This thesis is concerned with the technological innovative capabilities of local suppliers in Malaysia's electrical and electronics industries. The technologically innovative capabilities of local suppliers are assumed to be influenced by the backward linkages provided by Malaysian subsidiaries of transnational corporation (TNC). TNCs have played a key role in Malaysia's industrial development. Their long history started in 1960s with export oriented strategies taken by US, Japanese and European-based TNCs. In addition, increasing globalisation contributes to the creation of contemporary TNC subsidiaries in a high number of countries which have strong international production netWorking. TNCs playa crucial role in the globalisation process, with an increasing control over productive activities in many countries in the world. The broad research questions of the thesis deal with the variables which affect the breadth or diversity of backward linkages between subsidiaries and local suppliers. Factors explored include 1) the corporate strategy of subsidiaries including outsourcing activities, 2) the technological capability level of local suppliers, 3) the technological development path of local suppliers, 4) inter-organisational linkages between local suppliers and subsidiaries, and 5) specific factors, e.g. nationality of ownership of subsidiaries, region of location, and university and government linkages. Selected theoretical approaches are reviewed to explain the basis for evolution of the roles of TNC subsidiaries, and SMEs in developing countries. In order to analyse these two actors' interactions for technological-related activities, theories related to backward linkages and technological innovation in developing countries are reviewed, as well as issues, of national innovative systems (NIS), and I environmental factors external to the two main actors. This study utilises an interview survey of TNC subsidiaries and local suppliers in the Malaysian electric and electronics industry to explore the factors influencing upgrading technological capabilities of local suppliers through the backward linkages. A total of 46 TNC subsidiaries and 24 local suppliers participated in the survey. Face to face interviews and factory visits were undertaken for all participating subsidiaries and suppliers in the states of Selangor and Penang. The study uses three analytical frameworks; subsidiary typology, supplier typology and the forms of backward linkages. Descriptive statistics, non-parametric analysis, an OLS regression model, and case studies were used in the analysis. The findings suggest that, as globalisation has increased, the roles of TNC subsidiaries located in Malaysia have shifted, and they have developed a higher autonomy level, which has increased the number as well as either breadth or diversity of backward linkages offered to local suppliers. Backward linkages provided by subsidiaries significantly affect local suppliers' technological innovative capabilities. Subsidiaries' motivations for backward linkages are especially positively affected by their production networking. The breadth or diversity of backward linkages is affected by the roles ofsubsidiaries, rather than the nationality of origin. Local suppliers' technological levels are highly correlated with process and training linkages as well as backward linkages-related government programmes. Thus the role of backward linkages as part of the institutional environment in the contest of NIS is crucial for the technological development process of local suppliers.