One of the key factors behind the growth in global trade in recent decades is the increase in intermediate inputs as a result of the development of vertical production networks. It is widely recognized that the formation of production networks has resulted from the expansion of multinational enterprises’ activities. Developing economies have benefitted from the development of vertical production networks since these networks enable them to incorporate an appropriate portion of the production process. This study aims to explore the factors and policies that may help bring a production process into a developing country utilizing the Knowledge-Capital model in which firm heterogeneity is explicitly incorporated. Furthermore, this study will empirically test the validity of those factors.