Sister Company vs. Subsidiary: Definition and Differences

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Sister Company vs. Subsidiary: Definition and Differences

By Indeed Editorial Team

Published July 27, 2021

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Large organizations often have many subsidiary entities that act as sister companies to one another. Understanding the differences between these types of entities can help you gain more insight into the complexities of organizational relationships. In this article, we discuss what a sister company versus a subsidiary is, the definition of each and provide some examples to help you better understand how they work.

What is a sister company?

Sister companies are multiple businesses that the same parent organization owns. For instance, if an organization owns several cereal companies, each of the cereal companies is a sister to the others. Many large organizations acquire and merge with other companies throughout time, creating the opportunity for many sister companies to emerge.

Organizations can also create sister companies by establishing multiple subsidiary brands. For example, a shoe manufacturer may create two distinct brands, one for children's shoes and one for adults. These two brands may call each other sister companies.

Related: How To Perform a Smooth Company Reorganization

What is a subsidiary?

A subsidiary, also called a daughter company, is any company that another organization owns. For instance, a large staffing organization may own multiple subsidiary companies that each specialize in temporary staffing in a different industry. The organization that owns the subsidiaries is a parent company. The level to which subsidiaries function independently from other subsidiaries and their parent company depends on the organization, but commonly, parent organizations handle many top-level business decisions within their subsidiaries.

Read More: What Is a Subsidiary and How Does It Work?

Sister company vs. subsidiary

The main difference between sister companies and subsidiaries is in their relationship with each other and their parent company. You can refer to another company as a sister company if the same parent organization owns both entities, whereas you can refer to a company as a subsidiary if a parent organization owns it. Here's a list of some key differences that result from these organizational relationships:

Independence

Parent companies often determine the level of independence that sister companies have from one another. Sister companies may function entirely independently of one another or may rely on each other for specific functionalities or share common goals. For instance, a multinational grocery store organization may own several grocery brands, each of which functions completely independently from one another. Alternatively, the same multinational organization may ask all of its companies to run the same promotional campaign or promote the same product within their stores, reducing the level of independence the sister companies have from one another.

Parent organizations also often determine the level of independence that subsidiaries receive. Subsidiaries may sometimes function entirely independently from their parent organization, but more often, parent organizations manage, advise or control several aspects of their subsidiaries' operational activities. For example, a parent company may tell subsidiaries which products they may sell, the prices of those products and the strategies for marketing them. Alternatively, parent companies may only ask their subsidiaries to implement a specific profit margin or sell particular products, therefore, not involving themselves in operational activities.

Related: Creating Organizational Charts of Companies

Collaboration

Parent organizations often ask sister companies to collaborate with one another to achieve common organizational goals, though this is not always the case. For example, these common goals may involve promoting the parent organization's brand or striving to act according to the same mission statement or values. Additionally, sister companies may work together to sell the same product or service. For instance, two sister baking companies may both promote the use of the same cooking oil in their recipes that their parent company produces.

Subsidiaries also often collaborate with their parent organizations, though the relationship is often more structured. As subsidiaries are entities that belong to a parent organization, the parent usually initiates and facilitates any collaborations. For example, a parent organization may ask all of its subsidiaries to collaborate to promote a specific charity or cause.

Competition

In some cases, sister companies may compete with one another in the same industry, whereas they may be in entirely different markets in other cases. For example, an airline conglomerate organization may own several airlines that operate in the same regions and compete for the same customer base. Alternatively, a public transportation conglomerate may own a company that operates a train line and another that operates multiple bus routes, limiting the direct competition among these two sister companies.

Typically, organizations that own subsidiaries don't release products or services that directly compete with their daughter companies, though it may occur sometimes. Subsidiaries may compete with their parent company, but any revenue that a subsidiary produces also belongs to their parent organization. If a parent company releases products or services on their own without the help of a subsidiary brand, they may end up competing with products that their subsidiaries also produce. For example, a multinational organization that owns a subsidiary soap company may also release a soap product under their own organization's name, which competes with their subsidiary's products.

Related: Your Guide to Functional Structure for Business: Advantages and Disadvantages

Examples of sister companies and subsidiaries

Here are two examples of sister companies and subsidiaries in relation to a parent company:

Example 1

Thomas V. Whittenhouse is a multinational corporation that owns subsidiaries in the dog food, cat food and exotic animal food industries. Each of their brands operates independently from one another, but Thomas V. Whittenhouse creates marketing campaigns that include all of its brands. For instance, they recently released a commercial that advertised Thomas V. Whittenhouse as the solution for all pet food needs. Additionally, the Thomas V. Whittenhouse logo is on each package of animal food, regardless of the subsidiary brand.

Related: The Basics of Co-Branding: Benefits, Strategies and Examples

Example 2

Southern Charm Plates and Double Crown Cutlery are sister companies. Their parent company, Kitchen Blast, recently asked them to collaborate to release a dining set that includes both of their products. They plan to split the revenue from the dining set between the two companies proportionally based on the cost of the items within the set.