Foreign Subsidiaries
For many companies, expanding their business overseas is a great way to enter different markets, break into new segments of the industry, and increase their overall sales and profits. But, to do this, many companies must create foreign subsidiaries. These are separate distinct business entities that are owned in part, or in full by a parent company in the United States.
This article will outline what a foreign subsidiary is and discuss the process for creating and managing one to help companies make more informed decisions about their international expansion.
What is a Foreign Subsidiary?
A foreign subsidiary is a company that is located in a different country and owned in part, or in full, by a U.S. based parent company. Generally, foreign subsidiaries are created to expand and increase the parent company’s overall presence in the global market. Typically, they are created to enter a new market, or capitalize on a greater demand than what exists in the United States.
These subsidiary companies are separate legal entities that are subject to the laws, regulations, and customs of what country they are located in. This provides their parent company with the ability to gain new investors, access new talent pools, gain new resources, and benefit from new economies of scale.
Process for Creating a Foreign Subsidiary
Creating a foreign subsidiary for a company can be an involved process that requires time and resources. Here are the general steps that companies should take when creating a foreign subsidiary:
1. Conduct market research: Companies should conduct detailed research into the market that they are expanding into as well as the potential costs of operating in that market. This should include researching potential locations, competitors, and resources needed to operate successfully in the new locale.
2. Establish legal entities: Companies should establish the legal entities that are necessary to establish their foreign subsidiary. This process will depend on what type of business the foreign subsidiary will operate.
3. File for registration: Companies must then file for the official registration of their foreign subsidiary. This includes filling out required legal forms and submitting the necessary documents to the government office responsible for registering businesses in the new market.
4. Appoint a management team: Companies must then appoint a management team at the foreign subsidiary. This team should have a deep understanding of the business’s operations, the local culture and laws, and the overall international situation in the new locale.
5. Develop an operating plan: Companies should also create an operating plan that includes the company’s goals, personnel policies, and a timeline for achieving key milestones.
6. Ensure compliance: Finally, companies should make sure that their foreign subsidiary is in compliance with all applicable laws and regulations in the new market. Companies should also examine their policies and procedures to ensure they meet and exceed local requirements.
Conclusion
Establishing a foreign subsidiary is a great way for companies to expand their business into new markets and increase their overall presence in the global market. Although the process can be a complicated one, it is well worth the effort and resources to do so if it allows a company to break into a new and potentially lucrative market.
By following the steps outlined above, companies can ensure that their foreign subsidiary is legally registered, in compliance with local laws, and properly managed. With this in place, the company can start to benefit from the increased resources and markets it has access to.
