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asa.Virtual organizations have been presented as one solution for SM Es aiming to increase their competitiveness. This paper seeks to clarify those preconditions that a ect the abilities of SM Es to participate in virtual organizations. The reviews on the networking literature and the resource-based theory show that the demands that virtual organizations set to the SM Es are substantial, and that from this point of view getting access into this type of networking is possible only for those SM Es that are competitive already. I n the theoretical part of the paper a typology of SM Es is created, highlighting the resource base and networking capabilities of di erent SM Es.The paper presents four illustrative cases, re ecting the theoretical types. The cases bring out the nature of SM E networking as an iterative process: the more the rm participates in networking the better it is capable of creating new co-operation. On the other hand, if the rm is either unwilling or incapable of networking with other rms the preconditions for participating in a virtual organization become unreachable.