Identification of Reasons for Preference of Wholly Owned Subsidiaries Essay

Identification of Reasons for Preference of Wholly Owned Subsidiaries Compared to IJVs - Essay Example This paper illustrates that over the years international joint ventures have been a successful mode of entry into the host country. It benefits the foreign companies forming the joint ventures with the local company in two ways. Firstly, the advantage of the local partner’s knowledge about the political systems, competitive conditions, culture, and business system of the host country. Secondly, the benefit of development cost and risk sharing with the local partner. In some countries, these kinds of joint ventures are the only feasible market entry mode that is available to the foreign companies. On the contrary, the wholly owned subsidiary is the most costly mode of entry into the overseas market. However, wholly owned subsidiary or rather setting up independent company owned by the parent company gives the full control to the company in terms of its operation handling and gaining the whole profit from its operations. The companies who adopt this kind of entry mode should be prepared to bear the risk and cost associated with having its expanded operations in the overseas market. The companies in the past years thought that the joint ventures will give them the expertise to acquire a position in the market, but this was not as easy as the local partner tie down the new entrant to the direction of its operations in his own way. For instance, Proctor & Gamble failed in India where they entered the market through joint venture but succeeded in China through its wholly owned subsidiary. As the forecast states that China by 2050 would be a leading economy followed by U.S and India, so now the companies feel that setting up their own company in these markets would be necessary for their survival as well as for sustained growth. With the influence of WTO, which now provides less restriction on foreign-owned companies in markets of China and India, many companies are now focusing on establishing their wholly owned subsidiary rather than going into any kind of in ternational joint venture.