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collaboration for more than a transitory period. A joint ownership venture may be brought about
in three major ways:
(i) Foreign investor buying an interest in a local company
(ii) Local firm acquiring an interest in an existing foreign firm
(iii) Both the foreign and local entrepreneurs jointly forming a new enterprise.
Advantages
Major advantages of joint venture include:
• Since the local partner also contributes to the equity capital of such a venture, the international
firm finds it financially less burdensome to expand globally.
• Joint ventures make it possible to execute large projects requiring huge capital outlays and
manpower.
• The foreign business firm benefits from a local partner’s knowledge of the host countries
regarding the competitive conditions, culture, language, political systems and business systems.
• In many cases entering into a foreign market is very costly and risky. This can be avoided by
sharing costs and/or risks with a local partner under joint venture agreements.
Limitations
Major limitations of a joint venture are discussed below:
• Foreign firms entering into joint ventures share the technology and trade secrets with local
firms in foreign countries, thus always running the risks of such a technology and secrets being
disclosed to others.
• The dual ownership arrangement may lead to conflicts, resulting in battle for control between
the investing firms.

Wholly Owned Subsidiaries

This entry mode of international business is preferred by companies which want to exercise full
control over their overseas operations. The parent company acquires full control over the foreign
company by making 100 percent investment in its equity capital. A wholly owned subsidiary in a
foreign market can be established in either of the two ways:
(i) Setting up a new firm altogether to start operations in a foreign country — also referred to as
a green field venture, or
(ii) Acquiring an established firm in the foreign country and using that firm to manufacture
and/or promote its products in the host nation.

Advantages

Major advantages of a wholly owned subsidiary in a foreign country are as follows:
• The parent firm is able to exercise full control over its operations in foreign countries.