A wholly owned subsidiary is a global expansion strategy with high risk and investment, which can lead to high returns or significant losses, evidenced by historical events like the financial crisis and the dot-com bubble. Yet, strategic mergers and reinvestment can also provide growth opportunities for businesses.
The statement that a wholly owned subsidiary is the global expansion strategy with the highest risk and investment can be considered true. When a company decides to operate a wholly owned subsidiary, it maintains 100% control over the operations and decisions, which implies a significant investment in a foreign country. This move presents the possibility of high returns, but it also comes with a high degree of risk due to factors like legal complexities, large financial commitments, cultural differences, and potential political instability.
Throughout history, there have been cases where a high risk level was detrimental to an investment portfolio. One of the most notable examples is the 2008 financial crisis, where high-risk mortgage-backed securities led to massive losses for investors and financial institutions globally. Similarly, the burst of the dot-com bubble in the early 2000s is another example of how high risk can lead to significant financial damage.
On the contrary, business growth through reinvestment or mergers can introduce opportunities as well, though each has its own set of risks. Universal generalizations suggest that businesses grow by leveraging profits to invest in new assets and by strategic mergers, creating synergies between companies. Multinational corporations particularly harness global opportunities to expand their market reach and diversify their revenue streams.