Technovation 24 (2004) 971–977

www.elsevier.com/locate/technovation

An empirical study on the correlation between knowledge

management capability and competitiveness in Taiwan’s industries
Pang-Lo Liu a, Wen-Chin Chen b, Chih-Hung Tsai a,

a
Ta-Hwa Institute of Technology, Department of Industrial Engineering and Management, 1, Ta-Hwa Road, Chung-Lin, Hsin-Chu 30050,
Taiwan, ROC
b
Graduate Institute of Management of Technology, Chung-Hua University, 30, Tung-Shiang, Hsin-Chu, Taiwan, ROC

Abstract

There have been dramatic changes in business enterprise management since Internet technology has been widely applied. World-
wide network users can share all kinds of knowledge through the Internet. Knowledge has currently become a main part of manu-
facturing resources and a prerequisite for success in the production environment. Competitiveness and the resulting rewards can be
obtained by taking advantage of knowledge management (KM) and intensive learning. This empirical study validates the relation-
ship between knowledge management capability and competitiveness in Taiwan’s industries. This research shows the impact of
knowledge management capability on competitiveness. A hypothesis test and theoretical model are proposed in this study.
# 2003 Elsevier Ltd. All rights reserved.

Keywords: Knowledge; Knowledge management capability; Competitiveness

1. Introduction ment not only groups individual knowledge, but also

Over the past 12 years science and technology, trade
and business management have created tremendous
knowledge and wealth. Land and natural resources
have become less important in this period. A country
and its enterprises must survive and succeed in the
midst of these dramatic and accelerating changes. All
rely on knowledge. Since the input and output of enter-
prises is knowledge, obtaining, refining, storing and
sharing knowledge has become the main part of an
enterprise’s activities. As we enter the new millennium,
we find that cash, raw materials and land, which were
crucial factors for enterprise development in the past
are now no longer the most important factors. Knowl-
edge management (KM) collects all information that
flows around enterprises. By systematically rearranging
and analyzing data and information, knowledge man-
agement is now becoming richer in content. The appli-
cations for conducting business are more inclusive.
Moreover, knowledge management combines each
individual and group. Therefore, knowledge manage-


Corresponding author. Tel.: +1-886-3-5430-466; fax: +1-886-3-
5926-848
E-mail address: ietch@thit.edu.tw (C.-H. Tsai).
0166-4972/03/$ - see front matter # 2003 Elsevier Ltd. All rights reserved.
doi:10.1016/S0166-4972(03)00061-0
solidifies and enriches tacit knowledge. Strengthening
knowledge management and increasing the company’s
competitiveness is a long-term strategy a company
must face. Industry infrastructure is now reaching a
transition and the various knowledge fields for obtain-
ing knowledge, refining knowledge, storing knowledge,
and applying knowledge must be evaluated. The desti-
nation is to create wealth.
The purpose of this study is to verify the correlation
between knowledge management capability and compe-
titiveness for an organization. The influence of knowl-
edge management capability on competitiveness can be
obtained using a theoretical foundation. In other
words, knowledge management capability is more than
a catch-all for information and knowledge. It is a tool
for maintaining information that will help us to work
more efficiently.
2. Literature review
There has been much research dealing with knowledge
management capability and competitiveness. You (1997)
proposed a performance measurement method for
companies to justify their researches and development
972 P.-L. Liu et al. / Technovation 24 (2004) 971–977
projects meeting the market’s needs. In the paper, he
adopted a competitiveness function curve to describe
various expected competitive values. In another refer-
ence, Chen (1997) pointed out that the Taiwanese
Government adopted an economic policy to increase
nationwide competitiveness when Taiwan’s industries
were in a labor-intensive to technology-intensive tran-
sition. These two papers concentrated on competitive-
ness issues. Few papers dealt with the correlation
between knowledge management capability and competi-
tiveness. Lin (1999a) suggested that establishing a knowl-
edge management database could lead to benefits from
data sharing and knowledge creating. This could also
increase competitiveness. Moreover, Liu et al. (2001)
suggested that taking advantage of the knowledge man-
agement could excite employee potential and accelerate
the integration of employee knowledge. Knowledge man-
agement has become one of the necessary conditions for
enterprises to survive in a competitive environment. Dav-
enport and Prusak (1998) produced a definition for
knowledge management in their book entitled ‘The Digi-
tal Nervous System’. They stated that knowledge man-
agement involves collecting and organizing information
and transferring information to those that need it. The
founder of Matsushita said, ‘Current marketing is very
complicated and competitive’. The respect and adoption
of each employee’s intelligence is the key to continuous
company management (Davenport and Prusak, 1998).’
Drucker (2000) statted that ‘for each type of organiza-
tion, transformation into an information-oriented
organization is the best’. Polanyi (1958) divided knowl-
edge into tacit knowledge and explicit knowledge based
on the degree of expression. Nonaka and Takeuchi
(1995) defined tacit knowledge as a kind of personal
characteristic that is too abstract to transfer or even
express using words. Howells (1996) thought that tacit
knowledge is a kind of expertise that is not editable. This
knowledge is obtained through informal learning beha-
vior and a sequence process. Leonard-Barton (1995)
defined knowledge as core endurance. It consists of four
factors: solid system, management system, employee skill
and knowledge, and value/specification. According to
the professional level, Quinn et al. (1996) categorized
knowledge into know-what, know-how, know-why and
care-why. Grant and Gordey-Hayes (1996) further poin-
ted out that the integration of knowledge relies on a form
of common knowledge. He then divided the common
knowledge into five groups: language, symbolic com-
munication, common expertise, the meaning of sharing,
and recognizing the individual field of knowledge.
Chang (1999) classified knowledge management tools
into four groups. These were the application of infor-
mation technology/tools for knowledge retrieving,
information technology/tool applications for knowl-
edge creation, applications for information technology/
tool accumulation, and information technology/tool
applications for knowledge diffusion and transfer. Tsai
(2000) defined knowledge management as knowledge
obtaining, knowledge refining, knowledge storing and
knowledge sharing. Lin (1999b) noted that product life
cycles are becoming shorter. He emphasized that the
only way for an enterprise to win this battle is to culti-
vate core capabilities and convert this into a sharp
weapon. Porter (1990) presented in his book entitled
‘The National Competitive Advantage’. He proposed a
diamond model representing a nation’s competitive-
ness. Chi (1999) defined a measurement index for com-
petitiveness as follows: (1) Forecasting capability: an
organization can adapt itself to the changes in the
environment and have the capability to plan strategies
against change. (2) Innovation capability: having
strong research and development capability, continu-
ous improvements in the business management and
product processes. (3) Marketing capability: the ability
to open new markets, increase sales and create profits.
(4) Quality in product and service: to fulfill customers’
needs. (5) Enterprise image and responsibility: enter-
prises must fulfill their social responsibilities, and
develop a good image. (6) The capability to cultivate
talent: develop the employee’s maximum potential to
achieve the enterprise’s goals. (7) The capability to
make use of information technology: whether an enter-
prise can effectively use information technology to
increase efficiency. (8) Financial affairs: whether an
enterprise can effectively use cash to increase efficiency.
(9) The capability to manage international business: the
ability to maximize profits through mastering global
resources and business internationalization.
3. Methodology
This research centers on the four main functions of
knowledge management capability. Obtaining, refining,
storing and sharing knowledge are the measurement
factors (independent variables). The enterprise char-
acteristics, technology advantages and scale of the
enterprise are the dependent variables. The conceptual
and theoretical structure is shown in Fig. 1.
3.1. Assumptions
The following assumptions were used in this study:
1. The relationship between knowledge management
capability and competitiveness
H1 The difference in knowledge management
capability for various organizations will result
in significant differences in competitiveness.
H1-1 The capability for obtaining knowledge is dif-
ferent in competitiveness.
 P.-L. Liu et al. / Technovation 24 (2004) 971–977
Fig. 1. The research model for this study.
H1-2 The capability for refining knowledge is differ-
ent in competitiveness.
H1-3 The capability for storing knowledge is differ-
ent in competitiveness.
H1-4 The capability for sharing knowledge is differ-
ent in competitiveness.
2. The relationship between enterprise status and com-
petitiveness
H2 Different enterprise status has significant
influences on competitiveness. Some sub-
assumptions come from the dependent vari-
ables are following:
H2-1a Different enterprise characteristic has a sig-
nificant influence on competitiveness.
H2-1b Under different enterprise characteristic, the
knowledge management capability has a sig-
nificant influence on competitiveness.
H2-2a Different advanced technology has a signifi-
cant influence on competitiveness.
H2-2b Under different advanced technology, the
knowledge management capability has a sig-
nificant influence on competitiveness.
H2-3a Different enterprise scale has a significant
influence on competitiveness.
H2-3b Under different enterprise scale, the knowl-
edge management capability has a significant
influence on competitiveness.
3.2. The definition of research variables and
measurement
1. Enterprise status: three basic conditions related to
competitiveness must be considered. They are the
enterprise characteristics, advanced technology (tech-
nology advantages) and the scale of the enterprise.
973
2. Knowledge management capability: knowledge man-
agement capability is the requisite technology and
expertise for product design, assembly and manufac-
turing during the product manufacturing process.
This study centers on the capability to obtain, refine,
store, and share knowledge and discuss the corre-
lation to competitiveness.
3. Competitiveness measurement: the competitiveness
measurement index in this study includes: enterprise
forecasting ability, renovation capability, sales abil-
ity, product and service quality, enterprise image,
training capability, information technology capa-
bility, financial capability, international management
capability, etc.
3.3. The questionnaire collection and data analysis
Taiwanese high technology manufacturers were used
as the verification example in this study. The manu-
facturers listed in the ‘Catalogue of Manufacturers in
the Hsin-Chu Industrial Park’ and ‘Catalogue of Man-
ufacturers in the Tainan Industrial Park’ are the sam-
pling population. Precision machinery and biotech
manufacturers were excluded. Because these two kinds
of manufacturers are small in scale in employee num-
bers and product quantity, they were not included in
this study. Integrated circuit (IC), information tech-
nology software, computers and peripherals, tele-
communications and photo-electronics, were the
industries chosen for this study. There are still many
small businesses in the high technology sector. Only
companies that had 50 or more employees were sam-
pled and studied. All surveyed information about these
manufacturers was obtained from the database of the
Industrial Development Bureau, Ministry of Economic
Affairs in Taiwan. Because data collection problems
always occur in high technology enterprises, we decided
974 P.-L. Liu et al. / Technovation 24 (2004) 971–977
Table 1
The confidence value for each variable
Questionnaire criterion KM capability
Knowledge Knowledge refining
obtaining
Cronbach a 0.8508 0.7073
to send questionnaires to all of these companies. The
questionnaire design used a Likert five-point scale to
measure each company’s attitude and comment on
each question. The measurement scale ranged from
agree very much to disagree very much. The data and
information analysis in this study was performed using:
(1) Chi-square test; (2) Variance analysis; (3) Relation
analysis. An anonymous questionnaires were sent out
to 300 companies at the beginning of September 2002.
A total of 111 questionnaires were returned by Novem-
ber 2002. Among them, 102 were valid; the other nine
were incomplete or unclear, and discarded. From the
survey, we derived the following implementation status
description.
The term ‘competitiveness’ in the questionnaire is
based on the theory in the related literature. Measure-
ment scales and items from the literature are cited to
support our arguments. Comments from scholars and
experts are also included. According to the completed
questionnaire, the Cronbach coefficient for each factor
was calculated based on the points graded for each
respondent. Based on Nunnally (1978), the reliability
level is acceptable if the value is at least 0.8 for the
basic research and 0.7 for the exploratory research. In
refining, storing and sharing knowledge, the competi-
tiveness performance reliability for each case was larger
than 0.7. This study therefore meets the requirements
for reliability, shown in Table 1.
4. Verification results
4.1. Relation between enterprise status and
competitiveness
The Chi-square test was used to distinguish the dif-
ference between enterprise status and competitiveness.
Table 2 represents the Chi-square test results. The
Table 2
The Chi-square test of enterprise status and competitiveness
Competitiveness
Enterprise status
v2 P-value
Enterprise characteristics 239.534 0.858
Scale of the enterprise 313.665 0.143
Knowledge storing Knowledge sharing Competitiveness
0.7016 0.8537 0.8925
result shows that all measured items revealed no signifi-
cant differences.
4.2. The relation between enterprise status and
knowledge management capability
In accordance with the different enterprise character-
istics and scale, we are now in a position to determine
their influence on the knowledge management capa-
bility. The results from Table 3 show that the enter-
prise characteristics and scale have no effect on
knowledge management capability.
4.3. The analysis of variance for knowledge
management capability
The difference between each respondent was
obtained based on the capital, sales and number of
employees. Note that the single-factor analysis of vari-
ance (ANOVA) was used to measure these differences.
The result is shown in Table 4. Note that a significant
difference was determined for the refining capability
(P¼ 0:092) in the capital item. In general, knowledge
refining is one of less involved items, but it is impor-
tant since it correlates somewhat with the company’s
capital. By inputting more funds, the science and tech-
nology of an enterprise can be accumulated faster, thus
refining the company’s capability. Note that the shar-
ing capability (P¼ 0:230) does not present a significant
difference, but the remaining items present a significant
difference. There is significant difference for knowledge
obtaining, knowledge refining, and knowledge storing
for the number of employees. Only knowledge sharing
does not present a significant difference.
4.4. The variance analysis of competitiveness
The difference among various competitiveness factors
for companies with different amounts of capital, sales,
and number of employees was studied. The result is
shown in Table 5. From the table, enterprise competi-
tiveness does not present any significant difference for
capital (P¼ 0:378) and sales (P¼ 0:136). This is prob-
ably because a company with more capital could
devote more attention to process capability and pro-
duct quality. This plays an important role in the
increase in sales. The number of employees does not
 P.-L. Liu et al. / Technovation 24 (2004) 971–977 975

Table 3
The Chi-square test of KM capability and enterprise status

KM capability Knowledge obtaining Knowledge refining Knowledge storing Knowledge sharing

Enterprise status v2 P-value v2 P-value v2 P-value v2 P-value

Enterprise 180.479 0.924 89.247 0.748 87.619 0.990 181.315 0.182

characteristics
Scale of the enterprise 226.544 0.515 110.660 0.411 124.779 0.660 171.420 0.664

Table 4
Analysis of variance among four KM capabilities

Variables Capital Sales Numbers of employee

Dependent variables F-value P-value F-value P-value F-value P-value



Knowledge obtaining 1.158 0.203 3.244 0.015 2.972 0.023


Knowledge refining 2.059 0.092
5.189 0.001


3.550 0.010


Knowledge storing 1.372 0.249 2.994 0.022

2.485 0.049


Knowledge sharing 1.335 0.263 1.519 0.230 0.234 0.919
Note:
P < 0:1;

P < 0:05;



P < 0:01.

Table 5
Analysis of variance for competitiveness

Variables Capital Sales Numbers of employee

Dependent variables F-value P-value F-value P-value F-value P-value
Competitiveness 1.088 0.378 1.402 0.136 1.487 0.100

show a strong influence on process performance 4.6. Correlation analysis for knowledge management
improvement. capability and competitiveness

This study adopted Pearson’s correlation analysis to

4.5. The relation between knowledge management
capability and competitiveness
Table 6 presents the Chi-square test results for the
correlation between the four knowledge management
capability factors and competitiveness. That is, these
four factors are strongly connected to competitiveness.
This verifies our assumption H1, which states that the
difference in knowledge management capability for
various organizations will result in a significant differ-
ence in competitiveness.
determine the correlation of each knowledge manage-
ment capability factor and their correlation with com-
petitiveness. For the correlation among all knowledge
management capability factors, the result shows a
strong correlation among them. For the correlation of
knowledge management capability factors with compe-
titiveness, the result shows the correlation value
between each knowledge management capability factor
and competitiveness reaches a significant level. This
represents a highly positive correlation among those
factors, as shown in Table 7.

Table 6
The Chi-square test of KM capability and competitiveness 5. Conclusions
Competitiveness
KM capability Knowledge management includes four main func-
v2 P-value tions, knowledge obtaining, knowledge refining, knowl-
Knowledge obtaining 696.035 0.000


edge storing and knowledge sharing. This research
Knowledge refining 358.820 0.000


discussed the effect of knowledge management
Knowledge storing 402.655 0.005


capability on competitiveness in Taiwan’s industries.
Knowledge sharing 857.226 0.000


By considering the interim enterprise status variable
Note:
P < 0:1;

P < 0:05;



P < 0:01. with the appropriate theory application and literature
976 P.-L. Liu et al. / Technovation 24 (2004) 971–977

Table 7
The correlation

Enterprise Scale of the Obtaining Refining Storing Sharing

Competitiveness
characteristics enterprise capability capability capability capability
Enterprise Pearson correlation 1.000 0.117 0.025 0.064 0.040 0.021 0.016
characteristic Sig. (two-tailed) – 0.243 0.806 0.526 0.689 0.833 0.876
N 102 102 102 102 102 100 100
Pearson correlation 0.117 1.000 0.141 0.234
0.222
0.047 0.086
Scale of the Sig. (two-tailed) 0.243 – 0.156 0.018 0.025 0.641 0.396
enterprise N 102 102 102 102 102 100 100
Pearson correlation 0.025 0.141 1.000 0.846

0.866

0.393

0.480


Obtaining Sig. (two-tailed) 0.806 0.156 – 0.000 0.000 0.000 0.000
capability N 102 102 102 102 102 100 100
Pearson correlation 0.064 0.234
0.846

1.000 0.819

0.418

0.498


Refining Sig. (two-tailed) 0.526 0.018 0.000 – 0.000 0.000 0.000
capability N 102 102 102 102 102 100 100
Pearson correlation 0.040 0.222
0.866

0.819

1.000 0.395

0.473


Storing Sig. (two-tailed) 0.689 0.025 0.000 0.000 – 0.000 0.000
capability N 102 102 102 102 102 100 100
Pearson correlation 0.021 0.047 0.393

0.418

0.395

1.000 0.972


Sharing Sig. (two-tailed) 0.833 0.641 0.000 0.000 0.000 – 0.000
capability N 100 100 100 100 100 100 100
Pearson correlation 0.016 0.086 0.480

0.498

0.473

0.972

1.000
Competitiveness Sig. (two-tailed) 0.876 0.396 0.000 0.000 0.000 0.000 –
N 100 100 100 100 100 100 100

;
Correlation is significant at the 0.05 level (two-tailed);

; Correlation is significant at the 0.01 level (two-tailed).

survey this paper developed a correlation model used
to analyze high-tech enterprises, such as electronic and
information technology, software and the hardware
industry, etc. The result reveals that knowledge man-
agement capability has a tremendous effect on competi-
tiveness. The hypothetical assumption ‘The more
knowledge management capability you have, the more
competitiveness you possess’ has been verified by our
statistical analysis. Three variables, enterprise char-
acteristics, technology advantages and the enterprise
scale, proved to be interacted with knowledge manage-
ment capability. They also produce multiple positive
effects on product competitiveness. Conversely, the
influence of the enterprise scale on knowledge manage-
ment is a good topic worthy of study. This paper
proved that the scale of the enterprise is one of the key
factors to success. This research gave equal weighting
numbers to each knowledge management capability
factor. From the questionnaire survey, we found that
each manufacturer views these factors with a different
level of importance.
When enterprises decide to increase their competi-
tiveness, there is a need to improve their knowledge
management capability first. The advantage of knowl-
edge management allows the enterprise to achieve this
goal. Technical knowledge acquisition, refining, storing
and sharing allows enterprises to strengthen their
knowledge management capability. The more knowl-
edge management capability an enterprise has, the
more competitive the enterprise will become. It is our
advice that companies increase their knowledge man-
agement capability considering the cost and gradually
expands their overall international knowledge manage-
ment capability. It is not easy for a company to
increase knowledge management capability within a
short period. This must be achieved by accumulating
capital, technology, manpower and experience. When
enterprises intend to increase their knowledge manage-
ment capability, they must first make use of their own
specialties and qualifications with the help of outside
assistance. The goal for overall international knowl-
edge management capability can then be gradually
achieved.
This research conducted an investigation into high-
tech enterprises. Because of the high evolution of high-
tech enterprises, the proportion of enterprises pursuing
high-tech products is also increasing. Enterprises can
perform an evaluation of their knowledge management
capability. A future study will be aimed at other types
of enterprises. A standard package for knowledge man-
agement will be developed in that work. We are now
entering the age of knowledge economics. All nations
in the world are actively engaging in developing their
science and technology industries. By consulting this
research, all nations can adapt themselves to determine
their knowledge management status to increase their
competitiveness.
 P.-L. Liu et al. / Technovation 24 (2004) 971–977
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Pang-Lo Liu is a Ph.D. student in the
Graduate Institute of Management of Tech-
nology, Chung-Hua University and an
Instructor at Ta-Hwa Institute of Tech-
nology, Hsinchu, Taiwan. He received a MS
degree in industrial engineering from Chung-
Hua University, Hsinchu, Taiwan, ROC, in
2001. His current research interests include
ERP, knowledge management, shop floor
information system and computer integrated
manufacturing.
Wen-Chin Chen received a Ph.D. degree in
mechanical engineering from Florida Univer-
sity, USA, in 1995. He is an Associate Pro-
fessor at Chung-Hua University, Hsinchu,
Taiwan. He has published papers in the
International Journal of Heat Mass Trans-
fer, ASME. His research areas include ERP,
knowledge management, group technology,
shop floor information system and computer
integrated manufacturing.
Chih-Hung Tsai received a Ph.D. degree in
industrial engineering from National Chiao-
Tung University, Hsinchu, Taiwan, ROC, in
1997. He is an Associate Professor at Ta-
Hwa Institute of Technology, Hsinchu, Tai-
wan. He has published papers in the Inter-
national Journal of Industrial Engineering,
the International Journal of Production
Research, the International Journal of Pro-
duction Economics, IEEE Transactions on
Electronics Packaging Manufacturing, The
Engineering Economist, Opsearch, Journal
of Computer Information Systems, Environmental Impact Assess-
ment Review, Engineering Optimization, International Journal of the
Computer, Internet and Management, and Gorden and Breach Inter-
national Series in Engineering, Technology, and Applied Science. His
research areas include ERP, knowledge management, scheduling,
theory of constraint, and production/inventory management.