Subsidiary

Background

A subsidiary refers to a company that is owned or controlled by another entity, typically referred to as the parent company. This relationship often involves significant influence or outright control over the subsidiary’s operations and strategic decisions.

Historical Context

The concept of subsidiaries has evolved alongside the development of corporate structures and the global expansion of businesses. Historically, the creation of subsidiaries allowed companies to manage specific activities or ventures while mitigating risk and maintaining separate legal entities.

Definitions and Concepts

A subsidiary is defined as a firm that is either wholly or partly owned by another firm, known as the parent company. This relationship grants the parent company the ability to control or significantly influence the subsidiary’s operations, management decisions, and financial activities.

Major Analytical Frameworks

Classical Economics

Classical economists would discuss the role of subsidiaries in terms of competition and market efficiency. Subsidiaries allow parent companies to enter into new markets, providing the opportunity to grow and expand while maintaining efficiency in operations.

Neoclassical Economics

Neoclassical economics would evaluate subsidiaries by analyzing the cost-benefit outcomes of establishing these separate entities. The focus would be on the impact of subsidiaries on resource allocation and the overall profit maximization of the parent company.

Keynesian Economic

Keynesian economists might explore how subsidiaries contribute to overall economic stability and employment. By expanding into different sectors or regions, parent companies can diversify their activities, which may increase overall economic resilience.

Marxian Economics

From a Marxian perspective, subsidiaries could be examined in terms of their role in capital accumulation and class relations. The parent company’s control over multiple operations can be seen as a way to consolidate and exert power within the capitalist system.

Institutional Economics

Institutional economists would study how subsidiaries fit into larger institutional frameworks and corporate governance structures. This includes understanding the legal and regulatory environments that govern corporate ownership and control.

Behavioral Economics

Behavioral economists might investigate decision-making processes within subsidiaries, including how autonomy and corporate culture influence managers and employees’ behavior.

Post-Keynesian Economics

Post-Keynesian economists would analyze how subsidiaries impact economic dynamics, particularly concerning investment decisions, demand management, and income distribution.

Austrian Economics

Austrian economists would delve into the entrepreneurial aspects of setting up and managing a subsidiary, focusing on the parent company’s strategic choices and market signals’ interpretation.

Development Economics

In the context of development economics, subsidiaries play a crucial role in foreign direct investment (FDI) and global value chains. They can be instrumental in bringing technology, management expertise, and capital to host countries, influencing economic development.

Monetarism

Monetarist analysis would focus on the monetary aspects, such as how the financial activities of subsidiaries impact the money supply, interest rates, and broader economic stability.

Comparative Analysis

Different economic frameworks offer varied perspectives on the significance and impact of subsidiaries. While most agree on the potential benefits in terms of growth and profit maximization, the methods and implications of establishing and controlling subsidiaries can differ greatly.

Case Studies

Case studies of multinational corporations such as General Electric, Toyota, and Unilever show the strategic use of subsidiaries to manage diverse business operations efficiently. These cases highlight the varied approaches to autonomy, investment, and inter-group trading relationships.

Suggested Books for Further Studies

“Multinational Enterprises and the Global Economy” by John H. Dunning and Sarianna M. Lundan
“International Business: Competing in the Global Marketplace” by Charles W.L. Hill
“The Strategy of International Business: Managing and Analyzing Foreign Direct Investment” by Stephen H. Hymer

Parent Company: An entity that owns or controls one or more subsidiary companies.
Affiliate: A company that is related to another company, usually through shared ownership or control.
Joint Venture: A business arrangement in which two or more parties agree to pool their resources to accomplish a specific task.
Conglomerate: A large corporation that owns a collection of different companies across various industries.
Holding Company: A type of parent company that exists solely to control other companies through stock ownership.