Mention the merits and demerits of the subsidary system?
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Answer:
Disadvantages of a Subsidiary
A major disadvantage of being a subsidiary of a large organization is the limited freedom management may have to make major decisions, whether involving products, finance or other major topics. Issues often must go through various chains of command within the parent bureaucracy before any action can be taken. The extra legal and tax work involved can be a disadvantage for subsidiaries.
Advantages of a Subsidiary
There are a lot of reasons companies acquire other companies and retain their legal status as a subsidiary, and a lot of benefits for a smaller company becoming part of a larger corporate family. The monetary influence of a parent company cannot be overemphasized. The parent has the means of providing buying power, research and development funds, marketing money and know-how, employees, technical expertise and other features the smaller company could not afford or accomplish alone. The parent can provide the monetary means and capability to jump start new companies and products. The marketing power of the parent, such as the ability to place products in stores, can be a boon to a smaller company seeking to expand. Sometimes a company will set up a subsidiary for a portion of a company it plans to sell in the future. It is easier for a smaller subsidiary to form joint ventures and partnerships with other companies if it is not hindered by a larger corporate bureaucracy. Subsidiaries can borrow money and issue their own debt.