A branch is a unit of a parent company incorporated in a foreign market or other location with the aim of doing business. A branch is not a separate entity in either a legal or functional sense – it is set up as an extension of the parent company, which is responsible for its liabilities and taxes.
Because branches are sub-divisions of the parent company, they can be used to carry out the same activities, including but not limited to:
Sale of goods and services
manufacture of products
Conducting market research
launch advertising campaigns
In other words, a branch office acts as a representative of the parent company even though it is physically separate from the main office. This aspect of physical presence in a foreign or otherwise distant market is the main benefit of having a branch office. It ensures a tangible presence and also acts as a base or hub in the logistics network of the parent company.
Another important task of a branch office is to act as a contact point for customers. In addition to selling a product or service, depending on what the company manufactures, a branch office can be used to make repairs, store goods for on-site transactions (i.e., act as a retail store), and generally serve as a customer support center .
In addition, a branch office is an important element in a company's market research and business expansion strategy. A branch may hire local people to gain insight into the culture and environment of a foreign market and to draw on knowledge of the market itself. The home office of the parent company cannot do this and would need mediators or advice from experts on the foreign market. Depending on the distance to the home office, a branch office can also be advantageous in responding to certain business events, since information is more likely to be received earlier.
Advantages of a branch
A branch office has several advantages over other forms of corporate representation in a foreign market:
Scope of activities
A branch office can perform the same activities as the home office while providing greater access to local resources and information.
A branch office can access local suppliers and customers without having to build a delivery and supply network, thereby increasing the overall effectiveness of the company's services and eliminating the effects of distance between the foreign market and the home office, which can discourage potential partners.
Because a subsidiary is a separate structure, its activities can be adapted to meet the needs of a foreign market without overhauling the structure of the entire company - rather than the home office, location-specific products, types of services, etc. can be assigned to the subsidiary to manage .