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E‐business requires small and medium‐sized enterprises (SMEs) to seek both external and internal knowledge and to establish external and internal relationships with partners, such as customers and suppliers. This paper aims to describe a model that examines how knowledge management has an impact on the adoption of e‐business, particularly in SMEs.

This paper reviews literature to identify relevant measures through a structural equation model, which is validated through an empirical investigation of 107 SMEs in the Spanish telecommunications sector.

The results show that, in order to implement e‐business systems, companies need to provide and support the acquisition, sharing and application of knowledge as prior steps.

Other factors that have not been included in this study are also likely to affect knowledge acquisition.

Organisations that engage in learning from their customers and suppliers not only test the effectiveness of a new direction of e‐business, but also have the potential to design their e‐business around what customers truly need and want, and as such gain a sustainable competitive advantage.

These results have implications for e‐business managers in formulating policies and targeting appropriate organisational capabilities to ensure the effective adoption of e‐business systems.