This paper aims to analyze the impact of knowledge spillovers through international channels, namely foreign direct investment and trade, on technological upgrading in Guangdong province, China. We utilize panel data on Guangdong's 21 municipalities for the period 2000–2008. The results prove that external knowledge spillovers effectively trigger local‐scale knowledge spillovers in latecomer regions, which mainly take place within industries. The paper also demonstrates that the impact of external knowledge spillovers is closely related to the investment stock, degree of embeddedness, and absorptive ability of local firms, and thus differs across development phases. In the end, this paper asserts the need for future studies to explore the microeconomic aspects of firm‐level technological upgrading.