Introduction
Warner Media is based in the USA and is among the leading producers of media and films. This firm is owned by AT&T which is the main shareholder of this multimillion company. It was created in 1990 to offer filming services to the American population. As a way of diversifying production, the company is divided into Warner Bros, Home Box Office INC. (HBO), Picture Inc., and Turner Broadcasting System Inc. Additionally, Warner Media is an entertainment company that primarily encompasses broadcast, motion pictures, distribution, and cable television programming. It has many subsidiary companies due to the nature of the business that it runs. Its headquarters are in New York City. According to a financial analyst, the company recorded a profit of USD 30.4 billion in the 2020 financial year WarnerMedia for Brands, 2021). This financial gain by Warner Media was brought about by assigning some projects to their subsidiary company. These smaller companies are selling low-cost products to their clients, widening their market force.
Source of the Data
Warner Media is an international media and entertainment firm with many subsidiary companies under it. The data will be gathered from various sources, including journals and trusted data websites. The information will mainly be sourced from websites as the company, since the main discussion is an entertainment company, and its business is mainly run through the media and online. Therefore, most of the information concerning this company is found on the Internet.
Nature of the Opportunity
Management of the company
The parent company and the subsidiary company have different management systems that make it easy to expand. A multinational company like Warner Media is to get international and dominate the entertainment sector. Every country has its unique laws, norms, and beliefs and will require management that understands the domicile well. The management from the country of operation can easily apply techniques that can fit best the local culture and beliefs. Consequently, Warner Media allows its subsidiary to operate independently, as Warner Bros has its CEO and team (WarnerMedia for Brands, 2021). This strategy allows Warner Bros to make critical decisions that could benefit the parent company.
Tax Purposes
The parent company can use the subsidiary company’s for-profit and non-profit operations. Non-profit companies are usually exempted from taxes, and the parent company can take advantage of this. Subsidiaries are also taxed for the profits they make in that specific state and cannot be. This reduces the amount of taxes paid by the subsidiary company. Additionally, taxes on the minor products can be handled by the smaller company, which in turn reduces the work of the parent company.
Investment Purposes
The parent company working with the subsidiary helps ease business transactions as it can reduce regulatory requirements. In addition to that, they can invest in risky investments and projects that could cost the main company fortune in case of failure. It can also attract other investors to the company. In an event where two companies want to merge, the tax payable will be reduced, and, therefore, the merger will be easier.
Countering Competition
If the parent and subsidiary companies are in the same line of business, then competing against each other can be avoided. The leadership in an organization is supposed to boost a culture that will encourage people to be creative in innovating ideas. Additionally, solving problems encountered in the business to create room for development and sustain the competition with its run mates. This is based on the day to day’s activities to ensure all the company meets its target.
Future Prospects
From an accounting perspective, there is a need for more parent and subsidiary companies for tax benefits. According to Lee and Roh (2018), the existence of subsidiary companies means that more tax exemptions are depending on the type of business or lower taxes at a state level. There may also be more emerging countries with tax treaties. In an organization, it is important to specify the criteria to create success and ideas. This will help the company to communicate the culture and goals of its team. Members of an organization can develop their business by working as a team, combining ideas, and being logical to their specifications. This strategy is the most crucial because the organization’s success depends on the people running the business. This is the strategy in which the skilled person is required to generate the ideas. Not everyone in the organization can create the idea, they choose the most skilled persons.
Resource Availability
Not enough financial records belong to the company; it is difficult to find financial information belonging to the company and its subsidiary. The information available does not necessarily specify the profit and loss, and, therefore, it was quite hard to access that information. In trying to access the consolidated balance sheets and profit and loss accounts, the information especially from the Internet is not reliable as anyone can release information on a certain website. It was difficult to know what information to trust and which one not to trust. Human resources management is essential for the two companies, as both companies must employ the right staff. Despite the best human resource management transferring some tension and challenges to the parent company (Lee & Roh, 2018). Human resources management for international companies should adopt the right strategies in employing the right staff. Employing the wrong staff for both the parent and subsidiary can be costly in the long run.
The financial statements are not comparable. When trying to compare the results of the two companies or the financial reports, they are hard to compare as the companies use different accounting practices. If all the companies used the same accounting model to prepare their financial statements, then the comparison would be possible or even way easier. There is no way to find out if the financial statements have been verified and reflect the true financial position of the company. The financial reports do not have any proof of audit, and therefore there is no way of knowing if the information is accurate.
Expected Challenges
Parent company challenges
As stated earlier, the subsidiary company has its management. According to Sherman (2019), this can limit the parent company from having full access to the cash flows of the subsidiary company. The level of access that the parent company can get depends on the amount of control the parent company has over the subsidiary, the management structure, and the law of the specific country. The subsidiary company may be well known to be linked or connected to the parent company which is a bigger brand. Consequently, in case the subsidiary company has accruing debts; the parent company may have to chip in and pay off the debts to maintain a good reputation before the public.
Another challenge is when the subsidiary company wants to take a loan. The parent company may be required to guarantee a loan for the subsidiary company, and this exposes them to a risk of being held liable in case of a default in payment. Competition in local and international markets is at an all-time high. Competition can be divided into micro and macro categories based on the size of the market. Global competition is dependent on four interconnected channels, defined as a diamond model. It includes material conditions, demand status, associated and sub-sectors, a strong strategy, framework, and controversy. Factor conditions refer to the workplace, the origin of the home-grown resources, and the essential elements needed for a successful production. The conditions of demand encapsulate the demand for the final product in the local market. When consumer demands are complex, they are at risk of suppressing firms.
The parent company is usually linked to its subsidiary company, and any action that is done by the subsidiary company can be damaging to the parent company. Moreover, the parent company is liable for the actions of the smaller company, which might bring great losses to the parent company. Companies need to reduce the risk margin associated with high-risk investments and projects.
Challenges for the Subsidiary
The subsidiary will face the following challenges that might hinder its operations. It has a smaller structure that makes its operation difficult due to the limited resource available. The following are the main challenges the subsidiary company might face;
Exploitation
Subsidiary companies may be exploited by the parent company, as the headquarters might overlook its operations. The parent company may force the subsidiaries to buy goods from them at an expensive rate and force them to sell goods to them at a cheaper rate (Sherman, 2019). Lack of support will cripple crucial activities that contribute to success.
Manipulation
The parent company may use information from the subsidiary companies for personal or malicious gains. The parent company may use the financial information of the subsidiary company to make a decision affecting the whole business, including merging or adding other subsidiaries to the business.
Monopolies
The existence of too many subsidiaries under one parent company may create a secret monopoly. The parent company can decide to eliminate competition from the subsidiary. The parent companies are also in such a case where there is a monopoly that may prevent the entry of new companies into the business by determining the prices of goods hence unfair competition. Competition is healthy, without the parent company will lose important clients.
Human Resource Management
The transfers of the international human resources management to the host countries face this major challenge of the issues of the country of origin. Despite the many strengths and the requirement of parent company factors, the country of origin priority is set to be similar HRM initiatives across all the regions that create the complex of multinational corporations. But several studies have been developed that the international human resource management, companies do not only depend on the human resource approaches. Two main factors in the human resource practices of the multinational corporations are border company country of origin culture. Furthermore the global responsive, the decision revolves in a circular way that is represented. The challenge issues come out due to overseas branches that have to agree with the local culture and other surrounding conditions that impact the business management, thus this becomes a problem for the multinational corporations.
Recommendation
The subsidiary company has a smaller structure that makes its operation difficult due to the limited resource available. Parent companies should allocate sizable resources to these companies to enhance production activities. With proper management, smaller companies will increase the revenue generated. The organizations have used resources to research the trends and study how their competitors are upping their game in the outdoor sporting sector.
Once such a company situates its brand and establishes itself as a strong stakeholder in the market, the brand’s utilization now comes in as a principal source advantage. This discussion explains how Warner Media should concentrate on product delivery considering all possible data about the market. Warner Media should use the data obtained about the market and the prices to generalize the organization’s functional implications of its brand and how they are willing to commit to developing further.
Many companies fail to manage such a crisis when they fail to monitor the progress of minor projects. Entering a new foreign market almost entirely depends on the transaction cost of operating in that market. The entry mode should focus on instrumental factors like the impact of the entry method on its financial status. Warner Media should enter the international market through cooperative entry mode using joint ventures, licensing, and franchising rather than entering the market as a wholly-owned subsidiary. This is due to the fewer risks associated with entry through cooperative entry than the magnitude of the risks associated with entering as a wholly-owned subsidiary.
Conclusion
Warner Media’s move to have many subsidiaries has helped the company to generate more profit. Subcontracting of projects and operations reduces the workload and pressure on the parent company’s management. Failure of the subsidiary company might bring great losses to the parent company. Companies need to reduce the risk margin associated with high-risk investments and projects. Warner Media has made considerable gains from these sales and using a subsidiary to sell its less profitable products.
References
Lee, K., & Roh, T. (2018). The effects of entrepreneurship on the knowledge creation of subsidiary companies: A focus on subsidiary-specific characteristics. Korea International Trade Research Institute, 14(2), 377-389. Web.
Sherman, F. (2019). Joint responsibility of the parent company under obligations of subsidiary company. International Journal of Recent Technology and Engineering, 8(4), 438-441. Web.
Warner Media for Brands. (2021). Web.