Question

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1. What are the two methods of entering foreign marketing using a wholly owned subsidiary?

2	Consider why a firm should enter a market via a wholly owned subsidiary. What are the advantages and disadvantages of this type of strategy?

3.	Discuss the three advantages of acquiring an enterprise in a target market.

4.	Discuss the advantage of establishing a greenfield venture in a foreign country.

Answer 1

1. WHOLLY OWNED SUBSIDIARY : A wholly owned subsidiary is a company whose entire stock is held by another company called the Parent company.

Example : IF ABC Pvt.Ltd owns 100 percent shares of XYZ Pvt.Ltd company, then XYZ Pvt.Ltd. company becomes a wholly owned subsidiary company of ABC Pvt.Ltd.company.

Two methods of entering foreign market by wholly owned subsidiary company is Greenfield Investment and Acquisition Strategy.   

Greenfield investment is starting operations in the host country from scratch. Companies typically invest in empty lands and build the infrastructure such production plant, logistics units or other facilities for their own use.

Acquisition Strategy : is by purchasing existing companies or facilities in the host country.

2.Advantages of Wholly owned subsidiary :      

• Direct and Indirect presence in host country.
• Independent marketing activities.
• Increase in market power towards buyers, suppliers, and competitors.
• Implementation of own strategies.

Disadvantages of Wholly owned subsidiary:   

• Huge capital investment is required
• Risk is high especially in insecure countries
• Time consumption, lots of proceedures to be followed for start up.
• Expenditure on resources build upon for start up.

3. Advantages of acquiring an enterprise in a target market.

• The difficult startup work is already done. Already the business is functioning show the proceedures is in place.
• A market is already established for your product or service.
• Buying an established business means immediate cash flow.
• The existing customes, contacts, goodwill, staff, product ,suppliers etc will be acquired,.

4.Advantages of greenfield investment in a foreign country.

• Often host countries encourage MNC's to undertake greenfield investments because they create vast job opportunities,new production capacity, and more business activity contribution to the country.
• Tax breaks Incentive and other subsidies are offered to promote  up greenfield investments.
• In a new venture its easier to set up rules and proceedures rather than converting existing operations.
• examples of green field ventures : Hyundai, Coco cola, Pepsi and many more.
• Employee training to company standards.