We conducted a case study to explore the challenges encountered by a foreign subsidiary of a Japanese multinational firm when localizing its organizational capabilities in China. Drawing on the concepts of boundaries and boundary-crossing, we identify pragmatic and cultural knowledge boundaries, which denied opportunities for the host-country employees to contribute their local expertise to augment the firm's core capabilities within the domains of research and development and operational protocols. However, within those domains that were regarded as complementary to or peripheral to the firm's core capabilities, host-country employees were granted more scope to cross the associated pragmatic boundaries.