STARTING OPERATIONS IN INDIAEntry Strategies for Foreign Investors By Rahul Kale For Dr Steven Paulson’s MAN 6204: TOPICS IN ORGANIZATIONAL THEORY
Presentation Outline • 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 CompanyJoint 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 CompanyWholly 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 CompanyLiaison 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 CompanyProject 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 CompanyBranch 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 CompanyBranch 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