Knowledge management in offshoring innovation by SMEs: role of internal knowledge creation capability, absorptive capacity and formal knowledge-sharing routines

Purpose: In spite of the increased attention on knowledge management processes as important variables for firms to generate performance benefits within supply chain literature, little is known about how these variables could impact offshoring innovation (OI) relationships held by small and medium-sized enterprises (SMEs). Considering their growing importance, this study aims to investigate the interplay between the internal knowledge creation capability, absorptive capacity and formal knowledge routines in attaining OI performance benefits for SMEs. Design/methodology/approach: Grounded in the knowledge-based view theory, this study forwards various hypotheses between the variables of interests. The authors test the hypotheses using survey data collected from 200 European SMEs that engage in offshore supplier relationships. Findings: The findings suggest that internal knowledge creation capability is positively associated to absorptive capacity. Not only is absorptive capacity positively associated to OI performance outcomes but it also positively mediates the effect of internal knowledge creation capability on OI performance. Additionally, formal knowledge-sharing routines negatively moderate the relationship between absorptive capacity and OI performance. Originality/value: This study contributes to the supply chain as well as SMEs innovation literature by empirically showing that through enhanced internal knowledge creation capability, absorptive capacity goes beyond merely accessing and assimilating the supplier’s knowledge to achieve innovation gains. The results suggest that to succeed in gaining knowledge and subsequent performance benefits within OI, it is essential for SMEs to create and retain knowledge internally.