This paper assesses the development potential of local inter-firm networks in Newly Industrializing Countries. This is done through an analysis of the role of such networks in the growth of the software industry in the Republic of Ireland. Transnational software companies located in Ireland developed extensive local supply networks. Local social networks and a local culture of innovation contributed to the growth of an indigenous software development sector. While local networks can generate significant competitive advantage for a region they are inevitably internationalized as successful firms organize globally or as the region attracts further foreign investment. Corporations utilize local networks to solve problems of cost, control and innovation management in the globalization of production and corporate organization.While fostering local networks can be an effective public policy, it is not sufficient for development. The role of the state in supporting, guiding and bargaining with local firms in these networks remains a crucial aspect of development strategy.