Wholly Owned Subsidiaries

Meaning

A wholly owned subsidiary is the entry mode preferred by companies that want to exercise full control over their overseas operations. The parent company acquires full control of the foreign company by making a 100 per cent investment in its equity capital.

Two ways to establish it

1. Setting up an entirely new firm to begin operations in a foreign country — also called a green field venture.
2. Acquiring an established firm in the foreign country and using it to manufacture and/or promote the parent's products in the host nation.

Advantages

• The parent firm exercises full control over its foreign operations.
• Since the parent alone runs the entire operation, it is not required to disclose its technology or trade secrets to anyone.

Limitations

• The parent must make a 100 per cent equity investment, so this mode is unsuitable for small and medium firms that lack the funds to invest abroad. …