Investigation of knowledge management and firm competitiveness: core competence as a mediator

Literature review and development of research hypothesis

In this research paper, KM is defined by four constructs, using four items to measure knowledge creation (KC), three variables for knowledge sharing (KSH), two measures for knowledge application (KAPP), and two for knowledge storage (KST). This study formulated a research model to establish at first a direct KM relationship with firm competitiveness (FC) using four (operational and financial) constructs such as innovation (IN), delivery (D), quality (Q), and financial performance (FP). The second relationship is between KM and TOP core competence (CC), and the third is the relationship between CC and FC. The fourth is knowing about the effect of KM on FC through the mediation of CC. Using the underpinning of the knowledge-based view (KBV), we argue that KM processes of manufacturing and service organizations in Pakistan have considerable direct and indirect capacity to increase the firm competitiveness.

Knowledge management and firm competitiveness

According to the knowledge-based view (KBV), the knowledge possessed by a firm is a strategic intangible asset and critical to long-term success (Grant, 1996). The effective management of knowledge leads organizations to perform better than competitors (Martín‐de Castro et al., 2011). That means the existence of resources (employees) is not remained enough without managing knowledge through processes at the firm level (Kiessling et al., 2009). Creation, sharing, storage, and application determine common KM abilities to create and capture value (Martelo-Landroguez & Cepeda-Carrión, 2016). Under the theoretical pinning of KBV, previous studies suggest that KM processes can significantly impact competitive advantages and performance (Kassou, 2019; Al-Ahbabi et al., 2019; Tan & Wong, 2015; Kiessling et al., 2009; Gold et al., 2001).

Mohamad & Zin (2019) have shown a positive association between KM and competitiveness in the service context (innovation, cost, quality, and flexibility). Ali et al. (2019) indicated a significant impact of knowledge-sharing practices on firm competitive tangible (cost reduction, organization growth) and intangible advantages. Investigating the manufacturing firms, Liu et al. (2004) also revealed significant connections between KM process capabilities and competitiveness. Aboelmaged (2014) found a positive linkage with firm operational competitive measures (cost, quality, delivery, and flexibility) through KM capabilities. In line with the above, here this study postulates,

H1. Knowledge management processes are positively related to the firm competitiveness.

Knowledge management and core competence (TOP factors)

Knowledge is the critical source of distinctive tangible and intangible competence, competencies, and capabilities (Tseng & Lee, 2014; Momeni et al., 2011). Many empirical studies have also shown a positive relationship between KM processes and intellectual capital as an organization intangible competence (Wang et al., 2014; Hsu, 2008). KM studies argue that tacit and explicit knowledge sharing influences human (people-based skills, expertise, training, teamwork), structural (organizational factors and processes and technology), and relational (external) competence (Wang et al., 2014).

It has also directed that organizational competency development in terms of learning (internal and external competence) highly depends on knowledge integrating, converting, creating, acquiring, exchanging (Cooper et al., 2016), dissemination, and storage (Villar et al., 2014), or generation, storage and flow (Obeso et al., 2020). Kassou (2019) empirically estimated that the generation of competency (employee satisfaction, skills, and staff retention) is mainly attributed to KM activities.

Empirical research on achieving resources, capabilities, core competence, and competencies attained less attention from KBV literature. Studies established that acquisition, conversion, application, and protection are the knowledge management process that positively and significantly influence the types of core competencies (marketing, technological, and integrative) in the corporate sector context (Momeni et al., 2011). While examining the service sector, Mahdi et al. (2019) confirmed the impact of knowledge management processes (generate, store, share, and apply) on sustainable competitive advantages involving resources, capabilities, competencies, and core competence. So, it is also important to propose that,

H2: There is a positive relationship between knowledge management processes and core competence.

Core competence (TOP factors) and firm competitiveness

Firm competence offers a capacity to benchmark other organizations generating high profits, innovation, and competitive advantages (Brown et al., 2019; Hafeez et al., 2002). According to Hafeez et al. (2019), the TOP competence should be flexible enough to meet the changing demands. In the notion of TOP-associated factors, technological capabilities are empirically revealed mostly as the prominent predictors of organizational performance (financial and non-financial) relative to the organization and people in many studies (Hafeez et al., 2010; Hafeez & Essmail, 2007; Hafeez et al., 2006).

Furthermore, in the wake of the knowledge economy, companies are retaining core knowledge infrastructure capabilities through developing an understanding of the management of technology (tangibles), culture, structure, and people (intangibles) practices for competitive performance outcomes (Nguyen et al., 2018; Andreeva & Kianto, 2012; Pérez-López & Alegre, 2012; Mills & Smith, 2011; Chen & Huang, 2009; Lee & Choi, 2003; Gold et al., 2001). Others emphasized intellectual capital and human resources practices (Hafeez & AbdelMeguid, 2003). Under a similar view, the studies of Hsu (2008) and Andreeva & Kianto (2012) empirically reported human resource practices and people competencies as a prominent source to increase firm competitiveness. Therefore, in line with the significant consequences of TOP on competitive advantages, the proposed hypothesis is that:

H3: There is a positive relationship between TOP-associated core competence and firm competitiveness.

Knowledge management, core competences (TOP factors) and firm competitiveness

Villar et al. (2014) argued that without companies' dynamic capabilities like internal and external learning competence, knowledge management practices do not provide sufficient conditions for firm performance. Many studies empirically validated that the measurements of knowledge management are insufficient to generate competitive advantages and firm performance (Obeso et al., 2020; Durmuş-Özdemir & Abdukhoshimov, 2018; Tubigi & Alshawi, 2015). Recently, Aghaegbuna & Ukoha (2020) empirically show that not all knowledge processes contribute directly to firm performance.

Correspondingly, using operational and financial performance outcomes, studies observed mixed results, such as Zack et al. (2009) performed a significant direct relationship between knowledge management practices and operational performance relative to financial performance. Wang et al. (2014) also found two different results that reported the positive effect of tacit knowledge sharing on financial performance, while an insignificant relationship between explicit knowledge sharing and operational performance.

Therefore, prior research confirmed the successful role of knowledge management on competitive advantages and firm performance incorporated through building internal and external competencies such as learning and innovation capability (Migdadi, 2020; Obeso et al., 2020; Villar et al., 2014; Aboelmaged, 2014). Wang et al. (2014) noted a full mediation effect of intellectual competence (structure, culture, and relation) on the relationship between explicit knowledge sharing and operational performance than financial performance, while intellectual capital has shown a full mediation between tacit knowledge sharing and financial performance. Cooper et al. (2016) exhibited the impact of knowledge management on organizational performance through competence such as learning culture and human capital. The hypothesis generated as,

H4: There is a positive mediating role of core competence (TOP) between knowledge management and competitiveness.

Ethical considerations

Written informed consent was taken before filling the questionnaire. The study was sent for ethical approval to the Institute of Quality & Technology Management (IQTM), University of the Punjab, Lahore, Pakistan and got waiver IRB (Ref. No: D/218/IQTM) dated 17-08-2020. Therefore, we are thankful to all the volunteer respondents and their organizations who helped us without any conflict of interest and supported the industry academia relationship.

Data collection and sample size

The target population for the current study was the managers or senior officers of manufacturing and service organizations listed on the Pakistan stock exchange (PSX). PSX-listed companies, which determine the share exchange-based companies in Pakistan, were the study data source. Initially, this study utilized purposive sampling for companies and approached them conveniently. Therefore, out of the 544 manufacturing and service companies, 210 innovative manufacturing (automobiles, food & cosmetics, textile, and pharmaceuticals) and service (banks) organizations were selected as participants. Figure 1 shows the participants’ (companies) selection and eligibility criteria. The sample size has then calculated with a 95% confidence interval and a 0.05% margin for error in Yamane formula (Yamane, 1967). According to Saunders et al. (2009), if the population size is 200, the sample size at a ±5% confidence interval should be 132. In our case, the population size is 210, and the sample size is 136, which shows a sufficient sample size eligible to obtain a ±5% confidence interval. Afterward, the researcher of the current project adopted a stratified sampling technique for data collection amongst 136 listed manufacturing and service companies (Table 1) with at least 100 employees and ISO certification.

Figure 1. Flow diagram exhibiting selection of participant companies.

Organizations located in different provinces of Pakistan were contacted to acknowledge their participation. A list of contacts (addresses, emails, telephone numbers) has arranged from the PSX website. Initially, the organizations have contacted via given email addresses and phone contacts in the list, and five questionnaires to each organization besides research information were sent. Data collection was performed through a self-administered survey and followed a comprehensive strategy of emails, phone contacts, physical visits, and google form link sending on corresponding emails and WhatsApp to enhance the response rate. Afterward a continuous follow-up process was carried out from August 2020 to February 2021. Only targeted innovative sectors of PSX. The innovative nature of large firms shows enough ability to create and use knowledge and invest more in KM activities to outperform (Sukumar et al., 2020). The sectors like automobiles, food & cosmetics, textiles, and pharmaceuticals in manufacturing, and banks in service lines are becoming innovative and changing their products and services at short intervals. For example, the textile sector is a cornerstone in developing and boosting Pakistan's economy and contributing about 60% of the total export. Pakistan is the 8^th largest exporter of textile products in Asia. The government of Pakistan investing its time and efforts in providing policy support like textile policy 2025 with an investment of $ 3 billion in new projects. After textile food & beverage processing industry is the 2^nd largest in Pakistan. Halal products (food & cosmetics) are taking new horizons of opportunity. Pakistan halal food products authority is an endeavor to capture the international markets as a competitive edge over other non-muslim countries that offer halal products.

The automobile industry in Pakistan is one of the large-scale manufacturing (LSM) sector and the fastest-growing industry. Fetching technological advancements and increasing the national economy, employing a workforce of over 1.8 million people, and generating revenue through taxes and duties. Continuous-based production of automobile products is a sign that the auto industry is increasing at a regular speed. Pakistan is looking to introduce its first national electric vehicle as a solution to green Pakistan and climate concerns soon. This industry is expanding with buyer choice and providing safe, modern, and cost-effective vehicles. Pharmaceutical is a highly technological and R&D incentive sector. Top pharmaceutical companies in Pakistan adopt and use new technologies, good manufacturing practices (GMP), striving for the latest equipment and production technologies to sustain economic health and gain productivity. Apart from direct contribution to Pakistan's GDP, banks contribute to many economic and social development activities. In the coming years banking sector is anticipated to develop long-term financing, investment products, and green banking products.

A total of 680 (136*5) questionnaires were disseminated consisting of 99 items to the potential respondents of the sampling frame. Initially, all responses were entered on an MS Excel sheet. At the end of the span, a total of 281 responses were in hand, which enabled the scholars to proceed to the next step of the data analysis phase. Among these, 80 questionnaires were excluded from the final analysis using the screening process because a major part of the data was incomplete and missing. For data screening, all responses were entered against the respective ID under every post-coded item to check consistency, completeness, and legitimacy. In addition to the procedure, to ensure the coding accuracy and precision of the data entry, every 10^th record has to recheck using a double-entry technique.

Measurement scale design

The study cast items from previous literature to measure the variables KM processes, CC, and FC. Table 2 (constructs and measures) shows the selection of items from existing literature. Before the final execution of the original research questionnaire, the measurement instrument was refined and tested by using methods like pilot testing to identify uncertainty, problems, wording errors, or confusing questions from the contents of the questionnaire. The pilot study shows with 73 participants randomly selected from manufacturing and service organizations. Respondents were allowed to comment on the difficulty or any improvement suggestions in open-ended questions provided at the end of the questionnaire or send their valuable advice via email or phone contacts. Finally, the researcher considered the best items to have high Cronbach’s alpha values for the final version of the questionnaire (see Extended data, Fatima et al., 2022).

Validity and reliability

Before moving towards SEM analysis of the hypothesized relationships in the proposed model, reliability and validity had measured. For the internal consistency of the constructs in the questionnaire, accessed a reliability test through Cronbach's alpha value using through SPSS ver.20. The value of Cronbach's alpha could vary between 0 and 1. The 0.8 value is generally considered the acceptable level. While, in literature, for any construct reliability, the value must be 0.7 or above is recommended as adequate (Pallant, 2010). For this study, the value of each construct varies between 0.7 and 0.8. All values are in the range of the specified threshold limit (>0.7) of Cronbach alpha, shown in Table 3.

According to Hair et al. (2010), for the establishment of convergent validity (CV) of variables, the value of average variance extracted (AVE) should be > 0.5. All AVE values of latent variables are in their specified ranges except knowledge application (0.44), knowledge storage (0.44), and quality (0.49) which are < 0.5. Whereas the AVE value of 0.44 is acceptable when the value of composite reliability (CR) is > 0.6 (Fornell & Larcker, 1981). So the value of the CV is in the acceptable range. The CR values of all latent constructs are far > 0.6, as indicated in Table 3.

Demographic characteristics of respondents

Table 4 indicates the respondents varied characteristics of job position, no. of employees, nature of the organization, job experience, gender, ISO certification, and types of organization sector. The study established a descriptive analysis of the demographic characteristic. The results of job position indicates the majority of respondents were quality managers (26.37%), followed by sales & marketing managers (13.43%), production managers (11.94%), R&D managers (10.95%), procurement managers (10.45%) finance managers (6.46%), the human resource manager (4.48%), and 15.92% respondents were performing other responsibilities. These mixed responses from different departments give confidence to the researcher that the data will not be biased (Kumar et al., 1993). The response rate of 33.33% and 31.84% broadly came from medium to large firms that had number of employees > 500. This result gave much confidence to the researcher. Most of the organizations listed on the PSX are manufacturing companies. Therefore, 83.08% of responses were received from manufacturing organizations and 17% (16.92%) from the service sector. The analysis showed that 48.26% of respondents had a job experience of 11-15 years, and only 9.45% had job experience of 2-5 years. The maximum response rate was obtained from well-experienced employees of the sample organizations. Only 8.46% of respondents calculated as female, and 91.54% were male. The results indicate that nearly 80% (79.60%) of Pakistan organizations are ISO certified. The majority of data, like 40% (39.80%), was collected from the textile sector as it is one of the largest leading manufacturing sectors in Pakistan.

Measurement models

The CFA analysis of measuring KM, CC, and FC shows all the estimated values in the specified threshold ranges as given in outcome summary Table 5. This first measurement model examines the relationships among measures of the independent variable (IV), comprised of 4 KM processes (creation, sharing, application, and storage). The results of parameter re-estimates, fit indices, and observed residuals imply that the dimensions of KM provide the best fit for the observed co-variances among the collection of measures. Measurement model of FC constructs (innovation, delivery, quality, and financial performance) at the loss of cost and flexibility constructs (due to low Cronbach’s alpha values), others are in specified range value of thresholds and demonstrating uni-dimensional (Gaskin & Lim, 2016). Afterward, CFA confirmed the measurements in such constructs with low factor loadings. It is also interesting to mention that constructs like technology (T) and organization (O) competence were deleted during the construction of the CC measurement model and remained with 1 item of technology and 1 item of organization factors competence. However, people (P) construct stayed with a good number of items. In this way, only the variable CC came into existence with all TOP.

After performing the reliability and validity successfully, measurement models remained with a total of 29 items (KM = 11 items, CC= 7 items, FC = 11 items) used to measure the four constructs of KM and four constructs of FC (Table 2).

Hypothesis testing and structural analyses

Direct effect (D)

The proposed three direct relationships (KM->FC, KM->CC, and CC->FC) were tested by using structural equation modelling (SEM). Predominantly, the revealed first direct relationship is a path between the measured KM processes and outcomes of FC. It had noticed that the path coefficient of the estimated model supports the hypothesized relationship of fit in all directions and magnitudes. Table 5 indicates all the main results and goodness of fit indices for direct relationships on standardized estimates are in acceptable ranges and at the significance level of p=0.000. So, the results of the regression coefficient of the direct path exhibited the effect of KM on FC and endorsed that the KM implementation practices significantly encourage FC at a standardized value (β =0.78). This significant and positive result supported H1. Furthermore, the effect of KM on CC was observed positively and significantly at standardized estimates (β =0.89). The last direct effect of CC on FC also indicated a significant and positive relationship with standardized value (β =0.84) and supporting H2 and H3.

Indirect effect (IND) structural model of mediation analysis

For testing the mediation, the researcher followed the method of Baron & Kenny (1986). The bootstrapping technique with 5000 bootstraps (number of samples) was employed to examine the indirect relationship (Zhao et al., 2010). SEM testing of the relationship between KM and FC through the mediating role of measured CC exhibited perfect goodness of fit indices (Table 6). According to Baron & Kenny (1986), mediation exists if the independent variable (IV) does not affect the dependent variable (DV), and the mediator variable controls the influence of the IV on the DV.

So, in this study, the CC (mediator TOP) has dominated the effect of KM (IV) on FC (DV). That determines, in the presence of core competence related to technology, organization, and people, that the direct influence of KM does not remain more on the FC (Figure 3). Table 6 shows that the presence of a mediator (indirect effect) suppressed the KM direct effect on FC and remained less with a standardized estimate (β = 0.3), and analysis remained statistically significant at 0.001 (<0.005). Results established CC (TOP) mediation between KM and FC and supported H4.

Figure 3. Structural model of knowledge management, core competence and firm competitiveness.

Contribution to the literature

The findings of this study will contribute to existing literature that knowledge management significantly determines competitiveness in developing countries' research perspective. Results found statistically significant direct and indirect effects of knowledge management on firm competitiveness. Respondents of the organizations tend to believe that the more knowledge management implementation initiatives and improvement practices generate facts, the more firms will be competitive.

Contribution to the practice

Knowledge management has been an emerging competitive global trend and incorporates all the sectors in developed and knowledge-economic countries. However, the organizations of developing countries are still in their struggling phase to find out the business ways for the full potential of knowledge management. Hence, organizations in developing countries like Pakistan must comprehend the importance of knowledge management in response to being more competitiveness.

Limitations

Most importantly, the limitation may affect the generalizability issue. However, the findings are not generalized to the manufacturing and service sectors other than Pakistan. The current study is cross-sectional and performed in one go (snapshot) and conducted the data using a self-administered close-ended questionnaire design. It would be interesting to conduct a longitudinal study to measure the knowledge management effect over periods with a chronological break. Similarly, it would also be interesting for future scholars to use qualitative research studies by implementing multiple experiment methods in a similar domain to reduce the chance of variance in the data method. Further, future studies should examine the obstacles facing Pakistan’s larger sectors in knowledge management implementation.

Underlying data

UK Data Service ReShare: Impact of Knowledge Management on Firm Competitiveness: Core Competence as Mediator, 2020-2021. https://dx.doi.org/10.5255/UKDA-SN-855898 (Fatima et al., 2022).

This project contains the following underlying data:

Extended data

UK Data Service ReShare: Impact of Knowledge Management on Firm Competitiveness: Core Competence as Mediator, 2020-2021. https://dx.doi.org/10.5255/UKDA-SN-855898

This project contains the following extended data:

Data are available under the terms of the Creative Commons Attribution 4.0 International license (CC-BY 4.0).