Walking Before You Can Run: The Knowledge, Networks, and Institutions for Emerging Market SMEs

Advancing the ability of emerging market small and medium size enterprises (SMEs) to learn, absorb new technologies, and grow is one of the greatest challenges in economic development and to theories of knowledge transfer. This chapter analyzes the mechanisms that can facilitate or impede the participation of Latin American SMEs in global value chains (GVCs), and in turn improve their capabilities and productivity. We attempt to shift the focus of attention that scholars and policy-makers have toward the types of knowledge and network linkages that emerging market SMEs need to sustainably benefit from GVCs. By drawing on recent work from the knowledge theory of the firm, development, and network dynamics, we call into question a core assumption about the necessary benefits that can accrue to SMEs by being tied more closely to sources of pioneering technologies. We argue instead that in order to overcome legacies of resource constraints and technology gaps, these SMEs need access to a variety of applied and experiential knowledge that help them transform their existing organizational capabilities into ones that enable them to implement basic international process and product standards, in turn allowing them to learn from potentially fruitful relationships in GVCs. Because of the way such knowledge is created, through intense interactions and exchanges of tacit knowledge, access is constrained. With a focus on the need for broad based upgrading of SME capabilities, we further suggest that particular constellations of interorganizational networks and public-private institutions, often overlooked in IB research, are best suited to facilitate such access.