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The restrictions of establishing a wholly owned subsidiary in a foreign country comprises:
  • The parent firm has to make 100 per cent equity investments in the foreign subsidiaries. As a result, this form of international business is, not suitable for small and medium size companies which have insufficient funds with them to invest in foreign countries.
  • Also, the parent company has to bear the entire losses resulting from failure of its foreign operations on its own, as it owns 100 per cent equity in the foreign company.
  • Some countries are reluctant to establishing 100 per cent wholly owned subsidiaries by foreigners in their countries. Therefore, this form of international business operations, becomes subject to greater political risks.

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