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Toward Understanding Inter-organizational Knowledge Transfer
Needs in SMEs: Insight from a UK Investigation
Shizhong Chen, Yanqing Duan, John S. Edwards and Brian Lehaney
Abstract
Purpose External knowledge is generally believed to be of prime importance to SMEs. However, a review of
the literature shows that no empirical research has looked at knowledge management issues at the inter-
organizational level in SMEs. This paper reports on an empirical investigation with UK SMEs in the service
sector to identify their needs and practices regarding inter-organizational knowledge transfer, and thus provide
empirical evidence to support the above belief.
Design/methodology/approach A two-tier methodology (i.e. using both questionnaire survey and interview
approaches) is deployed to address the main research objectives. A questionnaire survey of SMEs is carried out
to investigate their current inter-organizational knowledge transfer situation and managers‟ perception on
various relevant issues. Then twelve face-to-face interviews with SME managers are conducted to further
validate key findings drawn from the questionnaire survey.
Findings The empirical evidence collected from the survey and interviews confirms the general belief that
external knowledge is of prime importance for SMEs, and demonstrates that SMEs have very strong needs for
external knowledge and inter-organizational knowledge transfer.
Research limitations/implications The findings provide very strong underpinning for further theoretical
research on inter-organizational knowledge transfer in SMEs. However, this study has certain limitations: its
results may not be applicable to other industrial sectors or the same sector in other countries; or to micro or
large companies; nor does it involve cross-cultural issues.
Originality/value By adopting a two-tier research methodology, this study provides more reliable
understanding and knowledge on SMEs‟ inter-organizational knowledge transfer needs and practices, and fills
the gap that exists in the empirical investigations on the subject.
Keywords
SMEs; Knowledge Management; Knowledge Transfer; Inter-Organization; Survey; Interview.
Introduction
Knowledge is thought to be the only meaningful resource today. The traditional factors of production
have become secondary. It is straightforward to obtain them, provided there is knowledge (Drucker,
1993). Therefore, it is knowledge that is the key to business success. To remain at the forefront and
maintain a competitive edge companies must have a good capacity to retain, develop, organise,
transfer and utilise their knowledge resources. This requires systematic knowledge management (KM)
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(Wiig, 1997).
SMEs appear increasingly crucial to the success of a national economy (Johnston & Loader, 2003).
For example, at the beginning of 2000, it was estimated that there were 3.7 million businesses which
could be regarded as active in UK, of these, small businesses accounted for over 99% and a further
25,000 were of medium size (Bradford, 2004); in 2002, SMEs were responsible for about 60% of
China‟s industrial output and employed about 75% of the workforce in China‟s cities and towns
(USA, 2002). Beck et al (2004) studied SMEs in 62 countries. In the majority of them the SME share
of total employment was well over 50%, reaching 86% in Chile, Greece and Thailand. They also
found a strong association between the importance of SMEs to the national economy and GDP per
capita growth.
Obviously, SMEs‟ effectiveness in leveraging knowledge will play a key role in the success of a
national economy. Effort devoted to study or exploration of KM issues related to SMEs is considered
to be worthwhile. However, KM, as an emerging discipline (Ives et al., 1998), is mainly derived from
large businesses (Deakins, 1999). As a result, only a small proportion of the literature has attempted to
address knowledge management issues in SMEs (Deakins, 1999; Sparrow, 2001), which is not in line
with the importance of SMEs in the national economy.
Experience and lessons learned from large businesses can not be directly applied to SMEs, as Sparrow
(2001, p.3) argues “… like so many aspects of business and management, the knowledge management
issues that SMEs will face may not be simply a scaled-down replica of large company experiences”.
SMEs may be distinguished from large companies, by some or all of the following features: flexibility
and volatility, skill (or expertise) shortages, very limited market power, market behaviours mainly
affected by partners or competitors (Deakins, 1999; Duan et al., 2001). Therefore, external knowledge
is of prime importance to SMEs, whereas large businesses may pay more attention to the knowledge
of their internal aspects (Sparrow, 2001). However, this general belief cannot be accepted without
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further argument. Since this paper is mainly concerned with SMEs, and hence focuses on the issues
that are of great relevance to the argument that external knowledge is of prime importance to SMEs
(Sparrow, 2001).
Firstly, it is a natural concern whether there is practical evidence to support the argument. Further, in
which areas may this conclusion be specifically reflected? The external knowledge for a company
actually exists in its business environment, which is defined as „the relevant physical and social
factors outside the boundary of an organization that are taken into consideration during organizational
decision-making‟ (Daft et al., 1988). The environment has two layers. The one closest to the
organization is the task environment, with sectors that have direct transactions with the organization,
such as competitors, suppliers, and customers. The outer layer represents the general environment and
refers to sectors that affect organizations indirectly, such as the economic, legal, social and
demographic ones (Xu et al., 2003). Daft et al. (1988) found that sectors in the task environment
generate greater strategic uncertainty than those in the general environment, and thus are perceived as
more important than the latter. So, this research will focus on the task environment. Xu et al. (2003),
through a questionnaire survey, revealed that customers, competitors and market sectors are perceived
as most strategically important by UK executives from five industries: computer, food, chemical,
electronics and transport. This partially confirms the finding of Daft et al. (1988). However, “the
sample selected is medium to larger sized companies, the results may not be applicable to very large
or small and entrepreneurship enterprises” (Xu et al., 2003, p.8). Furthermore, “… earlier studies treat
the business environment as a single entity” (Xu et al., 2003, p.1). Therefore, it seems worthwhile to
attempt to divide the task environment into sectors and identify SMEs‟ perception of the importance
of knowledge in these sectors.
Secondly, the knowledge in identified sectors of the task environment will be finally related to
particular organizations, e.g. the market sector identified by Xu et al. (2003) is related to customers,
suppliers or competitors. So, once the importance of external knowledge in the relevant sectors of the
task environment for SMEs is identified, it may be considered whether SMEs have sufficient
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knowledge about the organizations related to the identified sectors. Obviously, if SMEs have been
aware of their insufficiencies in knowledge about the relevant organizations, i.e. knowledge gaps
about these organizations exist in them, they will need to acquire the external knowledge through
learning from the these organizations, i.e. through inter-organizational knowledge transfer (Szulanski,
2000; Beijerse, 2000; Chen et al., 2003). Therefore, SMEs‟ needs for inter-organizational knowledge
transfer can be identified by means of the identification of their knowledge insufficiencies about the
relevant organizations.
Thirdly, to acquire external knowledge, SMEs need to engage in some activities to interact with
external organizations, i.e. inter-organizational knowledge transfer activities. Obviously, if SMEs
have no need for inter-organizational knowledge transfer, they will have no motivation to take part in
knowledge transfer activities. So, the identification of these activities may reflect SMEs‟ needs for
inter-organizational knowledge transfer from another perspective, and also demonstrate their current
practices in the area. Beijerse (2000) identifies 79 instruments with which knowledge is organised in
SMEs, of which 5 reflect inter-organizational knowledge transfer activities. Knowledge transfer is
thought of as an important part of KM (Davenport and Prusak, 1998; Nissen et al., 2000; Beijerse,
2000). A review (Chauvel and Despres, 2002) of various KM surveys conducted between 1997 and
2001 shows that these surveys were designed to investigate KM issues from six dichotomous
dimensions, i.e. phenomena, action, level, knowledge, technology and outcomes. In the level
dimension, the surveys have typically focused on KM at the individual, divisional and organizational
levels. Very few surveys have been designed to look at KM issues at the inter-organizational level in
SMEs. KM issues related to SMEs have tended to be ignored, especially at the inter-organizational
level. The identification of SMEs‟ current practices and needs for inter-organizational knowledge
transfer will contribute knowledge to this area.
Fourthly, organizations need channels to facilitate their knowledge exchange in the inter-
organizational knowledge transfer activities. Social and electronic networks are thought of as being
two such channels (Chen et al., 2002). The social network may provide opportunities for face-to-face
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communication, produce strong ties between member organizations through the appropriate
application of the two mechanisms - trust and power, and thus work as a channel to transfer both tacit
and explicit knowledge between member organizations (Dyer and Nobeoka, 2000; Chen et al., 2002).
An electronic network may work as another channel to transfer knowledge between organizations
(Chen et al., 2002). Although there are some difficulties for an electronic network to transfer tacit
knowledge, it has advantages over social networks in rapidly transferring explicit knowledge, rapidly
developing weak ties and greatly reducing communication cost (Grandori and Soda, 1995; Preece,
2000; Jones and Beckinsale, 2001; Warkentin et al., 2001). So, the member organizations of a social
network may build up their own electronic network to facilitate explicit knowledge transfer between
them. Even if this case has not happened in a social network, its member organizations may still use
network technology such as the Internet to market products or acquire knowledge from external
sources (Chen et al., 2002). Therefore, the current situation and effectiveness of SMEs‟ use of both
social and electronic networks to facilitate knowledge exchange between organizations need to be
examined.
Finally, inter-organizational knowledge transfer is actually the process of organizations learning from
each other. This inter-organizational learning may be considered as being composed of two sub-
processes: 1) inter-individual learning between individuals from different organizations; 2) once the
individual recipient has acquired the needed knowledge, the conversion of individual learning into
organizational learning through organizational internal mechanisms (Chen et al., 2002). From the
organizational learning perspective, a criterion for success is that, knowledge that is received by
individuals from external sources, should be communicated and utilised effectively throughout the
organization so that its business is improved (Argyris & Schon, 1996; Dodgson, 1993; Beeby and
Booth, 2000). Szulanski (2000) also argues that a successful knowledge transfer for an organization
should improve its business performance. So, the effectiveness of SMEs‟ inter-organizational
knowledge transfer is also a matter of concern and will be measured on whether the acquired external
knowledge is effectively used by SMEs to improve their businesses.
