Overseas subsidiaries in a nutshell

Internationalisation and globalisation as the ever lasting topic has always been on the agenda for management team, just that sometimes it tops the list and sometimes it goes down to the bottom.

So is localisation. It doesn't matter how the company got started, location is never the sole enabler of localisation. Another city, or another district, and even another corner-shop can be quite foreign to a new entrant.

In the past consulting cases for clients requiring services of their overseas subsidiaries, I mostly found that the projects were more educational for consultants rather than clients themselves. I learnt a great deal how their existing subsidiaries worked and how the board at HQ assessed them. For consultants, we provided some of the references from leading practise and it was the wit of the management team that tailored the most suitable parts for their adoption. Combining the selected elements makes their crusade glory and memorable.

When we are talking about subsidiaries, often we refer to entities that the parent company has controlling interest, by owning shares or voting rights exceeding 50%, or even when the percentage dropped slightly to a quarter above, HQ will still be capable of exerting influence over strategic decisions. While the rest, usually we call them related companies, a wide range of such companies may exist, although HQ might not be significant on equity possession, they will be providing substantial business transactions support.

Entering a market by establishing a new subsidiary is probably the most common way marching on, and probably the most effective way to allocate resources for growth potential. And like any other business dealings, 'make or buy' assessment is always a necessary step when taking on such initiatives. Sometimes, go to market via an acquisition might be the faster way getting market shares, however, so many without considering the integration cost and ongoing maintenance.

On top of the entity setup, which usually is tax planning centric, there are indeed plenty of other key factors for management to take good advantage of.

Management structure being the first and foremost. Because of the changes on either hiving off or recruiting from zero for the new business, the way forward should never be simply replicating what the HQ have been doing at group level. For entities that carrying out sales representative responsibilities, it makes sense that the back end support function can be outsourced locally, later on as part of the coordination efforts transiting back to HQ or to adopt the lean concept solidifying local base.

Most of the financial projection and capital inflow arrangements for market entry starts with a five-year plan, HQ treasury function have the final say on go/no-go decisions, and delegation of authority usually comes along with it. Certain overseas subsidiaries may start as a sales office, then more cost centre add-on appears, eventually it will take on more responsibility as a financing centre, from then more vertical integration from functional perspective will be expected.

Approaching operational matters at the very beginning eases the tension between HQ and other business units or existing subsidiaries. Risks and control solutions will be addressed earlier as part of the operational mitigation plan.

In the long run, in every domestic market, we will be expecting more overseas subsidiaries not just from developed nations, but also companies headquartered in emerging markets.