The Advantages and Disadvantages of Jv and Ws
1. Introduction
The aim of this essay is to discuss the advantages and disadvantages of setting up a wholly owned subsidiary (WOS) instead of a joint venture (JV). There are numerous studies and research papers done on which entry mode is best in different situations, but there is no simple task deciding which is the best unless one can see into the future. JV and WOS are two completely different entry modes with their distinct down- and upsides. Entering a new market gives both great opportunities and involves high risk. There is much at stake but if one choose wrong entry mode it can cost the company tremendously, that is why one should not take this decision based on a few factors.
The globalisation has given companies a bigger market opportunities, but competing in the global market one also gets involved in the environmental uncertainty, such as the economic recession. The competition is also getting harder, the mixture of big multinational enterprises, the niche specialized businesses and the new copycats pushes companies to be innovate and expand or just sell out. But what is most important to consider when one chooses an entry mode? Is it the cultural differences, cost, profit, risk, competitive advantage, the objectives, the internal and external environment, the foreign market, knowledge and experience? To find an entry mode with just advantages is impossible, the choice boils down to which factor the company values the most.
2. Theory
2.1 The advantages of WOS
A wholly owned subsidiary is either a completely new operation or an acquisition of another company where the parent company owns 100% of the stocks (Hill, Jones 2010). Being a sole owner the company can monitor and control all the decisions and actions of their subsidiaries in an efficient way (Otto, 2010). The amount of control is highest in WOS because there is no dilemma of having to merge different opinions, policies and cultures. The risk of losing valuable technological
The aim of this essay is to discuss the advantages and disadvantages of setting up a wholly owned subsidiary (WOS) instead of a joint venture (JV). There are numerous studies and research papers done on which entry mode is best in different situations, but there is no simple task deciding which is the best unless one can see into the future. JV and WOS are two completely different entry modes with their distinct down- and upsides. Entering a new market gives both great opportunities and involves high risk. There is much at stake but if one choose wrong entry mode it can cost the company tremendously, that is why one should not take this decision based on a few factors.
The globalisation has given companies a bigger market opportunities, but competing in the global market one also gets involved in the environmental uncertainty, such as the economic recession. The competition is also getting harder, the mixture of big multinational enterprises, the niche specialized businesses and the new copycats pushes companies to be innovate and expand or just sell out. But what is most important to consider when one chooses an entry mode? Is it the cultural differences, cost, profit, risk, competitive advantage, the objectives, the internal and external environment, the foreign market, knowledge and experience? To find an entry mode with just advantages is impossible, the choice boils down to which factor the company values the most.
2. Theory
2.1 The advantages of WOS
A wholly owned subsidiary is either a completely new operation or an acquisition of another company where the parent company owns 100% of the stocks (Hill, Jones 2010). Being a sole owner the company can monitor and control all the decisions and actions of their subsidiaries in an efficient way (Otto, 2010). The amount of control is highest in WOS because there is no dilemma of having to merge different opinions, policies and cultures. The risk of losing valuable technological
References: Aswathappa K. (2010) International Business. Tata McGraw Hill Businesslink.gov.uk: Joint Ventures and partnering. [Online] Available at: http://www.businesslink.gov.uk/bdotg/action/detail?itemId=1075411631&type=RESOURCES (Accessed 05.06.11) Hill C. & Jones, G. (2010) Strategic Management Theory: An Integrated Approach. South Western Cengage learning Otto, M. (2010) The relative performance of joint ventures and wholly owned subsidiaries and the reasons why they exit. Diplomica Verlag Makino, S. & Yiu, D. (2002) The choice between joint ventures and wholly owned subsidiary: An institutional perspective. Organization Science. Vol 13. No. 6. P. 668-675 Morschett D., Shcramm-Klein H. & Zentes J. (2010) Strategic International Management: Text and Cases. Gabler Verlag