This thesis shows that the existing theories in internationalization of Chinese firms seem to fail to appreciate the inherent nature of international business activities that involve strategic agency and dynamic capabilities in operating institutional changing contexts. By presenting a qualitative study, this study focuses on a Chinese multinational enterprise, about the influence of changing institutional home country environment on the process of the firm’s internationalization. While previous literature argues that internationalization of Chinese multinational enterprises (MNEs) is institutionally embedded, this paper explores the interaction between the institutional changes, strategic agency and dynamic capabilities which build complex and innovative institutional arrangements at organization level to overcome problems associated with engaging in the process of internationalization. The study examines the context and process of how different roles played by the strategic agent have proactively led the Chinese MNE to an evolution of dynamic capabilities. Together they have an important influence on the firms’ heterogeneity and competitive advantage during their process of internationalization under Chinese institutional upheaval. The findings indicated: (1) Chinese managers can act like active agents who develop strategic responses in a more proactive approach to the changing institutions at the organization level. (2) With dynamic capabilities, Chinese firms configure their strategic and organizational routines to achieve new resources and capabilities configurations that co-evolve with the market. (3) A dynamic interplay between strategic agent and dynamic capabilities embedded in different institutional contexts in the home country. A process model of internationalization is proposed in which the insights of strategic agency view with dynamic capability perspective from organization theory are combined together. iii Alignment, learning and reconfiguration of dynamic capabilities are proposed as determinants of the firms’ upgrading capabilities, which complement and extend the bridging, framing and transforming of strategic agency in explaining the speed, scope and strategic choices of Chinese firms’ internationalization. This paper suggests that both strategic agency and dynamic capabilities are indispensable to the success of internationalization of Chinese firms.