This article draws on the dynamic capability view (Eisenhardt and Martin, 2000;Teece, 2014) and the contingency perspective of strategy (Boyd et al., 2012). The purpose isto extend the understanding of mechanisms underlying relationships between a differentiationstrategy of an industrial firm’s foreign subsidiary and its performance. First, I argue that thestrategy of the foreign subsidiary needs to rely on dynamic capabilities in order to be alignedwith a dynamic local context. Second, I argue that competitive dynamics in the foreignmarket, and the value-adding mandate assigned to the subsidiary are contextual boundaries ofthe strategy. An understanding of the impact of the contingencies would render the strategymore effective and extend the subsidiary’s contribution to firm’s global competitiveness.