In recent years, it has been systematically proposed that the source of competitive advantage lies in the ability of organizations to acquire, transmit and apply knowledge. This research seeks to determine whether knowledge management can effectively explain the organizational efficacy of small and medium enterprises in an emerging country. A study was carried out on a sample of 78 Chilean companies. Results suggest that knowledge management is relevant for explaining the effectiveness of the companies analyzed, specifically that sharing and applying knowledge are crucial steps that impact organizational effectiveness. Conclusions are that top management teams in small and medium enterprises must be able to adequately manage organizational knowledge if they hope to be successful in their work.