Question

Provide a scenario where a company would enter a foreign market using the setting up a wholly-owned subsidiary modal

Answer 1

A company can enter a foreign market through setting up a wholly owned subsidiary. It can be done through investing directly into that country which is called Foreign Direct Investment. However, to invest or owned a subsidiary in other country, it needs approval from government as some kind of business is needs approval by government while some are given through automatic route. Suppose, a US company wanted to invest in India and looking to ow a wholly owned subsidiary in production of defence equipment’s in India. It needs to see the foreign direct Investment Policy of India, where India clearly mentions about the % allowed in Defence sector. As, FDI in defence sector is only through government approval, company cannot establish a wholly owned defence manufacturing company without government approval in India. Once the government has approved then only company can set up its factory or office in India. This is different for different sectors and in most of the sectors government is now opening up the economy for foreign investment and encouraging investors to start doing business.