Expanding a business beyond national borders is a strategic step that requires analysis, planning, and—above all—making the right decision regarding the legal entry structure. In this article, we explore the three main forms of international expansion: joint venture, subsidiary, and new company. Which is the best fit for your business?
Why Consider International Expansion?
International expansion is a key strategic decision for companies seeking to enter new markets, increase competitiveness, and diversify their revenue streams. Going global enables businesses to benefit from economies of scale, reduce dependency on a single market, and strengthen global brand positioning. However, any internationalization strategy comes with challenges, such as adapting to foreign regulations, overcoming market entry barriers, and adjusting the legal and operational structure to a different business environment. With proper planning, business internationalization can become a powerful catalyst for sustainable and scalable growth.
Market Entry Models for International Expansion
When designing an international expansion strategy, choosing the right market entry model is essential, depending on your goals, resources, and desired level of control. There are several legal structures for internationalization that allow companies to operate abroad, each with advantages, disadvantages, and varying degrees of legal and financial commitment. Below, we examine the three most commonly used models by companies going global.
Joint Venture
A joint venture is a strategic alliance between two or more companies—typically one local and one foreign—to collaborate on a shared project in a new market. It is one of the most common options for entering international markets when looking to share investment, risk, and local expertise.
- Advantages: access to local commercial networks, shared risks, faster adaptation to the international business culture, and greater ease in complying with foreign regulations.
- Disadvantages: potential conflicts over control, complexity in joint management, and dependence on the performance of the local partner.
Subsidiary
An international subsidiary is a legally established entity in the foreign country, owned by the parent company, and operated under its full control. This model is considered part of foreign direct investment (FDI) and is ideal for companies seeking to establish a permanent presence and maintain strategic alignment with global operations.
- Advantages: greater operational control, enhanced corporate identity, and the ability to implement internal policies without relying on third parties.
- Disadvantages: high initial investment, full exposure to business risks, and strict compliance with the international legal structure.
New Company or Local Entity
Creating a new company abroad involves establishing a legal entity from scratch, either fully foreign-owned or in partnership with local investors. It’s a flexible route for adapting to the target market’s conditions, although it requires careful legal and financial planning.
- Advantages: tailored operational structure, better adaptation to local laws and consumer preferences, and potential access to incentives for foreign businesses.
- Disadvantages: complex legal procedures, lack of initial brand recognition, and longer time to establish operations.
Key Factors in Choosing a Market Entry Strategy
Choosing between a joint venture, a subsidiary, or a new company as your international market entry model depends on multiple variables. These strategic internationalization decisions must align with your business objectives, operational capacity, and the context of the target market. Here are the most important factors that influence this choice:
- Company size and resources: Larger firms with international experience and capital tend to opt for subsidiaries, while smaller businesses may prefer joint ventures or partnerships to minimize upfront investment.
- Strategic goals for internationalization: Whether the aim is to gain market share, diversify income, or access local technologies, this will directly influence the legal structure selected.
- Political and economic risk of the target country: Country risk and legal stability often determine whether full control via a subsidiary is viable, or if a shared model like a joint venture is safer.
- Local legal and tax regulations: The international legal framework varies by country. Some jurisdictions offer tax incentives or place restrictions on foreign ownership, which may impact the feasibility of certain models.
- Need for cultural adaptation: In markets with significant differences in business culture, partnering with a local entity can ease integration and improve acceptance of your products or services.
- Availability of reliable partners: The possibility of building sustainable strategic alliances can influence the decision to choose a joint venture or cooperative entry model.
Comparison: Joint Venture vs Subsidiary vs New Company
To make informed decisions during the internationalization of a company, it is essential to compare the available options. The table below summarizes the key strategic, financial, and operational aspects of the three main international market entry models: joint venture, subsidiary, and new company. This comparison of international legal structures helps identify which one best fits your company’s profile, goals, and resources.
| Criterion | Joint Venture | Subsidiary | New Company |
|---|---|---|---|
| Initial investment | Medium – shared between partners | High – fully funded by the parent company | Medium to high – depends on structure and local partners |
| Operational control | Shared – strategic decisions are made jointly | Full – direct control by the parent company | Full or partial – depending on equity ownership |
| Speed of implementation | High – immediate market access through partner | Low – more time required due to legal and structural setup | Medium – varies based on legal and operational context |
| Risk exposure | Low – risks are shared | High – parent company assumes full liability | Medium – standard risks of an independent business |
| Adaptability to the local market | High – benefits from local partner knowledge | Medium – may require more time for market integration | High – structure designed for local environment |
Tax and Legal Benefits by Legal Structure
Choosing between a joint venture, subsidiary, or new company impacts not only the operational model, but also the tax regime and legal obligations in the target country. Each entry method carries different implications in terms of corporate taxation, access to foreign investment tax incentives, and compliance with the international legal framework.
For instance, a subsidiary may benefit from double taxation treaties between countries, but will also be subject to local tax rules just like any domestic business. A joint venture, on the other hand, may take advantage of the tax benefits available to local partners, though it also requires sharing tax responsibilities. A new company offers flexibility to adapt to the host country’s tax environment, but demands thorough legal and tax planning from the outset.
In all cases, working with specialized legal and accounting advisors in the destination country is essential to ensure compliance and strategically optimize tax exposure.
Common Internationalization Mistakes
International expansion presents great opportunities, but it also exposes companies to new challenges that—if not well-managed—can jeopardize the success of the project. Avoiding the following common mistakes is key to ensuring an efficient and sustainable internationalization process aligned with strategic goals:
- Failure to research local laws: Not understanding the international legal framework and regulatory requirements can lead to unexpected costs, penalties, or even an inability to operate.
- Underestimating cultural barriers: Ignoring the local business culture, negotiation styles, or communication norms can hinder integration and market acceptance.
- Choosing partners without due diligence: In models like a joint venture, selecting local partners without thorough research increases the risk of conflict, fraud, or contractual breakdown.
- Making rushed decisions without strategic analysis: Entering a market without a risk assessment, feasibility study, or tax planning may result in capital losses and poor competitive positioning.
What Is the Best Option for International Expansion?
There is no one-size-fits-all internationalization model. The best choice depends on the company’s profile, financial capacity, desired level of control, and specific conditions of the target market. Companies seeking fast market entry and risk sharing may benefit from a joint venture, especially if they have access to reliable local partners and need help overcoming entry barriers.
In contrast, a subsidiary provides full control over operations and ensures strategic alignment with the company’s global vision, although it requires a higher financial commitment and entails greater legal responsibility. Lastly, establishing a new company offers operational flexibility and independence, provided it is supported by a suitable legal structure and robust strategic and fiscal planning.
The key is to carefully evaluate both internal and external factors and rely on local experts to reduce the risks of international expansion and maximize opportunities for sustainable growth.