International Market Entry Continuum & Modes: Joint Venture, Setting-up of Wholly Owned Subsidiaries Aboard, Strategic Alliances

Joint Ventures

Joint ventures are a particular form of partnership that involves the creation of a third independently managed company. It is the 1+1=3 process. Two companies agree to work together in a particular market, either geographic or product, and create a third company to undertake this. Risks and profits are normally shared equally. The best example of a joint venture is Sony/Ericsson Cell Phone.

Setting-up of Wholly Owned Subsidiaries Aboard

A subsidiary company is a company owned and controlled by another company. The owning company is called a parent company or sometimes a holding company.

A subsidiary’s parent company may be the sole owner or one of several owners. If a parent company or holding company owns 100% of another company, that company is called a “wholly owned subsidiary.”

There is a difference between a parent company and a holding company in terms of operations. A holding company has no operations of its own; it owns a controlling share of stock and holds assets of other companies (the subsidiary companies).

A parent company is simply a company that runs a business and that owns another business — the subsidiary. The parent company has operations of its own, and the subsidiary may carry on a related business. For example, the subsidiary might own and manage property assets of the parent company, to keep the liability from those assets separate.

Strategic Alliances

Strategic alliance in management arena is a treaty between two or more companies to collaborate in a particular business activity, so that each benefits from the strengths of the other, and gains competitive advantage (Mockler, 1999). The development of strategic alliances has been envisaged as a response to globalization and increasing vagueness and intricacy in the business environment.

Strategic alliances encompasses the sharing of knowledge and expertise between associates as well as the lessening of risk and costs in areas such as relationships with suppliers and the development of new products and technologies. Strategic alliance is sometimes equated with a joint venture, but an alliance may involve competitors, and generally has a shorter life span.

Strategic alliances developed and spread as formalized interorganizational relationships, mainly among companies in international business systems. These supportive arrangements seek to accomplish organizational objectives better through partnership than through competition, but alliances also create problems at several levels of analysis.