What is a foreign subsidiary?

A foreign subsidiary is best defined as a company that is wholly or partially owned by another company, referred to as the parent company, based in a different country. This relationship allows the parent company to have significant control or influence over the subsidiary's operations, which distinguishes it from an independent company or merely a branch.

In the context of international business, establishing a foreign subsidiary often involves a direct investment in a local market, thus facilitating local operations while maintaining the strategic objectives of the parent company. It does not equate to a merger or acquisition, which generally involves the consolidation of two companies, but rather refers to an entity that has been set up to operate in a specific market while still being under the ownership umbrella of the parent company.

The key features of a foreign subsidiary include its operational independence in day-to-day management, but also its obligation to align with the policies and broader corporate strategy of the parent corporation, which is typically where ownership and control lie.