What Is it a subsidiary? Everything you need to know about this business model!

One branch is an extension of a parent company, operating under its control and direction. It is a separate unit, but part of a single legal entity.

Branches are a common business expansion strategy, allowing companies to reach new markets, expand their geographic presence, and diversify their operations. In this article, we'll explore in detail what a branch is, how it works, and the legal and commercial implications of this business model.

What is a branch?

A subsidiary is a business entity controlled and operated by a parent company. It operates as an extension of the parent company and is subject to its guidelines and policies. Although a subsidiary is a legally separate entity, it is still part of the parent company and does not have its own independent existence.

Branch offices are commonly used by companies looking to expand their operations to different geographic locations, whether within the same country or internationally. This business model allows the parent company to maintain control over its operations in different locations, ensuring consistency and compliance with its policies and standards.

How does a branch work?

A subsidiary operates under the authority of the parent company and follows its strategic and operational guidelines. The parent company holds majority or full control of the subsidiary and is responsible for its decisions and operations. This means the parent company can determine pricing policies, marketing strategies, suppliers, and other important matters for the subsidiary.

It typically shares the parent company's name and branding, which helps create a consistent and recognizable identity for customers. However, it's important to note that, despite sharing a brand, branches may have some autonomy in their day-to-day operations, depending on the parent company's policies.

What is the difference between a head office and a branch?

The main difference between a head office and a subsidiary is the location of operations and control. The head office is the company's main headquarters, where strategic decisions are made and overall operations are coordinated. It maintains control over all subsidiaries and business units.

On the other hand, subsidiaries are operating units located in different geographic locations. They operate under the authority of the parent company and follow its policies and guidelines. While subsidiaries have some autonomy in their daily operations, they are still subject to the supervision and control of the parent company.

How to open a branch

Opening a branch involves several steps and legal and business considerations. Here are some important steps to follow when opening a branch:

1. Market research: Before opening a branch, it's essential to conduct market research to assess the demand for your product or service in the target area. This will help determine the viability of a branch in that location.
2. Business plan: Create a comprehensive business plan that outlines your market entry strategy, objectives, cost structure, and financial projections. This will help guide your operations and ensure you are prepared for business challenges.
3. Legal structure: Consult a lawyer or legal advisor to determine the appropriate legal structure for your subsidiary. This may include creating a separate legal entity or operating as an extension of the parent company.
4. Registration and licensing: Follow the necessary registration and licensing procedures to legally operate your branch in the target area. This may include obtaining business licenses, tax registrations, and compliance with local regulations.
5. Human resources: Hire and train local staff, if necessary, to operate the branch. This may include hiring local managers, sales staff, and support staff.
6. Marketing and advertising: Develop a marketing and advertising strategy targeted at the local market. This may involve adapting your existing marketing strategies to meet the needs and preferences of your target market.
7. Operations and logistics: Establish efficient operational systems and supply chain management to ensure your branch can effectively meet customer demands.
8. Monitoring and evaluation: Implement monitoring and evaluation systems to track branch performance and make adjustments as needed.
9. Regulatory Compliance: Be aware of local regulations, taxation, and labor issues that apply to your branch and ensure compliance in all areas.
10. Continuous assessment: Continue to evaluate the branch's performance and make adjustments as the business evolves. Be willing to make changes and adjustments as needed.

Is it worth opening a branch?

The decision to open a branch depends on several factors, including the type of business, the target market, local competition, and the availability of resources. To determine whether opening a branch is worthwhile, consider the following:

• Market demand: Assess whether there is sufficient demand for your product or service in the target area to justify opening a branch.
• Competition: Analyze your local competition and determine if there's room for your business in the market. Consider what unique or different things you can offer to stand out.
• Financial resources: Assess whether you have the financial resources necessary to open and operate a branch. This includes initial setup costs, ongoing operating expenses, and working capital.
• Growth strategy: Consider how opening a branch fits into your overall business growth strategy. Can it help you achieve your expansion goals?
• Risks and rewards: Weigh the potential risks, such as the initial investment, against the potential rewards of opening a branch. Consider factors such as return on investment, potential growth, and profitability.
• Matrix support: Make sure the parent company is willing to provide the necessary support, including funding, guidance, and resources, for the subsidiary's success.
• Market research: Conduct detailed market research to understand the preferences and needs of your target audience in the area where you intend to open your branch. This will help you adapt your product or service offering.
• Strategic planning: Develop a solid strategic plan that includes clear goals, timelines, and strategies for branch growth. This plan should be flexible enough to adapt to changing market conditions.
• Regulatory Compliance: Be aware of local, tax, and labor regulations that apply to your branch and be prepared to comply with all legal obligations.

Business options through branches

If you're considering starting a business through a branch model, it's important to know some common options available:

• Franchises: Opening a franchise is a popular way to start a business through branches. Franchises allow you to acquire a license to operate a proven, successful business using the franchisor's name and brand.
• Regional expansion: If your business is already successful in its home region, it may be a good idea to expand regionally by opening branches in neighboring cities or states.
• International expansion: If your company is ready for the global market, considering opening branches in other countries may be an option. This requires a thorough understanding of the laws, regulations, and business cultures in different countries.
• Retail chains: For retail businesses, opening branches in strategic locations can help reach a wider audience and increase sales.
• Regional offices: Service companies, such as consulting firms or IT companies, can open branches in different regions to serve local customers more effectively.

Is it worth opening a branch?

When considering opening a branch, it's crucial to evaluate whether this expansion strategy is truly worthwhile for your business. There are advantages and disadvantages to consider before making a decision.

Advantages of opening a branch

1. Growth and market reach: Opening a branch can allow your company to reach new geographic markets and target audiences, increasing your customer base and, consequently, your profits.
2. Brand recognition: If your company is already well-established, opening branches can increase brand recognition in different areas, making it more competitive.
3. Diversification of operations: Having branches can help diversify operations and reduce the risks associated with a single business location.
4. Economy of scale: As a company grows, it can benefit from economies of scale in purchasing supplies, marketing, and other operating costs.

Disadvantages of opening a branch:

1. Initial costs: Opening a branch can be expensive, with significant upfront expenses including renting space, hiring staff, and marketing.
2. Operational complexity: Managing multiple branches can be complex and requires an experienced management team.
3. Financial risks: If a branch is not successful, it can negatively impact the parent company's finances.
4. Regulatory compliance: Each geographic area may have different regulations, which requires careful compliance and management.

Specific advantages of franchise branches:

Now, if you are considering opening a branch through a franchise, there are additional advantages to consider:

1. Tested business model: Franchises offer a proven business model, which can reduce the risk of failure.
2. Ongoing support: Franchisors typically offer ongoing support, training, and guidance to help franchisees succeed.
3. Established brand: Franchises allow you to operate under an already recognized brand, which can attract customers more quickly.

Therefore, before opening a branch, carefully weigh the pros and cons, taking into account your business type and growth goals. With proper planning and research, opening a branch can be a successful and profitable expansion strategy.