Small Medium Enterprises (SMEs) have a significant role in the economic growth of the nation, but some issues have already existed. Lack of human resources, competitiveness, and many more are examples. In the recent era, SMEs have the opportunity to develop their potential human resources by exploring their employees’ knowledge of technology. SMEs are expected to be able to respond to the digital business environment through digitalizing business. The digital transformation of SMEs empowers the ability of both the organizations and employees since knowledge management capability has an absorptive capacity to process the external knowledge; thus, knowledge management capability of SMEs needs to be improved. On the other hand, the digital ecosystem provides a place for integrating the business entities as a support system. This study aims to fill up the knowledge gap by discussing the relationship between knowledge management capability and digital transformational with the digital ecosystem as a moderating variable.