By examining the case of American and European firms operating in Japan, this article contributes to the central debate of how and when multinational corporations (MNCs) learn from their foreign subsidiaries. Through structural equation modeling, we assess how specific human resource management (HRM) practices (critical thinking encouragement, supervisory encouragement, learning incentives, deployment of internal mechanisms and processes, expatriation, and corporate training) enhance (1) knowledge transfer outflows from the subsidiary to other parts of the MNC and (2) the subsidiary's performance in its local market. We find learning orientation to be a key antecedent of all HRM practices we investigated. From a practical point of view, a noticeable finding relates to the lack of effects of critical thinking encouragement on market knowledge acquisition and dissemination when (1) there is a significant presence of expatriates in the subsidiary and (2) when local managers have access to training programs at headquarters (HQ) and other affiliates. © 2009 Wiley Periodicals, Inc.