With a wholly owned subsidiary, a firm shares the costs of setting up overseas operations with partner firms.

Question

BlackTom AI · Accepted Answer

A wholly owned subsidiary means the parent company holds 100% ownership and control of the foreign operation, so it bears the costs, risks, and receives the full rewards.

1. Relevant knowledge points and concepts
- Wholly owned subsidiary: an entity in a foreign country that is fully owned (100%) by the parent firm. Can be created via a greenfield investment (new facility) or by acquiring an existing local firm. The parent firm retains complete control over operations, strategy, and financial responsibility.
- Joint venture/strategic alliance: cooperative ownership structures where two or more firms share ownership, costs, risks, control, and profits.
- Cost-sharing: occurs when multiple partners jointly fund setup costs; typical in joint ventures, alliances, or consortia, not in wholly owned subsidiaries.

2. Step-by-step reasoning
- Statement: "With a wholly owned subsidiary, a firm shares the costs of setting up overseas operations with partner firms."
- Step 1: Check definition — wholly owned = 100% ownership by one firm.
- Step 2: If a single firm owns 100%, there are no ownership partners to share setup costs.
- Step 3: Therefore, cost-sharing with partner firms is inconsistent with the definition.

3. Calculations / intermediate steps
- No numerical calculation is required. Logical deduction: Ownership fraction = 100% by parent → number of partners = 0 → cost-sharing with partners = false.

4. Why the correct answer is correct
- Because a wholly owned subsidiary implies sole ownership and sole financial responsibility for setup costs; the parent firm does not share those costs with partners.

5. Why the other option is incorrect
- The opposing view (that costs are shared) describes joint ventures or alliances. In a joint venture, two firms might each contribute 50% of setup costs; that structure differs fundamentally from a wholly owned subsidiary.

6. Conclusion
- The statement is false. This explanation confirms the provided answer: false.

With a wholly owned subsidiary, a firm shares the costs of setting up overseas operations with partner firms.Unknown Question Type

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