Successfully restructure your business: How it works

In times of crisis in the home market, foreign subsidiaries in the world's fastest-growing regions are becoming increasingly important. These organizations must contribute more to the global success of the company. But what happens if a foreign subsidiary fails to deliver the desired results? If the business model is fundamentally viable, but adjustments need to be made, restructuring can be a sensible solution, as an article in Handelsblatt explains.

According to a Deloitte study, companies in Germany are currently undergoing a wave of restructuring. They have to cope with both the effects of the crisis and structural change. This applies not only to large corporations, but also to medium-sized, named Mittelstand companies, which have to adapt their processes and strategies flexibly. Business models must be made crisis-proof, costs reduced, and financing secured. At the same time, they need to position themselves for the long term.

The challenges of restructuring abroad

However, restructuring these subsidiaries comes with its own set of challenges. Here are the five main challenges Mittelstand often face when restructuring an overseas subsidiary:

1. Navigating Legal, Tax, and Regulatory Challenges

• The restructuring must be aligned with the global business strategy of the head office, while complying with local regulations, labor laws and tax rules.

• Tax implications such as transfer pricing, profit shifting or new tax structures can have a significant impact on profitability.

• Subsidiaries are often subject to specific local regulations that differ from those of the headquarters, complicating the restructuring process.

2. Internal challenges such as people, communication and culture

• Head office often has a central strategy, while the subsidiary has its own culture, local managers and different ways of working - this can lead to tensions.

• Communication between headquarters and the subsidiary must be clearly structured to avoid misunderstandings and resistance.

• Restructuring measures deemed necessary at headquarters are often met with cultural barriers and skepticism at the subsidiary, especially when it comes to personnel changes.

3. Operational and organizational challenges

• The operational integration or separation of business units must be in line with both the global objectives of the headquarters and the local market conditions of the subsidiary.

• Differences in IT systems, processes or supply chains may require adjustments that require high levels of investment and close coordination.

• While the head office focuses on standardization and efficiency, the subsidiary must maintain its flexibility in the local market environment.

4. Financial risks and cost control

• Head office often expects rapid efficiency gains and cost savings, while in practice the subsidiary may face unexpected restructuring costs.

• Financial risks arise when restructuring is not well planned or when unforeseen market changes occur.

• Balancing short-term cost reductions with long-term investment in the subsidiary's market position is a particular challenge.

5. Strategic planning and speed of implementation

• Restructuring must fit in with the overall strategy of the head office, but at the same time take account of the specific circumstances of the subsidiary.

• Too rapid an implementation may overlook local circumstances, while too slow a process may place a financial and operational burden on the company.

• Headquarters must find the right balance of control and autonomy for the subsidiary to ensure successful implementation.

Locally optimized restructuring measures

How can these challenges be met, especially with limited resources at headquarters and in the local organization? Here are three solutions specifically tailored to a subsidiary in Asia of a medium-sized German company:

1. Structured restructuring management with task force teams and project management

• Establish a task force team consisting of local managers, experts from headquarters and external specialists (e.g. interim managers) to provide targeted support to the local team.

• Use an agile project management approach with clearly defined milestones, responsibilities and regular status updates to manage the restructuring.

• Develop a restructuring strategy and business plan that addresses both short-term operational measures and long-term growth objectives. 

2. Financial management through restructuring budget and controlling systems

• Establish a detailed restructuring budget with realistic savings targets and a buffer for unexpected costs.

• Implement a local controlling system that monitors costs in real time, identifies potential savings and creates transparency between the subsidiary and headquarters.

• Take advantage of government support programs and tax incentives to minimize the financial burden and efficiently manage restructuring costs.

3. Operational adaptation to local market requirements and cost optimization

• Making processes more flexible to take account of local market conditions, regulatory issues and cultural differences.

• Optimize local supply chains to reduce costs and dependence on international logistics chains.

• Working closely with local authorities, suppliers and partners to ensure faster and smoother implementation of restructuring measures.

Conclusion: Success factor - task force with local experts

A key success factor is the implementation of structured project management led by an interdisciplinary task force team. This team should include local managers, experts from headquarters and external specialists such as an interim manager. With clear responsibilities, regular coordination and strategic management, the restructuring measures can be implemented in a targeted and efficient manner.

A Cross-Border Interim Manager working directly in the target market can significantly accelerate the restructuring of a subsidiary of a German company in Asia Pacific and avoid typical mistakes. His or her local knowledge is the basis for a successful restructuring.

If your company needs to restructure a subsidiary abroad, don't do it alone. With my experience as managing director of subsidiaries in Europe and Asia, I can guide you to a successful and sustainable restructuring. Contact me today to discuss how we can implement your restructuring successfully!