Abstract:     Relevant studies suggest that knowledge management enhances firm performance. Yet further studies are needed to examine the intermediate mechanisms that mediate the relationship between knowledge management and firm performance for three reasons. First, although many studies have shown that there is a positive relationship between knowledge management and firm performance and that product innovativeness increases firm performance. Few studies have examined how product innovativeness mediate the relationship between knowledge management and firm performance. Second, most published studies have only examined how a specific dimension of knowledge management affects product innovativeness or firm performance. Few studies have explicitly examined the effect of all three dimensions and the relative effects of the three dimensions of knowledge management. Third, few cross-national studies exist. Using the theoretical lens of Source - Positional Advantage - Performance (SPP), this study develops a theoretical model for investigating how product innovativeness mediates the relationship between each dimension of the three knowledge management and firm performance. The model is tested using data collected in China and the United States. In our proposed model, knowledge management is divided into knowledge generation, knowledge dissemination, and knowledge application based on knowledge management process. This study performed hierarchical regression analyses to test the theoretical model and research hypotheses. The study was designed to explicitly avoid the common method bias and improve ability to draw causal relationships. We first collected the data on knowledge management, followed with collection of the data on product innovativeness one year later, and collected three years of firm performance data. This study reported the merged data which include complete data from 647 Chinese and 354 U.S. firms.The findings indicate that knowledge management enhances firm performance via product innovativeness as a mediator in China and in the United States. The results reveal several cross-national differences. First, knowledge application and dissemination are more important to improve firm performance in China. But knowledge generation and dissemination are more important in the U.S. Second, product innovativeness partially mediates the relationship between knowledge dissemination/application and firm performance in China and the U.S. However, product innovativeness fully mediates the relationship of knowledge generation and firm performance in the U.S. Third, knowledge application is most important factor for increasing product innovativeness in China while knowledge dissemination is most important for enhancing product innovativeness in the U.S.This study makes three contributions to the literature. First, this study introduces product innovativeness as a mediator to study the impact of knowledge management on firm performance. This study enhances current understanding of how knowledge management affect firm performance through product innovativeness. Second, this study explores the different effects of the knowledge generation, knowledge dissemination and knowledge application. The study results extend the literature on multidimensional knowledge management and its relationship with product innovativeness. Third, this study explicitly tests the "knowledge management-product innovativeness-firm performance" model using data collected in China and the U.S. This study enriches the cross-national comparative literature.The study results offer two major managerial recommendations. First, Chinese firms should use knowledge application to enhance product innovativeness. In the United States, companies should increase level of knowledge dissemination and sharing to enhance product innovativeness. Second, in China, the dissemination and application of knowledge not only directly improve firm performance by a large margin, but also indirectly improve firm performance through product innovativeness. Therefore, Chinese firms should focus on knowledge diffusion and application to improve firm performance. In the United States, knowledge dissemination and generation directly improve firm performance, and knowledge application can only indirectly improve firm performance through product innovativeness. Therefore, firms in the United States should focus on knowledge generation and knowledge diffusion to improve firm performance. In addition, they can invest in knowledge applications, but must ensure that the investment is transformed into innovative products.

Key words: knowledge management, knowledge generation, knowledge dissemination, knowledge application, product innovativeness, firm performance