FACULTY AND RESEARCH

The discovery and development of new operations and manufacturing routines are marked by some controversy regarding how small- and medium-sized enterprises (SMEs) benefit from external knowledge inflows. This study investigates the practice-performance link between external knowledge utilisation and the discovery and development of manufacturing capabilities, which lead to operation performance. Based on a partial least squares analysis, a moderated mediation model is tested using Community Innovation Survey (CIS) data from 1663 SMEs. Results show that information inflow can be used to increase flexibility in production, and reduce costs of production mediated/moderated through new operations and manufacturing routines, as well as minimise liabilities resulting from SMEs' small size. The findings of this study contribute to a better under-standing of how manufacturing capabilities increase flexibility and cost efficiency by identifying main mediating and moderating effects. Further, this study adds clarification to the practice-performance link by highlighting that this link is only effective under certain conditions. In addition, contributions are made to the discussion on manufacturing capabilities by demonstrating how small business can benefit from external knowledge.