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Abstract This paper illustrates the role of international production networks (IPNs) and industrial clusters (ICs) in the upgrading process with a view to gain a better understanding of their upgrading experiences. This can shed some light on the ongoing debate regarding the relative importance of IPNs and ICs and their implications for prudential industrial policy. The automotive and hard disk drive (HDD) industries in Thailand are chosen as case studies because their outstanding export performance in the world market in the past two decades suggests their success in industrial upgrading. Nonetheless, these two industries differ in their modes of networking. In the former, industrial clustering has been observed and has reached a level where the local content of a locally manufactured vehicle is approaching 100 percent. For the latter, industrial clustering has naturally occurred and reached a certain level, while IPNs still play a crucial role. This result suggests the possibility of coexistence between IPNs and ICs. The observed industrial clustering in the HDD industry in the later stage also shows that ICs would be a developmental outcome rather than a precondition of technological upgrading. The choice between IPNs and ICs should be a private sector decision, driven by the economic fundamentals.The public sector should focus on strengthening the supply‐side capabilities of local firms as well as creating an investment climate to further promote upgrading activities.
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