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Part - V

3.2 Importance of Host Country in MNCs Long-Term Strategic Plans

MNCs prefer the subsidiary route in the host countries for which they have long-term strategic plans. Due to the long-term nature of their plans and the importance of the resources of the host country the MNCs desire maximum control and hence prefer a subsidiary route.

3.3 Importance of Company's Technology and Local Resources

This we will illustrate with the help of Indian IT and Pharmaceutical industries. Most of the MNCs in these sectors are operating through their fully owned subsidiaries. In Pharmaceutical sector 87% of MNCs in our sample entered India through the subsidiary route.

The reason why MNCs prefer subsidiaries as compared to JVs is that they want to have better control over their people who are their main resource and to have better control over their proprietary technology and intellectual property (IP). For both IT and pharmaceutical companies people and IP are two most important competitive strengths and so these companies desire to have a better control over them. So, the companies that are technology or IP intensive and look at host country for some key resource will take the subsidiary route.

3.4 Country of Origin

If we look at entry mode of pre-92 companies and their success in 1992-2003, we find that 79% of the MNCs entered India through the subsidiary route like HLL, Cadburys, out of which 67% were successful. On the other hand only 36% of JVs (Hero Honda) were successful. If we look at the companies' country of origin and their mode of entry we see that 95% of the European companies and 86% of the American companies entered India through subsidiary route. On the other hand 83% of the Japanese have entered through JVs.

From the above analysis we infer that European and American companies prefer the subsidiary route (mainly Greenfield) while Japanese due to their cautious nature have preferred the JV route. Moreover, we can also infer the companies that use the subsidiary route have had more success when compared to companies entering through JV route.

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* Contributed by: -
Abhishek Gupta & Anurag Ghuwalewala,
PGP-2, Batch 2003-2005,
IIM Bangalore.