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Which one of the following modes of entry permits greatest degree of control over overseas operations?
- a)Contract manufacturing
- b)Licensing/franching
- c)Wholly owned subsidiary
- d)Joint venture
Correct answer is option 'C'. Can you explain this answer?
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Which one of the following modes of entry permits greatest degree of c...
Answer (C) The parent company acquires full control over the foreign company by making 100% investment in its equity capital in a wholly owned subsidiary.
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Which one of the following modes of entry permits greatest degree of c...
Modes of Entry into Overseas Markets
When businesses seek to enter overseas markets, they have various modes of entry to choose from. Each mode comes with its own level of control, risk, and investment. Among these, the wholly owned subsidiary offers the greatest degree of control.
Understanding Wholly Owned Subsidiaries
- A wholly owned subsidiary is a company that is completely owned by another company, known as the parent company.
- This mode allows the parent company to maintain full control over operations, strategies, and decision-making processes in the foreign market.
Key Advantages of Wholly Owned Subsidiaries
- Complete Control: The parent company can dictate all aspects of the subsidiary's operations, from management practices to marketing strategies.
- Profit Retention: The parent company retains all profits generated by the subsidiary, allowing for reinvestment in the business or repatriation of earnings.
- Brand Integrity: Maintaining control ensures that the brand's image and values are upheld consistently across markets.
- Adaptation to Local Markets: While the company has full control, it can also tailor its strategies to meet local market demands without needing approval from external partners.
Comparison with Other Modes
- Contract Manufacturing: This involves outsourcing production to third parties, leading to less control over quality and branding.
- Licensing/Franchising: This allows third parties to use the brand for a fee, which can dilute brand control and consistency.
- Joint Ventures: Although they offer a collaborative approach, shared ownership means decisions require consensus, potentially leading to conflicts.
Conclusion
In summary, a wholly owned subsidiary provides the highest level of control over overseas operations, making it a preferred choice for companies seeking to establish a strong presence in international markets.
When businesses seek to enter overseas markets, they have various modes of entry to choose from. Each mode comes with its own level of control, risk, and investment. Among these, the wholly owned subsidiary offers the greatest degree of control.
Understanding Wholly Owned Subsidiaries
- A wholly owned subsidiary is a company that is completely owned by another company, known as the parent company.
- This mode allows the parent company to maintain full control over operations, strategies, and decision-making processes in the foreign market.
Key Advantages of Wholly Owned Subsidiaries
- Complete Control: The parent company can dictate all aspects of the subsidiary's operations, from management practices to marketing strategies.
- Profit Retention: The parent company retains all profits generated by the subsidiary, allowing for reinvestment in the business or repatriation of earnings.
- Brand Integrity: Maintaining control ensures that the brand's image and values are upheld consistently across markets.
- Adaptation to Local Markets: While the company has full control, it can also tailor its strategies to meet local market demands without needing approval from external partners.
Comparison with Other Modes
- Contract Manufacturing: This involves outsourcing production to third parties, leading to less control over quality and branding.
- Licensing/Franchising: This allows third parties to use the brand for a fee, which can dilute brand control and consistency.
- Joint Ventures: Although they offer a collaborative approach, shared ownership means decisions require consensus, potentially leading to conflicts.
Conclusion
In summary, a wholly owned subsidiary provides the highest level of control over overseas operations, making it a preferred choice for companies seeking to establish a strong presence in international markets.
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Which one of the following modes of entry permits greatest degree of c...
To determine which mode of entry permits the greatest degree of control over overseas operations, we need to compare the options provided.
A: Contract manufacturing
- Involves outsourcing the manufacturing process to a third party.
- The company retains control over product design and specifications but has limited control over production and operations.
B: Licensing/franchising
- Involves granting the rights to use intellectual property, brand, or business model to another party.
- The company has limited control over the operations and activities of the licensee or franchisee.
C: Wholly owned subsidiary
- Involves establishing a new subsidiary in the foreign market, where the company has full ownership and control.
- Provides the highest degree of control as the company can make all strategic and operational decisions.
D: Joint venture
- Involves partnering with a local company to establish a new entity.
- The degree of control varies depending on the terms of the joint venture agreement, with shared decision-making and control.
Therefore, the mode of entry that permits the greatest degree of control over overseas operations is wholly owned subsidiary (option C).
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Which one of the following modes of entry permits greatest degree of control over overseas operations?a)Contract manufacturingb)Licensing/franchingc)Wholly owned subsidiaryd)Joint ventureCorrect answer is option 'C'. Can you explain this answer?
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