This paper analyzes the MNC subsidiaries' trade-off between the need for knowledge creation and the need for knowledge protection, and relates it to the extent of knowledge outflows generated within the host location. Combining research in International Business and Strategy with Social Theory, we argue that subsidiaries that source more from the local knowledge network in order to create new knowledge are also more likely to generate spillovers to local firms, due to the willingness to build the trust that facilitates the establishment of reciprocal knowledge linkages. However, when subsidiaries enjoy high knowledge quality, the need for knowledge protection overweighs the need for knowledge creation, thus reversing the effects of reciprocity in knowledge exchanges, and reducing the extent of knowledge outflows to the host location. This study contributes to the literature on the firm-level antecedents of FDI-mediated knowledge spillover, as well as to the broad IB literature on the relationship between subsidiaries and their host regions. The implications for managers and policy-makers are also discussed.