The focus of this research is to relate ethnicity and its effect on national cultural values. The paper points out how the ethnic and economic reasons for conflict influence this interaction that creates barriers in the knowledge management processes in an organization. Theoretical model is predicated on two structural dimensions of ethnicity: ethnic boundary and ethnic competition, which are then related to the national cultural values of individualism, masculinity, power distance, and uncertainty avoidance. The cultural values of long‐term versus short‐term orientation and indulgence versus restraint are not included in the conceptualization as the first one is rarely used because of its inclination toward Confucian ethic, whereas the second is found to be more or less complementary to long‐term versus short‐term orientation. In the paper, prejudice and limited absorptive capacity are identified as the first‐level effects, which, consequentially, produce the barriers of knowledge hoarding and knowledge stickiness during the course of knowledge transference in an organization. Copyright © 2014 John Wiley & Sons, Ltd. The focus of this research is to relate ethnicity and its effect on national cultural values as proposed by (Geert Hofstede, 1980b; G. Hofstede, Hofstede, & Minkov, 2010). The paper points out how the ethnic and economic reasons for conflict influence this interaction that creates barriers in the knowledge management processes in an organization. The paper offers a theoretical model which is grounded in multidisciplinary literature. The paper takes a theoretical approach toward the subject. In the paper, prejudice and limited absorptive capacity are identified as the first‐level effects, which, consequentially, produce the barriers of knowledge hoarding and knowledge stickiness during the course of knowledge transference in an organization. Knowledge management organizations can learn to develop deep understanding about the relations that make tacit knowledge accessible, and possible to share, leading toward a competitive edge of these organizations.