A branch, or the stable presence of a company abroad, is an efficient tool for those companies that want to maintain their centre, both administrative and productive, in Italy but, at the same time, wish to acquire a direct presence on the target market, be it purely representative and therefore intended to carry out sales and distribution activities. In other words, the branch is a fixed place of business, namely a branch office or subsidiary.
In principle (although specific comments should be made depending on the State and the legislation in force in that State), a branch does not have a separate legal personality from that of the Italian parent company, which therefore remains, directly and without limitation, responsible for the obligations assumed by the foreign branch. However, in order to be able to operate on the foreign market, the branch will be required to register with the competent State offices, and it will be subject to local legislation and regulation.
The branch is a direct presence tool in the target country of the expansion process and has several advantages over the choice to export to this market.
First, this tool allows production to be implemented directly in the new market, ensuring the entrepreneur to carry out an adequate quality control and a more in-depth study of the needs of the market as well as those of the new target customers. The direct management of the branch and therefore the development of the promotion activity will allow the entrepreneur to build solid relationships with customers.
Secondly, having a subsidiary on the market will also make the manufacturer appear more reliable to consumers and will make it easier to manage the profiles related to technical assistance on the product.
Setting up a fixed place of business in a foreign market will be an even more efficient choice if the Italian company already owns an established brand in the target country, as this will ensure a faster development of the process of inclusion in the country, since it is already aware of the needs of this market.
Compared with the decision to start a mere export business, the choice to build a secondary office in a foreign country is much more complex. A branch carries far greater risks, just as much does by carrying costs. The latter will relate not only to the establishment/start-up costs of the place of business, but also to the management costs of that place, with the need to significantly expand the workforce. The costs, both of constitution and management, vary depending on the foreign country in which you choose to set up the secondary office.
There is no need to mention the necessity, and therefore the related costs, to carry out in-depth and preliminary investigations on the reference market in order not to frustrate the investments made. The choices regarding the penetration strategy can also be supported by consulting firms well established in the new territories.
Through the establishment of a branch, the company is exposed to direct relations with the market, thus becoming subject to a greater risk of legal action.
Moreover, the establishment of a Branch implies the subjection to local taxation and the need to appoint a tax advisor or a forensic accountant.