Creating a Wholly Owned Subsidiary

Creating a Wholly Owned Subsidiary

A wholly owned subsidiary is a business operation in a foreign country that a firm fully owns. A firm can develop a wholly owned subsidiary through a greenfield venture, meaning that the firm creates the entire operation itself. Another possibility is purchasing an existing operation from a local company or another foreign operator.

Regardless of whether a firm builds a wholly owned subsidiary “from scratch” or acquires an existing operation, having a wholly owned subsidiary can be attractive because the firm maintains complete control over the operation and gets to keep all of the profits that the operation makes. A wholly owned subsidiary can be quite risky, however, because the firm must pay all of the expenses required to set it up and operate it. Kia, for example, spent $1 billion to build its US factory. Many firms are reluctant to spend such sums in more volatile countries because they fear that they may never recoup their investments.

233 Mastering Strategic Management


Table 7.12 Franchising: A Leading American Export Franchising is a popular way for firms to grow internationally. Below we provide examples of US-based

franchises that are successful worldwide.

In many Asian countries, McDonald’s franchises offer side dishes such as rice alongside its signature French fries.

If you grow tired of strudel while in Germany, remember that Dunkin’ Donuts has over 2,500 stores in 30 countries outside of the United States.

Legend says that the first sandwich was created when John Montagu, the fourth Earl of Sandwich, ordered meat tucked between bread so he could play cards and eat at the same time. The sandwich remains popular in Europe, where Subway boasts over one thousand franchised restaurants.


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