Technological capabilities (TC) play a key role in the competitiveness of firms in industrial sectors. Suppliers in emerging economies often acquire technological capabilities by operating and mastering technologies developed by others and then leveraging this learning to develop indigenous technologies. By reviewing research on firm specific technological capabilities, the development of global value chains and industrial clusters in emerging markets we discuss local suppliers’ insertion and upgrading in the supply chains of new large industrial enterprises. Using the Brazilian shipbuilding industry as context, we investigate and develop propositions related to the ability of local suppliers to develop technological capabilities that permit eventual insertion into the local supply chain. This research has applications for managers and policy makers from other emerging market countries seeking to increase local sourcing through development of local suppliers.