Did France & Italy continue to develop and manufacture sophisticated military hardware once under German control?

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Italy was an ally of Germany, not an occupied country (except for the North in 1943-1945, which was not, technically, occupied). They made, e.g., Fiat_G.55 in Turin which saw action against the allied air forces.

In general, Germany had the full use of the whole of French, Czech &c industries (except for those which were destroyed by allied bombing and/or local sabotage, which was not much), although some individual designers escaped (some with designs).

Specifically:

Renault:

After the French capitulation in 1940, Louis Renault refused to produce tanks for Nazi Germany, which took control of his factories. He produced lorries for the German occupiers instead. On 3 March 1942, the RAF launched ... bombers at the Billancourt plant... Renault resolved to rebuild the factory as quickly as possible, but a further heavy bombardment ...

Citroën:

During the German occupation of France in World War II Boulanger refused to meet Dr. Ferdinand Porsche or communicate with the German authorities except through intermediaries. He organised a "go slow" on production of trucks for the Wehrmacht, many of which were sabotaged at the factory, by putting the notch on the oil dipstick in the wrong place, resulting in engine seizure.

Tatra:

After the 1938 invasion of Czechoslovakia by Nazi Germany, Tatras continued in production, largely because Germans liked the cars

Avions Amiot:

During the war, Amiot co-operated with the German occupiers to protect his interests, .... Amiot became a subcontractor for the Junkers company, building 370 aircraft.

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