Globalization Through Subsidiaries And Affiliates

Globalization Through Subsidiaries And Affiliates

Introduction

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Globalization is a term used in business or economics. It is the process of interacting and integrating with people, companies and businesses from different nations and it go all the way at various continents. Globalization is the driven by international investments and international trade, and information technology plays a huge role in boosting it. Information technology helps in increasing interaction between these people and companies making it much easier. If it were not for technology, the rate at which globalization is taking effect could not be the same. It would have been slower and less efficient.

Globalization through subsidiaries

Though the word globalization is new, the process of globalization itself is not new. Globalization is a process that has been going on around the world for a long time now. It has enabled many countries to grow immensely. Some of the biggest world economies right now have reached to these high levels just because of globalization. Globalization affects the environment, people, political systems, cultures as well as political regimes. Globalization has an enormous impact on the economy of a place. Large enterprises insist on globalization because when they widen their markets, or their products find their way in the world market, it becomes more and more profitable[1]. The global marketplace is a market that cannot be satisfied because it is an always demanding market. Increasing demand is one reason why companies own or seek to own a lot of subsidiaries all around the world. A subsidiary is a company that is born from the larger company with an aim of expansion. A branch is in control of the major company which is usually known as the parent company or the holding company. Remember a subsidiary can be a government enterprise or it can even be a limited liability company in another part of the world. A subsidiary does not have to be conducting the same business with the parent company. Difference in business activities is another thing that makes a clear difference between a subsidiary and a division

With all this information about companies, globalization, and subsidiaries, we now ask ourselves how we can achieve globalization through subsidiaries. Globalization through subsidiaries is a strategy that is on the minds of very many governments, companies and other interested parties with the economy of an individual country. Through subsidiaries, companies can reach a wider market. Remember we earlier said that the world market is insatiable. The companies would make a lot more profit if they were able to arrive at a wider market for their products. The companies are not the sole beneficiaries of the globalization process through their subsidiary. The government is also affected by the globalizing world. When subsidiaries are put up in a country, the county’s economy will tend to grow at a higher level than the usual. People will get employed by the companies to facilitate the subsidiary, and this will increase the cash flow of that particular place. The fact that subsidiaries are separate and legal entities very distinct from the main company is a positive thing to a government. It means that taxation of the subsidiary will be effected by the government of that particular place and not the government where the parent or the holding company is situated which is the difference between a subsidiary and a division and it mostly applies to foreign subsidiaries[2]. The holding company is required by the law to operate within the jurisdiction of the country or countries where the subsidiaries are.

Since the Second World War, most nations have adopted the ever growing free market economic systems, therefore, increasing their productive potential while at the same time creating many opportunities for international investment and international trade. Foreign subsidiaries are the biggest boosters of globalization. However, there are companies and governments that argue about globalization through subsidiaries. Some of the companies quote that it allows developing countries and their citizens to evolve in a huge way economically which would not be possible with the speed at which these governments grow their economies, and it may seem like they are doing a favor to the country. On the other hand, other governments and criticizers of globalization claim that the creation of subsidiaries does not benefit them in any way, and it primarily helps the parent companies only and multinational corporations. They say all this is at the expense of their citizens and the local enterprises. Many subsidiaries can win the market of a particular place faster than even the existing companies in that location because having a parent company means that you have a large pool of funds. This way, these companies can easily crush the local enterprises without even feeling a pinch of it all. All these are some of the reasons cited by the criticizers of globalization through subsidiaries which make globalization a very controversial process. People and the governments who are resisting globalization tend to object subsidiaries, and they try to manage the flow of capital, goods, labor and ideas which are the items that constitute to the globalizing world[3].

However, globalization through subsidiaries has proven to be very effective. It is a process that has seen some of the poorest countries in the world undergo a transforming change in their economy, and they develop so fast. These governments have the opportunity to buy shares in the subsidiaries, therefore, taking part in the decision-making process of the subsidiaries which however is not the case with many companies. Remember that affiliates can even be larger than the parent or the holding company because it is a matter of ownership of shares not the number of employees. Globalization through subsidiaries is the most efficient way for the entire globalization process[4]. Though it might meet some challenges and resistance from different governments, it is the best tool that can drive globalization to another new level. But this can only be possible if subsidiaries are encouraged in the various countries all over the world. If a particular government, system or culture does not support globalization through subsidiaries in their country, they just have to remember that the subsidiary and the parent company do not have to be conducting the same business. It is a matter of shareholding and control, not the production of goods or the provision of services. Shareholding is why we have to embrace subsidiaries and come to the knowledge that globalization will be faster and more efficient if only affiliates are welcomed and embraced everywhere and especially in the developing companies.

Globalization through affiliates

Globalization enhances the competency of a firm’s operations by exposing a firm to new conditions. Competency refers to the ability of a company to produce marketable products and services that are innovative to meet the global demands[5]. Through affiliates, globalization has enabled firms to maintain a significantly high level of quality products that are highly marketable worldwide. Affiliates in the world market are offering solutions to business challenges such as transport, manufacturing, tax, duties, clearance, marketing, and other business-related services. Firms which are seeking to outsource their services and products in the global market aim at controlling costs and not only the manufacturing cost but total cost of ownership in the whole supply chain.

Affiliates are highly efficient to produce cost effective inputs that are considered promising to onshore firms which are into manufacturing. The reality is that international affiliates are part of a diverse network that ensures that innovation embraces through the production of high quality and standardized products and services. The increasing demand for goods and services in the global supply chain has led to the globalization of supply chain management, risk control, marketing and other operational processes. Globalization mainly encompasses the flow of workers, financial services, and movement of good and money across nations. Direct investors participate in the global market as affiliates providing the scope for foreign direct investment[6].

Affiliation in the global supply chain occurs in various ways such as license production to foreign firms, marketing products under another company’s trademark, acquiring of shares in a foreign business, joint ventures, and partial ownership of foreign companies. Parent firms are international businesses that have an interest in outsourced products while foreign affiliates are the producers of assets that are needed by the parent firm. Examples of the goods and services that are mostly outsourced by parent firms include assembly hardware, capital, distribution and packaging systems. In such a situation, the parent firm benefits by acquiring innovatively designed products that are cost effective.

Various hypothetical advancements add to our comprehension of the determinants of affiliates in the global supply chain. The embodiment of this theory is, if a company extends to the worldwide business sector in ahead of schedule phases of an item life cycle, it ordinarily does as such through fares. Be that as it may, as development underway and deals grow, a firm thinks that its must sustain progressively close working associations with both suppliers also, merchants. Affiliates are more noteworthy to produce item uniqueness and many critical uncommon connections. Firms frequently find that they can best oversee such unique relationships in foreign markets with on location offices under the help of affiliates. In this way, they participate in the remote production of quality services.

Hence, the significance of item separation and other firm-particular qualities has turned into a focal subject in speculations of affiliation in the global supply chain. Where required inputs or promoting and circulation techniques such as advertising and administrations are profoundly specific, markets for those affiliating in advertising departments might be hard to arrange[7]. Difficulty in arrangements applies in particular within the sight of vulnerability over interest, great venture costs, and the requirement for a fast trade of data, close coordination, and joint arranging. Confronted by blemished foreign business sectors, firms choose to disguise the supply of these essential inputs or dispersion and marketing administrations, consequently going into outbound foreign affiliates in vertically-neighboring segments.

Affiliate strategies in the global market

Performance marketing is proofing to be a cost-effective way to set up overseas markets without physical office appearance or full-time staff. Affiliation is a small risk and performance based business model that has strategies that allow affiliate experts to reach buying customers through networking. Firms invest money and time connecting with trading partners at the global level when outsourcing or selling products in new markets[8]. Due to stiff competition in the global supply chain, firms follow strategic plans to keep up with the stiff competition by equipping themselves with information and know-how in specific regions. Some of the affiliate strategies that firms employ in the worldwide supply chain include;

Affiliates identify the strongest growth areas for the company through research of hot growth markets that have high potential in a particular region. Market identification has enabled parent firms to outsource specified products to seize market opportunities created by demand. Parent firms prefer connections with local or international affiliates for reality checks that involve market analysis of the product, and marketing strategic advice based on the estimated demand for the product. Market research has led to the increase of product affiliation as marketers can be recruited all over the world through platforms such as the internet. Reality check involves the commissioning and provision of services and products in the global supply chain[9].

Recasting the competitive landscape is also vital as it helps a firm to identify its competitors and best practices that can put the company’s products ahead of the competition. Affiliate experts provide valuable market information after exploration of comparable products to offer knowledge on the competitors a parent company will be up against in a particular location. Recasting the market, therefore, helps the parent firm to innovate strategies and innovative designs that attract more customers than their competitors. The competitive landscape is made up of international suppliers who offer different distribution prices and affiliates who demand different commissions. Cost effective outsourcing depends on the ability of the parent firm to locate suitable affiliate distributors and suppliers that make the process cost effective than local outsourcing.

Affiliates enable the fulfillment of business operations in a supply chain by offering timely deliveries and maintaining the brand of a firm by overcoming delays in freight by working with well-established affiliates in drop shipping, delivery, payment processing, currency conversion, and provision of raw materials[10]. Through the use of affiliate channels, parent firms have been able to enter new markets and investing around the world, therefore, reaching new customers for their products.