Purpose: One role of a foreign subsidiary within a multinational corporation's (MNC's) global portfolio is to connect the MNC to foreign customers. To examine this key customer contact point, this study aims to examine the linkages between local market conditions and strategic orientation, and how strategic orientation influences knowledge management capabilities of MNC subsidiaries, employing the Miles and Snow strategic orientation perspective. Design/methodology/approach: A survey was conducted of 112 managers in foreign MNC subsidiaries in Croatia. Data were analyzed with both discriminant analysis and MANCOVA. Findings: The results indicate that in highly dynamic and competitively intense markets, MNC subsidiaries primarily employ a Prospector orientation. Furthermore, the results indicate that there is a significant difference in knowledge management capabilities among subsidiaries depending on their strategic orientation, with the Prospector orientation most closely aligned with knowledge acquisition, knowledge conversion and knowledge application. Practical implications: The findings highlight the importance of strategic orientation in MNC subsidiaries tailoring to local market conditions. The results suggest that MNC subsidiaries undertaking a Prospector strategic orientation develop greater knowledge acquisition, conversion and application capabilities. Originality/value: This study conceptualizes the MNC subsidiary as a key marketing element of the global MNC whole and examines the nuanced relationships between the host environment and MNC foreign subsidiary strategic orientation as well as MNC subsidiary strategic orientation and knowledge management relationship. © Emerald Group Publishing Limited.