In this paper we address two problems related to what can be claimed about the powers of decentralised business networks. The first concerns the role of tacit knowledge and proximity in securing competitive advantage. Recently, in a strand of the literature concerned with the differences between tacit and codified knowledge, it has begun to be claimed that the superiority of relational and geographic proximity (for example, intense face-to-face contact, local industrial clusters, and districts) over formally constituted and distantiated networks of knowledge and learning. In the first part of the paper we dissent from this interpretation by questioning the separability of the two forms of knowledge and by suggesting that business networks largely dependent on local tacit knowledge and incremental learning may prove to be inadaptable in the face of radical shifts in markets and technologies. The second problem regards the relationship between knowledge and the organisational structure of firms and business networks. In the second half of the paper we focus on the challenge facing competence-based large firms which draw on localised sources of knowledge to argue that competitive advantage is crucially influenced by the ability of firms to mobilise and integrate diversified forms of knowledge (tacit and codified), rather than to specialise in one form. We also argue that the imperative to sustain continuous learning is adding a new architecture of organisation and governance to that traditionally associated with the reduction of transaction costs, rather than replacing it, as is implied in the new literature which privileges the firm as a nexus of competencies. Thus, a dual structure seems to be emerging, which is composed of a decentralised network of reflexive and interactive centres to advance core competencies and learning and overlaid upon a more traditional hierarchical structure for the regulation of noncore activities.
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