Sarthaks Test
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“Wholly owned subsidiary is a more investing, more risky and less return giving venture.” Do you agree? Substantiate your answer.

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I agree to the statement partially. Wholly owned subsidiary is a more investing, more risky and more return giving venture. In this the parent company acquires the full control over the foreign company by purchasing its 100% equity capital. It can be established in two ways: first as a green field venture, in which an altogether a new firm is set up to start operations in a foreign existing firm in foreign country and using it for manufacturing and promoting its products in home country. products in home country. 

Merits of Wholly Owned Subsidiaries 

1. Complete control over operations: The parent firm is able to exercise full control over its operations in foreign countries because it has 100% equity holding in the company. 

2. No need to disclose technology: It is less risky as 100% investment is made by parent company and hence there is no need to disclose technology to local producers. 

Demerits of Wholly Owned Subsidiaries 

1. 100% Investment and hence require more funds: The parent company needs to make 100% equity investment and therefore requires huge funds. 

2. More risky: It is more risky as parent company has 100% equity investment; it has to bear all the losses, if any.

3. Government rules and regulations: Some countries do not allow establishing 100% wholly owned subsidiaries in their countries.

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