The best way to grow as an organization is to expand. Making connections and utilizing other business methods can help even the smallest of businesses thrive. This could mean that a local restaurant buys it’s bread from the baker down the street instead of baking their own. It could also mean Nike owning several factories located in various countries around the world manufacturing their products. The idea is to spend the least amount of money to produce, move and sell in order to earn a larger profit. This is where foreign subsidiary come into play.
A foreign subsidiary company is simply defined by thelawdictionary.org as “A company that is part of a larger company.” It is a local operation completely owned and operated by a foreign firm. These organizations can be acquired by another but can also be built from the ground up. Of course, though, with every business decision comes risk; advantages and disadvantages of subsidiaries are deeply weighed when this becomes an option for expansion.
There are many advantages to having subsidiaries in other countries. One major advantage is the amount of control the parent company gains over the subsidiary. The parent company becomes the boss. They now gain control of operational means and strategic moves. This means that the parent company can now have the subsidiary function by means that the parent company sees fit. Another advantage to having foreign subsidiaries is the expansion of brand recognition. By taking the parent companies name to the foreign countries, the name is being spread and the brand is well recognized throughout the world. This opens up opportunities into new marketplaces, which broadens the company name and spreads the chance of success in new areas of business.
Along with many other advantages, a parent company also controls the assets of its subsidiaries and can invest these assets as it sees fit.