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Purpose Cross-cultural cognitive paradoxes have frequently broken the existing boundaries of knowledge and stimulated demands for knowledge creation (KC), and such paradoxes have triggered and will continue to trigger novel risks in the context of international business (IB). Given the nascency of relevant issues, this study aims to develop a more comprehensive understanding of KC across cultures by proposing a Yin-Yang dialectical systems theory of KC as micro-foundation to more systematically frame the risk/paradox-resolving mechanism elicited by cultural collisions. Design/methodology/approach This paper is conceptual in nature. The authors first critically review the literature to lay a broad theoretical foundation. Integrating the philosophy- and praxis-based views, the authors reposition knowledge as a Yin-Yang dialectical system of knowing, with yin representing the tacit while yang represents the explicit. Next, the authors justify the underling logic of realising KC through a contradiction-resolving process. On this basis, the authors draw upon the Yijing’s Later Heaven Sequence (LHS) as the source domain of a heuristic metaphor to reconceptualise KC as a dynamic capability in the IB context. Findings Using the LHS paradigm to metaphorically map the intricate patterns of interaction and interconnectivity among the involved individuals, organisations and all related stakeholders, this research identifies and theorises the overall dynamic capability of KC in the IB context, which comprises five sets of processes: contradiction, conflict, communication, compromise and conversion. Practical implications This research highlights that KC is simultaneously activated and constrained by human actions as well as by the socially constructed context in which it emerges, which helps individuals, organisations and policy makers more clearly frame the novel risks induced by cross-cultural cognitive conflicts in the IB context. Originality/value The authors synthesise Yin-Yang dialectics with the approach of collective phronesis, proposing a novel, praxis-oriented Yin-Yang dialectical systems theory of KC. It provides a deeper understanding of the epistemological paradox inherent in all knowledge, thus enabling KC to be rationalised by a sounder logical reasoning. By fusing the macro and micro perspectives on KC, the authors also enrich existing theory and future theory building in the domain of knowledge management.