However, developing distinct bodies of knowledge increases the cognitive distance that firms have to overcome when engaged in learning. When markets are sufficiently developed and well functioning firms might enhance internal task-homogeneity by outsourcing some of the activities previously performed. Sharing a body of knowledge among a large number of identical products reduces the unit cost resulting in knowledge-based economics of scale and improved competitiveness. The resulting acceleration of the learning process in the economy and the emergence of still more specialised firms will continue as long as supported by the extend of the market and as long as the costs of using the market to co-ordinate and exchange goods, services and knowledge is lower than the benefits of the deepening of the division of labour. Cutting costs by utilising economics of scale obtained through specialization is seldom enough to maintain competitiveness.
New products needs to be developed and introduced in order to survive.
Product innovation might rely exclusively on knowledge already residing within the firm but more often than not some piece of knowledge is missing. Sometimes it might not be possible at all. By engaging in inter-firm knowledge exchange and interactive learning processes firms can overcome deficiencies in their existing knowledge base. When the competitive edge of firms shift from static price competition towards dynamic improvement, favouring those who can create knowledge faster than their competitors, firms must specialize in order to develop their own knowledge base and thus become attractive to partners possessing valuable complementary knowledge. Such pair-wise exchange arrangements limit the firm's possible loss of competitive advantage when making knowledge available to others, though it does not completely eliminate the risk.