In what ways are exporting/importing better than setting up wholly owned subsideries abroad?
In what ways are exporting/importing better than setting up wholly owned subsideries abroad?
Exporting refers to sending of goods and services from the home country to a foreign country. Importing is the purchase of foreign products and bringing them into one’s home country.
There are two ways of exporting and importing:
1. Direct exporting/importing is the method by which a firm itself approaches the overseas buyers/ suppliers and looks after all the formalities related to exporting/ importing activities including those related to shipment and financing of goods and services
2. Indirect exporting/ importing, on the other hand, is a way in which the firm’s participation in the export/import operations is minimum, and most of the tasks relating to export/import of the goods are carried out by some middlemen. A wholly owned subsidiary is an entry mode of international business which is preferred by companies who want to exercise full control over their overseas operations. It can be established in 2 ways:
• Setting up a new firm altogether to start operations in a foreign country, or
• Acquiring an established firm in a foreign country and using that firm to manufacture and/or promote its products in the host nation. Exporting is better than setting up wholly owned subsidiaries abroad because of the following reasons:
• Exporting is the easiest way of gaining entry into international markets as compared with wholly owned subsidiaries.
• Business firms are not required to invest that much time, and money in exporting whereas, in the case of wholly owned subsidiaries, small and medium firms do not have enough funds with them to invest abroad.
• Since exporting/importing does not require much of investment in foreign countries, exposure to foreign investment risks is much lower. In the case of wholly owned subsidiaries, they are subject to higher political risks and has to bear the entire losses resulting from the failure of its foreign operations.
Exporting refers to sending of goods and services from the home country to a foreign country. Importing is the purchase of foreign products and bringing them into one’s home country.
There are two ways of exporting and importing:
1. Direct exporting/importing is the method by which a firm itself approaches the overseas buyers/ suppliers and looks after all the formalities related to exporting/ importing activities including those related to shipment and financing of goods and services
2. Indirect exporting/ importing, on the other hand, is a way in which the firm’s participation in the export/import operations is minimum, and most of the tasks relating to export/import of the goods are carried out by some middlemen. A wholly owned subsidiary is an entry mode of international business which is preferred by companies who want to exercise full control over their overseas operations. It can be established in 2 ways:
• Setting up a new firm altogether to start operations in a foreign country, or
• Acquiring an established firm in a foreign country and using that firm to manufacture and/or promote its products in the host nation. Exporting is better than setting up wholly owned subsidiaries abroad because of the following reasons:
• Exporting is the easiest way of gaining entry into international markets as compared with wholly owned subsidiaries.
• Business firms are not required to invest that much time, and money in exporting whereas, in the case of wholly owned subsidiaries, small and medium firms do not have enough funds with them to invest abroad.
• Since exporting/importing does not require much of investment in foreign countries, exposure to foreign investment risks is much lower. In the case of wholly owned subsidiaries, they are subject to higher political risks and has to bear the entire losses resulting from the failure of its foreign operations.
