Setting up a subsidiary abroad: 10 key considerations for Swiss companies

Your company has been growing in Switzerland for several years now, and today you feel that the time has come to tap into new markets to continue that growth!

Whilst this solution may seem appealing and profitable, identifying and successfully entering the market best suited to your offering requires very solid planning. Here is a look at the 10 key points to examine before you get started.

#1 Identify your objectives and constraints

Before you even begin expanding your business abroad, the first question to ask yourself concerns your objectives: what resources do you have at your disposal, in terms of budget as well as staff and time?

Indeed, setting up a subsidiary internationally involves costs that need to be recouped over the long term.

It is therefore essential to have the management tools needed to work out these costs, such as:

• cash management software;
• forecast plans;
• project-based funding tables.

In addition to this internal view of your company, it is important to draw up a comprehensive list of potential territories for your expansion, so that you can carry out in-depth market research on them.

The profile of your local customer base (typical consumer persona), local competition, issues relating to logistics costs and rent… These are all key factors in determining how to roll out your business and adjust your budget.

Furthermore, it will be essential to the successful development of your subsidiary to recruit (or send) the right people abroad: professional skill is not everything; they will also need to be able to adapt culturally once on the ground!

#2 Local culture

The gap between Swiss social and cultural norms and those of any other country can be significant. You should therefore look into the following beforehand:

• Cultural customs. To maintain good relations in the host country, it is important to find out in advance which behaviours are accepted, and which are frowned upon, in the business world. Likewise, gaining historical and cultural knowledge of the country will help you settle in better and work in a favourable climate.

• Working hours. Attitudes towards working time are not the same everywhere: while it is customary in some countries to eat at one’s desk, this practice is, for example, seen as impolite in the Netherlands. Break times and working hours can also vary from one country to another. It is up to you to strike a balance that keeps your employees’ motivation and efficiency at their peak.

• Working methods. Although several Western European countries operate in a more bureaucratic and structured way, the type of work organisation is not the same everywhere. In some regions, attitudes to time and to rigour at work differ. It will therefore be important to show flexibility in reaching compromises that let you meet your time and quality constraints whilst respecting the local professional culture.

• Relationship norms. While some places are welcoming towards meeting and hosting foreigners, this is not the case everywhere: the integration process can take more or less time. Where this is the case, you may face certain relationship hurdles with local people (customers, suppliers, partners…) and will need to be patient to win their trust.

Beyond its cultural specifics, a country will be more or less advanced in technological, healthcare and social terms. You should therefore make sure to take these factors into account in order to protect your working conditions (and even your safety).

Indeed, operating in an environment without internet access, in a climate prone to natural disasters and the spread of disease, and amid social tension, could quickly harm your expansion if all of these factors are not taken into account beforehand!

#3 Local legislation

Just as with importing, it is the host country’s legal rules that govern the creation of subsidiaries abroad, so it is vital to be familiar with local law.

Good to know: To find out everything about import procedures, check out our comprehensive guide to import/export in Switzerland in 2021.

Depending on the country you choose, the rules on expatriation, the economy, taxation and social protection will differ. Knowing these rules will spare you many obstacles and unforeseen costs during the setup and growth phases of your subsidiary.

#4 The subsidiary

Going through the opening of a subsidiary allows the parent company to hold a right of control over all activity carried out by the new company. This advantage goes hand in hand with the fact that any potential commercial dispute suffered by the subsidiary involves only limited criminal liability for the head office.

Moreover, the profits thus accumulated by subsidiaries are easily transferred to the parent company, which greatly facilitates the implementation of any large-scale development strategy.

Setting up a subsidiary in the target country is therefore very often the obvious solution. Nevertheless, other options are available to business leaders wishing to enter new markets abroad.

#5 The independent business

Although more costly, time-consuming and complex, the process of setting up a completely independent business “from scratch” offers certain advantages in terms of the free choice of legal status.

A new legal form, new staff, a new network of local partners, a new market… Investing in setting up an independent business allows you to take on an identity better suited to the target market.

Because the people running your new business will be recruited on the spot, integrating into the local cultural context will pose far fewer problems than when setting up a subsidiary. As a result, the costs involved will also be lower.

#6 Acquiring local businesses

Finally, the third option would be to acquire an existing local business. By investing directly on the spot, you would carry out a capital increase in the existing company in the form of shares.

The resulting share of capital then confers decision-making power, subject to compliance with the investment rules set out in the company’s articles of association.

Good to know: To avoid the potential pitfalls of this complex legal process, it is best to be assisted by a lawyer specialising in employment, corporate and tax law.

Such an operation offers numerous advantages that a subsidiary or a new business does not:

• Diversified risks. Risks arising from potential economic or political instability are easier to manage, as costs are then spread across your various branches. Similarly, currency risk is diluted and your foreign exchange operations optimised, provided you use the services of a qualified provider such as b-sharpe.

• Greater competitiveness. A different market means different practices. Drawing on the know-how of an existing local business is therefore likely to give you new insights that can be applied to your production processes in Switzerland.

• Better local integration. Since the business is already present and active in the target market, it is already at the heart of local networks: this saves considerable work as part of setting up abroad. Similarly, you will have no recruitment to carry out.

On the other hand, however, you will have to bear high costs due to covering salaries, rent for your premises, upkeep costs and local taxation. Furthermore, you will need to remain vigilant about exchange rate fluctuations, particularly in your invoicing procedure.

Furthermore, while taking over an existing company allows you to draw on new practices, such an acquisition can also come with its share of financial difficulties and debts to be repaid: the ideal approach is to carry out an audit before the purchase.

Finally, because trust does not exclude control, it is important to keep your own production processes confidential by making sure to filter the flow of information from the parent company to the local business.

#7 Type of company

A factor that is important to take into account in order to judiciously choose the best investment solution is the type of company you wish to acquire abroad.

Are we talking about offices? A factory? A shop? Depending on the case, production processes and cultural integration on the ground will not carry the same weight.

To answer this question, you first need to carry out a full assessment of your business strategy. Drawing up several financial scenarios for the short, medium and long term will help you better characterise the costs and benefits generated by your investment.

Please note: Keep in mind that return on investment (ROI) is a key concept in your decision-making process!

#8 Local partners

Because creating a subsidiary abroad is only the beginning of your expansion process, the choice of your local partners will have a long-term impact and will therefore be decisive for your international growth.

Here again, as with the choice of country of establishment, it will be a matter of developing a market analysis in order to gain a panoramic view of the various potential contacts with whom you could work.

To help you with your decision-making, it can be a good idea to draw up a list of candidates for a potential partnership.

This list will then help you prioritise your choices according to various criteria, namely:

• their reputation in the market invested in;
• their place within local networks;
• their level of efficiency and responsiveness;
• their level of ethical values;
• their command of various languages;
• their team management skills;
• …

Please note: It is important that you tailor this list to the sector in which you operate, so as to better identify the profiles of interest.

Although this step comes after the creation of your subsidiary, it can be legitimate to carry out this benchmarking beforehand and across the various countries under consideration, in order to avoid heavy financial losses.

#9 Corporate purpose

Even though subsidiaries set up abroad generally have a corporate purpose identical to that of the parent company, this is not always the case. This choice will be made in light of the activities carried out by the subsidiary after its creation or acquisition.

The articles of association, for their part, are set by the Board of Directors (BoD) of the parent company. Where the corporate purpose differs from that of the parent company, an Extraordinary General Meeting (EGM) is required to approve this decision.

#10 Legal form

While the corporate purpose and the articles of association can therefore be defined according to Swiss law, the same is not true of the legal form of your subsidiary, which must in turn comply with the rules of the chosen country of establishment.

Please note: Tax rules, agreements and the formalities for putting your file together should be carefully studied based on the documentation provided by the host country. A poor choice could have serious consequences for your profits in the long term!

You now know everything about the various points of attention to address in your project to expand abroad. All that remains is to conscientiously follow each of these steps!

However, because financial flows are commonplace as part of international expansion, it is essential to optimise every foreign exchange transaction. That is why b-sharpe gives you access to the best currency conversion tools to strengthen your business savings!