Much has been written about theories and how they can be tested. Unfortunately, much less has been written about how to develop them. This paper sheds light on the process of new theory development. We document and reflect on how we developed a context-sensitive indigenous theory of knowledge sharing by studying Chinese organizations. By reviewing and refining our own somewhat messy process, we have identified six key stages: abstract, identify, select, explain, synthesize, and validate. By presenting our model of theory development to the Academy of Management, we aim to encourage greater discussion of how theories can be developed, to stimulate the development of new contextual theories, and to provide useful methodological guidance for those who take up the theory building challenge.