SMEs industrial districts foster their success and the development of their local economic systems through the process of diffusion and accumulation of knowledge between firms and agents (entrepreneurs, self employed and waged workers, local institutions). This knowledge is often locally embedded and tacit in nature. It's precisely on this ground that firms and agents extend their production network, and on which global players (large multi-national, meta-national firms) are forced to play. The authors argue the theoretical and empirical relevance of the argument through a paradigmatic national and local case study, as a starting point for more general research on the role of Italian industrial districts in the international extension of the production network. The paper begins by mentioning the debate on the Italian lack of competitiveness... The authors then analyse the effects of SME's international extension of supply chain on domestic local factor markets within the contex sketched. Finally this process is considered on one hand as a source of demand for new policies - that is, policies supporting penetration in foreign factor markets and increasing the skills and innovation required to control the high value-added phases of supply chains - and on the other hand as an opportunity of 'win-win' cooperation between SMEs in developed and developing countries.