Research on innovation has often concentrated on a narrow set of sectors and activities, and on the experiences of the most advanced regions in the world. However, innovation, when defined in a broad sense, incorporates a variety of processes and outputs that cut across organisational, sectoral, territorial and knowledge boundaries. This paper seeks to make a contribution to this literature by focusing on the experiences of less developed regions, and by examining how different knowledge bases contribute to technological upgrading and higher added value for firms. It argues that in regions where access to advanced knowledge and technology is restricted, or where firms do not have the absorptive capacity to access, absorb and exploit such knowledge, combining existing knowledge in innovative ways may be the best strategy for firms to become more innovative and competitive. It also argues that this combination can happen through vertical integration within the firm, or by the creation and maintenance of inter-firm mechanisms that stimulate knowledge dissemination. These themes are discussed by drawing on the evolution of the wine industry in three Portuguese regions. These regions have all experienced different trajectories, in terms of the renewal of their wine industry, and it is argued that this is in part the result of endogenous regional characteristics.