Question

5.	Imagine that you are meeting with your superiors to discuss entering a foreign market. Your boss has asked you to analyze a joint venture prospect. Why might you tell your boss that the joint venture is not a good idea?

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

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

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

Answer 1

5) Joint Venture (JV) as a mode of entry for a foreign company involves partnering with a local company and sharing equity, ownership & management of operations. Joint Venture can be good option due to following reasons:

1. JV is a more cost-efficient & time-efficient means of entering a local market.

2. JV avoids entry barrier and high fixed cost, geographical and regulatory barriers

3. JV is a risk-sharing and risk-minimizing strategy to test the new product & market

4. JV also help realize benefits of economies of scale by sharing finance & knowledge

5. JV provides easy access to growing market and economical labour or other resources

6. JV provides competitive advantage to a foreign by leveraging the synergy with local partner. It can also improve global competitiveness of foreign company

7. JV also offer favourable image & treatment from local public and local government.

6) Wholly Owned Subsidiary is another alternative method for a foreign company to enter a local market. There are 2 methods under it- greenfield and acquisition.

Under the first greenfield method, foreign or parent company undertakes investment to establish a new wholly owned subsidiary in a local market whose common stock is 100% owned by parent company.

In the second acquisition method, foreign or parent company purchases 100% of the common stock of the existing local company in the local market.

7) Wholly Owned Subsidiary (WOS) is a suitable mode of entering a local market by foreign company because of following reasons:

1. WOS allows foreign company to obtain full legal control over operations, products & processes of local company and offer more returns

2. WOS allows the foreign company to diversify, manage and reduce its global risk

3. WOS enables simpler reporting and sharing of financial resources and operational expertise with subsidiary company

4. WOS enables faster operational decisions

However, WOS also has some disadvantages such as following:

1. WOS is more complex, costly and risky due to various entry barriers

2. WOS involves concentration of risk and operational inflexibility

3. WOS makes it more difficult for local people to quickly adopt parent company’s policies and practices due to cultural differences

8) The 3 advantages of acquisition method of entering a foreign market via WOS for a foreign company are as follows:

1. It is the fastest and most time-saving method

2. It avoids various entry barriers of entering compared to greenfield mode

3. It can be more cost-effective and cost-clear method and hence less-risky and high return option