Advantages And Disadvantages Of Jvc Versus Wholly Owned Management Essay

When companies go into the international market, they are facing an essential decision-making. That is they enter the mark market in which appropriate entrance model. There are many entry modes to enter into the international market. Two of these were reviewed in the survey: international Joint Venture Companies (JVCs) and wholly-owned subsidiaries. In light of the affect of the WTO with respect to relaxation of restrictions on foreign possession across many establishments in countries such as China and India, anecdotal information shows that many companies are now choosing to set-up wholly-owned subsidiaries rather than international JV Companies. Reasons they choose wholly-owned subsidiaries were analyzed in the statement. Disney Paris was considered as the situation and the failed joint venture case implies that it is a key issue for companies to choose appropriate entry mode to target country when they choose the prospective market. Benefits and drawbacks of the JVC versus the wholly-owned subsidiary were examined in a number of aspects. Inside a wholly managed subsidiary, senior managers almost have the same social background and social differences and ethnic issues could be prevented in general management, while this cultural differences and ethnical conflicts has been there at the time in JVCs. wholly owned or operated subsidiaries have higher control right than JVCs plus they can protect commercial secrets to avoid shedding to the partner and competitors. They put higher investment and get higher comes back than JVCs. While weighed against JVCs, wholly-owned subsidiaries have some disadvantages in operational dangers, higher opportunity cost, relatively large political risk and disadvantage of leave. Wholly-owned subsidiaries have higher functional hazards than JVCs anticipated to uncertain factors in operation and higher opportunity cost because they develop new sales channels and advertising programs to use effectively under the number environment. Political risk is higher as they depend on the variety country's politics environment and political stability. Wholly-owned subsidiaries could exit the variety country difficultly because the entire investment while JVCs are simpler to end. Increasingly more companies decide on a wholly-owned subsidiary as a few reasons reviewed above. They desire get appropriate acknowledgement and support from the variety country, at the time get larger revenue.

2. 0 Theory and admittance mode

Entering the international market is a business participates in global market competition and international business development with capital, products, technology, services and insurance policy. Market heterogeneity induces a positive correlation between businesses' decisions that can be spuriously confounded with positive strategic connections. (Victor, Mira, Roman, 2007, p. 449). Enterprises should elect the appropriate entry mode in understanding various factors. The factors are including company's strategy, international experience, and inherent technology, economies of scale, culture, pricing, campaign, investment costs, market size and market expansion, politics and legal, risk and so on. It could be seen in number 1.

Figure 1 the Factors of selecting accessibility mode

Political & Legal

Economic

Marketing

Research

Competitive Analysis

Promotions

Logistics and

Distribution

Products &

Services

Pricing

Culture

Market Access Strategy

Organising/

Restructuring

Disney exposed the Euro Disney theme park in Paris, France, selecting the joint venture companies with the investment of just one 1. 8 billion U. S. dollars, and 49% of total stocks. Which the collateral brought about was a considerable control on management and operation. The operating results of Disneyland Paris are not satisfactory so far.

The range of vacationers in Paris was lower than expected through the first yr and the per capita spending was below the expected level. Each one of these made operating damage reach 900 million U. S. dollars of the Paris theme area, compelled the closure of a Paris playground hotel, and fired 950 employees. The failed jv case shows that it is a key issue for companies to choose appropriate entry mode to focus on country when they choose the prospective market. The purpose of selecting entry mode was to going into the market as fast as possible also to obtain benefit from the existing market talk about of the neighborhood company. ( Estrin et al. , 1997, p. 136). Enterprises should elect the appropriate entry method in understanding various factors. The factors are including Unified strategic activities, international experience, and Exit barriers, economies of scale, culture, Control right, Earnings received, Trade Secrets, market size and market expansion, Limited market size, risk and so forth.

2. 1 International JV Companies

The jv enterprise refers to joint investment, management and stocks options and a total risk. The Jv partners may take advantage of a mature marketing network and they're easily accepted by the coordinator country because of the participation of local enterprises.

2. 2 Wholly-owned subsidiaries

An enterprise immediately invested to create wholly-owned subsidiary far away. They can use a variety of forms such as brand, hallmark, trademarked technology and other investment.

3. 0 Known reasons for wholly-owned subsidiaries

When an organization enters the international market, they don't know whether the selected entry mode is the perfect. They make decision and choose an entry function corresponding to various factors. Increasingly more companies now select wholly-owned subsidiaries when they enter in the mark country. For example, company with interior money, or low leverage, will choose wholly-owned subsidiaries while they have to raise investment. (Klaus Meyer & Saul Estrin, 1998. p. 9). There are several reasons: firstly, technical content and differentiation in their products are so high. Once other companies master technology, they would lose their competitive advantages. So they choose wholly-owned subsidiaries to avoid these assets and technology used and obtained by opponents. Subsequently, products are difficult to imitate by competitors. They can not b e changed, therefore the company will not regard to market talk about when they plan to enter the prospective countries. Thirdly, their products are scarce in goal countries, and they are easily accepted and applied properly after they enter in. they do not need to count on local sales stations and political relationships. On the other hand, wholly-owned subsidiary is preferable to joint venture. Firstly, setting-up wholly-owned subsidiaries can help companies preserve more easily technology and knowledge to increase corporate and business brand value. Secondly, setting-up wholly-owned subsidiaries can build good mechanisms for operational control, handling disputes and optimizing resources to improve the marketing control. For instance, American and Japanese production companies, financial services companies and tourism companies set up wholly-owned subsidiaries can assist in Australia. If they decided Australia as the prospective country, they analyzed all sorts of factors, and finally they took full advantages in the service and quality, the initial brand and hallmark, to determine wholly-owned subsidiaries. The subsidiary gets the same business model and service methods with parent company.

Relative benefits and drawbacks of the JVC versus the wholly-owned subsidiary

When companies go into the international market, they are really facing an essential decision-making. That's they enter the mark market where appropriate accessibility model. The following will discuss and review advantages and cons of two settings.

Table 1 advantages and disadvantages of the JVC versus wholly-owned subsidiary

Wholly-owned subsidiaries

JVCs

Control right

High

Low

Trade Secrets

Remain

Known by others

Unified proper actions

High

Low

Profits received

High

Low

Risk

High

low

Resources Cost

High

Low

Cultural Differences

High

Low

Limited market size

High

Low

Exit barriers

High

low

4. 0 Advantages and disadvantages of the JVC versus the wholly-owned subsidiary

4. 1 Benefits of the JVC versus the wholly-owned subsidiary

4. 1. 1 Cultural Differences

Social and social factors have a very important influence on international market entry mode, which is mainly on the ethnic differences between the home country and number country. The cultural value design may strengthen the relative need for one of these values in the other one. (Piotr, Agnieszka & Krystyna, 2008, p. 227). The social variations are from words, worth, life and work habits, management and business design. If the social differences are clear, the house country must spend more to adjust to cultural distance.

In a wholly held subsidiary, all senior managers result from the house country. They have the same ethnic track record and the same management idea, the same way of pondering and behavior patterns. When they consider the tactical objectives and tactical pursuits, they take the parent or guardian company's strategic goals and long-term way as goals. So social differences and cultural conflicts could be prevented in general management.

While in the jv company, managers and employees result from different countries with different social backgrounds, they have got different principles, different management attitudes and different functional practices. Unavoidable conflict happens so long as they interact. The stronger spouse usually signifies their economic accomplishments, so at guidelines, which are suggested by globalization and which would become an assumption not limited to development of common market, also for requirements of appropriate cultural behavior that would be suitable for staff of all civilizations. (Hofstede, G. 2001). Which cultural differences and cultural issues has been between lovers from the beginning of jv, discussing co-operation, deciding to cooperate, building joint ventures to co-management and co -procedure.

4. 1. 2 Control right

Parent company participates in the management and decision-making, based on the Articles of Relationship, because they are the controlling shareholder of wholly-owned subsidiaries. All of these companies would reap the benefits of a framework for decision making to ascertain if entry into this market is simple for them. (Dennis & Chwen, 2002, p. 332). The principal leaders are appointed by the parent or guardian company, and their appointment, evaluation, rewards and punishments are done by parent or guardian company. Alternatively, the father or mother company should control the business development plan, the orientation of investment and management activities, as the wholly-owned subsidiaries should formulate or revise their own development strategies and recent planning under the direction of parent company. On the 3rd, the mother or father company should supervise operating conditions and property quality in order to security, value-added and earnings of invested property. At exactly the same time, wholly-owned subsidiaries should article the financial condition and ensure the authenticity and precision of the provided information of the creation, management and financial functions.

The company can allow the common control when they choose the entry mode of Joint projects, and they will find the right spouse and selecting lower possession. Joint projects companies cannot control the business because they're in minority collateral position. They cannot control the management and procedure, and they cannot control the production's sales and t infringement of copyright and paten. It really is difficult to find a reasonable partner who is fully meet the conditions. On the other hand, limited resources could not be utilized rationally because of contention for control right. Having less resources are brought on scattered resources and new contention for resources started, over and over, leading to a vicious pattern. Finally, they lost their main competitiveness. This may cause instability of the jv, which ultimately lead to instability of the dissolution of the joint venture.

JVCs

Wholly-owned subsidiaries

High control right High stockholding

Low control right Low stockholding

Table 2 the control right and stockholding

4. 1. 3 Safeguard of commercial secrets

Wholly-owned subsidiary have large benefit in trademarks, and other technology to avoid meddle in its technological and business secrets, protection of basic monopoly position. Running a business of wholly held subsidiary can be considered a simple assemblage or complex manufacturing activities, and they have total control-right. The business could completely control the complete management and sales, creation and campaign. They could separately dispose profits, plus they can protect technology and commercial secrets.

For the jv company, the neighborhood partner's contributions tend to be the local knowledge, local government relations, market talk about, sales organizations and customer groupings, which will be the knowledge and knowledge of environmental conditions, while foreign partner's contributions are usually including technology, management and international support. For example, Australian companies established joints opportunity with China or India, they increased business investment, as well as provided a number of high value-added products and solutions. Therefore, it's possible that technical secrets and commercial secrets are lost to the spouse, and develop into the competition.

4. 1. 4 Higher returns

In the permanent strategic objectives, parent companies pursue to maximize the total value of international market, and they speed up the penetration plus more control to place effectively wholly-owned subsidiaries into global system. Establishing wholly-owned subsidiaries could get a full come back as the increasing experience overseas, totally using company's capabilities and cultivating international competitive gain. A firm's come back on capital is increasing its industry's point out of demand, so that it can takes good thing about favorable monetary conditions. ( Jose M. Pleth-Dujowich, 2008, p. 2). Wholly-owned subsidiaries could bring in more complex technology and equipment and management methods to produce highly competitive products. And parent companies modify business strategy according to business activities to get the overall obtain the most. In addition, the gains and other respectable rights and interests which foreign buyers obtained after investment in the variety country are secured by the laws of the coordinator. The legitimate revenue and other lawful income can be remitted back again to the home countries. On the other hand, wholly-owned subsidiaries may enjoy taxes reduction or exemption preferential treatment relative to the procedures of the web host country tax earnings.

Relatively speaking, Joint venture companies put lower investment, and for that reason, they get back low control right and lower go back. The home countries are mainly investment of technology and capital, as well as the training on creation and management of local staff to get successful transformation on technology and knowledge. Jv companies must maintain "win-win" state. That means the return of every joint venture partner is larger and enough, if they're in "win-win" status to be able to work hard for the next success. If a company's come back is not in the win-win status, which shows one investment is inability and maybe the two investments are failure. the jv partners cannot accept the tactical mistake plus they should restructure or give up the joint venture. The low risk means lower income for the joint venture companies, particularly when productions of an jv company are for export, the earnings of return will not be very high and even less.

4. 2 Negatives of the JVC versus the wholly-owned subsidiary

4. 2. 1 Operational risks

Wholly-owned subsidiaries have higher operational hazards than JVCs anticipated to uncertain factors in operation. There are some problems in the management of wholly-owned subsidiaries, such as imperfect governance composition, inadequate organizational composition, and inappropriate workers selection. All these problems could cause incorrect decisions, collusion, and low efficiency. On the one hand, subsidiaries involved in related trades or matters beyond approval authority or the range of business, which can bring about investment failures, litigation and loss of assets. On the other hand, the elected directors, professionals and chief accountants and other older managers cannot plenipotentiary the father or mother company and they didn't make strategies and consider the pursuits from the perspective of the father or mother company, and these would lead to incorrect formulation and implementation of accounting methods and inaccurate information on the consolidated financial claims. The inaccurate information and methods would draw out high risk on traders, and the company and traders would make decision-making flaws and face to legal proceedings and other aspects of risks.

The joint venture company has generally no problems above. On the main one hand, the home country needs to learn and adapt to local environmental conditions to better understand the host country's economic, politics, social, ethnical, etc. , so as to help buyers make the right decisions. They can absorb lovers' business management skills, experienced business and promotion route to changes in demand and market show. Nippa1, Beechler and Klossek (2007) examined IJV success to find IJV respect to the overseas parent-local father or mother 'fit" in. On the other hand, every decision-making have to be recognized by both home and variety country managers. Once one spouse that the other one harms the interests of the jv resulting in damage to the company, they would make suggestions to panel of directors in order to boost co-operation. The two sides are fighting for the increasing interests to avoid functional risks.

4. 2. 2 Higher opportunity cost

Wholly possessed company needs to develop their own knowledge and capacity, develop new sales channels and advertising stations to operate effectively under the host environment. For instance, sales associates need to look for good advertisers, and talk to the advertising and coordination. Locating a good advertiser needs money and time, because promoters are suppliers of goods and services who are thinking about providing their products to customers and post advertisements on the advertising support. (Claude, Carole & Bruno, 2009, p. 5). Therefore the home country needs to go through best efforts to develop new business, and achieve the certain level in the strategic mode of an wholly had subsidiary. They have to cross a long-term cultivation to get new business skills and required knowledge, so there's a higher opportunity cost.

Joint venture company has low opportunity cost. They are able to more easily gain access to the neighborhood market knowledge, understanding opponents and the neighborhood government insurance plan from the partners. Companies develop network connections with important customers, suppliers that the local business associates possessed through mutual commitments and learning. (Lee, Jun and Johanson, 2006, p. 62). The Jv partners can take advantage of an adult marketing network, branding, economical relations, political position, consumer choices, etc. and they are easily accepted by the web host country as a result of contribution of local businesses.

4. 2. 3 High suggestions costs and high risk

Establishing wholly-owned subsidiary, the parent or guardian company would face new difficulties in strategic planning, online marketing strategy, organizational design, and resource allocation, especially in financial management and inside control and other aspects. The mother or father company invests greatly on capital and resources for wholly-owned subsidiary, because the mother or father company pays the total investment in the host country, so that it is extremely high-risk. The wholly-owned subsidiary has more afflicted by environmental uncertainties and better risk. All of the capital investment brings about difficult changes in the administrative centre, and further ends in investments sunk costs. The entire amount of capital investment and sunk costs would limit the proper flexibility and boost the investment risk. At the meantime, large-scale investment of resources will lead to high switching costs, which in turn generates a high risk. So the higher control right, the more capital investment and the higher risk. However the web host countries like wholly-owned subsidiaries, because they would like to attract international investment without their own capital, and they increases tax revenues without the business risk.

There is smaller capital and individual capital investment for joint venture companies, and relatively speaking, the risk is lower. Risks should be taken to getting into international market. Most companies made a decision to establish jv with the neighborhood business, because they want to reduce the threat of entering new markets. So they are looking for jv companions who are operating related product lines and also have a good understanding of local marketplaces. The foreign parent or guardian and the neighborhood company blended their resources to be able to create competitive advantages and create dominating in marke. (Builder and Lorange, 2002). First of all the foreign associates started the co-operation from simple sales and marketing procedures to a further risk reduction procedures. Subsequently, they can increase product sales. Finally, the foreign partners can improve or re-design products to be able to better adapt to the neighborhood market and make large-scale investment.

4. 2. 4 Relatively large political risk

The establishment of your wholly possessed subsidiary has very stringent requirements for the variety country's political environment and politics stability. The parent company can create wholly possessed subsidiary when the prospective country is under the problem of political balance, appear legal system, liberal investment policies, and exchange rate stability. In addition, the profits and other authentic rights and pursuits which foreign traders obtained after investment in the variety country are protected by the laws of the host. The legitimate earnings and other lawful income can be remitted back again to the home countries. On the contrary, the wholly possessed subsidiary would be significant losses if the web host country has political instability and investment plans and investment environment get some changes, which might lead to the dissolution of wholly had subsidiary.

Joint endeavor companies get reinforced by the coordinator governments. For the number countries, on the one hand, Jv companies may bring a number of high value-added products and technologies, and new management style. On the other hand, the local companies provide local government relations, market show, sales organizations and customer categories, and they cannot lost their control right and equity. While for the house countries, JVCs can decrease the risk of operation and politics in several countries, parts and business. They could get the support and co-operation on the duty barriers and preferential plans.

4. 2. 5 Disadvantage of exit

For the wholly had subsidiary, the mother or father company must tolerate all the resources and costs, including costs of recruiting, work, labor costs, the investment of tech support team, sales route development and advertising costs etc. They have high switching costs. Serious losses would be resulted in if they exit the target countries for some reason. For example, politics situation of the variety country has undergone drastic changes, and the wholly had subsidiary cannot maintain their normal production and operation, so the parent company was required to close wholly owned or operated subsidiary. The father or mother company may well not fully restore the investment cost before they exit the number country, without point out profit. So it is very clear disadvantage of leave.

The joint venture companies are easier to end. JVCs moved into the sponsor country with less expensive of investment plus some were into aim for country only with technology. They could end romance of co-operation and exit focus on country when politics environment modified and monetary deterioration was serious. Plus they end the partnership with lower cost. On the other hand, they can terminate the contracts when market conditions or the business itself have also changed with cheap or cost

5. 0 Conclusion

Entering the international market is a business participates in global market competition and international business development with capital, products, systems, services and plan. The home countries should pick the best entry function for the international strategy plus they should clear their own targets firstly to choose entrance mode. Entry mode provides information about the consequences of enter international relating shifts in market demand to changes in the equilibrium amount of companies. (Timothy and Peter, 2008, p. 978). Two of these were talked about in the article: international JV Companies (JVCs) and wholly-owned subsidiaries. Different accessibility setting means different control right. Companies should elect the appropriate entry function in understanding various factors. The factors are including Unified strategic actions, international experience, and Leave obstacles, economies of level, culture, Control right, Profits received, Trade Secrets, market size and market growth, Limited market size, risk and so on. Weighed against JVCs, wholly-owned subsidiaries has advantages in cultural dissimilarities, control right, safeguard of commercial secrets and higher comes back. On the other hand, wholly-owned subsidiaries have some drawbacks versus JVCs.

In the permanent strategic objectives, parent companies pursue to maximize the full total value of overseas market, plus they speed up the penetration and even more control to place effectively wholly-owned subsidiaries into global system. While, for the jv, the local jv partner's contributions are local knowledge, local government relations, market show, sales and customer organizations because they have well-known about the neighborhood market, culture and knowledge and the understanding of economical environment. The foreign partner invested in technology, management and international support. This mixture can reduce opportunity cost and transitioning costs to possess clear business and advertising objectives and succeed the market share. However, there is absolutely no general optimal entry mode when companies go into the international market, because the international economical environment is perplexing and politics environment is intricate. The parent or guardian companies should choose the reasonable entry function according to their own resources and proper objectives and tactical policy.

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