The Advantages of Foreign Subsidiaries

by Frank Howard; Updated September 26, 2017

The term "foreign subsidiary company" refers to a business that is located in a country other than the parent company. A subsidiary company is controlled by its parent or holding company. The parent company may be the majority shareholder of the subsidiary company and/or have a greater representation on its board of directors.

Presence Abroad

The biggest advantage of having a foreign subsidiary company is that it gives the parent or holding company an international presence. This helps the organization widen its reach, expanding into a market to establish a presence. When an American company has a subsidiary in France, the subsidiary is regarded as a French company and not an American one; this helps market the company’s products and services as well.

Lesser Investment

Having a foreign subsidiary helps the parent or holding company acquire an international presence without the hassle of setting up a branch or a new firm abroad. The investment needed to acquire a foreign subsidiary is less than that to set up a unit of the company in another country. In addition, if the company acquires an already-existing firm to act as its subsidiary, it does not have to go through the complicated process of setting up a new firm in an unfamiliar place.

Decreased Costs

Many companies opt to acquire or run foreign subsidiaries in countries where the costs of labor and production are much less than those in their parent countries. This allows companies to manufacture or provide their services at much lower costs, enabling them to generate higher profits.

Limited Liability

The foreign subsidiary acquired by a company is a legal entity separate from that of the parent or holding company. The subsidiary has limited liability; this means that should the company incur losses, the assets of the parent company will be untouched. However, this rule does not always apply in all countries, depending on local laws.

About the Author

Frank Howard has been a professional writer for more than 20 years, working with Metro Publications and Penguin Group. He is now part of the Metro Publications creative team, where he creates fictional stories for kids. Howard has a master's degree in creative writing from City University London and bachelor's degree in journalism from the University of Leeds.