As an economy opens to foreign competitors, domestic markets’ structure will change. There are two main sources of this change in competition: foreign production, that arrives to the local market as imports, and foreign firms that locate their factories in the country. Domestic firms may find a new reason to search for new business opportunities, trying to increase their productivity and efficiency, reducing their costs, using new technologies, management techniques, etc. On the other hand, a closer contact with foreign firms may induce to domestic firms to imitate, and copy some of their techniques, taking advantage of the spillovers that more-advanced firms generate instead of generating their own innovations. This paper analyses how important is foreign competition (in imports as well as in foreign-owned firms) to justify the innovation of Spanish manufacturing firms, and whether these spillovers are important.