Question

what are the potential contraints of wholly owned subsidiaries/ greedfield operation that H&M performed to entry chinese market?

Answer 1

A wholly owned subsidary is a company which is independent of its parent company. It is a company which is formed by another company which is called its parent company or holding company. The parent company can form a subsidary company in the same indusrty or a completely different industry. It can also be formed by making one of its parts as a seperate company. For example, a phone manufacturing company makes its screen manufacturing division a seperate company working under it as a subsidary. The management is appointed by the parent company whereas, the working/ decision making is completely on the top management of the subsidary/ independent from the parent/ holding company.

CONSTRAINTS OF WHOLLY OWNED SUBSIDARY

• There could be serious financial constraints caused to the parent company if there are any errors in execution by the subsidary company.
• The risks are concentrated in this type and it also has very less flexibility when it comes to operations. When a subsidary does not take the right decisions at the operational level and when they have entered a new market the risk is that the loss is on the parent company.
• Problems may arise between the parent and subsidary when there are cultural differences due to entry into new market. The strategies of parent and subsidary regarding the culture difference will lead to difficulty in intergration.
• It is a tough job to find skilled employees for the subsidary company.

H&M entered the chinese market with greenfield operations though it generally takes the wholly owned subsidary way into the foreign market to have control over the subsidary . They had established their production units in Shanghai and Hong Kong before entering the chinese market. They had their competitors ZARA and GAP well establised even before entering china.