In todays competitive business world, setting up a foreign subsidiary is becoming increasingly important for companies who want to take their operations overseas. By establishing a foreign subsidiary, companies can take advantage of the opportunities that may not have been available domestically, while also minimizing risks to their both their finances and reputation.
There are several important steps that must be considered when setting up a foreign subsidiary. Each will be detailed below to ensure a successful operating structure.
Step One: Research
Research is the most important first step to setting up a foreign subsidiary. It’s essential to investigate the market in the country where the subsidiary will be established in order to gain a better understanding of the country’s regulations and culture. Additionally, it is important for companies to make sure the market is viable and the company’s products will be well received.
Step Two: Business Plan
A sound business plan is critical for a new subsidiary’s success. The plan should include detailed information on the specifics of operating the new business, including key roles and responsibilities, as well as an in-depth financial plan that clearly states the foreign subsidiary’s objectives and goals.
Step Three: Find a Local Partner
In many cases, establishing a foreign subsidiary without the help of a local partner is difficult. Companies should look for potential partners who have both networking in the local market and knowledge of the regulations and legalities of setting up a foreign subsidiary in the country they are planning to enter.
Step Four: Set Up a Company
Once a local partner has been chosen, the next step is setting up a company. Companies must follow local regulations and register the company in the country it is to operate in. This process often includes obtaining various business licenses, certificates, and other forms of approval.
Step Five: Establish the Structure
When setting up the corporate structure, companies must define the level of authority of their representative in the foreign subsidiary. This individual should be able to manage affairs and handle any legal issues that may arise.
Step Six: Develop a Timeline
Developing a timeline of tasks that need to be completed is crucial for successful setup of a foreign subsidiary. The timeline should include target dates for different stages in the process and should be monitored to ensure that nothing falls through the cracks.
Step Seven: Develop an Exit Strategy
Having an exit strategy is important in case things don’t go as planned. Should it become necessary to cease operations in the host country, or sell the subsidiary, having an exit plan in place will help ensure the safe and quick exit of assets with minimal losses.
A successful foreign subsidiary requires careful thought, planning and research. By utilizing the steps described above, companies can be better prepared and equipped to face the challenges of taking their operations global and expanding to foreign markets. With the right strategy in place, foreign subsidiaries can be a great way to increase profitability and gain a competitive edge in the global market.
