Subsidiary knowledge creation in co-evolving contexts

•The paper illustrates how the interwoven coevolving context for knowledge creation may be guided by the MNE subsidiary.•It employs a longitudinal case study of the co-evolving contexts of subsidiaries’ role along with its external knowledge network in excess of 10 years.•It finds and illustrates how competence-creating subsidiaries can simultaneously manage the guided co-evolution of both internal and external contexts.•This balanced co-evolution advances their roles for knowledge creation within the MNE.•We develop a dynamic framework of subsidiary role and local knowledge network co-evolution. In this paper we explore how the MNE subsidiary’s role internally within its corporation evolves through knowledge creation in accordance with an evolving external local knowledge network, and the extent to which the interwoven coevolving context matters for, and may be guided by the subsidiary. We conducted a qualitative investigation of purposely selected subsidiaries as case studies and longitudinally tracked the interwoven co-evolving contexts of their internal corporate role and external knowledge network. We show why role evolution may be differential and illustrate how competence-creating subsidiaries can balance and simultaneously manage the guided co-evolution of both contexts to advance their roles for knowledge creation. We develop a dynamic framework of subsidiary role evolution at the nexus of these interwoven co-evolving contexts. This advances theory on the dual embedded subsidiary as previous studies have predominantly been cross-sectional and static rather than evolutionary.