Between 1974 and 2005 the Chilean dairy sector went from being dependent on imports of dairy products to being a net exporter. The transformation was caused by increased and more efficient production. New technologies were introduced and output shifted from low quality commodities to products of higher quality. While previous research largely focused on other agricultural subsectors and mainly highlighted internal/national causes behind development, such as state market relations, this article contributes with new knowledge by studying changes in the dairy sector highlighting the impact of globalization. The main findings are that increased competition at global level changed the strategies of transnational dairy companies and gave rise to global sourcing strategies. In spite the fact that liberalization in Chile increased the process of structural rationalization, it is in the headquarters of transnational companies that decisions on what to produce and where are made. Thus, the shift towards an export driven development was mainly caused by the process of globalization of the industry. However, some of the actions of the state, through improving conditions for the supply side of the economy, paved the way for the development of the sector.