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Mr. Shah is a businessman in Gurgaon he manufactures scooters. His son after doing an MBA in USA returns to India and suggests that they should set up a fully owned factory in Bangkok for supplying to customers in South East Area and the Middle East. Mr. Shah, however, does not agree to his proposal and wants to set this unit in South India. They are having a debate in this. In your opinion with whom you agree. Give reasons for support of your answer.


Solution

I would agree to set up a wholly owned factory i.e. wholly owned subsidiary in Bangkok for supplying customers in South East area and Middle East area. Wholly owned subsidiary is the entry mode of international business is preferred by companies which want to exercise full control over their overseas operations. It can be established in 2 ways:

1. Setting up a new firm altogether to start operations in a foreign country.

2. Acquiring an established firm in the foreign country and using that firm to manufacture and/or promote its products in the host nation.

This helps us to Exercise full control over its operations. And we are not required to disclose technology or trade secrets to others. International Business benefits firm by the following ways:

1. When the domestic prices are lower, business firms can earn more profits by selling their products in countries where prices are high.

2. Making use of surplus production capacities and thereby improving the profitability of operations.

3. When Demand in home country gets saturated, the company can think of growth prospects in developing countries.

4. When competition in the domestic market is very intense, internationalisation seems to be the only way to achieve significant growth.

5. The vision to become international comes from the urge to grow, the need to become more competitive, the need to diversify and to gain strategic advantages of internationalisation.

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