Dynamic capabilities are vital as they have been considered the major source for creating new knowledge and capabilities needed in today's rapidly changing markets. The existent literature draws our attention to several more or less identifiable sources and strategy level processes for the creation of such capabilities, primarily emphasizing the role of top management. In our view, however, these often quite ad hoc explanations cry for more detailed micro foundations that really open up and reveal underlying micro structures and processes. Hence, our paper argues that moving communication across and the interaction of multi‐cultures at the workplace is a major driver for the creation of new knowledge and dynamic capabilities in organizations undergoing major transformation. The paper is theoretical in nature, and practical implications for innovation and knowledge management in emerging markets like in China are suggested. Copyright © 2008 John Wiley & Sons, Ltd.