Summary In a time when many evidences about manufacturers of Macau are revealing the "move" of their labor-intensive operations across the border into the Special Economic Zones (SEZs) of Southern China to take advantage of lower production costs there, a plastics-based, toy manufacturer - PLASTOYS- has decided to stay and to struggle in maintaining a competitive position. In the core, this study deals with such challenge within an evolutionary perspective and questions its effectiveness. In order to achieve competitive advantage, as a growing body of thought on strategic management has been stressing, companies need strategies for building 'critical' capabilities. Strategy, in this sense, could be seen as the framework for guiding the selection, development and exploitation of such capabilities. Moreover, a widely shared opinion on strategy is that, for competing successfully with the SEZs and other emerging economies in the Southeast Asian region, the alternative envisaged by local manufacturers should be to move their operations upmarket, into more value-added, technology-intensive operations. Undoubtedly, this is easier said than done, for any aspiration in "upgrading" technology may eventually fail to succeed at all. Hence, the thrust of this study is towards exposing the nature and the corresponding value of the manufacturing capabilities PLASTOYS has been challenging for in Macau. In selecting a site for this study, two conditions were taken into account. First, an industry evidencing a trend towards moving manufacturing operations to lower cost locations in order to, at least, keep surviving. Second, a firm with a relatively long history of operations in Macau, and suggesting a long-term trend towards technology upgrading in order to sustain its competitive advantage. The case focused in PLASTOYS, whose real name is disguised, a toy manufacturer with operations in Macau since the mid-1960s. By translating technology upgrading into a set of on-going actions and of discrete plans-and-actions, or herein called 'projects', developed concurrently over time it is likely to provide a better understanding of organizational phenomena and its context. Hence, within the timing of a transitional period occurring in Macau since the mid-1980s, and while focusing on the context of the declining output of its overall toy manufacturing industry, this thesis contemplates specific research objectives that were elaborated forward: 1.To explain the reasons that led PLASTOYS to make a strategic choice about technology upgrading in Macau, rather than imitating its competitors' moves to Southern China; 2.To describe which manufacturing-improvement projects PLASTOYS have used, and in which order; 3.To find what specific manufacturing capabilities each project has created for PLASTOYS; 4.To explore if such capabilities are valuable for PLASTOYS in competitive terms; and 'most fundamentally' 5.To develop tentative explanations about the dynamic interaction between the strategy and the technology PLASTOYS has pursued over time. In sum, this study will attempt to explain the relatively successful competitive performance of PLASTOYS, not only by reference to the described content of the manufacturing strategies employed, but also by relating their origin and evolution to the contexts in which they derived from, together with their processes of operation. Hence, it seemed important to focus not only on the nature of the alignment between the way PLASTOYS competed and the technologies it chose to employ, but also on the process by which such alignment took place, over 30 years of operation in Macau.