In the contemporary business landscape, innovation has become a fundamental element for every company. The dynamics of global economic expansion have undergone significant changes driven by the swift and continual evolution of technology, shorter product lifecycles, planned obsolescence, and an accelerated pace of new product development. After experiencing the emergence of the knowledge economy, organizations started focusing on the need to apply knowledge management practices to their business activities as well. While such a phenomenon has gathered considerable momentum in order to be a vital source of competitive advantage, how its role could harvest knowledge assets for innovation has yet to be established firmly. As globalization speeds up and cross-border barriers between nations are disassembled, economic development will depend less on physical resources and more on developments that require nations to be more global in their dynamics. Linked with the fast pace of technological readiness, national economies not only have to go global so that they can somehow remain competitive, but they also must be ready to embrace the demands of innovation (Goh, 2005; Giget, 1997; Grossman & Helpman, 1992). The current study aims to address such a phenomenon by examining how innovation can be furthered through a knowledge-based approach. It provides clarity regarding the existing link by analyzing some of the inner variables that contribute to enhance Latin American SME´s innovation. First of all, it is important to review the innovation literature and propose that innovation has been conceptualized either from a process or from an outcome perspective. Also, demonstrating that there is a substantive difference between innovation seen in the traditional innovation literature and innovation as conceived in the knowledge management literature. Knowledge management practices can be harnessed better for innovation management and explains why organisations should foster innovation by adopting an everlasting evolving set of knowledge-based perspective. That is the reason why a theoretical framework based on a wide range of contributions is provided. Eventually, based on a thoroughly quantitative interpretation the study aims to provide empirical evidence regarding the factors that compose it. Finally, it outlines the current scenario and future challenges of exploiting knowledge for innovation.