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Any company wishing to do business in India will need a proper administrative structure in place to conduct business and a sophisticated marketing program to penetrate the local market. India Source can assist you in everything from selection of a proper office location to recruiting employees or contracted parties as well as setting up standard operating procedures. WE will train your staff, assist in the accounting and payroll process, locate and procure necessary office equipment and supplies, and get the proper local, state, and federal government clearances for you to legally operate. We can create collateral marketing materials that speak to the zeitgeist of this unique culture. What grabs attention in America would not even garner a second look here. India is a very ancient and sophisticated culture that is highly visual and creative. India Source will help you to conceptualize the message and physical medium used to communicate to your audience. You will need to do your homework and perform market research, create strategy, and assess the opportunities that exist or you anticipate to exist in the market in the future. We can assist you in performing all of these tasks. Once you set up a presence you will require administrative help to navigate the dirth of bureaucracy and outdated systems which are a hold-over from the British Empire that once ruled India. India Source knows what paperwork is required to conduct business. If you don't invoice using localized forms a company will ignore your request for payment. If you don't provide the necessary tax forms a company will not desire to take risks involved with goods and services purchased from your company. Your staff will also need help to liaison between their local understanding of the market and the directives being sent down from the US. We will assist you in all facets of your marketing and administrative needs. Please review these articles which will give you some insight into some of the start up procedures involved: 7 – Must Knows for Setting Up a Branch Office in India |
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| Starting Business in India. | ||||||||||||||||||||||||||||||||||||||||||
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Besides incorporation there are many other formalities in establishing a business in India. The following chart contains typical formalities including incorporating a private limited company in India. |
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| Type of Business Entities in India for Starting Business in India | ||||||||||||||||||||||||||||||||||||||||||
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Branch Office Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up branch offices in India for the purposes of export/import of goods, rendering professional or consultancies services, R&D, promoting technical or financial collaborations, representing the parent company, acting as buying/selling agents, rendering services in IT and development of software, rendering technical support to the products supplied by the parent/group companies, foreign airline/shipping companies. Branch offices could be established with the approval of the government of India and may remit outside India profit of the branch, subject to RBI guidelines after payment of applicable Indian taxes. Procedure for Formation of Company in India |
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Liaison Office/Representative Office A Liaison Office could be established with the approval of the government of India. The role of Liaison Office is limited to collection of information, promotion of exports/imports and facilitate technical/financial collaborations. Liaison office cannot undertake any commercial activity directly or indirectly. Project Office Foreign companies planning to execute specific projects in India can set up a temporary project/site offices in India for carrying out activities only relating to that project. The Government of India has now granted general permission to foreign entities to establish project offices subject to specified conditions. |
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| Indian Legal System & Major Commercial Laws of India | ||||||||||||||||||||||||||||||||||||||||||
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India is a common law country with a written constitution which guarantees individual and property rights. There is a single hierarchy of courts. Indian courts provide adequate safeguards for the enforcement of property and contractual rights. However, case backlogs often result in procedural delays. Most of the laws are codified. Regulations and policies fill in the details. Major bodies of law in India affecting foreign investment are the Foreign Exchange management Act of 1999 ("FEMA"), the Companies Act of 1956, the Industries Act of 1951, the Monopolies and Restrictive Trade Practices Act of 1969 and the New Industrial Policy of 1991. Foreign collaboration and equity participation in India is regulated by the Foreign Exchange management Act of 1999. The Industries (Development Regulation) Act of 1951 governs industrial regulation. The Companies Act of 1956 regulates corporations and their management in India. The Monopolies and Restrictive Trade Practices Act of 1969 ("MRTP") governs restrictive and fair trade practices. The New Industrial Policy of 1991 ("NIP") which lays down the policy and procedure for foreign investment has liberalized and simplified the investment procedures. The major changes introduced by NIP are as follow:
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| Corporate Income Tax | ||||||||||||||||||||||||||||||||||||||||||
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Rates Revenue accruing to foreign companies (including royalty and technical services fees) from providing services concerning the exploration or production of petroleum or natural gas is subject to a maximum tax on a deemed profit of 10% of gross revenue. Foreign companies engaged in the execution of turnkey power project contracts approved by the government and financed by international programs are subject to a maximum tax on a deemed profit of 10% of gross revenue. The corporate income tax effective rate for domestic companies is 35% while the profits of branches in India of foreign companies are taxed at 45%. Companies incorporated in India even with 100% foreign ownership, are considered domestic companies under the Indian laws. For more details check our Tax Rates page Non-Export Incentives India offers a wide range of concessions to investors to provide incentives for economic and industrial growth and development. India's tax rates may not be one of the lowest in the world, but a careful tax planning keeping in mind the tax holidays and the following general tax incentives reduce the taxes considerably: No corporate taxes are levied for a period of five years for projects set up for domestic power generation and transmission and also for projects in Electric Hardware Technology Park Schemes. Deduction of preliminary and preoperative expenses incurred in setting up a project Complete tax exemption on profits from exports of goods Full or partial exemption of foreign exchange earnings on construction projects, hotel and tourism related services, royalties, commission, etc. Liberal depreciation allowances Deduction of capital research and development expenditures New industrial undertakings may deduct 25% of their gross total income for eight years |
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| Tax Incentives for Exporters | ||||||||||||||||||||||||||||||||||||||||||
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The New Export-Import Policy of 1992 provides substantial tax incentives for investments in Export Oriented Units ("EOU's") and industries located in the Export Processing Zones ("EPZ's"). Automatic approvals are given by the Secretariat for Industrial Approval for setting up 100% Export Oriented Units ("EOU"). Incentives and facilities available under the EOU scheme include concessional rent for lease of industrial plots, preferential power allocation and supply, exemption from import duty for capital goods and raw materials for power sector industries as well as for trading companies primarily engaged in export activity. There are six EPZ's or free trade zones located in different parts of the country. These zones are designed to provide internationally competitive infrastructure facilities and duty-free and low cost environment. Various monetary and non-monetary incentives are granted which include import duty exemption, complete tax holiday, decentralized "single window clearance," etc. Twenty-five percent of goods manufactured in EPZ's are permitted to be sold in the domestic market. No excise duty is payable on such items and customs duties on imported components is 50% of normal rates. Major exporters are allowed to operate bank accounts abroad to facilitate trade. Companies that sell in the domestic market as well as international markets may deduct export earnings from their tax liabilities. Exporters and other foreign exchange earners have been permitted to retain 25% of their foreign exchange earnings in foreign currency. For 100% Export Oriented Units and units in Export Processing Zones, Electronic Hardware Technology Parks, retention up to 50% is allowed. Other incentives include:
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| Double Taxation Treaty | ||||||||||||||||||||||||||||||||||||||||||
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India has entered into tax treaties with a number of countries including, Australia, Belgium, Canada, Denmark, France, Germany, Indonesia, Japan, Korea, Mauritius, Singapore, the United Kingdom and the United States. These treaties endeavor to avoid double taxation and attract know- how and technology. In many treaties the withholding tax on royalties and fees for technical services emanating from India is lower than the general tax rate. A careful planning and corporate structuring can reduce the tax obligations considerably. The following treaties have been successfully used by international investors to reduce their tax obligations in India and in their home countries: |
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| Transfer of Technology Agreements in India and Approvals | ||||||||||||||||||||||||||||||||||||||||||
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Approvals The Reserve Bank of India ("RBI") accords automatic permission for foreign technology agreements in high priority industries up to 5% royalty for domestic sales and 8% for exports, subject to total payment of 8% of sales over 10 year period from date of agreement or 7 years from commencement of production. In addition, lump-sum technology payments up to Rs. 1 crore, i.e., (Rs. 10 million) are permitted under the automatic approval system. The prescribed royalty rates are net of taxes and are calculated according to standard procedures. Subject to the aforesaid guidelines, automatic approval is available in non-high priority industries, if no foreign exchange is required for any payment. Governing Laws Transfer of technology agreements must be subject to the laws of India. These agreements can be subject to arbitration under the rules of international institutions like the International Chamber of Commerce (the "ICC"). Arbitration can take place in India or abroad. India is a party to the 1958 New York Convention on Enforcement of Arbitration Awards. Foreign awards are, therefore, enforceable in India. Under Indian law, upon termination of the transfer of technology agreement after its 7-10 year period, the technology is deemed to be perpetually licensed to the Indian party for use in India. Special rules apply to the transfer of technology to Indian government companies. |
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| Repatriation of Investments & Profits from India | ||||||||||||||||||||||||||||||||||||||||||
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One of the biggest concerns for foreign investors is how to get dollars out of India? Historically, it is not a problem to repatriate investments and profits from India. The Overseas Private Investment Corporation ("OPIC"), a U.S. government backed insurer of foreign commercial dealings, has never had to pay a claim due to India's failure to provide foreign exchange. Dividends, capital gains, royalties and fees can be repatriated easily with the permission of the Reserve Bank of India. In a short, specified list of consumer goods industries, dividend balancing is required against export earnings. In case of an exit decision, the overseas promoter can repatriate his share after discharging tax and other obligations. He can also disinvest his share either to his Indian partner, to another company, or to the public. Even during the so-called worst period no foreign company left India without proper and due compensation. Problems do arise when people and businesses try to go around the rules or from inexperience. Rupee, the Indian currency, is convertible for the current account. It means that: Repatriation of foreign exchange at the existing market rates has become easier. Exporters can retain 25% of total receipts in foreign currency accounts to meet requirements such as travel, advertising, etc. Foreign exchange will be available at market rates for all imports except specified essential items. Foreign exchange requirements for private travel, debt servicing, dividend or royalty payments and other remittances may also be obtained from banks or exchange dealers at the current market rate. The system has the advantages of completely bypassing bureaucratic controls and freeing importers from delays and inefficiencies. |
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| Privatization, Private & Public Sector in India | ||||||||||||||||||||||||||||||||||||||||||
| Almost all the agriculture sector in India is in private hands. Most of the industrial sector is open to private participation. The number of industries reserved for the public sector has been reduced to 6. The industries reserved for public sector are arms and ammunition, defense equipment, defense aircraft and warships, atomic energy, coal lignite, mineral oils, and sulfur and diamonds. All other areas are open to the private sector and private sector participation on a selective basis even in the still restricted areas is being considered. In practice railways, post and telegraph, shipbuilding, oil exploration and mineral industries are mostly government owned. A process of disinvestment of government holdings in selected public enterprises has been initiated. The government plans to form a new corporation, Indian Railways Catering Tourism Corporation (IRCTC). IRCTC will take over catering work and enter into tourism projects and trains in collaboration with private sector. | ||||||||||||||||||||||||||||||||||||||||||
| Litigation in India | ||||||||||||||||||||||||||||||||||||||||||
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India is a common law country. Most of the courts use English as the court language. There is single hierarchy of courts in India with the Supreme Court of India at the top. See also Arbitration in India | Litigation in India | Dispute Resolution in India | International Commercial Arbitration | UNCITRAL Model Law on International Arbitration |
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| Arbitration in India & International Commercial Arbitration | ||||||||||||||||||||||||||||||||||||||||||
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Recently India enacted the Arbitration and Conciliation Act, 1996 ("New Law"). The New Law is based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration ("Model Law"). Among others, the objectives of the New Law are to harmonize the Indian arbitration law with the Model Law and establish an internationally recognized legal framework for arbitration, consolidate the laws on domestic and international arbitration and conciliation, and enforcement of foreign awards. Another important purpose of the New Law is to encourage arbitration as an alternate dispute resolution process and avoid prolonged judicial process. See also Arbitration in India | Litigation in India | Dispute Resolution in India | International Commercial Arbitration | UNCITRAL Model Law on International Arbitration |
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| Establishing Wholly-owned Subsidiary in India by Foreign Investors | ||||||||||||||||||||||||||||||||||||||||||
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India allows, in many sectors, setting up of subsidiaries in India which are wholly owned by foreign investor, including foreign companies. There are two ways to form subsidiaries in India:
In certain other sectors FDI up to 100 is permitted with prior approval of the Foreign Investment Promotion Board (“FIPB”)/Secretariat of Industrial Approvals (“SIA). The obvious advantages of a subsidiary are total control over funding, management and profit share of the business. However, the flip side is that in a subsidiary where the total management is foreign, the advantage of local knowledge of customs and methods is lacking from very outset. See also Formation of Subsidiary in India | Starting a Business in India | Opening Branch in India | Incorporating company in India | Procedure for Formation of Company in India See also Government Approvals for Investing in India | Entry Strategies in India for Foreign Investors | FIPB Approval for Foreign Investment in India | RBI Approvals for FDI in India |
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| Joint Ventures in India by Foreign Investors | ||||||||||||||||||||||||||||||||||||||||||
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Joint Venture companies are the most preferred form of corporate entities for investment in India. There are no separate laws for joint ventures in India. The companies incorporated in India, even with up to 100% foreign equity, are treated the same as domestic companies. Foreign companies are also free to open branch offices in India. However, a branch of a foreign company attracts a higher rate of tax than a subsidiary or a joint venture company. The liability of the parent company is also greater in case of a branch office. The Government has outlined 37 high priority areas covering most of the industrial sectors. Investment proposals involving up to 74% foreign equity in these areas receive automatic approval within two weeks. An application to the Reserve Bank of India in the form FC (RBI) is required. The application can be made either by the Indian party or the foreign party. Existing companies having foreign equity holding and desiring to increase it to 74% can also obtain automatic approval if they are in priority areas. Besides the 37 high priority areas, automatic approval is available for 74% foreign equity holdings setting up international trading companies engaged primarily in export activities. Approval of foreign equity is not limited to 74% and to high priority industries. Greater than 74% of equity and areas outside the high priority list are open to investment, but government approval is required. For these greater equity investments or for areas of investment outside of high priority an application in the form FC (SIA) has to be filed with the Secretariat for Industrial Approvals. A response is given within 6 weeks. Full foreign ownership (100% equity) is readily allowed in power generation, coal washeries, electronics, Export Oriented Unit (EOU) or a unit in one of the Export Processing Zones ("EPZ's"). For major investment proposals or for those that do not fit within the existing policy parameters, there is the high-powered Foreign Investment Promotion Board ("FIPB"). The FIPB is located in the office of the Prime Minister and can provide single-window clearance to proposals in their totality without being restricted by any predetermined parameters. Foreign investment is also welcomed in many of infrastructure areas such as power, steel, coal washeries, luxury railways, and telecommunications. The entire hydrocarbon sector, including exploration, producing, refining and marketing of petroleum products has now been opened to foreign participation. The Government had recently allowed foreign investment up to 51% in mining for commercial purposes and up to 49% in telecommunication sector. The government is also examining a proposal to do away with the stipulation that foreign equity should cover the foreign exchange needs for import of capital goods. In view of the country's improved balance of payments position, this requirement may be eliminated. Selection of a good local partner is the key to the success of any joint venture. Personal interviews with a prospective joint venture partner should be supplemented with proper due diligence. Once a partner is selected generally a memorandum of understanding or a letter of intent is signed by the parties highlighting the basis of the future joint venture agreement. Before signing the joint venture agreement, the terms should be thoroughly discussed to avoid any misunderstanding at a later stage. Negotiations require an understanding of the cultural and legal background of the partie Courtesty of Madaan & Co. |
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Top 10 International Marketing Mistakes...! By Azaz Motiwala The best reason for exporting a product or service is to globalize your company and prosper in the millennium. It can happen for you, but you will probably need to evolve a whole new set of business attitudes and assumptions. If you want to achieve success with your export sales efforts, then check yourself on whether you are currently committing the following ten mistakes to global sales failure: 1. "I have all kind of products to offer." All I need to hear is what my customer wants." A businessman interested in exporting auto parts to the Orient told me that he had the resources to furnish literally any automobile product that a customer wanted. I said, "That type of thinking won't work." He was taken aback, but persisted, "You don't get it. My company works with hundreds of suppliers. If your customer wants bearings, we can get it for you." I responded, "You don't get it. The customers aren't supposed to lead us. We're supposed to lead the customers!" This clearly came as a big surprise to him, and maybe to you, too -- but this is the kind of thinking that succeeds. Focus and lead your customer like they have never been led before. Have them beg for your bundle of clear-cut product or service ideas. Take them to where they didn't even know they could go in terms of satisfaction, increased sales and profitability. 2. "My product price is really a very competitive." Customers in Middleeast and other South African countries pay attention to packaging first, quality next and price last. Set your priorities accordingly. Create a package design or service concept that speaks for itself, and quality that leaves no room for competitive comparison. From there it's only a matter of details to wrap up a sale. 3. "That looks like a good foreign lead. Let's respond to it!" I knew of a small company who occasionally received international inquiries. They determined the importance of the inquiries by the styling of their corporate letterhead. Four-color shiny graphics received the utmost attention. Plainly designed stationery was literally thrown out. You can imagine the professional consequences of this willingness to be impressed by snappy presentations at the expense of substance. Little did they know that most large, sophisticated and extremely busy companies typically communicate on whatever piece of paper they have at the moment and generally use no more than about ten words. Ostentation is out -- making things happen is in. 4. "Let's try exporting our product/service to a bunch of foreign markets." Wrong! Pick a product/service and pick a market. Then stick to it. You need to put on your mental blinders and ignore distractions, channel your energies, and define the territory in which you're going to play. It takes a lot of discipline to resist the scattershot approach to doing business and stay focused, but after awhile the discipline becomes automatic. Focus, focus, focus. Persist, persist, persist. 5. "I'm really interested in exporting my products but I'm not going to make any changes in it." You must tailor your product to meet the needs of the customer. Forcing a customer to buy what you have available with little or no willingness on your part to make improvements is not just insensitive but downright hostile. Marketing has come a long way since the days of Henry Ford, who said, "The customer can have a car painted any color that he wants, so long as it is black." 6. "Let's respond to the customer's interest and then wait a couple of weeks to follow-up." Put yourself in the customer's shoes. Would you want to be treated that way? Service brings satisfaction and satisfaction brings trial orders followed by repeat orders. Anything less than immediate and consistent service only wastes your time -- and that of your prospective customer! 7. "I know my product/service works well here in the India, so I'm certain it will fly overseas." Just because your product/service is needed here in the India does not by any means indicate that it will be well-received in a foreign country. You must always check with either your prospective customer (let them review it at no charge) or a local foreign consulate to see if they can help you determine if your service makes sense for their host country. 8. "I can't afford a trip to visit my customers. Besides, I wouldn't know my way around." You can't afford not to meet with prospective customers because, without face-to-face contact, there will be no business. Off course there is no need to travel overseas countries until you get associated with at least one importer/buyer in respective country. Once you get associated with customer, ask if you may visit them and if they would be so kind as to assist you on your first visit. You will be surprised at how gracious people really are, and how eagerly they welcome the opportunity to show you around their native land! Customers matter -- I can't repeat it often enough. The personal meeting is the best way to demonstrate your professional commitment. 9. "We appointed an exclusive agent, yet didn't get any sales." When exporting a product, it is a smart practice to ask a distributor what they anticipate selling in the first year. Then, request that their first order be 20% of that anticipated volume, prepaid, which allows them the opportunity to have exclusivity. You should expect the balance of projected sales to be ordered during the rest of the year (preferably in quarterly periods), with each subsequent order minimally the size of their first one. This allows you to monitor and exercise good control over the distributor's sales. 10. "When our domestic sales slide, that's when we should work hard at getting foreign sales." Going global is a commitment -- not something you work at one day and forget about the next. It's an investment in your company's future that deserves your consistent attention regardless of how well you're doing domestically. If you have patience and perseverance, then your chances of success will be excellent. If you're open to changing the way you think about global marketing, you've already made a good beginning. Now you are ready to achieve success in export markets. |
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| Other resources: | ||||||||||||||||||||||||||||||||||||||||||
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1. Googly – Branding on Indian Turf: Written by Ramanujam Sridhar, founder of Brand-Comm, this book provides Indian branding/advertising case studies. I like going through case studies, they explore a topic to some depth – vastly required capability for ET’s marketing topic journalists/editors. 2. Branding India – An Incredible Story: Written by the bureucrat behind the Incredible India campaign, this ought to be an interesting read. Especially as it covers the research behind the campaign, the interaction with the agencies and how the positive results expanded the campaign budget. Further, it also touches upon what on-ground-actions were envisioned and/or taken to make the campaign “come true”, like better airports and air connectivity. |
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