This way of complete control can also reduce the opportunities for other competitors to gain the competitive advantage of the company, especially when the company takes technology as its competitive advantage, which is particularly important. In addition, the manager can maintain complete control over the output and price of the subsidiary. Different from authorization and franchising, all profits created by subsidiaries must also be handed over to the parent company.
From the perspective of global strategy, companies can regard each country's market as a part of the interconnected global market. Therefore, having complete control over wholly-owned subsidiaries is more attractive to company managers who pursue global strategy.
The wholly-owned subsidiary also has two important defects:
First, this method may cost a lot of money, and companies must raise funds internally or in the financial market to obtain funds. However, for small and medium-sized enterprises, it is often difficult to obtain sufficient funds. Generally speaking, only large enterprises have the ability to establish international wholly-owned subsidiaries. However, citizens of a country who have settled overseas may find that their unique knowledge and ability are their important advantages (international subsidiaries established overseas are in great need of such talents).
Second, because the establishment of a wholly-owned subsidiary needs to occupy a lot of resources of the company, the risks faced by the company may be high. One of the sources of risk is the political or social uncertainty or instability of the target market. This kind of risk may threaten the company's material property and personal safety when it is serious. The owner of a wholly-owned subsidiary may also bear all the risks brought by consumers refusing to buy the company's products. Of course, as long as we fully understand the consumers in the target market before entering the target market, the parent company can reduce this risk.
A wholly-owned subsidiary refers to a company that has only one corporate shareholders and is wholly owned or controlled by the only parent company. The parent company can set up a wholly-owned subsidiary in two ways: the first is to set up a new company from scratch and build brand-new production equipment (such as factory buildings, offices and machinery and equipment). ); The second is to buy existing companies and use the company's equipment for their own use. Whether to set up an international subsidiary through acquisition or new construction depends largely on the business activities planned by the parent company.