Question

As a business expansion director, Shana's goal is to scout potential locations for her company's planned expansion to other countries. There are many options, some of which include maintaining the business's head office in the United States. Other options send company representatives to foreign operations when necessary, or establishing separate operation facilities abroad and hiring locals as managers.

Q: If Shana's company decides to open a new operation in Germany that has local managers and is run locally but still exists under the umbrella of the home company, it would be considered a...

A. Joint venture

B. Franchise

C. Merger

D. Subsidiary

Answer 1

Shana's company would be creating a subsidiary by establishing a new operation in Germany managed by local staff but within the larger company umbrella. A subsidiary is a company controlled by another company which owns more than half of its stock.

Step-by-step explanation:

If Shana's company decides to open a new operation in Germany that is managed locally but still exists under the umbrella of the home company, it would be considered a subsidiary. A subsidiary is a company that is completely or partly owned and partly or wholly controlled by another company, which owns more than half of the subsidiary's stock. In contrast, a joint venture involves two or more entities collaborating on a business project, sharing risks and rewards. A franchise is a type of license that a party (franchisee) acquires to allow them to have access to the franchisor's business knowledge, processes, and trademarks, enabling the franchisee to sell a product or provide a service under the business's name. A merger is the voluntary fusion of two companies on broadly equal terms into one new legal entity.

Subsidiaries can offer various advantages to MNCs (multinational corporations), such as gaining a foothold in the local market, benefiting from local managers' expertise, and providing jobs to the local workforce. These entities can benefit from the resources of their parent company while managing operations tailored to the local context, considering legal, cultural, and business environmental factors in the host country.