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

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

Whilst this solution may seem appealing and profitable, identifying and successfully entering the right market for your offering requires thorough planning. Here’s a look at the 10 key points to consider before you get started.

#1 Identify your objectives and constraints

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

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

It is therefore essential to have the necessary management tools to calculate these costs, such as:

• cash management software;
• forecast plans;
• project-based cash flow statements.

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

Your local customer profile (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 for the successful development of your subsidiary to recruit (or send) the right candidates abroad: professional skills aren’t everything; they’ll need to be able to adapt culturally once they’re there!

#2 Local culture

There can be a significant difference between Swiss social and cultural norms and those of other countries. You should therefore consider doing some research beforehand:

• Cultural norms. To ensure you maintain good relations in your host country, it is important to find out in advance which behaviours are accepted and which are frowned upon in the business world. Similarly, gaining an understanding of the country’s history and culture will help you settle in more easily and work in a positive environment.

• Working hours. Attitudes towards working hours vary from place to place: whilst it is customary in some countries to eat at one’s desk, this practice is, for example, considered rude in the Netherlands. Furthermore, break times and working hours can differ from one country to another. It is up to you to strike a balance to keep your employees’ motivation and efficiency at their peak.

• Working practices. Although many Western European countries operate in a more bureaucratic and structured manner, the way work is organised varies from place to place. In some regions, attitudes towards time and work ethic differ. It is therefore important to be flexible in order to find compromises that allow you to meet your time and quality requirements whilst respecting the local work culture.

• Relationship dynamics. Whilst some areas are conducive to meeting and welcoming outsiders, this is not the case everywhere: the integration process can take varying amounts of time. Where necessary, you may encounter certain relationship hurdles with local people (customers, suppliers, partners, etc.) and will need to be patient in order to gain their trust.

In addition to its cultural characteristics, a country will be at a more or less advanced stage in terms of technology, healthcare and social welfare. You should therefore take these factors into account to ensure your working conditions (and indeed your safety) remain secure.

Indeed, operating in an environment without internet access, in a region prone to natural disasters and the spread of disease, and within a socially tense context could quickly hinder your expansion if all these factors are not taken into account at an early stage!

#3 Local legislation

Just as with imports, it is the host country’s legal requirements that govern the establishment of subsidiaries abroad; it is therefore vital to be familiar with the local legal framework.

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

Depending on the country you choose, the rules governing expatriation, the economy, taxation and social security will vary. Being aware of these regulations will help you avoid numerous obstacles and unexpected costs during the establishment and growth phases of your subsidiary.

#4 The subsidiary

Establishing a subsidiary enables the parent company to retain control over all activities carried out by the new company. This advantage goes hand in hand with the fact that any potential commercial disputes involving the subsidiary result in only limited liability for the parent company.

Furthermore, the profits accumulated by the subsidiaries can be 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 often the obvious choice. Nevertheless, there are other options available to business leaders keen to enter new markets abroad.

#5 The independent business

Although it is more expensive, time-consuming and complex, the process of setting up a completely independent business from scratch offers certain advantages in terms of the freedom to choose its legal status.

A new legal structure, new staff, a new network of local partners, a new market… Investing in setting up an independent business allows you to adopt an identity that is better suited to your target market.

Because the staff for your new business will be recruited locally, integrating into the local cultural context will pose far fewer problems than it would if you were setting up a subsidiary. Consequently, the costs involved will also be lower.

#6 The acquisition of local businesses

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

The shareholding thus acquired 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 any potential pitfalls in this complex legal process, it is advisable to seek the assistance of a solicitor specialising in employment, general and tax law.

Such a move offers numerous advantages that setting up a subsidiary or starting a new business does not:

• Diversified risks. Risks arising from potential economic or political instability are easier to manage, as the costs will be spread across your various branches. Similarly, currency risk is mitigated 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 expertise of an existing local company is therefore likely to provide you with new insights that can be applied to your production processes in Switzerland.

• Better local integration. As the company is already established and active in the target market, it is already at the heart of local networks: this saves a considerable amount of work when setting up abroad. Similarly, you will have no need to recruit staff.

On the other hand, however, you will have to bear high costs associated with paying staff salaries, premises rent, maintenance costs and local taxes. Furthermore, you will need to remain vigilant regarding exchange rate fluctuations, particularly when it comes to your invoicing procedures.

Furthermore, whilst taking over an existing company allows you to draw inspiration from new practices, such an acquisition can also bring with it its share of financial difficulties and debts to be repaid: the best course of action is therefore to carry out an audit before proceeding with the purchase.

Finally, and because trust does not preclude oversight, it is important to keep your own production processes confidential by ensuring that the flow of information from the parent company to the local subsidiary is carefully controlled.

#7 Type of company

One factor that is important to consider when choosing the best investment option is the type of company you wish to acquire abroad.

Is it an office? A factory? A shop? Depending on the circumstances, the importance attached to production processes and cultural integration on site will vary.

To answer this question, you first need to carry out a comprehensive review of your business strategy. By drawing up a range of short-, medium- and long-term financial scenarios, you will be better able to assess the costs and benefits associated with your investment.

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

#8 Local partners

Because setting up a subsidiary abroad is only the first step in your expansion process, the choice of your local partners will have a long-term impact and will therefore be crucial to your international growth.

Here too, as with the choice of country in which to set up, you will need to carry out a market analysis in order to gain a comprehensive overview of the various potential partners with whom you might collaborate.

To help you make your decision, it may be a good idea to draw up a list of potential partners. 

This list will then help you prioritise your choices based on various criteria, namely:

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

Please note: It is important that you tailor this list to your specific sector in order to better identify suitable candidates.

Although this step comes after your subsidiary has been set up, it may be advisable to carry out this benchmarking exercise in advance and across the various countries under consideration in order to avoid significant financial losses.

#9 Corporate purpose

Although subsidiaries established abroad generally have the same corporate purpose as their parent company, this is not always the case. This decision will be made taking into account the activities carried out by the subsidiary following its establishment or acquisition.

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

#10 Legal form

Whilst the corporate purpose and the articles of association may therefore be defined in accordance with Swiss law, the same does not apply to the legal form of your subsidiary, which must comply with the regulations of the chosen country of establishment.

Please note: You should carefully review the tax regulations, agreements and formalities involved in setting up your business, in line with the documentation provided by the host country. Making the wrong choice could have serious long-term consequences for your profits!

Now you know everything there is to know about the various key considerations to bear in mind when expanding your business abroad. All that remains is for you to follow each of these steps carefully!

However, as financial transactions are commonplace when expanding internationally, it is vital to optimise every foreign exchange transaction. That is why b-sharpe provides you with the best currency conversion tools to help boost your business savings!