benefits of WOS and some drawbacks i found

[jay]

Wholly owned subsidiary means having whole control and authorities
over the subsidiary. Consequently the firm can make decision
immediately, without conference with partner. The firm can quickly fit
in to the condition of the market in terms of volatility of demand and
labor standards.
As the India economy was booming, 1990s. the prospect of the industry
was very fine. More investment could make more revenue. But while the
firm is not wholly owned by JCB, any additional resources investment
would not be efficient for them. And JCB wanted to have exclusive
possession of the rapid growing revenue, not sharing with the partner
Escorts. Transferring in to Whole owned subsidiary in 2003, JCB was
able to invest on facilities ,and was able to transfer know how and
technologies of the firm to the subsidiary without worrying.
Wholly owned subsidiary has some drawbacks too, in spite of many
advantages.
At first it is more risky than joint venture. While there’s no need
to share revenue with anyone, the firm has full responsibilities of
risks. 2005 JCB had a good expectation of the future market condition
and invested intensively but in 2008, according to high commodity
prices and high interest rate regime of India, JCB group’s turn over
was dropped by 10 ~ 15%. –(the hindu business line nov.6.2008)
Some competitors like Terex Vectra Equipment, is the joint venture of
world’s 3rd largest construction equipment manufacturer Terex and UK
based company Vectra still persist in having advantages of JV strategy
WOS strategy can also lost some complementary assets offered by a
partner. Such as good will and local knowledge.
And the profit of the company is not shared with the local residents,
not as much as joint ventures with local company. Some Residents in
India can have some antipathies. And still in many government officer
think let the foreign capital having full control in the national
industry is not desirable. Some regimes under handicap can be made.

Contractor (1990) found that market revenue increases as MNE ownership
increase. He also found that the transaction cost and the
international cost increase as ownership increases. Transaction costs
include the cost of negotiating and transferring information and
capability to another firm, cost of personnel training, cost of losing
the opportunity to having direct sales or getting the full amount of
profit, and the threat of creating a competitor in markets beyond the
purview of the agreement. Contractor found that this cost might be
avoided if a firm invests in WOS. Therefore, WOS is desired when
transaction costs and international costs are high. On the other hand,
IJV or pure contract might be the optimal choice when the global
market for technology transfer is more efficient and when transaction
costs are low.