This paper analyzes the determinants and effectiveness of dynamic capabilities of multinational corporations' local subsidiaries. As a derivative theory of the resource-based view, this study identified two types of abilities as core components of dynamic capabilities: innovation capability in response to environmental changes and the capability to acquire and renew new resources. Such dynamic capabilities are particularly required for local subsidiaries of multinational corporations that must conduct business under heterogeneous environments. An analysis of 127 local subsidiaries of foreign firms that invested in Korea revealed that dynamic capabilities—represented by innovation and resource acquisition/renewal—not only had a positive effect on the current business performance of local subsidiaries but also raised expectations for future business performance, demonstrating that dynamic capabilities can contribute to the sustained competitive advantage of local subsidiaries. Meanwhile, regarding the facilitating factors of local subsidiaries' dynamic capabilities, the more the parent company maintains an entrepreneurial organizational culture, and the higher the strategic importance and autonomy of the local subsidiary, the more committed the subsidiary is to building dynamic capabilities. The findings of this study are expected to provide a series of implications regarding the role and success of multinational corporations' local subsidiaries.