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The Advantages of Establishing a Foreign Subsidiary

By Arjun Mahadevan

Published on 12 Sep 2022 2 min read

This article will run you through everything you need to know about the advantages of setting up a foreign subsidiary.

There may be different country-specific payroll regulations and cultural climates you will have to adjust to. Without the proper research into these challenges, you may get unexpected delays and additional costs.

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This article will run you through everything you need to know about the advantages of setting up a foreign subsidiary.

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The Benefits of Establishing a Foreign Branch or Subsidiary

Various benefits come with establishing a foreign subsidiary. However, this may also depend on where you are setting up your new branch. Here are some examples of the advantages you can get:

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1 – Access to New Markets

A foreign location gives you access to more markets in the locality and in neighboring cities. For example, if you set up your subsidiary in the European Union, you get access to the world’s largest and most sophisticated markets. These countries also adhere to business and immigration rules which allow for consistency and easy travel.

However, these countries may offer different taxation regulations to foreign businesses. You may also have to face language and cultural challenges in countries that don’t have English as their native language.

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2 – Improving Brand Recognition

By setting up a branch in a new country, you get to introduce your brand to more people and expand your reach. For example, if you form a company in the US, you also attract businesses worldwide. The US has an open business environment and a large, visible economy, improving your reach.

However, the US also has stringent immigration policies which would require you to issue business visas for foreign workers. 

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3 – Cost-Effective Production

Establishing a foreign subsidiary can be a cost-effective way to produce goods and services in a different country. This is because labor and material expenses may be lower in a new country than those in your home country. 

For example, if you open a branch in China, you can use their cost-efficient production methods. However, China also has strict requirements for work permits and visas for foreign workers.

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Some Factors to Consider

Although the advantages of establishing a foreign subsidiary may be attractive, you should also consider the following factors to see if these pros are worth it:

• The time and money needed to establish a foreign subsidiary
• Policies with compensation and HR
• Payroll, taxation, and immigration rules
• Securing assets such as secure office spaces and employee residences
• Obtaining your EIN or employee identification number and business bank accounts
• The growth potential in contrast with the required investment
• Contingency plans if the new foreign office needs to be closed

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Conclusion

As you can see, there are a variety of reasons why you would want to establish a foreign subsidiary. However, opening a foreign branch can also be a daunting task. You need to consider the time and money you will be investing in setting up a foreign subsidiary. Moreover, you need to think about the policies and procedures for your new business.

Do you need help with tasks to establish your foreign subsidiary, such as opening your US business bank account or obtaining an EIN? Doola can help you confidently start your business in the US. Schedule your free consultation today!