Network Effects of Knowledge Diffusion in Network Economy

Network industries are the central nervous system of the 21st century economy. During this time the newly developing “network economy” will act as the engine that will drive world development (Bao, 2001). The most valuable commodity in this economy has become information, and the economics of networks applies to almost all information products and services. Information can be consumed by more than one person. Most importantly, the total social value of information increases as it is shared with more consumers. Consumers of computers and software programs, cellular phones, faxes, and Internet services all have more valuable products as the use of these products by others increases. Whether we call this an “information economy” or a “network economy,” the implication is the same—network economics accounts for an increasingly larger share of the economy. It is also the driving force behind many of the innovations and technological changes that occur (Balto, 2001). At the same time, knowledge is nowadays considered to be a fundamental asset of the organizations. Although this concept is not new, in the few last years increasing attention has been devoted to knowledge and knowledge management (KM) issues within organizations. In fact, due to environmental factors such as the market globalization, the increased product complexity, and the turbulence of competitive scenarios, the powerful role of knowledge as a source of sustainable advantage has been considerably emphasized (Zack, 1999). The knowledge economy represents a strategic new era that human beings are entering. In this new environment of social and economic development, knowledge and information are recognized as being at least as important as physical capital, financial capital, and natural resources as a source of economic growth. Network economy has provided an equal platform for the participation of all of society. It creates unique values and establishes an operational system in the globalization context, depending on the knowledge as core resource, utilizing the network as the fundamental mode, and taking the information industry as leadership. However, in the knowledge economy, networks are adapted better to knowledge-rich environments because of their superior information-processing capabilities. They minimize idiosyncratic investments in fixed assets and technology, and thus are more flexible and responsive to change. “In an economy where the only certainty is uncertainty, the only sure source of lasting competitive advantage is knowledge” (Nonaka, 1994). And one of the most important aspects is that network economy needs to utilize the knowledge diffusion to create more value. Because knowledge diffusion is the core process of knowledge management to explore more network effects and knowledge diffusion is important for total factor productivity, it is also important for international competitiveness. In consequence, knowledge diffusion should be regarded as one of the companies’ core competencies.