Wholly Owned Subsidiary in a Healthcare Services Market Entry

According to the experts C. Bouquet, L. Hebert, & A. Delios, “wholly owned subsidiaries and expatriate staff are preferred” in service industries where “close contacts with end customers” and “high levels of professional skills, specialized know-how, and customization” are required. (Hitt 2009, p.235.) Creating a wholly owned subsidiary is advantageous first and foremost due to the highest extent of control among all other entry options. There is no risk of service quality failures due to the improper activities of the partner, there is no necessity to coordinate all business operations with the partner, neither to share the profit, nor to give up benefits to resolve the conflicts.

However, risks and costs are also not shared. New company acts as an independent player of the highly competitive market, where there is no backup, no one to help with legal procedures, or with management of employees, all the networks are to be established from the very beginning, therewith the cultural and social habits are totally different from the Finnish ones. All those milestones are not possible to overcome for a relatively short period of time. In other words, company has to prepare to suffer from a negative return throughout many years, before all business operations are finally developed.

This kind of Russian healthcare market entry strategy is impossible to implement without any support from the local market experts. Here comes the option to use a Management Contract strategy as an inevitable addition to the Wholly Owned Subsidiary establishment.

Management contracts are commonly used by foreign companies in the countries where the foreign market has specifications which are dissimilar from the company’s domestic market features. Differences between Russian and Finnish healthcare systems, business and social culture are immense. Outsourcing management operations, like recruitment, day-to-day activities, accounting and control over staff could be the best possible option for a Finnish company to have an ability to focus on more significant business issues.

The extent of risk is high at this kind of entry strategy, since the company pulls one hundred percent of required resources on its own. The market is unpredictable and the amount of barriers to overcome to enter the market by establishing a new company in it is numerous. Nevertheless, in case results are positive, receiving one hundred percent of the returns is a favorable advantage of establishing wholly owned subsidiary.

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