STARTING OPERATIONS IN
INDIA
Entry Strategies for Foreign Investors
By Rahul Kale
For Dr Steven Paulson’s
MAN 6204: TOPICS IN
ORGANIZATIONAL THEORY
Presentation Outline
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Facts on Ancient India
Facts on Modern India
Indian Culture: An Individual
Indian Culture: The Society
Indian Culture: The Business World
Setting up Business Operations in India
Facts: Ancient India
• The number system was invented in 100BC in India
Albert Einstein
“We owe a lot to the Indians, who taught us how to count,
without which no worthwhile scientific discovery could have
been made”
• Algebra, Trignometry and Calculus came from India.
Quadratic equations were used by Sridharacharya in the 11th
Century.
• The value of π was first calculated in the 6th century by the
Indian Mathematician Budhayana. He was the one who also
explained the concept of Pythagorean Theorem
Facts: Ancient India
• IEEE (Institute of Electricals and Electronics
Engineers) of the USA has proved that the pioneer of
Wireless Communication was Professor Jagdeesh
Chandra Bose and not Marconi
• In 500BC, hundreds of years before the astronomer
Smart, Bhaskaracharya calculated the time taken by
Earth to orbit the Sun to be 365.258756484 days
• Chess was invented in India
• The birthplace of Yoga is India
Facts: Ancient India
• Ayurveda is the earliest school of medicine
known to mankind.Charaka, consolidated
Ayurveda 2500 years ago.
• Over 2600 years ago, Sushruta, conducted
complicated surgeries like cataract, cesareans,
artificial limbs, fractures, urinary stones,
plastic as well as brain surgeries.
• Usage of Anesthesia was well known in
ancient Indian medicine.
Facts: Modern India
• India is one of the few countries in the World, which
gained independence without violence.
• According to its constitution, India is a "sovereign,
socialist, secular, democratic republic."
• India occupies 2.4% of the world’s land area and
supports 15% of the world population
• India is the 7th largest and 2nd most populous country
in the world
• 30% of the population lives in large towns and cities
• India has 18 official languages
Facts: Modern India
• Most people, as in the U.S., profess adherence to a religion.
• Approximately 80% of Indians describe themselves as Hindu,
14% Muslim, 2.5% Christian, 2% Sikh. The remainder
consists of Buddhists, Jains, Zoroastrians or Parsis, and a very
small number of Jews.
• According to the Supreme Court of India
“When we think of the Hindu religion, unlike other religions in
the world, the Hindu religion does not claim any one prophet;
it does not worship any one god; it does not subscribe to any
one dogma; it does not believe in any one philosophic concept;
it does not follow any one set of religious rites or
performances; in fact, it does not appear to satisfy the narrow
traditional features of any religion of creed. It may broadly be
described as a way of life and nothing more”
Facts: Modern India
• India is world's 12th largest economy--and the third largest in
Asia behind Japan and China
• It is the 4th largest economy in the world in terms of PPP
• India is home to the third largest population of English
speakers in the world, surpassed only by the U.S. and the U.K.
• Services, industry, and agriculture account for 55%, 27%, and
18% of GDP respectively
• There is a large and growing middle class of 325-350 million
with an average yearly income comparable to $25,000 in
purchasing power in the United States
• Almost 60% of the population (564 million) is under the age
of 20
• 700 million Indians live on $2 per day or less
Facts: Modern India
• India is the world's second largest small car market
• 100 of the Fortune 500 have R & D facilities in India
• The Bombay Stock Exchange lists 6,600 companies;
only the NYSE has more
• India is the only country other than USA and Japan,
to have built a super computer indigenously
• India is one of the six countries that has indigenously
developed the ability to launch satellites into space
Facts: Modern India
• The United States is India's largest investment
partner, with a 13% share.
• The United States is India's largest trading partner.
Bilateral trade in 2006 was $32 billion.
• Principal U.S. exports are diagnostic or lab reagents,
aircraft and parts, advanced machinery, cotton,
fertilizers, ferrous waste/scrap metal, and computer
hardware.
• Major U.S. imports from India include textiles and
ready-made garments, Internet-enabled services,
agricultural and related products, gems and jewelry,
leather products, and chemicals.
Facts: Modern India
• Indian exports to US: $24 billion, up by 10%
• US exports to India: $17.6 Billion, up by 75%
(Worldwide increase: 12%)
(Based on 2007 numbers)
• India is a top 10 market for US goods and
services
Indian Culture: An Individual
• Our cultures define our fundamental beliefs about
how the world works and forms ways in which we
interact and communicate with others and develop
and maintain relationships
• At the core of many Indians is a respect for parents
that results in involving them in major life decisions
• Staying with parents is the natural way of living life
• An adult women would (almost) always consult with
her parents about her marriage
• A person would ask for parents approval before
accepting a job
Indian Culture: An Individual
• As long as one displays a genuine interest in getting
to know them, most Indians will accept you without
any reservations, whatsoever
• The average Indian is naturally a very curious person.
Inquisitive to the point of irritation, the Indian wants
to know everything at the first meeting, don't be
offended.
• Don't be too surprised if a stranger walks up to you,
introduces himself and then subjects you to a barrage
of questions about your origins, America, the purpose
of your visit here, etc.
Indian Culture: The society
• Generally, major decisions will not be done by the
individual but as a family
• Its important to understand the Indian touch, in the
literal sense: A touch on the arm or the arm around
the shoulders or the holding of the hand for a fraction
too long are all signs of Indian intimacy or
brotherhood
• On the other hand, holding hands across genders
would be offensive in a predominantly conservative
culture. Never shake hands, touch or sit close or next
to a woman.
Indian Culture: The society
• Even to the most modern women the Indian form of
greeting, folded palms facing each other and the word
namaste said in a soft tone is the safest one to adopt.
• Women prefer to be greeted from a distance with a
simple "Namaste". But, in urban cities, handshakes
between both sexes are quite common.
• Hospitality is second nature to any Indian. From the
instant they take a liking to you, you will be invited to
their homes, to attend their weddings and they would
expect to be invited in return
Indian Culture: The Business World
• Concept of time, the IST! If you are 15 minutes late
for a business appointment, people may scarcely
notice.
• In the West, we are socialized to wait our turn. We
also expect undivided attention once we do start to be
served
• What are considered occult sciences in the West are
often mainstream practices in India. Astrology,
numerology, and palmistry can affect the functioning
of businesses and of society
• Breakfast meetings are rare in India, and dinner is
often eaten very late in the evening.
Indian Culture: The Business World
• In the United States of America, efficiency, adhering to
deadlines and a host of other similar habits are considered
normal and are expected.
• Aggressiveness can often be interpreted as a sign of disrespect.
• As Indians are used to a system of hierarchy in the work-place,
senior colleagues are obeyed and respected.
• In a group discussion, only the senior most person might
speak, but that does not mean that the others agree with him.
They may maintain silence, without contradicting him (or you)
out of respect for seniority.
Options for setting up business
operations in India
• As an Indian Company
By incorporating a company under the Companies Act,1956 through
– Joint Ventures or
– Wholly Owned Subsidiaries
• As a Foreign Company
Foreign Companies can set up their operations in India through
– Liaison Office/Representative Office
– Project Office
– Branch Office
As an Indian Company
Joint Venture With An Indian Partner
Joint Venture may entail the following advantages for
a foreign investor:
– Established distribution/ marketing set up of the Indian
partner
– Available financial resource of the Indian partners
– Established contacts of the Indian partners which help
smoothen the process of setting up of operations
Foreign equity in such Indian companies can be up to
100%
Examples: Ford entered India through a JV with
Mahindra, Honda with Hero
As an Indian Company
Wholly Owned Subsidiary Company
• Foreign companies can also set up wholly-owned subsidiary in
sectors where 100% foreign direct investment is permitted
under the FDI policy.
• Incorporation of Company
For registration and incorporation, an application has to be
filed with Registrar of Companies (ROC).
• Once a company has been duly registered and incorporated as
an Indian company, it is subject to Indian laws and regulations
as applicable to other domestic Indian companies.
Examples: Now, Ford India is separate, Honda exists in both
forms
As a Foreign Company
Liaison Office/Representative Office
• Channel of communication between the principal place of
business and entities in India
• Role is limited to collecting information about possible market
opportunities and providing information about the company
and its products to prospective Indian customers
• It can promote export/import from/to India and also facilitate
technical/financial collaboration between parent company and
companies in India
• Can not undertake any commercial activity directly or
indirectly and can not, therefore, earn any income in India
Approval for establishing a liaison office in India is granted by
Reserve Bank of India (RBI)
As a Foreign Company
Project Office
• Foreign Companies planning to execute specific
projects in India can set up temporary project/site
offices in India
• Such offices can not undertake or carry on any
activity other than the activity relating and incidental
to execution of the project
• Project Offices may remit outside India the surplus of
the project on its completion, general permission for
which has been granted by the RBI
As a Foreign Company
Branch Office
Foreign companies engaged in manufacturing and trading
activities abroad are allowed to set up Branch Offices in India
for the following purposes
– Export/Import of goods
– Rendering professional or consultancy services
– Carrying out research work, in which the parent company is engaged.
– Promoting technical or financial collaborations between Indian companies and
parent or overseas group company.
– Representing the parent company in India and acting as buying/selling agents
in India.
– Rendering services in Information Technology and development of software in
India.
– Rendering technical support to the products supplied by the parent/ group
companies.
– Foreign airline/shipping company.
As a Foreign Company
Branch Office
• A branch office is not allowed to carry out
manufacturing activities on its own but is
permitted to subcontract these to an Indian
manufacturer
• Branch Offices may remit outside India profit
of the branch, net of applicable Indian taxes