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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.
Deciding whether to take on an Indian joint venture partner or to establish a mainly-owned or wholly-owned subsidiary.
Developing 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.
Understanding legal compliance requirements which must be met once entry is effected, viz. corporate laws, labor laws, direct and indirect tax issues, etc.
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
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
- Project office to undertake projects in India awarded to the
A project office is the ideal method to establish a business presence for a limited period of time.
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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