Small to medium enterprises (SMEs) are often marked by limited resources, a high dependence on others, and a scope of business that gets narrower as they seek to adapt to the current dynamic and knowledge-intensive context. Additionally, in their relationship with multinational enterprises (MNEs), SMEs are driven to a continuous specialization of their knowledge and technological resource bases. They so source global knowledge by positioning along a global value chain of those MNES. Especially SMEs employ a repositioning organizational knowledge dynamics by functional upgrading and downgrading strategy. In order to address the query on dynamic capabilities in knowledge management (KM) in different inter-organizational collaborations in the global value chain, this study shows that the choice between functional upgrading or downgrading can determine a more effective cross-innovation strategy which enables SMEs to exploit external paths to the market by revealing or selling their ideas, knowledge and technologies. Such strategies can reveal opportunities for SMEs to increase their network to find an optimum position in the market. SMEs, in turn, become more specialised in their offerings, moving up or down the global value chain, leveraging on a combination of dynamic and technological capabilities along with high degree of involvement in knowledge management process
