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cultures. If a foreign company is acquired, the combination and integration
of the companies is much more complex than if a company is acquired

with the same home base. In the former case, both national and corporate
cultural differences have to be overcome. Acquisition may be used to
obtain market power by creating an oligopolistic or even a monopolistic

market situation. Anti-trust legislation, however, attempts to prevent the
creation of market power and may, therefore, prohibit certain acquisitions.

6.5.7 Wholly owned subsidiary (direct investment)

According to Young et al. (1989), most international companies’ activities

take the form of investment in wholly owned subsidiaries with 100%
ownership. This has been even more important in recent years in

developed countries. Most authors believe that this mode of entry is the
end of the spectrum of international market development. Considering
foreign direct investment, it is worth distinguishing between three basic

types:

• Market-oriented investment: Where the company replaces exports
wholly or partially manufactured within the country.

• Cost-oriented investment: Based usually on low-cost labour or
other input costs, with the subsidiary being used to service LDCs or
world markets in general, or linked into the global manufacturing

strategy of the international companies.

• Resource-oriented investment: Relating to energy and extractive
investment, where the activities of the international company are

vertically integrated, from extraction, perhaps, through to retailing.
The oil industry is an example.

6.6 The Selection of entry modes

Research for on the internationalisation process of the firm has suggested
potential determinants for the firm’s selection of a foreign market. These

can be classified into two kinds:

• The firm’s characteristics (internal criteria)

• Environmental determinants (external criteria)