evaluation of the construct as a whole, according to the proposed model's evaluation. Therefore, it can be categorized as appropriate and practicable to interpret the model for further discussion.

Figure 2. Model Test Results

Hypothesis Testing Results

Testing the direct effect of intellectual capital on the performance of SMEs is used Critical ratio (Cr) from the results of the output regression Weight. If the p-value is <5%, there is a direct effect. Meanwhile, the mediation test is based on the

criteriaif(a)and(b)aresignificantwhile(c)issig- nificant, where the coefficient value (c) is smaller (decreases) than (d). It can be said to be partial mediation. It can be said to be partial mediation. The results of hypothesis testing are listed in Table 6 below.

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Table 6. Results of Regression Weight Analysis

Connection Path Coefficient cr p-values Results

Human Capital -> Competitive

advantage 0.331a 3.106 0.002 Significant

Competitive ad-

vantage -> MSME

performance 0.302b 2,990 0.003 Significant

Human Capital -> MSME

performance 0.515c 4,531 0.000 Significant

Human Capital Competitive advantage

MSME

performance 0.615d 5,387 0.000 Significant

The effect of human capital on competitive advantage produces a Cr value of 3.106 with a p- value of 0.002, so the hypothesis that human capital directly has a significant effect on competitive advantage is acceptable. Testing the effect of competitive advantage on MSME performance yielded a Cr value of 2.990 with a p-value of 0.003, so the hypothesis that competitive advantage directly affects MSME performance is acceptable. Testing the effect of human capital on MSME performance yielded a Cr value of 4.531 with a p-value of 0.000, so the hypothesis that human capital directly has a significant effect on MSME performance is acceptable. The results of testing the path coefficient of the human capital variable, which is con- trolled by competitive advantage, can significantly influence MSME performance with a coefficient value of 0.515 (c). The coefficient value is smaller (decreases) than the effect of human capital on the MSME performance without any competitive advantage mediating variable, with a coefficient value of 0.615 (d). Thus it can be concluded that the competitive advantage of partial mediation from the indirect effect of the influence of human capital on the performance of SMEs.

DISCUSSION

The Influence of Human Capital on the Perfor- mance of SMEs

The analysis's findings demonstrate that human capital has an impact on the MSMEs' success.

Because of the importance of human capital through social competencies like the capacity to build cooperation with other batik entrepreneurs and the capacity to build trust with locals, batik SMEs in East Java will produce a good performance, as indicated by increased marketing performance thro-

ugh improved sales and customers. Abdullah and Sofian (2012) stated that human capital, which includes knowledge, professional skills, experience, education level, and employee creativity, directly influences business success. The human capital is a part of intellectual capital, according to Khalique and Shaari (2013), and it primarily consists of information, education, skills, loyalty to the company,andtheemployeemotivation.Kamukamaetal.

(2011) say human capital is developed to utilize aspects of employee knowledge, education, vocational qualifications, knowledge or competencies related to work, entrepreneurial spirit, innovation, and proactive and reactive capabilities. Human capital is measured by empowerment, professional abilities, training programs, and ideas, according to Yasir et al. (2011). The findings of this study support earlier empirical research on the topic that was done by Rodriguez et al. (2004), Ahmad and Mushraf (2011), Abdullah and Sofian (2012), and Khalique et al. (2018), all of which came to the same conclusion that human capital affects MSMEs' success.

Effect of Human Capital on Competitive Ad- vantage

Due to the large number of MSMEs operat- ing in the same industry and producing compara- ble goods, such as batik, MSMEs must be able to fight and establish a competitive advantage. Hum- an resources are one such resource that sets them apart from their rivals. Suppose batik SMEs in East Java can take advantage of the quality of ex- isting human resources through human capital as indicated by social competence, such as the ability to build relationships. In that case, they can produce competitive advantages as indicated by product

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201 quality, such as batik products that can create bea-

uty that cannot be found in competitors' products.

And competitors that do not easily imitate quality batik products with the attractive colors. This idea aligns with Berger's (2008) assertion that human resources are the most important element in achieving and sustaining organizational excellence. Ad- ditionally, human capital is extensively used and put into practice in various industrial sectors by taking into account the advantages and disadvan- tages of a company's internal resources to gain a competitive edge (Sharabati et al., 2010). The findings of this study support earlier empirical research by Kamukama et al. (2011) and Chahal and Bhaksi (2015), which came to the same conclusion about the impact of human capital on economic advantage.

The Effect of Competitive Advantage on the Performance of SMEs

Based on the analysis's findings, it is clear that competitive advantage affects how well batik SMEs perform in East Java. That means that these businesses will perform well in marketing thanks to higher sales, and customers will be able to do so thanks to product quality. For example, UMKM Batik produces batik products that are beautiful and cannot be found in competitors' products. Por- ter (1991) believed that a company could succeed if its business performance resulted in a competitive edge and long-lasting business performance improvements. Additionally, Barney (2010) claimed that competitive advantage could be used to better business performance. The findings of this study support earlier empirical research by Minci (2018), Asyhari et al. (2018), Afiyati et al. (2019), and Marini and Yuniarti (2021), which found that competitive edge has an impact on MSMEs' performance.

Competitive Advantage Mediates the Influence of Human Capital on MSME Performance

Theresearchfindingsdemonstratethatcom- petitive advantage can act as a buffer between human capital and SMEs' performance. This finding implies that human capital, as indicated by social competence, such as the capacity to foster collabo- ration among batik entrepreneurs and the capacity to foster trust among locals, contributes to grow- ing competitive advantage. It is indicated by prod-

uct quality, such as that produced by UMKM batik, which produces high-quality batik products with appealing colors that are not easily increased marketing performance is a sign of improved the MSME performance. Increased sales and customers demonstrate it for MSMEs engaged in the batik industry. The findings of this study, which are a development of earlier studies by Kamukama et al.

(2011), Chahal and Bhaksi (2015), Minci (2018), Asyhari et al. (2018), Afiyati et al. (2019), and Marini and Yuniarti (2021), concluded that human capital influences competitive advantage and that competitive advantage affects the performance of MSMEs.

IMPICATIONS

This research aims to enhance the performance of Batik MSMEs in East Java. The strategic function of human resource management can be used to enhance MSMEs' performance using the Resource-Based Theory (RBT) method. The Re- source-Based Theory approach classifies capabilities and resources as physical and intangible assets. This group of resources can be used to descri- be and choose strategies to improve effectiveness and efficiency (Barney, 2010). RBT explains company strategy by focusing on the internal factors (Hunt and Lambe, 2000). Barney (1991), Barney (2010), and Ireland et al. (2003) stated that batik SMEs in East Java could manage human resources through human capital, as demonstrated by social competencies like the capacity to foster collabora- tion with other batik business owners and the capacity to foster trust with locals. The competitive advantage can be attained, as demonstrated by the UMKM appliqué generates. The competitors find it difficult to replicate batik products that make beautiful motifs unique to them and produce high- quality batik products in eye-catching colors. As evidenced by increased sales and clients, the success of batik SMEs in creating a competitive edge affects enhancing the marketing performance of SMEs. Cheng et al. (2010) stated that interpretati- on of the resource-based theory (RBT) for creating competitive advantage, a company with better resources and skills outperforms its rivals. To achieve and maintain a competitive advantage, Teece (2010) claimed that the RBV approach to gaining a company's competitive advantage must guaran- tee that the resources owned within the company

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202

are superior to those from outside the company.

Ireland et al. (2003) stated that a business could gain a competitive advantage and improve performance by managing its resources strategically and systematically.

RECOMMENDATIONS

This study is based on survey data that only analyze relationships in one time period (cross- section) so that dynamic business environment changes will strongly influence analysis at different periods. As a result, the results of the influence between the studied variables are data based on one time period (cross sections).

Batik SMEs in East Java must improve their leadership skills to cooperate more with employees and partners and improve relations between employees, partners, and consumers. For further researchers, they can study the business environment and business networking to improve the performance of MSMEs.

CONCLUSIONS

Competitive advantage can mediate the link between human capital and the performance of batik MSMEs in East Java. Competitive advantage influencesbothcompetitiveadvantageandtheper- formance of MSMEs. Based on the research findings, recommendations are made for future scien- tificstudy.TheResource-BasedTheorytheorycan be applied to MSMEs who want to gain a competitive advantage and improve performance indepen- dently, control, and utilize intangible assets in human capital. The research findings can enrich references and the scientific repertoire related to it.

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