A long-standing research tradition has studied processes of late industrialization, with China as the most recent and publicized case. A strong trend among late industrializers is to move rapidly from manufacturing, to product design and to creation of indigenous R&D capabilities. This paper analyzes such a process taking place close to Europe, in the rapidly growing Turkish economy. Most of the literature on R&D internationalization and innovation in emerging economies studies the country level. To these studies the paper brings an important complement by analyzing the performance of individual innovating firms and the structural conditions underpinning their development, such as the role of state support, business group ownership and business group orientation. The paper builds on a comparative case study of two firms in the automotive and white goods industries, and their R&D and product development trajectory, and a brief comparison of the involved business group with other types of business group orientation in Turkey. Insights in innovative, knowledge-acquiring firms in emerging economies are key to understand the broader dynamics of the global knowledge economy, and the new challenges for technology-based firms in the West, where firms from the ´periphery´ suddenly emerge as competitors, not based on low cost but on innovation, patenting and product design. By showing that firms may pursue different roads to upgrading from close collaboration with multinational companies to independent strategies based on autonomous development of proprietary technological knowledge, the paper calls for a differentiated understanding of emerging economy dynamics.