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.