A subsidiary company, subsidiary, or ''//daughter company//'' is a company that is completely or partly owned and wholly controlled by another company that owns more than half of the subsidiary's stock. The subsidiary can be a company, corporation, or limited liability company. In some cases it is a government or state-owned enterprise. The controlling entity is called its parent company, parent, or holding company.

In a wholly owned subsidiary, the firm owns 100 percent of the stock. Establishing a wholly owned subsidiary in a foreign market can be done two ways.
# The firm can either set up a new operation in that country or
# It can acquire an established firm and use that firm to promote its products

The major reasons to do a greenfield are:
* Because there is an overcapacity in a country of building the //wrong// thing
* Because there is an undercapacity in a country


!Advantages
There are three clear advantages of wholly owned subsidiaries:
* First, when a firm's competitive advantage is based on technological competence, a wholly owned subsidiary will often be the preferred entry mode, because it ''reduces the risk of losing control over that technical competence''
** Many high-tech firms prefer this entry mode for overseas expansion (e.g., firms in the semiconductor, electronics, and pharmaceutical industries).
* Second, a wholly owned subsidiary gives a firm the ''tight control over operations in different countries'' that is necessary for engaging in global strategic coordination
** i.e., using profits from one country to support competitive attacks in another
* Third, a wholly owned subsidiary may be required if a firm is trying to ''realize location and experience curve economies''
** When cost pressures are intense, it may pay a firm to configure its value chain in such a way that the value added at each stage is maximized. Thus, a national subsidiary may specialize in manufacturing only part of the product line or certain components of the end product, exchanging parts and products with other subsidiaries in the firm's global system. Establishing such a global production system requires a high degree of control over the operations of each affiliate. The various operations must be prepared to accept centrally determined decisions as to how they will produce, how much they will produce, and how their output will be priced for transfer to the next operation. Since licensees or joint venture partners are unlikely to accept such a subservient role, establishment of wholly owned subsidiaries may be necessary.
!Disadvantages
* Establishing a wholly owned subsidiary is ''generally the most costly method of serving a foreign market''.
** Firms doing this must bear the full costs and risks of setting up overseas operations. The risks associated with learning to do business in a new culture are less if the firm acquires an established host-country enterprise. However, acquisitions raise additional problems, including those associated with trying to marry divergent corporate cultures. These problems may more than offset any benefits derived by acquiring an established operation
bag
mbi_public
created
Fri, 06 Jan 2012 15:36:34 GMT
creator
dirkjan
modified
Fri, 06 Jan 2012 15:36:34 GMT
modifier
dirkjan
tags
M21
Term
creator
dirkjan