Firms established in developing countries through foreign direct investment (FDI) are frequently v iewed as providing little or n o support for significant technological deve lopment in the host e c o n o m y (e.g. Lall 1992; Westphal et al 1985), and this v iew has also b e e n widely held in Malaysia (Anuwar Ali 1992, 1993; M I E R and D R I / M c G r a w - H i l l 1996). 1 M o r e specifically, two general perspec - tives have b e e n widely held. First, subsidiaries o f foreign transnational c o r - porations ( T N C s ) are thought to have little or n o independent capabilities for technological innovation (Lall 1995; Ostry and Harianto 1995; G u y t o n 1994). S e c o n d , they are often criticized for generating few technological externalities o r "spil lovers" to local firms (Lim and Pang 1 9 9 1 : 1 0 7 - 1 8 ; Lall 1994; H a m z a h and Ismail 1993). Th i s chapter addresses the first o f these two generalizations by report ing o n part o f a study which aims at understanding the process by which T N C subsidiaries in Malaysia 's electronics industry, an industry led by F D I , have built u p (or failed to build up) their technological capability to innovate and improve products and processes.