Policy makers of most developing countries and international organisations in-creasingly underline the importance of skills for economic development and transformation. In fact, many of the industries in economically less developed countries have, in the face of accelerated economic globalisation, become more technology intensive; skill formation processes, both inside and outside the firms, are therefore changing. This study scrutinises such transformations by comparing the skill formation regimes of the garment industries in Sri Lanka and Bangladesh from a historical-institutionalist perspective. It emphasises that the trajectories notably of the in-firm skill formation regimes differ consid-erably between the two countries, an important reason being the different paths of educational development. At the same time, the study shows how, in both countries, state-led skill formation regimes have been trans-formed by market forces, the growing importance of corporate business interests but also by the social demand for educational credentials.