The recent growth trajectory observed in the Indian economy has made the nation a popular attraction for overseas investors considering multiple economic crises occurring globally. The Indian economy remains a bright spot in a world wrecked by multiple crises whose policies are increasingly being amended and framed in order to attract foreign investment into the country. Encouragement of foreign investment in the Indian domestic market began with the Liberalisation, Privatisation and Globalisation reforms spearheaded by Dr Manmohan Singh in the 1990s. Since then the Government has, from time to time, suitably amended foreign investment laws and associated regulations to encourage and increase foreign investment in the country. Prospective foreign entities attempting to enter the Indian domestic market will find a large market coupled with a broad entrepreneurial base with wide preferences and diverse consumption patterns. Due to the varied market conditions, substantial efforts are required to be made by the prospective foreign entity in order to plan out the relevant structuring before committing to enter in the Indian market. The present article will discuss the various aspects which must be considered when formulating a market entry strategy for prospective foreign players in India.
There is an inherent diversity regionally coupled with a legal and regulatory framework which is inherently complex. Due to these factors any prospective foreign entity with plans of entering the Indian domestic market must formulate a proper market entry strategy to ensure a profitable return on investment. The government has implemented a number of economic and regulatory reforms that make doing business easier and guarantee that the economy will continue to develop despite the difficulties caused by the pandemic. As a result, India moved up considerably in the World Bank’s Ease of Doing Business Ranking.
When foreign companies enter India, they will discover a large market and entrepreneurial base with a diversified range of interests and consumer habits. Strategic planning, which will require region-specific plans, will be required moving forward. Due to regional market differences, a foreign entity must make preparations before entering the market. The market opportunities and market entry strategy in India will be covered in the current article.
There are several factors which are related to the formulation of a Market Entry Strategy for India. These take into effect the various specific factors which play a role when formulating a market entry strategy for the domestic Indian economic market namely:
Any prospective foreign player must conduct thorough research into the preferences and dynamics of the Indian market before formulating a market entry strategy. The Indian market varies extensively across regions primarily in terms of preferences and purchasing power. In the case of consumer goods, the average Indian customer is also extremely conscious of market price and life cycle costs, therefore, showing a preference for low-cost and low-maintenance goods. This aspect has even been observed as a general underlying factor applicable even towards non-consumer goods across the product market domestically in India. Thus, in light of these characteristics, a prospective foreign entity which is desirous of entering the Indian market must conduct proper due diligence regarding the envisaged business possibilities before formulating any business strategy. The proposed strategy as formulated must include an understanding of the mode of entry of the foreign business entity into the country namely either in the form of a wholly owned subsidiary incorporated in the domestic market, a joint venture or a strategic partnership with a domestic partner.
Customers in the Indian domestic market displays a strong preference for products and services based on value for money. The foreign company must optimise its products in response to consumer demands in the Indian market after doing market research. The demand for such goods or services varies as a result of distinct lifestyles and trends found in various geographic areas. The foreign corporation must now tailor its products to the area in which it plans to conduct business. Additionally, it is frequently observed that foreign companies seeking to join international markets do not offer a variety of goods or services, which serves as a barrier to entry.
The Indian domestic market is one of the most cost-conscious markets across the globe and this must be considered while constituting any foreign entity’s market entry plan. Therefore, it is necessary for the foreign company to provide its products to consumers at the correct price bracket. Therefore, the price sensitivity issue and the requirement for price optimisation need to be addressed in the market entry strategy. Doing so will enable any foreign entity to streamline the business for both affordability and profitability.
The following entry structures are available to foreign investors planning to conduct business in India:
Establishing a wholly-owned subsidiary in the form of a private or public limited company allows foreign investors to access the market. The foreign exchange management regulations allow foreign investors to establish 100% subsidiaries using the automatic route in the majority of industries, including manufacturing, e-commerce, and information technology, without obtaining regulatory clearance. The provisions of the Companies Act, 2013 and the rules made thereunder govern the establishment and regulation of wholly-owned subsidiaries.
A wholly owned subsidiary is recognised as a domestic company for tax purposes and is entitled to all tax deductions and other benefits offered to any other Indian firm. It is also permitted to conduct all commercial activities outlined in its charter documents. The Indian government has accelerated the incorporation process through digital efforts.
Foreign entities desirous of entering the Indian market may also decide to establish a joint venture company by joining forces with a domestic partner in India. After completely owned subsidiaries, joint ventures have emerged as one of the most popular options for foreign investors looking to enter the Indian market. In order to provide synergy to their India business ideas, foreign investors may select an Indian partner in the same industry or region of activity.
A limited liability partnership (“LLP“) is a type of partnership with separate legal status and liability restrictions. It resembles a mix between a private limited corporation and a typical partnership. The Indian government recently approved scaled FDI in LLPs with the goal and objective of promoting LLPs as a structure for foreign investors. Compared to a company, an LLP is easier to run and requires less compliance. Domestic market entry into India via the LLP has several tax benefits.
Additionally, there are a few avenues of market entry into India which are limited in scope and are desirable for foreign entities who want to limit their involvement to exploratory or specific project-based measures:
For international businesses wishing to create a temporary presence in India, a branch office is an appropriate business strategy. The branch office functions as an outpost of the head office’s operations and engages in certain forms of limited business and activities as are permitted under applicable regulations.
The majority of organisations utilise this method to research the Indian market without having to devote long-term resources. As a result, companies intending to grow or diversify their presence in the Asian domestic market often consider establishing a branch office to satisfy their market entrance requirements.
When foreign businesses establish a private limited company in India to carry out a limited-term contract, they must comply with several regulatory requirements from the time the business is established until it is closed, which consumes a lot of resources. The RBI has developed the idea of project office registration to make entry and exit simple for a foreign company that wants to carry out a project in India. Under this concept, the company can open a project office in India for a specific project with the approval of the RBI and Registrar of Companies and can close the project office after the project is finished.
Our India market entry consulting team is committed to offering comprehensive solutions to the challenging business legal issues that foreign businesses with operations in the Indian domestic market may face. We work to give you the knowledge and assurance you need to enter a new market. We concentrate on assisting you and your business in validating market potential, making plans for the new environment, boosting sales, and growing in the new area. We will pinpoint the best opportunities that will have a quantifiable impact by paying close attention to your team.
Our two-pronged methodology, which consists of a review of the entrance strategy and a market feasibility analysis, has earned the respect of MNC clients that we have assisted in setting up in India. It covers everything in detail, from determining corporate goals and strategic priorities to establishing a functioning corporation in India.
To ensure the best ‘hard skills’ solutions for entry, our India entry strategy consulting practice brings together professionals across Business Setup & Company Formation, Strategy, Legal, Tax, Risk Management, M&A, and other related disciplines. However, another aspect of our solutions that sets them apart from other India entrance strategy consulting firms is the “soft skills” element.
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The key business laws which are operative in India are the Companies Act, 2013, the Sale of Goods Act 1930, the Contract Act 1872. In case of foreign investments extant applicable foreign exchange regulations such as the Foreign Exchange Management Act, 1999 and its various underlying rules and regulations as introduced by the Reserve Bank of India will be applicable.
The key considerations for formulating an Indian Market Entry Strategy are price optimisation, finding the right local partner, creating a proper business structure, and researching on local market conditions in order to understand the customer demands and sentiments.
The Indian population is geographically and communally diverse and this reflects in their preferences and choices. Any entity hoping to enter the Indian market would be required to conduct a proper market survey in order to gauge the sentiments of prospective customers before beginning their business. Furthermore, the nation works under a vast underlying web of commercial and labour laws and thus having a partner with keen local knowledge is absolutely necessary in order to frame a market entry strategy for the country.
This Indian economy has remained a bright spot in a world which has been wrecked by inflation and financial instability showing steady growth and rising spending power. This aspect coupled with the fact that India will soon be the most populous nation in the world with a massive spending power is the driving factor between the increasing interest in investing in India by foreign companies.
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