Advantages And Disadvantages Of Jvc Versus Wholly Owned Management Essay

Advantages And Dis receiptss Of Jvc Versus Wholly Owned concern EssayWhen companies unload the multinational foodstuff, they argon facing a real central closing-making. That is they enter the marking commercialise in which eliminate entree meansl. There ar several launching panaches to enter the planetary foodstuff. twain of them were discussed in the report external give voice chance Companies (JVCs) and alone told- proclaim subsidiaries. In airheaded of the influence of the WTO with respect to relaxation of restrictions on overseas avowership across many industries in countries such(prenominal) as China and India, anecdotal evidence suggests that many companies ar now opting to set-up totally- possess subsidiaries rather than international Joint Venture Companies. Reasons they strike wholly- have subsidiaries were analyzed in the report. Disney genus genus Paris was taken as the case and the failed stick endanger case shows that it is a key field for companies to select appropriate ledger entry humour to tar travel land when they tell apart the target groceryplace. Advantages and dis prefers of the JVC versus the wholly-owned secondary were analyzed in several aspects. In a wholly owned infantryman, senior managers almost take for the same ethnical primer coat and heathen differences and cultural conflicts could be rid ofed in focussing, eyepatch this cultural differences and cultural conflicts has been there at the time in JVCs. wholly owned subsidiaries puzzle high(prenominal) accountant proper(a) than JVCs and they spate hold dear commercial secrets in order to avoid losing to the coadjutor and competitors. They put higher enthronization and get higher parrys than JVCs. go comp atomic number 18d with JVCs, wholly-owned subsidiaries have or so harms in operational trys, higher luck greet, relatively large political luck and disadvantage of exit. Wholly-owned subsidiaries have higher operationa l chances than JVCs due to un legitimate factors in operation and higher opportunity cost be build they stimulate bran-new sales take and publicizing credit lines to operate effectively under the waiter purlieu. Political take chances is higher as they depend on the host body politics political environs and political stability. Wholly-owned subsidiaries could exit the host realm difficultly because the full investiture funds age JVCs be easier to end. More and much companies select a wholly-owned hyponym as a few reasons discussed above. They hope get appropriate recognition and stomach from the host country, at the time get larger profit.2.0 Theory and entry modeEntering the international market is that a headache participates in global market competition and international business development with outstanding, products, technologies, operate and policy. food market heterogeneity induces a positive correlation between firms decisions that elicit be spuriously confounded with positive strategic interactions. (Victor, Mira, Roman, 2007, p.449). Enterprises should elect the appropriate entry mode in understand various factors. The factors ar including caller-outs strategy, international induce, and inherent technology, economies of scale, grow, pricing, promotion, coronation costs, market size of it and market growth, political and legal, risk and so on. It quite a little be seen in figure 1.Figure 1 the Factors of selecting entry modePolitical LegalEconomicMarketing questionCompetitive AnalysisPromotionsLogistics andDistri only ifionProducts ServicesPricingCultureMarket Entry StrategyOrganising/RestructuringDisney opened the Euro Disney theme pose in Paris, France, selecting the enounce venture companies with the investment funds of 1.8 billion U.S. dollars, and 49% of total shares. Which the equity brought slightly was a considerable suppress on counseling and operation. The operating results of Disneyland Paris are non sa tisfactory so far.The issuance of tourists in Paris was much outseter than expected during the first year and the per capita casting was infra the expected level. every last(predicate) these made operating blemish reach 900 gazillion U.S. dollars of the Paris theme park, forced the closure of a Paris park hotel, and fired 950 employees. The failed interchangeable venture case shows that it is a key issue for companies to select appropriate entry mode to target country when they choose the target market. The motive of selecting entry mode was to get into the market as fast as possible and to obtain benefit from the existing market share of the topical anesthetic firm.( Estrin et al.,1997, p.136). Enterprises should elect the appropriate entry mode in understanding various factors. The factors are including Unified strategic actions, international experience, and electric receptacle barriers, economies of scale, culture, Control right, Profits agreeed, Trade Secrets, mark et size and market growth, curb market size, risk and so on.2.1 International Joint Venture CompaniesThe go venture enterprise refers to joint investment, care and shares options and a total risk. The Joint venture partners cigaret take advantage of a mature merchandising ne 2rk and they are easily accepted by the host country because of the participation of topical anesthetic anaesthetic enterprises.2.2 Wholly-owned subsidiariesAn enterprise directly invested to set up wholly-owned hyponym in disparate countries. They place use a variety of forms such as brand, trademark, patented technology and most other investment.3.0 Reasons for wholly-owned subsidiariesWhen a community enters the international market, they do not know whether the selected entry mode is the optimal. They take up decision and select an entry mode jibe to various factors. More and more than than companies now select wholly-owned subsidiaries when they enter the target country. For example, clu b with internal funds, or low leverage, are more likely to choose wholly-owned subsidiaries while they collect to raise investment. (Klaus Meyer Saul Estrin, 1998. p.9). There are several reasons firstly, technological capacitance and differentiation in their products are so high. erstwhile other companies captain technology, they would lose their competitive advantages. So they select wholly-owned subsidiaries in order to avoid these assets and technology used and obtained by competitors. Secondly, products are difficult to imitate by competitors. They puke not b e replaced, so the caller does not regard to market share when they plan to enter the target countries. Thirdly, their products are scarce in target countries, and they are easily accepted and employ properly once they enter in. they do not need to depone on local sales channels and political relations. On the other hand, wholly-owned appurtenant is better than joint venture. firstly, setting-up wholly-owned su bsidiaries can help companies retain more easily technology and knowledge to increase corporate brand honor. Secondly, setting-up wholly-owned subsidiaries can establish good mechanisms for operational manage, handling disputes and optimizing imagings to enhance the marketing control. For example, American and Japanese manufacturing companies, financial services companies and tourism companies set up wholly-owned subsidiaries can help in Australia. When they chose Australia as the target country, they analyzed all kinds of factors, and ultimately they took full advantages in the service and quality, the original brand and trademark, to establish wholly-owned subsidiaries. The hyponym has the same business model and service methods with parent troupe.Relative advantages and disadvantages of the JVC versus the wholly-owned subsidiaryWhen companies enter the international market, they are facing a very of the essence(p) decision-making. That is they enter the target market in wh ich appropriate entry model. The sideline will discuss and analyze the advantages and disadvantages of two modes.Table 1 advantages and disadvantages of the JVC versus wholly-owned subsidiaryWholly-owned subsidiariesJVCsControl right proudLowTrade SecretsRemainknow by othersUnified strategic actionsHighLowProfits receivedHighLowRiskHighlowResources CostHighLowCultural DifferencesHighLowLimited market sizeHighLowExit barriersHighlow4.0 Advantages and disadvantages of the JVC versus the wholly-owned subsidiary4.1 Advantages of the JVC versus the wholly-owned subsidiary4.1.1 Cultural DifferencesSocial and cultural factors have a very important effect on international market entry mode, and it is mainly on the cultural differences between the home country and host country. The cultural value pattern may strengthen the relative importance of one of these value over the other one. (Piotr, Agnieszka Krystyna, 2008, p.227). The cultural differences are from language, values, life and wor k patterns, solicitude and business model. If the cultural differences are obvious, the home country need to spend more to adapt to cultural distance.In a wholly owned subsidiary, all senior managers come from the home country. They have the same cultural background and the same worry philosophy, the same way of thinking and carriage patterns. When they consider the strategic objectives and strategic interests, they take the parent bon tons strategic objectives and semipermanent direction as goals. So cultural differences and cultural conflicts could be avoided in management.While in the joint venture company, managers and employees come from different countries with different cultural backgrounds, they have different values, different management attitudes and different operational practices. Unavoidable conflict happens as long as they work together. The stronger partner usually represents their economic achievements, so at rules, which are proposed by globalisation and which would become an assumption not only for development of universal market, but also for standards of appropriate cultural behavior that would be suitable for representatives of all cultures. (Hofstede, G. 2001).And this cultural differences and cultural conflicts has been between partners from the beginning of joint venture, discussing cooperation, deciding to cooperate, establishing joint ventures to co-management and co -operation.4.1.2 Control rightParent company participates in the management and decision-making, according to the Articles of Association, because they are the controlling shareholder of wholly-owned subsidiaries. All of these companies would benefit from a framework for decision making to determine if entry into this market is viable for them. (Dennis Chwen, 2002, p.332).The principal leaders are appointed by the parent company, and their appointment, assessment, rewards and punishments are done by parent company. On the other hand, the parent company should regu late the business development plan, the orientation of investment and management activities, while the wholly-owned subsidiaries should formulate or revise their own development strategies and recent supplying under the guidance of parent company. On the third, the parent company should monitor operating conditions and asset quality in order to security, value-added and profit of invested assets. At the same time, wholly-owned subsidiaries should report the financial condition and ensure the authenticity and truth of the provided learning of the merchandise, management and financial operations.The company can accept the viridity control when they select the entry mode of Joint ventures, and they will pose the right partner and selecting pull down ownership. Joint ventures companies could not control the company because they are in minority equity position. They could not control the management and operation, and they could not control the productions sales and t infringement of copyright and paten. It is enceinte to find a reasonable partner who is fully meet the conditions. On the other hand, restrictioned resources could not be used rationally because of strife for control right. The lack of resources are caused scattered resources and new contention for resources started, again and again, leading to a vicious cycle. Finally, they lost their core competitiveness. This will cause instability of the joint venture, which ultimately lead to instability of the dissolution of the joint venture.JVCsWholly-owned subsidiariesHigh control right High stockholdingLow control right Low stockholdingTable 2 the control right and stockholding4.1.3 Protection of commercial secretsWholly-owned subsidiary have large advantage in trademarks, and other technology to prevent meddle in its technical and business secrets, protection of basic monopoly position. Running a business of wholly owned subsidiary can be a simple lying or complex manufacturing activities, and t hey have total control-right. The company could completely control the entire management and sales, production and promotion. They could independently dispose profits, and they can protect technology and commercial secrets.For the joint venture company, the local partners contributions are frequently the local knowledge, local government relations, market share, sales organizations and customer groups, which are the knowledge and understanding of environmental conditions, while contrasted partners contributions are typically including technology, management and international support. For example, Australian companies established joints venture with China or India, they increased business investment, as well as provided a number of high value-added products and technologies. Therefore, it is possible that technical secrets and commercial secrets are lost to the partner, and develop into the competitors.4.1.4 Higher returnsIn the long term strategic objectives, parent companies tr ack to increase the total value of international market, and they speed up the shrewdness and more control to put effectively wholly-owned subsidiaries into global system. Setting up wholly-owned subsidiaries could get a full return as the increasing experience overseas, fully using companys abilities and cultivating international competitive advantage. A firms return on detonator is increasing its industrys state of demand, so it can takes advantage of halcyon economic conditions.( Jose M. Pleth-Dujowich, 2008, p.2). Wholly-owned subsidiaries could introduce more advanced technology and equipment and management methods to affirm highly competitive products. And parent companies adjust business strategy according to business activities to obtain the overall maximum benefit. In addition, the profits and other legitimate rights and interests which foreign investors obtained after investment in the host country are defend by the laws of the host. The legitimate profit and other straight income can be remitted back to the home countries. On the other hand, wholly-owned subsidiaries may enjoy tax reduction or exemption preferential treatment in accordance with the provisions of the host country tax revenue.comparatively speaking, Joint venture companies put lower investment, and therefore, they get back low control right and lower return. The home countries are mainly investment of technology and capital, as well as the training on production and management of local staff to get successful conversion on technology and knowledge. Joint venture companies must be in win-win state. That substance the return of each joint venture partner is larger and enough, if they are in win-win state so as to work hard for the beside success. If a companys return is not in the win-win state, which shows one investment is reverse and maybe the two investments are failure. the joint venture partners could not accept the strategic mistake and they should restructure or aban don the joint venture. The lower risk means lower profit for the joint venture companies, especially when productions of a joint venture company are for export, the profit of return will not be very high and even less.4.2 disfavours of the JVC versus the wholly-owned subsidiary4.2.1 Operational risksWholly-owned subsidiaries have higher operational risks than JVCs due to uncertain factors in operation. There are some problems in the management of wholly-owned subsidiaries, such as imperfect governance structure, inadequate organizational structure, and inappropriate personnel selection. All these problems could cause wrong decisions, collusion, and low efficiency. On the one hand, subsidiaries engaged in related transactions or matters beyond approval authority or the scope of business, which might result in investment failures, litigation and loss of assets. On the other hand, the elected directors, managers and chief accountants and other senior managers can not plenipotentiary t he parent company and they did not make strategies and consider the interests from the situation of the parent company, and these would result in incorrect formulation and implementation of invoice methods and inaccurate information on the consolidated financial statements. The inaccurate information and methods would bring out high risk on investors, and the company and investors would make decision-making mistakes and face to legal proceedings and other aspects of risks.The joint venture company has generally no problems above. On the one hand, the home country require to learn and adapt to local environmental conditions to better understand the host countrys economic, political, social, cultural, etc., so as to help investors make the right decisions. They can bring in partners business management skills, experienced business and promotion channel to changes in demand and market share. Nippa1, Beechler and Klossek (2007) studied IJV success to find IJV regard to the foreign p arent-local parent fit in. On the other hand, every decision-making need to be recognized by both home and host country managers. Once one partner that the other one harms the interests of the joint venture resulting in damage to the company, they would make recommendations to board of directors in order to improve co-operation. The two sides are fighting for the maximizing interests to avoid operational risks.4.2.2 Higher opportunity costWholly owned company needs to develop their own knowledge and capacity, develop new sales channels and advertising channels to operate effectively under the host environment. For example, sales representatives need to face for good admans, and communicate with the advertising and coordination. Finding a good advertiser needs time and money, because advertisers are producers of goods and services who are interested in selling their products to customers and post ads on the media support. (Claude, Carole Bruno,2009, p.5). So the home country needs to go through best efforts to develop new business, and achieve the certain level in the strategic mode of a wholly owned subsidiary. They have to pass a long-term cultivation to get new business skills and required knowledge, so there is a higher opportunity cost.Joint venture company has low opportunity cost. They can more easily access the local market knowledge, understanding competitors and the local government policy from the partners. Companies develop network familys with important customers, suppliers that the local business partners feature through mutual commitments and learning.(Lee, Jun and Johanson, 2006,p.62). The Joint venture partners can take advantage of a mature marketing network, branding, economic relations, political status, consumer preferences, etc. and they are easily accepted by the host country because of the participation of local enterprises.4.2.3 High input costs and high riskEstablishing wholly-owned subsidiary, the parent company would face new cha llenges in strategic planning, marketing strategy, organizational design, and resource allocation, especially in financial management and internal control and other aspects. The parent company invests greatly on capital and resources for wholly-owned subsidiary, because the parent company pays the total investment in the host country, so it is extremely risky. The wholly-owned subsidiary has more affected by environmental uncertainties and greater risk. All the capital investment results in difficult changes in the capital, and raise results in assets sink costs. The full amount of capital investment and sunk costs would limit the strategic flexibility and increase the investment risk. At the meantime, large-scale investment of resources will lead to high reverse costs, which in turn generates a high risk. So the higher control right, the more capital investment and the higher risk. But the host countries like wholly-owned subsidiaries, because they want to attract foreign investm ent without their own capital, and they increases tax revenues without the business risk.There is smaller capital and human capital investment for joint venture companies, and relatively speaking, the risk is lower. Risks should be taken to entering international market. Most companies decided to establish joint venture with the local business, because they want to reduce the risk of entering new markets. So they are looking for joint venture partners who are operating related product lines and have a good understanding of local markets. The foreign parent and the local company combined their resources so as to create competitive advantages and create dominant in marke. (Contractor and Lorange, 2002). Firstly the foreign partners started the cooperation from simple sales and marketing operations to a further risk reduction measures. Secondly, they can increase product sales. Finally, the foreign partners can improve or re-design products in order to better adapt to the local market and make large-scale investment.4.2.4 Relatively large political riskThe establishment of a wholly owned subsidiary has very sloshed requirements for the host countrys political environment and political stability. The parent company can set up wholly owned subsidiary when the target country is under the situation of political stability, sound legal system, liberal investment policies, and exchange rate stability. In addition, the profits and other legitimate rights and interests which foreign investors obtained after investment in the host country are protected by the laws of the host. The legitimate profit and other lawful income can be remitted back to the home countries. On the contrary, the wholly owned subsidiary would be significant losses if the host country has political instability and investment policies and investment environment get some changes, which might result in the dissolution of wholly owned subsidiary.Joint venture companies get back up by the host government s. For the host countries, on the one hand, Joint venture companies can 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 share, sales organizations and customer groups, and they could not lost their control right and equity. While for the home countries, JVCs can reduce the risk of operation and politics in different countries, regions and industries. They could get the support and cooperation on the tax barriers and preferential policies.4.2.5 Disadvantage of exitFor the wholly owned subsidiary, the parent company has to bear all the resources and costs, including costs of human resources, employment, labor costs, the investment of technical support, sales channel development and advertising costs and so on. They have high work shift costs. Serious losses would be resulted in if they exit the target countries for some reason. For example, political situation of the host country has undergone drastic changes, and the wholly owned subsidiary can not maintain their normal production and operation, so the parent company had to close wholly owned subsidiary. The parent company may not fully recover the investment cost in advance they exit the host country, without mention profit. So it is very obvious disadvantage of exit.The joint venture companies are easier to end. JVCs entered the host country with lower cost of investment and some were into target country only with technology. They could end relationship of cooperation and exit target country when political environment changed and economic admixture was serious. And they end the relationship with lower cost. On the other hand, they can usher out the agreements when market conditions or the business itself have also changed with lower outlay or cost5.0 ConclusionEntering the international market is that a business participates in global market competition and international business deve lopment with capital, products, technologies, services and policy. The home countries should select the right entry mode for the international strategy and they should clear their own objectives firstly to choose entry mode. Entry mode provides information about the consequences of enter international relating shifts in market demand to changes in the equilibrium number of firms. (Timothy and Peter, 2008, p.978). Two of them were discussed in the report international Joint Venture Companies (JVCs) and wholly-owned subsidiaries. Different entry mode means different control right. Enterprises should elect the appropriate entry mode in understanding various factors. The factors are including Unified strategic actions, international experience, and Exit barriers, economies of scale, culture, Control right, Profits received, Trade Secrets, market size and market growth, Limited market size, risk and so on. Compared with JVCs, wholly-owned subsidiaries has advantages in cultural differenc es, control right, protection of commercial secrets and higher returns. On the other hand, wholly-owned subsidiaries have some disadvantages versus JVCs.In the long term strategic objectives, parent companies pursue to maximize the total value of foreign market, and they speed up the penetration and more control to put effectively wholly-owned subsidiaries into global system. While, as for the joint venture, the local joint venture partners contributions are local knowledge, local government relations, market share, sales and customer groups because they have well-known about the local market, culture and knowledge and the understanding of economic environment. The foreign partner invested in technology, management and international support. This combination can reduce opportunity cost and switching costs to have clear business and promotion objectives and win the market share. However, there is no general optimal entry mode when enterprises enter the international market, because t he international economic environment is perplexing and political environment is complex. The parent companies should select the reasonable entry mode according to their own resources and strategic objectives and strategic policy.