There are many different business organizations as well as different modes of entry and all have got specific advantages and disadvantages. A joint venture is an example of a business model of entry which refers to a strategically planned partnership between either two, or more business entities.
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The businesses agree to engage in a joint venture after establishing new business opportunities in which they agree to contribute the capital and eventually share losses and profits.
Apart from a joint venture, a business may opt for a wholly owned subsidiary which refers to a company that is fully owned by the parent company.
In that case, even though the company may still have some stock and bonds being traded publicly, its common stock is owned by its parent company and is not available for other companies and individuals to purchase (Carbaugh pp. 115).
Since there are specific advantages and disadvantages for each venture, this paper explores the same and singles out the best option between the wholly owned subsidiary and joint business venture.
As highlighted in the introductory part, every business venture contains some specific advantages and disadvantages. For instance, the main advantage of a joint business venture is tied to the issue of shared responsibility.
In that case, raising capital is much easier since both companies entering into a joint venture contribute equally. Also, in case of loss occurs, both companies share equally and therefore, one company does not shoulder the burden of running the acquired company alone.
However, there are still some disadvantages of the same — the size of the organization in a joint venture results in several disadvantages.
For instance, in most cases, it is difficult to control and make important business decisions based on the fact the two companies take part in management (Carbaugh pp. 117). Therefore, there are many conflicts in a joint venture that may interfere with business activities.
In a wholly owned subsidiary, the organization or parent company reaps the benefit of being in full control of the acquired business entity. Therefore, there is usually less conflict especially involved in making important business decisions which do not only make the process faster but also easier.
Nevertheless, the main disadvantage involves risks such that the parent company bears all the losses and the risks that may be incurred while running the new business entity.
Similarly, there is no shared responsibility of raising the initial capital unlike the case of a joint venture (Hill and Jones pp. 270)
Although the above-discussed entry modes have got specific advantages and disadvantages, a wholly owned subsidiary seems to be more superior while compared to the joint venture.
While planning to engage in a wholly owned subsidiary, the parent company is not required to participate in many preparation activities like it is the case with joint venture activities. Studies of Hill and Jones (pp. 270) affirm that a wholly owned venture does not require much preparation.
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Apart from that, the investment gives a chance to the parent organization to execute the plan of keeping away competitors. There is no fear of competitors since more of often than not, in a joint venture, the two companies involved are usually competitors.
In conclusion, it is important to point out that there are merits and demerits of different modes of business entry. In this case, the main focus was between a joint venture and wholly owned subsidiary.
Although there are advantages of a joint business venture, a wholly owned subsidiary has proved to be more superior based on the initial entry plan which is aimed at keeping away any potential competitors in the chosen country.
Although there is an increased burden of financing the venture in a wholly owned subsidiary, the risks involved are incomparable with the expected benefits.
Carbaugh, Robert J. International Economics. Stamford : Cengage Learning, 2008.
Hill, Charles and Gareth Jones. Strategic Management Theory: An Integrated Approach. Stamford: Cengage Learning , 2009.