This paper examines how a sectoral innovation system evolves over time and what the underlying factors derive from the development of automotive industry in Thailand which is presented as a case example. Since 1960's, the government policies and the development of liberal investment climate have been a push for the influx of large-scale foreign direct investments (FDI) in Thailand. Automotive industry has also been targeted as a major assembly base of foreign carmakers while the local suppliers were mostly slow and passive learners. In the late- 1990's, foreign carmakers began acting as "lead" firms to invest in R&D and related activities. This induced positive coevolution in other actors, especially the first-tier foreign suppliers and some local suppliers, in the sectoral innovation systems which, in turn, became stronger, more coherent and product-specific. According to Thailand Automotive Institute (TAI), the production volume is expected to grow to two million units by 2015 which would bring Thailand to be on the top-ten list of the largest auto-producers in the world. This research paper has implications on the concept of sectoral innovation system, corporate technology strategies and government technology and innovation policies. © 2014 World Scientific Publishing Company.