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Strategic outsourcing of large firms offers multiple possibilities for competitive performance of micro and small enterprises (MSEs). When these firms are inserted in local production systems, they can enjoy of positive externalities that make it easier for them to overcome difficulties related to size. This study analyzes the division of labor between the MSEs of local productive system of processed plastics in the State of Santa Catarina, Brazil. Based on innovative and interactive dynamics of the MSEs, it aims to examine the characteristics of the insertion of these firms and the consequences of this insertion in terms of technological capability. The results of a survey of 25 firms belonging to branches of plastic packaging and various plastic products indicate that companies develop innovative capacities through interactions among agents under passive and incipient forms. At the same time, these interactions also promote positive externalities and create local competitive advantage, especially for smaller companies.
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