Envisaging
and Developing a Market Entry Strategy
After deciding to plunge in the Indian Market it is required to
plan carefully for succeeding in the long run. Some areas need
special attention:
Configuring the project includes:
Determining the exact costs involved and side by side
analysing future options.
Choosing the best location for the project in terms of
infrastructure, incentives, nearness to resources etc.
Partnership
Deciding whether to take on an Indian joint venture partner or to
establish a mainly-owned or wholly-owned subsidiary.
Indian marketDeveloping an understanding
of the peculiarities of the Indian market is necessary, so that
issues which come up can be effectively and timely tackled with few
surprises.
Labor laws
Understanding legal compliance requirements which must be met once
entry is effected, viz. corporate laws, labor laws, direct and
indirect tax issues, etc.
Safty valve
However, the government has softened its stand on the need for each
investment to create jobs directly. Many companies — foreign
and domestic — are bypassing the tough regulations by either
subcontracting labor or through early retirement schemes.
Planning exit options in case the project does
not proceed as desired. A ship should essentially carry lifeboats!
Investment Mode -- Financial Participation
India's economic policies are designed to attract capital inflows
into India on a sustained basis. Policy initiatives adopted in
recent years include:
- Automatic approval for majority
foreign equity participation up to 74% in certain key areas, and
up to 51% or 50% in several others.
- Up to100% foreign equity
permitted in many industries.
- Free repatriation of profits
and capital investment.
- It is not necessary for foreign
investors to have a local partner.
Deciding the Target
Market
Will the products be sold strictly in the Indian market, or
primarily exported from India to other countries? If most of the
product is to be exported, then there are various methods of
availing of tax advantages.
Incentives to investors
Investors setting up units to manufacture goods for export can set
them up as EPZs, or 100% EOUs outside EPZs. 100% foreign equity is
welcome in both. Export earnings are exempt from income tax.
Export Promotion Zones
The EPZs are designed to provide an internationally competitive
duty-free environment at low cost for export production. Each zone
provides basic infrastructure and facilities like developed land,
standard-design factory buildings, roads, power, water supply and
drainage, and customs clearance facilities.
Export Oriented Units
EOUs offer a wider option in project location with reference to
sourcing of raw materials, port of export, availability of
technological skills, presence of an industrial base and the need
for a larger area of land.
EHTP's and STP's
Additional incentives are offered for electronics and software
units set up in Electronic Hardware Technology Parks (EHTPs) and
Software Technology Parks (STPs).
Type of Office
Overseas companies which do not opt to set up a subsidiary or form
a joint venture with an Indian partner can establish the following
types of offices:
- Branch office for the purpose
of:
- representing the parent company
or other foreign companies, like acting as buying/selling
agents;
- conducting research, provided
the results of the research are made available to Indian
companies;
- undertaking export/import
activities;
- providing technical and
financial collaborations between Indian and foreign companies.
- Representative/liaison office
which would not be directly engaged in commercial activities in
India.
Foreign companies usually open
representative/ liaison offices but they
are not allowed to carry on any business or earn any income in India
and all expenses are to be borne by remittances from abroad.
- Project office to undertake
projects in India awarded to the parent company.
A project office
is the ideal method to establish a business presence for a limited
period of time.
Distribution Arrangements
For companies who do not want to set up a subsidiary, joint venture
or branch, it will be necessary to carefully choose and appoint an
agent. It makes sense to select several regional agents.
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