The paper explores the linkage between knowledge management, collaboration and innovation, meanwhile absorptive capacity is essential to innovation. We see absorptive capacity is an intervening factor between knowledge and innovation. Knowledge can not only acquired through internal sharing but also through external collaboration and networking, so knowledge management and collaboration works interactively which in turn enhance the innovation activities. Collaboration can facilitate the innovate outcomes alone. The paper illustrates the relationships of these factors to better manage corporate competence.