Under what conditions might a company prefer establishing a joint venture to a wholly owned subsidiary in a foreign country? In Element 3, present an example of a company with a wholly-owned subsidiary and a joint venture in two different foreign markets. Explain why the management team of this corporation chose each of the investment models.
According to Ball et al. (2009), joint venture is defined as “A cooperative effort among two or more organizations that share a common interest in a business…” (p.452). Joint venture allows companies to strategically become partners to help each other in terms of investment, competitions, business plans and more. Besides these benefits, businesses prefer joint venture under following conditions: * “Strong Nationalism” (p. 453) – When consumers believe that a foreign company produces “superior” products or when they only believe in their own country’s products. * Credibility – To establish credibility with potential customers, especially when brand is unfamiliar locally. * Tax Benefits – When special taxes benefits exist upon becoming partners with local businesses * Avoid Risk – When local businesses have expertise in law, policies and business plans. * Law – When government of host country requires companies to have local partnership in order to enter the market * Union and Labor – 1. When labor policies differ dramatically. 2. When workforce of the entering market are unionized. 3. When workforces prefers to be managed only by the local or foreign company.
For example, in order for foreign companies to wholly owned subsidiary complex criteria must be met. The criteria are: * Only a "holding" operation is involved and all subsequent / downstream investments need prior approval of the Government. * Where proprietary technology needs to be protected or sophisticated technology is to be introduced. * At least 50 percent of the production is to be...
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