As the global marketplace continues to expand, businesses are looking to all corners of the world to build their consumer base – and their company footprint. But while there may be huge advantages to expanding your business through subsidiaries – including having feet on the ground in emerging markets – there can be unforeseen problems too.
We look at five ways you can effectively manage your subsidiary, while carefully protecting your parent company brand.
What is a subsidiary?
A subsidiary is a company whose controlling interest is owned by a parent company or holding company. For example, Marvel, Lucas Films, Fox, ABC Television Group and ESPN are all subsidiaries of the Walt Disney Company. And Instagram and WhatsApp are both Facebook subsidiaries.
Subsidiaries are usually created to serve business needs, develop new products and services or expand into new markets. They can be set up as a new company, or be existing businesses that have been acquired to help build the parent company brand.
Subsidiaries enable separation of different parts of the business, and promotion of individuals within certain areas. They can also have tax benefits, reduce risk through a separation of legal entities and assets (protecting them for each other’s liabilities), and can enable increased efficiencies and diversification.
From an accounting standpoint, a subsidiary is a separate company, so it keeps its own financial records separate from its company statements, and bank accounts. Any transactions between the parent company and the subsidiary have to be recorded.
Having a subsidiary can help a company keep its brand identities separate, but a careful balance needs to be struck between control of a subsidiary – essential for compliance and risk management – and the autonomy it needs to work efficiently.
So, how can you manage your subsidiary effectively?
1. Build a good management team and governance structure
Although the parent company, being the largest or sole shareholder, is entitled to appoint the directors and management of the subsidiary, being too heavy handed and interfering excessively may not bring out the best in the employees of the subsidiary.
It is essential to build a strong management team that can work autonomously from the parent company, while regularly reporting in. Mutual respect is key and the management team should help align strategies and instigate sound corporate governance practices and policies, so that all parts of the business are pulling in the same direction.
2. Clear communication is key
Regular two-way communication is essential to build a strong relationship between different parts of a business. For a parent company with multiple subsidiaries, forming clear communication channels is fundamental to effective management.
Regular board meetings and communications with shareholders and employees will help ensure that any concerns are dealt with quickly and effectively and that best practices are shared within the group.
3. Data and information management
Is there a centralised source for information and data for both the parent and subsidiaries? It is important for companies to ensure that data systems are compatible with one another, keeping on top of of compliance initiatives and encouraging collaboration across the board.
Specialist software such as that used by MSP Secretaries, allows full management of the group’s data and information, and takes into account regional differences such as time zones and language.
4. Should you consider a local subsidiary?
Could a local subsidiary help your company break into emerging markets? A subsidiary can help you understand localised customs, laws, competition etc. but its effectiveness may depend on how much freedom it has from the parent company.
If a local subsidiary is already doing well against a strong regional competitor, it may be best to allow it to continue with its current strategy and local knowledge, rather than impose a new strategy that may be working for other parts of the business.
5. Ensure your subsidiary has the same values
The brand awareness and goodwill that your company has established with its customers should be reflected in that of your subsidiary. You would not want to align your brand with one that has a poor reputation, so make sure that any subsidiary you acquire does not bring unwelcome baggage with it.
Ensure the subsidiary has the same policies and values at its core and is a positive reflection of the parent brand.
Helping you grow your business
Once you have decided to create a subsidiary, it is essential that you carefully consider the financial, legal and technical ramifications.
Using the right technology, at the right time, will be essential to help you retain oversight of your subsidiary and its performance. It is vital to put a strong management team in place and to keep communication channels open. Crucially, maintaining your brand reputation and values will be dependent upon the structure and policies you create from the start.
If you’d like to find out more about how to manage your subsidiaries effectively, our experts are on hand to answer your questions. Just request a call back.