Sourcing and leveraging knowledge from an external network is only half the battle for firms that would become more successful. In fact, the mere access and acquisition of the knowledge itself through embedded ties does not secure to perform exploration and exploitation activities, and consequently, to achieve better performance because knowledge has to be managed. Firms' knowledge management (KM) orientation may help in the process of knowledge acquisition, sharing, and transfer, consequently, improving firms' ambidexterity and competitiveness. Thus, this paper proposes that the KM plays a key role in determining the outcomes of firm's external embeddedness, i.e., the characteristics and ties of the external network, on the ambidexterity and performances of small and medium enterprises (SMEs). An empirical analysis has been developed by using structural equations modeling with data collected from CEOs in 119 Italian SMEs in the ceramic tile industry. Findings show that the KM plays a significant role in mediating the effects of the external embeddedness on the firm's ambidexterity that in turn enhances the performances of Italian SMEs in our sample. Based on our results, implications for academics and managers and future line of research are proposed.