Entry modes - Wholly owned subsidiaries

9 important questions on Entry modes - Wholly owned subsidiaries

What is wholly owned subsidiaries?

Going somewhere yourself and setting up operations in a host country

Aquisitions are not easy why?

  • Pre- and post integration obstacles
  • Purchase price premium

Why do managers engage in M&A?

--> Cognitive bias
  • Topline obsession
  • Stock price exploitation
  • Grooved thinking
  • Herd behavior
  • Personal commitments
  • Trust in interested parties
  • Higher grades + faster learning
  • Never study anything twice
  • 100% sure, 100% understanding
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What is a greenfield investment?

Start from the bottom, usually building a factory

What is a brownfield investment?

Buy something and then completely overhaul it with your own FSAs

What are the advantages of a greenfield investment?

  • Can exert higher level of control over subsidiary
  • Allows for incremental investments

What are the disadvantages of a greenfield investment?

Cannot build on expertise of local partner

What are the advantages of a brownfield investment?

  • The acquired firm can have resources that are valuable to the MNE
  • can help overcome weak location institutions

What are the disadvantages of a brownfield investment?

  • Confilcts over restructuring
  • Somewhat less control than with greenfield

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