The wholly-owned subsidiary is a foreign sales office owned by the U.S. company. There are advantages and disadvantages to having a wholly-owned subsidiary as opposed to dealing through an independent distributor in the target country. There are also a variety of laws related to competition and maintaining a competitive environment which must be followed in creating and operating such a subsidiary, and each country has its own version of such rules and regulations. The situation is different in Europe, Asia, and South America, and it is also different among the different countries in each of these regions.
Many companies export their goods directly to their own sales subsidiaries abroad, and in this way they can sidestep using independent intermediaries. The sales subsidiary then assumes the role of the independent distributor by stocking the manufacturer's products, selling to buyers, and assuming the credit risk. The manufacturer is given full control of selling operations in the foreign market through the subsidiary, and this may be important if the products of the company require the use of special marketing skills, such as advertising and selling. Operating a subsidiary adds a new dimension to a company's international marketing operation. The creation of a subsidiary involves the commitment of capital in a foreign country for the financing of accounts receivables and inventory, and the operation of a sales subsidiary further requires a number of general administrative expenses that are usually fixed in nature. Because of this, the creation of a sales subsidiary is not to be made without careful evaluation of all the costs involved (Hennessey 299).
A subsidiary is defined as a corporation controlled by a second corporation through partial or complete stock ownership of the voting class of security, interlocking directorate, lease, or community of interest. Many major corporations in the United States are either t...