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.