This article defines the stages of development reached by industries that account for half of Brazil's total output and identifies the competitive challenges they face, including those associated with the country's industrial policy. Between 1980 and 1994, Brazilian industry experienced persistent macroeconomic instability as the country's trade liberalization efforts proceeded. By means of a series of adjustments, however, the sector did manage to adapt to this hostile environment; in fact, it not only survived but actually succeeded in maintaining its ability to help cover the existing deficit, meet domestic demand and aid the country in achieving balanced linkages with the external economy. Brazilian firms are striving to revitalize their competitive position and, to this end, are strengthening certain components of their "genetic code" by catering to the domestic market, building up their production capacity and internationalizing their trading activity and ownership structures. Today's new competitive environment calls for an industrial policy that will encourage efficiency and regulate unfair trading practices. This requires an active State which has trained human resources and appropriate policy-making capabilities at its disposal, all of which will pave the way for the negotiations involved in setting priorities and implementing measures designed to promote the country's competitive development.