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The garment industry is an important sector of the economy of Portugal and has been expanding since 1990 in terms of the volume of business conducted. Most companies are small and productivity is low. In the past the main basis of Portugal's competitive advantage has been low wages. This may not be sustainable in the future — this represents the biggest challenge faced by the industry. Most companies are well equipped but commercial design and industrial pattern making are perceived as weak points. The domestic market is rather small and most companies focus on export markets.

The purpose of this paper is to examine the cooperation between firms as an important phenomenon, particularly within entrepreneurial strategies. This paper describes the results of an empirical study about SMEs (small and medium‐sized enterprises) in the textile and clothing sector in Portugal. The results show that the level of cooperation between SMEs is limited in extent. When cooperation exists between the firms, the empirical results obtained reveal a great number of agreements in the production area so that subcontracting is the form of collaboration most commonly adopted. The SMEs prefer to cooperate with local firms because they know each other and share the same cultural background. The empirical results also allow us to conclude that the cooperative agreements are mainly informal; and that their stability is ensured and guaranteed by trust and communication between the partners.