Small and medium-sized enterpreises (SMEs) are a crucial driver of the fast growing Chinese economy. This study aims to investigate how the external structures influence SMEs’ knowledge absorptive capacity for competence enhancement and performance improvement. Taking the “structure-conduct-performance” paradigm as an overarching framework, this research extends and enriches this framework by integrating social networking theory and absorptive capacity theory into it. More specific, we partition the “structure” into environmental structure and social network structure outside of a focal firm, and specify the “conduct” as knowledge absorptive capacity development including knowledge acquisition and transformation. To verify our research model, a survey method is employed involving 77 SMEs from China. The results show the distinct roles of environmental hostility, customer network ties, and knowledge absorptive capacities on SMEs’ performance. Theoretical contributions and managerial implications are also discussed.