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This study examines tacit knowledge spillovers among lodging firms within a tourism destination and how these tacit knowledge spillovers may result in destination transformation. Longitudinal data for this study were collected through in-depth interviews with lodging firms' managers and operators in a destination located in the south China.Findings suggested that locals are likely to follow the examples of successful pioneering businesses. They will learn from those examples and copy their business model. Tacit knowledge spillover in a region over an extended time period will result in successful development of tourism if it is managed carefully. Local government policies are likely to play a central role in tacit knowledge spillover. Effective interventions of the government have encouraged and facilitated tacit knowledge spillover through establishing knowledge transfer mechanisms in the community.