Absorptive capacity is frequently highlighted as a key determinant of knowledge transfer within multinational enterprises. But how individual behaviour translates into absorptive capacity at the subsidiary level, and how this is contingent on subsidiaries' social context, remains under-addressed. This not only limits our understanding of the relationship between individual- and organizational-level absorptive capacity, but also hampers further research on potentially relevant managerial and organizational antecedents, and limits the implications we can draw for practitioners who seek to increase their organization's capacity to put new knowledge to use. To address this shortcoming we conduct an in-depth comparative case study of a headquarters-initiated knowledge transfer at two subsidiaries of the same multinational enterprise. The findings demonstrate that social interaction is a prerequisite for subsidiary absorptive capacity as it enables employees to participate in the transformation of new knowledge to the local context and the development of local applications. The findings also illustrate how organizational conditions at the subsidiary level can impact subsidiary absorptive capacity by enabling or constraining local interaction patterns. These insights contribute to the absorptive capacity literature by demonstrating the scale and scope of social interaction as a key link between individual- and organizational-level absorptive capacity.