In this article, we concentrate on the process of value creation within local business networks. We argue that in a local business network the locus of value creation is found within the local context and its ability to create a network of exchange knowledge relations among the various (local) agents. In order to build a model that explains the process of knowledge transfer among individuals and organizations in a local business network, we combine the knowledge based view (Kogut and Zander, 1992; Conner and Prahalad, 1996; Foss, 1996a, 1996b) and the network perspective (Thorelli, 1986; Jarrillo, 1988; Powell, 1990; Uzzi, 1997; Gulati, 1999; Gulati et al., 2000). The knowledge-based view (KBV) within the framework of the resource-based approach is concerned with firm-level analysis; the network approach literature is far more descriptive and seeks to understand how networks affect competition (Nielsen, 2000). It appears that these two approaches are diametrically opposed: the knowledge-based view is exclusively engaged with analysis of the individual firm’s knowledge creation and accumulation, and has nothing to say about inter-firm relations; the primary research interest of the network perspective is, on the other hand, to identify, categorize and theorize relations between firms (networks). We argue that it is indeed feasible for knowledge researchers to draw in a fruitful way on network insights (and vice versa) (Foss, 1999; Dagnino, 1999; Nielsen, 2000). More specifically, the idea of the local business network provides one possible bridge between the two approaches. We will first present a critical review of the knowledge-based theory, which provides an outline of the main theoretical perspectives within this field of research about knowledge transfer, and a review of the network theory approach, which analyses the importance of the relations among different organizations by focusing on the process of sharing and transferring knowledge. A description of our conceptual model, which explains how local context influences the performance of firms belonging to a local business network, follows. Finally, the conclusions and implications for firms and research are discussed
