Modes of Entry — Joint Ventures, Wholly Owned Subsidiaries and Turnkey Arrangements

Where a firm is prepared to commit more investment and take on more control (and correspondingly more risk) in a foreign market, it typically chooses a joint venture or a wholly owned subsidiary rather than exporting, licensing, or franchising.

In a joint venture, a firm partners with a local firm already established in the foreign country, and together they set up and jointly own a new business entity in that market. Investment, management control, profit, and risk are shared between the partners in an agreed proportion. A joint venture is attractive because the foreign partner brings local market knowledge, existing distribution relationships, familiarity with local regulation, and sometimes goodwill with local customers and authorities — all of which reduce the uncertainty a firm would otherwise face entering a market entirely on its own. The trade-off is that control and profit must be shared, and disagreements between partners over strategy or management style are a common source of difficulty in joint-venture relationships.

A wholly owned subsidiary — setting up one's own production or business facility abroad — represents the highest level of commitment among the common modes of entry. Here the firm itself fully owns and controls a manufacturing plant, sales office, or full business operation established directly in the foreign country, without a local partner. This gives the firm complete control over strategy, quality, and operations, and lets it keep the entire profit rather than sharing it. However, it also requires the largest investment of capital, carries the greatest exposure to political and currency risk, and demands the deepest understanding of the local market, labour laws, and regulatory environment, since the firm has no local partner to share that burden or that risk.

A further, related arrangement is the turnkey or contract-manufacturing method. In a turnkey arrangement, a firm designs, builds, and commissions a complete, ready-to-operate facility for a client in a foreign country and then hands over the finished, fully operational plant, often training the client's own staff to run it — the client can, in effect, simply "turn the key" and start operating. In contract manufacturing, a firm instead engages a foreign manufacturer to produce goods strictly to its own specifications and quality standards, without itself owning any manufacturing facility in that country at all. Both arrangements let a firm participate in a foreign market's production capability without the long-term ownership commitment of a wholly owned subsidiary. …