Modes of MNC Entry and Operation

An MNC does not always set up business in a host country in the same way. Depending on capital available, the host country's laws, and the level of control desired, an MNC typically uses one or more of the following modes.

• Wholly Owned Subsidiary. The MNC sets up a company in the host country and holds 100% (or very close to it) of its share capital. This gives the parent company complete ownership and control over the subsidiary's operations, but requires the largest capital commitment and carries the full risk alone.
• Joint Venture with a local partner. The MNC and a local (host-country) company jointly set up a new company, sharing capital, ownership, management and profits/losses in an agreed proportion. This route lets the MNC benefit from the local partner's market knowledge, existing distribution network, and compliance with local regulations, while sharing both risk and control.
• Branch Office. The MNC opens a branch in the host country that is legally and financially only an extension of the parent company (not a separately incorporated company). It is often used for liaison, marketing, or limited operational activity rather than full-scale manufacturing.
• Franchising. The MNC (franchisor) permits an independent local business person (franchisee) to use its established brand name, trademark, business format and operating systems in the host country, in exchange for a fee and/or a share of revenue, while the franchisor retains control over quality standards and brand image. This is common in fast-food, retail and hospitality businesses. …