SUBSIDIARY

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A subsidiary is a company that is wholly or partly owned by another parent company. The parent company has control over the subsidiary and can influence its strategic and operational decisions. The subsidiary may be a separate legal entity, but is controlled by the parent company, which is responsible for the activities and decisions of the subsidiary.

Subsidiaries are often used to expand a company's presence in a new market or to diversify its product portfolio. They can also be used to take advantage of tax benefits in different countries or to separate a company's legal responsibilities from those of its subsidiaries.

The subsidiaries can be of two types: integral or non-integral. Wholly owned subsidiaries are those in which the parent owns 100% of the shares of the subsidiary. Non-integral subsidiaries are those in which the parent owns less than 100% of the shares and therefore has less control over the subsidiary.

In short, a subsidiary is a company controlled by another company, which can be used to expand the parent company's presence in a market or to diversify its product portfolio.

The advantages and disadvantages of having a subsidiary are as follows

Advantages:

1. Access to new markets: The subsidiary can help expand the company's presence in new markets and increase its geographic reach.
2. Greater control: The subsidiary can offer greater autonomy and local control in decision-making and management of operations in the host country.
3. Cost reduction: The subsidiary can help reduce operating and tax costs by establishing a local presence and taking advantage of economies of scale.
4. Adaptability: The subsidiary can better adapt to the needs of the local market and offer specific products and services to meet the needs and wishes of customers.
5. Increased protection: The subsidiary can provide greater legal and financial protection by separating the assets and operations of the parent company.

Disadvantages:

1. Initial costs: Establishing a subsidiary can be costly in terms of time, money and resources.
2. Management and coordination: Managing and coordinating the subsidiary can be a challenge, especially if there is a significant cultural difference between the parent company and the subsidiary.
3. Political and legal risks: Subsidiaries may be subject to political and legal risks, such as changes in government policies and regulations, which may adversely affect the company.
4. Duplication of functions: The subsidiary may duplicate functions and resources that already exist in the parent company, which may increase costs.
5. Loss of control: The subsidiary may have greater autonomy and local control, which may lead to a loss of control and coordination by the parent company.

How is a subsidiary created?

Setting up a subsidiary can be a complex process that varies depending on the country and jurisdiction in which it is to be established.

However, here are some general steps to follow:

1. Investigate feasibility: Before setting up a subsidiary, it is important to conduct thorough market, industry and competitive research to determine whether it is feasible and profitable to set up a subsidiary.
2. Choose a legal structure: Once the decision is made to set up a subsidiary, it is necessary to choose the legal structure to be used. This decision depends on factors such as the industry, the size of the company and local laws and regulations.
3. Register the company: The company must be registered in the relevant jurisdiction. It is important to check legal and registration requirements to ensure that all requirements are met.
4. Obtaining permits and licences: Depending on the type of business, additional permits and licenses may be required to operate legally. It is important to research and obtain all necessary authorisations before starting to operate.
5. Establish operations: Once the subsidiary has been created and the necessary permits have been obtained, the operation of the company must be established. This includes setting up an organisational structure, hiring employees and establishing relationships with suppliers and customers.
6. Comply with tax and labour regulations: It is important to comply with all local tax and labour regulations, including tax filing requirements, social security and labour regulations.
7. Manage the subsidiary: After establishing the operation of the subsidiary, it is important to manage it effectively and efficiently. This includes financial management, human resource management and customer and supplier relationship management.

It is important to note that the specific steps for setting up a subsidiary may vary depending on the country and jurisdiction in which you want to establish it. Therefore, it is important to research and understand local laws and regulations before beginning the process of setting up a subsidiary.

Practical examples of subsidiaries

Examples of subsidiaries include:

1. WhatsApp Inc: This company was acquired by Facebook in 2014 and now operates as a subsidiary of Facebook Inc. WhatsApp maintains its own brand and separate operations, but has access to Facebook's resources and expertise.
2. Google LLC: is a subsidiary of parent company Alphabet Inc. The company operates as an independent subsidiary of Alphabet and maintains its own brand and operations.
3. Nestlé Purina PetCare: This Nestlé subsidiary focuses on pet food production. Purina has its own brand and separate operations, but benefits from the resources and expertise of the parent company.
4. IBM Spain: This is a subsidiary of parent company IBM Corporation. The subsidiary focuses on providing technology solutions and services in Spain and maintains its own brand and separate operations.
5. Nike China: This subsidiary of Nike Inc. focuses on the production and sale of Nike branded products in China. Nike China maintains its own brand and operations, but benefits from the resources and expertise of the parent company.

Each subsidiary has its own business model, but all operate under the umbrella of a parent company. This allows them to The new company is not only able to take advantage of the resources and expertise of the parent company, but also gives them some autonomy to operate and make decisions in their own market or region.