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Based on unique firm‐level data from 323 majority‐owned foreign affiliates (MOFAs) located in West Sweden in the beginning of 2000, we show that foreign‐located affiliates of transnational corporations (TNCs) generate technological competencies, both internally as well as through organised cooperation with external business partners in the host country. This seems true not only for manufacturing affiliates, but also for wholesale affiliates supplying industrial products, as well as professional service affiliates providing technical services. In addition, all three categories of affiliates are engaged in ‘dynamic technological integration’, i.e. a geographical transfer to parent and sister firms of technological competence that MOFAs have developed in cooperation with external business partners in Sweden. This indicates that not only the technological competence of MOFAs themselves, but even the geographical context in which they are embedded is a relational asset that is crucial for the overall technological competitiveness of TNCs. Above all, technological linkages were established with host country customers. Important technological linkages were established both with local business partners in West Sweden, as well as business partners in the Rest of Sweden. Using a logistic regression analysis, we found that technological integration is especially associated with affiliates operating in competitive host country clusters, indicating that a large pool of indigenous technological competence acts as an important pull‐factor for inward asset‐seeking FDI. However, technological linkages between foreign TNCs and host country partners does not come automatically, instead they need substantial and long‐term investments in personal and non‐personal resources.
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