Connecting Businesses with Opportunities in India

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Submitted by CA Shashi Mohan on Tue, 02/09/2016 - 10:45am.

Currently the process to get a PAN in India is semi-automated. An online application can be made by using the link https://tin.tin.nsdl.com/pan/form49AA.html. Please be careful in mentioning particulars exactly same as per your identity proof, address proof etc.

Manual Form 49AA can also be downloaded from here.

Fee for processing PAN Application is Rs. 107 including taxes. In case the communication address is outside India, processing fee is Rs. 989 (including tax and dispatch charges) and in such case PAN cards will be dispatched outside India.

The requisite fee can be paid through a Demand Draft of an Indian Bank on through Credit Card, Debit Card. In case you provide ‘office address or residential address’ in India, the payment can also be done through Net Banking.

On confirmation of the application, an acknowledgement number (unique 15-digit number) will be generated. Take a print of the acknowledgement receipt, paste 2 recent, color photographs and sign exactly in the given box, just below. Photographs are required only in case of Individuals.

Non Resident Indians can use their OCI/PIO card or a NRI bank account as their address proof abroad. A person holding a foreign passport is required to get his/her documents attested by “Apostille” or Indian Embassy or High Commission or Consulate in that country

In case of any other entity, Foreign Organisation, their Certificate of Registration needs to be duly attested by “Apostille” or Indian Embassy or High Commission or Consulate in that country

Once you are through, please put the following documents in an envelope:
  • Acknowledgement receipt signed and affixed with photograph
  • Demand Draft (Original) or payment acknowledgement receipt
  • Proof of Identity and Proof of address

Subscribe the envelop with “APPLICATION FOR PAN…….ACKNOWLEDGEMENT NUMBER” and send through speed post addressed at “Income Tax PAN Services Unit, NSDL e-Governance Infrastructure Limited, 5th floor, Mantri Sterling, Plot No. 341, Survey No. 997/8, Model Colony, Near Deep Bungalow Chowk, Pune – 411016”

Please ensure that the above documents are received at the above within 15 days from the date of online application.

The process would complete in approx 2 weeks time. The acknowledgement number can be used to track the status of application at https://tin.tin.nsdl.com/pantan/StatusTrack.html.

For more details on PAN card for NRIs and foreign companies that want to do business in India, click here.

 

About Author: With over 15 years of experience, Shashi Mohan has been responsible for the set up and operational management of over 150 overseas brands in India.
Contact: ca.shashi@rakchamps.com or +91 9818700482
Shashi is also a Co-Founder at Excelor India Cons. Pvt. Ltd, www.excelorindia.com
Submitted by Navin Pathak on Wed, 01/20/2016 - 12:50am.

Though I personally don't feel that Startup India Action Plan will bring any significant changes in India's entrepreneur eco-system, but here is a chart to see if your company is eligible to benefit from this action plan.

Click on image to see a full size version in a new tab

Details about the action plan can be downloaded from the site http://dipp.nic.in.

Keyphrases: Doing Business in India

Submitted by Navin Pathak on Tue, 01/19/2016 - 5:53am.

 

India's Prime Minister Mr. Narendra Modi launched startup India Action Plan on 16th January 2016.

The following are the keypoints of the startup India action plan for growth of startups in India.

  1. Compliance Regime based on Self-certification
  2. Startup India Hub – A single point of contact for the entire startup ecosystem
  3. Rolling out of a Mobile App & Portal – Starting a Startup in 24 hours on a Mobile App
  4. Fast track mechanism of Startup patent applications
  5. Relaxed Norms of Public Procurement for Startups
  6. Faster Exit for Startups
  7. Rs 10,000 crore Fund of Funds for funding support
  8. Credit Guarantee Fund for Startups
  9. Tax Exemption on Capital Gains
  10. Tax Exemption to Startups for 3 Years (for startups registering after April 1, 2016)
  11. Tax Exemption on Investment above Fair Market Value
  12. Organising Startup Fests for Showcasing Innovation and Providing a Collaboration Platform
  13. Launch of Atal Innovation Mission (AIM) with Self-Employment and Talent Utilisation (SETU) Program
  14. Harnessing Private Sector Expertise for Incubator Setup
  15. Building Innovation Centres at National Institutes
  16. Setting up of 7 New Research Parks Modeled on the Research Park Setup at IIT Madras
  17. Promoting Startups in the Biotechnology Sector
  18. Launching Innovation Focused Programs for Students
  19. Annual Incubator Grand Challenge

  

Submitted by CA Shashi Mohan on Tue, 11/17/2015 - 10:02pm.

Background

PAN Card or Permanent Account Number is a MUST for both a Non-Resident Indian (NRI) and a Non-Resident organization in case they receive income and need to file income tax return in India. Indian Income Tax Authority keeps a track and consolidates financial transactions through PAN and it is regarded as a Tax Registration Number in India. Legislation has accordingly mandated to quote PAN at several financial transactions. As a practice, requirement of PAN is also considered mandatory in non-financial activities such as opening a Bank Account or becoming a “Director” (getting Director Identification Number) in a company registered in India.

Now days, it works as an Identity card in India. Similar to an EIN or Social Security Number in USA, a PAN in India is a 10 digit alphanumeric number issued by Income Tax Department.  It’s a unique number issued for lifetime. In certain cases, it can also be surrendered or cancelled under a valid reason. Having more than one PAN is not permitted and one can be penalized for having more than 1 PAN.

What makes PAN card a Mandatory requirement?

There are specific transactions which cannot be carried out unless valid Pan is presented. Relevant authorities simply deny such transactions in absence of a PAN. Below are a few examples:

  • Opening a Bank Account, getting a Credit Card, apply for a Loan
  • Getting a Digital Signature of obtaining a Director Identification Number (for being appointed as a Director in Indian Companies).
  • Insurance Payment, Other Financial transactions > INR 50,000
  • Transaction in Property, Vehicles >INR 500,000
  • Investment in Shares, Mutual  Fund
  • Utility connections (Telephone, Electricity, Gas etc)
  • Domestic registrations such as Service Tax, Value Added Tax, Import Export Code

NRIs and Foreign Companies that are doing business in India also need a PAN

Every recipient of income from India needs to furnish PAN. It is also required that in the absence of PAN, the tax withholding rate will be higher (20%) even if a lower rate is prescribed in Double Taxation Avoidance Agreement (DTAA) with that particular country. The following are the sample cases in which PAN is required by NRIs and foreign companies doing business in India.

  • Carry out financial or investment related transactions
  • Employment or rendering of professional services
  • Trading in Shares through a Depository or even a Broker
  • Invest in Mutual Funds
  • Purchase Land (not Trading) or some property in India
  • Being appointed as a Director in Indian Companies
  • Being appointed as a “Authorised Representative” in a Liaison Office, Branch Office, Project Office
Submitted by Navin Pathak on Fri, 01/23/2015 - 9:33am.

India has well defined substantive and procedural laws along with a well established system of judicial enforcement of rights. An elaborate mechanism is provided for grievance redressal under Indian statutes. A complete hierarchy of courts and tribunals has been set up [http://indiancourts.nic.in/index.html]. India has three tier system of judiciary, which includes District Courts, at the first tier, comprising judges for adjudicating upon civil disputes and criminal cases at the lowest level. At the second tier, each state in India has a High Court which has the appellate and supervisory jurisdiction over all the courts and tribunals in such state. The Supreme Court of India [http://www.supremecourtofindia.nic.in], which is at the third tier, is the highest court of justice in India having appellate and supervisory jurisdiction over High Courts of all the states. The Supreme Court of India and all the High Courts also act as the custodians of the constitution of India. Government of India has also formed special tribunals to deal with matters of specific nature, such as Intellectual Property Appellate Board (IPAB) [http://www.ipab.tn.nic.in], Income Tax Appellate Tribunal (ITAT) [http://itat.nic.in], Debt Recovery Tribunal(DRT) [http://www.drt.co.in], Central Administrative Tribunal(CAT) [http://cgat.gov.in], Board for Industrial and Financial Reconstruction (BIFR) [http://www.bifr.nic.in] and Central Excise Service Tax Appellate Tribunal(CESTAT) [http://cestat.gov.in].

Doing litigation in India may be an unending process, frustrating the entire purpose of litigation. Indian Judicial System is marred with exceptional judicial delays and slow process. The present sad scenario of Indian courts can be understood from the data derived from the website of the Supreme Court of India [http://www.supremecourtofindia.nic.in/new_s/pendingstat.htm], pertaining to the pendency of cases in various Indian Courts. A glimpse at the data given hereinafter of the pending cases in the Indian courts is grave enough to pose caution. As of May 2010, 55,797 cases are pending with the Supreme Court of India, over 3 million cases are pending in the 21 High Courts and over 26.3 Million civil and criminal cases are pending in the District Courts [http://www.supremecourtofindia.nic.in/HCquarterly_pendency_Dec2008.pdf].

The litigation in India should be initiated only after a well thought strategy about the entire process, time and cost involved. Litigation in India should not be initiated impulsively. Though it may not be possible to avoid litigation at all times but strategies can be formed to successfully end the litigation by achieving practical objects. It should also be kept in mind that Indian Courts are not very pro-active in granting heavy damages or compensation. Alternative Dispute Resolutions like arbitration is a well recognised method of avoiding litigation in India.

Time frame for Litigation

In view of the above data, it is very difficult to predict a time band within which litigation in India can be completed from the filing of the suit and till the appellate stages are over. However, a well thought strategy can definitely put an end to the unending and unpredictable litigation in India.

So, while doing business in India, the first endeavour should be to avoid litigation. However, there may be situations when a foreign entity may get embroiled in an unavoidable forced litigation in Indian Courts.

It has been observed that most of the litigation which takes place in India during the course of business by a foreign entity with an Indian, is a result of bad contracts, which could be avoided by  taking care of  and contemplating various contingencies which may arise during the course of business in India.

Cost of Litigation

Any peculiar civil action in the Court of law involves following components of costs i.e. Court Fee, Professional Fee and Miscellaneous Expenses and Disbursements.

In a Civil action, court fee is required to be paid at the time of the institution of the suit, which may be fixed or ad-valorem (a percentage of the amount claimed). Generally, the fixed court fee is negligible. However, any claim relating to recovery, damages, compensation or property etc. may attract a court fee which is based on a percentage of the claim amount or the valuation of the subject matter of the suit, e.g. for a suit for recovery of a sum of INR 60 Million (approx. US$ 1290000) in Delhi High Court, an amount equivalent to  1 % of the claim i.e. INR 0.6 Million (approx. US$ 12900) has to be paid as court fee at the time of the institution of the suit. In Criminal matters, only a trifling court fee is payable.

For any matter relating to litigation, the component of professional fee may include fee for advice, drafting of pleadings and appearances before the Court. In India, for professional fees, generally the system of lump-sum fee and fee on 'hourly rate' basis is followed. However, Indian law does not allow the payment of contingent fees or conditional fees, i.e., any fee for services provided where the fee is only payable if there is a favorable result.

The third component of litigation cost, is usually not very high since the same pertains to miscellaneous issues related to litigation including typing, photocopying, postage and courier charges etc.

Mechanism for Enforcement of Judgments

Indian judicial system is a creation of the Constitution of India. The distinguishing feature of the Indian Judiciary lies in its independence from the executive / government. The Central & State Governments and their functionaries are duty bound to obey and implement the orders of the Courts in India, and any non compliance on their part results in the initiation of contempt proceedings against them. Besides coded laws, India also follows the common law principles. The judgments of the High Courts and Supreme Court of India, as precedents, have the same force as that of the "law of the land".

The Indian Government Machinery including the police is under an obligation to follow and implement the orders of the court. There are special provisions for the enforcement of the orders of the court, including Contempt of Court proceedings, which provides for a fine as well as imprisonment, in case of disobedience. There are also other legal means for execution / compliance of the orders of the court i.e. by way of appointment of Local Commissioner / Receivers.

As already stated that the Indian Judiciary does not suffer from a nationalistic approach, which is itself good to build confidence in foreign entities.

 
DISCLAIMER: This article is for informational and educational purposes only.While every care has been taken in writing this article to ensure its accuracy at the time of publication, the Author or  Vaish Associates Advocates assumes no responsibility for any errors which despite all precautions, may be found therein. This article neither constitutes a contract nor will form the basis of a contract. The material contained in this document does not constitute/substitute professional advice that maybe required before acting on any matter. No claim is made by virtue of the use of any trademark or images used in this article. All trademarks and images belong to their respective owners. 

*COPYRIGHT NOTICE:  © 2014, India. All rights reserved with Vaish Associates Advocates, 1st & 11th Floors, Mohan Dev Building, 13, Tolstoy Marg, New Delhi-110001, India.

Submitted by Navin Pathak on Fri, 08/02/2013 - 12:37pm.

With the liberalization of FDI policy 2013, most restrictions on foreign investment have been removed and procedures have been simplified. Today, there are very few industries where foreign investment is prohibited. Moreover, investment ceilings, which are applicable in certain cases, are gradually being removed or phased out. Government of India on a yearly basis formulates a consolidated FDI Policy, with the intent and objective to promote FDI through a policy framework, which is transparent, predictable, simple and reduces regulatory burden.

A non-resident entity can invest in India, subject to the FDI Policy, except in those sectors/activities, which are prohibited. However, a citizen of Bangladesh or an entity incorporated in Bangladesh can invest only under the Government route. An entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other then defence, space and atomic energy and sector prohibited for foreign investment.

FDI is allowed either under the automatic route without prior approval of the Government or the RBI in all the sectors as specified in the FDI Policy. FDI in sectors not covered under the automatic route requires prior approval of the Government, which is considered by the Foreign Investment Promotion Board (FIPB).

Depending upon its business needs, a foreign company can choose between setting up a liaison office, a branch office or a project office or incorporating an Indian company, either its wholly owned subsidiary or joint venture with an Indian/overseas partner.

A.    AS AN INDIAN COMPANY

A foreign company can start its business operations in India by incorporating a company under the Companies Act, 1956 through either a Joint Venture (JV) or forming a Wholly Owned Subsidiary (WOS). Foreign equity in such Indian companies can be up to 100%, subject to sectoral equity caps under the FDI policy.

1.    Joint Venture with an Indian partner

Foreign companies can set up their operations in India by entering into strategic partnership with Indian entities and forming a Joint Venture (JV). JV can provide many advantages to the foreign investor, like access to established distribution/marketing set up of the Indian partner and established contacts of Indian partners to smoothly run the operations in India.

2.    Wholly Owned Subsidiaries

Foreign companies can also set up their operations in India by forming a Wholly Owned Subsidiary in sectors, where 100% foreign direct investment is permitted under the FDI policy. An application has to be filed with the registrar of Companies (ROC) for registration and incorporation of the Company in India. 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. Such a subsidiary is treated as an Indian resident and an Indian company for all Indian regulations (including Income Tax, Foreign Exchange Management Act, 1999 and the Companies Act), despite being 100% foreign owned. For detailed procedure and guidelines for incorporation of company in India, read here.

B.    AS A FOREIGN COMPANY
       
    Foreign companies can set up their operations in India through Liaison Office, Project Office or a Branch Office.

1.    LIAISON OFFICE
   

Foreign companies are allowed to open liaison offices in India, subject to obtaining specific approval from the RBI, to undertake liaison activities on their behalf. Liaison office acts as a channel of communication between the principal places of business and entities in India.

Scope of Activities

Under the current exchange control regulations, a liaison office is permitted to: 

•     Represent the parent/group companies in India; 
•     Promote exports and imports from/to India; 
•     Promote technical /financial collaborations between parent/group companies and companies in India; 
•     Act as a communication channel between parent/group companies and companies in India. 
 
Typically, a liaison office is not permitted to: 

•    Earn any income; 
•    Undertake any industrial, trading or commercial activity; 
•    Enter into any agreement on behalf of the head office; 
•    Borrow or lend money for any commercial activity; 
•    Charge any fee or commission or otherwise earn any income, in respect of liaison activities carried on in India. 

    For detailed procedure and guidelines for opening the liaison office in India, read here.

2.    BRANCH OFFICE

Foreign companies engaged in manufacturing and trading activities abroad     are allowed to set up Branch Office in India for the following purposes:

•    Undertake the export and import of goods; 
•    Render professional or consultancy services; 
•    Carry out research work in which the parent company is engaged; 
•    Promote technical and financial collaborations between Indian companies and parent/overseas group companies; 
•    Represent the parent company in India and act as buying and selling agents; 
•    Render services in information technology and development of software in India; 
•    Render technical support to the products supplied by the parent/group companies; 
•    Operate as a foreign airline/shipping company.     

    Apart from obtaining RBI approval for establishing a liaison office, project     office/branch office, the foreign company is also required to register with the     Registrar of Companies ("ROC"). An application has to be filed in the prescribed     form within 30 days of the establishment of the office in India with ROC, pursuant     to which ROC would issue a certificate of establishment of place of business in     India to the foreign company.
 

3.    PROJECT OFFICE   

Foreign companies planning to execute specific projects in India can set up     temporary project/site offices in India. RBI has now granted general permission     to foreign entities to establish project offices, subject to specified conditions.     Such offices cannot 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.

- By Ritambhara Agrawal, Managing Partner, Intelligere; www.intelligere.in

Submitted by Navin Pathak on Fri, 03/22/2013 - 9:01pm.

Source: www.export.gov

Small businesses looking to increase sales and profit, reduce dependence on the domestic market and stabilize seasonal fluctuations should consider exporting.

Nearly 96 percent of consumers live outside the U.S.Two-thirds of the world’s purchasing power is in foreign countries.Go where the customers are.

There is significant opportunity for small businesses to profit through exporting.

Click here to register with www.export.gov and learn more about exporting.

Submitted by Navin Pathak on Sun, 04/17/2011 - 1:09pm.

Article Summary:
Many offshore projects get off to a flying start, but fail to succeed over the long term or worse still are abandoned mid-way, even though a considerable time & effort is spent by companies before and during the course of the offshore engagement. This article looks at the impediments to success of an offshore outsourcing endeavor with suggestions to avoid or overcome them.

Introduction:
Many well intentioned offshore projects get off to a flying start, but fail to succeed over the long term or worse still are abandoned mid-way, even though a considerable time & effort is spent by companies before and during the initial stages of an offshore engagement on activities like documenting the project RFP, evaluating and shortlisting service providers, defining quality parameters, training the offshore team, and the like. This article looks at some factors that may impede the success of the offshore outsourcing endeavor with suggestions to avoid or overcome them.

Unrealistic Assumptions on Cost Savings:
You have to ensure that there are clearly defined goals and final expected outcomes from the project. Many companies that outsource work offshore, wrongly assume that labor arbitrage will yield savings on a person-to-person basis (i.e., Since a full-time equivalent employee in India cost 40% less, the savings will be in the same range!) without regard for the hidden costs and differences in operating model of the offshore vendor. In reality, most organizations save 15-25% during the first year; by the third year, cost savings often reach 35-40% as both the sides move up the learning-curve and the client modifies their internal operations to align to an offshore model.

Lack of Well-Documented In-House Processes:
Documentation is a time intensive and often neglegted activity. It is observed that most internal processes are only about 30% documented. However, before offshoring a process the documentation level should be at around 90% and should include mapping of the current process, putting down the transition strategy, evaluation for all risks of failure and a documented contingency plan. High risk or exposure might deter the company from outsourcing offshore; or it might shift the outsourcing strategy (e.g., from a single vendor to multiple vendors); or it might actually give a greater thrust to offshoring if the vendor(s) seem better equipped to reduce risks while keeping the costs low. Though the results of risk analysis vary between companies, documenting the risks & preparing the contingency plan are important.

Poor Expectation Management:
Outsourcing engagements have a supplier (vendor) and a recipient (client), and both will have different expectations from the relationship. That the service is delivered from offshore complicates it further, and expectations mismatch become problematic.
An expectation gap may arise when you are in doubt about the vendor’s capability and hesitant to offshore anything beyond a specific task, while the service provider expects greater chunk of “higher value” work and might feel unchallenged by dealing only with standard, unchallenging tasks. If this expectation gap continues, the vendor may over time, accord low importance to your project or may even want to get out of the relationship as soon as a higher value-add work comes their way.

Similarly, you may expect the vendor employees to come up to a level of understanding that matches that of your in-house staff, but they may not be able to think or perform beyond the task that has been outsourced, and may ask questions that may seem ‘silly’, resulting in frustration at your end and possibly an early termination of the contract.

You should chart out a growth plan for the outsourcing relationship so that the service provider have their eyes set on the next target in terms of new processes coming their way. Knowing this growth path, the vendor and their employees will try to gain deeper insights into your business, thus resulting in superior results during the initial ‘unchallenging’ stages of offshoring too, and a stronger sense of loyalty to their relationship with you.

Also ensuring continuous knowledge transfer to the vendor’s employees working on your project, make feel as a part of your extended organization and perform better.

Failure in Bridging the Cultural Gap:
Most of the offshore workers will not have an exposure to the Western way of life and to the Western work culture. Therefore besides the training related directly to work, your in-house staff may need to spend time in acquainting the vendor’s employees with the cultural nuances of the organization and that of the your company’s home base, be it Europe or US. For example although English is an official language in India, pronunciation and accents can vary tremendously. Though many service providers put their employees through accent & language training and have cultural education programs, inherent differences due to culture, religion, social activities, way of dressing, and even the way a junior interacts with a senior colleague will not be easy to overcome. Something that’s common sense to the Western worker may be a completely foreign concept to an overseas worker.

Similarly your senior management & your in-house staff directly involved in the transition process need to acquaint themselves with the culture of the country where the vendor is located to communicate effectively with them and be able to understand the soft aspects of doing business with them. This avoids issues that can arise due to misunderstanding the ‘language’ at either side. Mutual visits to the other country are very helpful for effective working relationships as they help in drastic improvement of each others understanding and in the quality of work.
Some companies may try to save the travel cost by communicating over the phone or using video conferences, but in the long run this proves to be more expensive because of the delay related to transitioning the process overseas and the longer time taken to get the expected quality or performance from the offshore team.

Disaffection of in-house staff:
Extensive knowledge transfer and training are required prior to and during the transition of work to the vendor, and this needs to be consistently supported by the in-house staff. However layoffs can cause major morale problems among the in-house “survivors,” leading to disaffection and work slowdowns. Internal people may refuse to transition to the offshore model because they have a certain comfort level, or they don’t want their co-worker to lose his job. Some of your staff may also start proclaiming, that offshore outsourcing is not saving money to the company after all and that it was a bad idea, which futher lowers morale of other employees. Sometimes your in-house project management team may need to work into the night and arrive at work in the early morning to manage the offshore team, and their perception about who is benefiting and who is hurting becomes personal.

You have to set aside management and employee time before, during and after the offshore transition to talk to your employees about the whole proposition of offshoring and how it will help the company to become more competitive in the long term. A consensus needs to be built among all employees favoring the company’s offshoring efforts. Without this kind of a mandate, offshore endeavors are doomed.

Backlash from customers as a result of poor quality control:
The cost savings resulting from offshoring is the primary motivation for businesses to engage in the same. It is often realized late in the process that quality is an important factor for a successful offshore engagement. Poor quality of service delivery will have a negative impact on the performance and the reputation of the company may suffer in the eyes of their customers. A lack of adherence to the quality norms by the vendor and lack of monitoring of their output can result in considerable rework, and associated follow-up costs.

KPIs (Key Performance Indicators) of the offshore engagement should be defined in the beginning itself, so that the performance can be measured objectively during the tenure project and mid-course corrections are done wherever needed. It is also advisable to institutionalize regular satisfaction surveys that measure the “perception” of the engagement across several stakeholder levels.

Conclusion:
Offshore outsourcing is a phenomenon that’s here to stay. Companies that are adopting this are learning operate in a global business environment, and will benefit in the long run as they gain insights into other countries and their way of conducting business. However a failed or abandoned offshore outsourcing venture may set back the company by both the money spent and the willingness to take up such opportunities in the future. It is therefore important to study and analyze all factors that will affect the offshore endeavor and ensure that steps are taken to overcome the pitfalls well ahead of the offshore transition.

References:
Fleming Parker; Key Success Factors for Offshore Outsourcing to India;
Gene M. Grossman & Esteban Rossi-Hansberg (Dept of Economics, Princeton University);
The Rise Of Offshoring: It’s Not Wine For Cloth Anymore;
Dr. Joe Greco; The Hidden Costs in Offshore Outsourcing – a Case Study;
M.M.Sathyanarayan; How to Determine True Business Value of Offshore Outsourcing;
Stephanie Overby; The Hidden Costs of Offshore Outsourcing; Sep. 1, 2003 Issue of CIO Magazine;

Submitted by Navin Pathak on Sat, 03/26/2011 - 7:37pm.

(Updated on March 4, 2018)

India is going through exciting times. Developing into an open-market economy, India is certainly on high growth trajectory, which averaged nearly 7% per year from 1997 to 2016. The Projected GDP growth of 7.2% in 2017-2018 will make India the fastest growing economy in the world. Further, India's economy, which crossed the trillion dollar mark in 2007 and expected to become a $5 Trillion economy by 2025, is currently in 3rd position (PPP) after US and China.

The prospects of India’s long term economic growth, which is very positive, can easily be assessed from the following factors:

  1. The numbers are on your side:  564 million below the age of 20, 600 million growing middle-class, saving rates have tripled in last 12 years, etc.
  2. Growth Mindset of Indians:  Adaptability, competitive, entrepreneurial, believes in learning, earning and spending.

Now you require ‘opportunities’ and ‘political will’ for things to happen.

India is certainly a ‘Land of Opportunities’. Why? Because 1) there are tremendous challenges in India (mainly in areas such as transport and agricultural infrastructure, medical, power generation & distribution, education, healthcare) and solving these challenges means business & economic growth, 2) Availability of skilled manpower, 3) Geographical proximity to markets in South East Asia & Middle East, 4) English is well understood and spoken in India.

And, finally, the ‘political will’ that is necessary to create success is boldly shown by the current Indian Government (GoI). Under the leadership of Prime Minister Mr. Narendra Modi, GoI is implementing initiatives that not only will facilitate investments into India but will also make India a better and easier place to do business in. Some of the initiatives that the current government has started are Make in India, Start-up India, Digital India, Skill India and Smart Cities.

So far only Multi-National Companies (MNCs) with their vast resources, know-how and the right connections have been the major beneficiaries of this phenomenal growth in India. Small and Medium Enterprises (SMEs) and Entrepreneurs are just becoming aware of the growth story of India.

A simple analysis, taking into account the increasing population (See side box), growing consumption and the shrinking agricultural land, shows that there is a very lucrative market for US companies with products or technologies in the following areas:

  • Food & Beverages: food processing, food packaging, food warehouse and transport, health drinks, etc. 
  • Home based: home decor products, kitchenware essentials, bed and bath, etc. 
  • Healthcare: diagnostics and testing, medical equipment, health supplements, clean air and water products, etc.
  • Education: medical/nursing, 'train the teacher' programs, automotive mechanics, medical technicians, advanced courses in the upcoming fields of genetics and nanotechnologies.
  • Consultancy Services: engineering, business development, product development, security analysis, etc. 
  • Infrastructure: waste management, solar and wind technologies, temperature controlled warehouses, air and noise pollution control technologies, towing trucks, and automated parking lot equipment.

Similar business prospects abound in other sectors such as home land security, media & entertainment, hotel/motel, financial investment services, etc.

One of the business formats that is rapidly gaining acceptance is "Franchising". While legal infrastructure and ecosystem are in place in India, one must do a thorough research, and due diligence of the potential Franchisee and create binding agreements covering all important aspects of the Franchising before making any investments. One must also understand business norms of India and seek professional help in navigating the paper trail, IP protection, and Tax implications etc. before undertaking partnership agreements with the Franchisee. Top sectors with franchising opportunities are Education and Healthcare due to a huge mismatch between supply and demand now and in the coming years. Another popular model is Public Private Partnership (PPP) with the Government of India through a 'tender' process. 

For Urban Development, for example, Government of India has initiated a program called ‘Smart Cities Mission’ in 2015. As of Jun 2017, 90 cities have been selected for upgrade as part of this mission. US $15 billion has been approved by the Indian Government for the development of the selected cities. Details about this mission are available here https://en.wikipedia.org/wiki/Smart_Cities_Mission.  

All of the above present a historic opportunity for the SMEs and Entrepreneurs in the US to expand beyond borders to India. US companies with the right know-how are most preferred by Indian companies mainly for the reason that Indians have a very favorable view of the US according to a Global Attitudes Survey. Indian Government officials make regular visits to the US to meet with the industry experts and to promote business and trade opportunities.

I am so confident that with the efforts that not only Indian Government, Indian business conglomerates and entrepreneurs are putting towards India's growth but also the investments that foreign MNCs like Apple, Microsoft, Samsung, etc. are making in India will entice more international businesses mainly SMEs to do business with/in India. 

Submitted by Navin Pathak on Wed, 12/08/2010 - 8:23pm.

Driven by a growth rate of over 8% in 2010 and a 350 million strong middle-class with growing purchasing power and appetite to spend, the Indian market is reshaping the world’s economy. Investment in almost every sector (Education, Food, Energy, Health care and Retail) of the Indian economy has a promise of high returns that has caught the attention of investors and businesses across the world.

Indian economy is, however in transition and so are its tax and investment laws. New guidelines, policies, programs, and incentives for investment are being introduced into the system regularly and frequently.

Indian government is offering various incentives for the foreign companies and investors who want to

  • Lower labor costs
  • Explore new market/s (in and around India)
  • Develop and Commercialize/Industrialize new products and services
  • Open up export oriented units in India

Government incentives include:

  • Duty free import of capital goods and raw materials
  • Reimbursements of Central Sales Tax
  • Tax holiday for specified period
  • 100 per cent repatriation of profits for subcontracting facilities
  • and more

However, there is a considerable risk for players who are not fully prepated to do business in India and may not fully understand how local markets operate in India. Hence the challenge of the investor is to assess what opportunity to tap and how to minimize the associated risk.

I outline below an eight step plan with action, resources and contacts to help you benefit from the booming Indian Economy while minimizing your risk.

 

 1. Know WHAT you want..

Have clear objectives for your company and ensure that your India strategy is aligned with your objectives.

Buyusa.gov provides excellent information on assessing your objectives and provides what you need to know for doing business in India.

 

2. Understand the Economy you are investing in

India is a diverse country with many languages, different business norms and a complex regulatory structure. In addition, foreigners must know how to deal with corruption, bureaucracy and labor market rigidities at the state and the central level.

World Bank's Doing Business site provides excellent information on these topics. Read through the following papers and presentations:

- Doing Business 2010 ‘India’ by the World Bank Group

- Doing Business in India by Ernst & Young

 

3. Identify and Assess Opportunities in India

You need to do a thorough market research to qualify the opportunity for selling your products/services or for making other investments in India. Get the research tailored to your needs from the following resources: 

- Market Research Reports are available on buyusa.gov

- The country commercial guide for India from US Department of Commerce

Indian Brand Equity Foundation group from India

- Wealthtree for custom market research

 

4. Are you ready?

Assess if your company is prepared to do business or invest in India. Is your company committed to succeeding in India? Is there a market for your product? Is your product/service unique enough? Are the regulatory requirements straightforward to implement?

 

5. Attend Trade Events

Trade events are probably the best way to identify opportunities, meet subject matter experts, showcase your products and services, connect with potential partners, suppliers and buyers and check out your competition.

Upcoming Events by Entry India is an excellent source for upcoming business events in US and India.

 

6. Find one or more local partners in India

It is essential to have a local partner who understands the language and culture of the country. This will make it easy to negotiate, develop sales and distribution channels, price the product and services appropriate for the target market segment, and to protect intellectual property of your company. Due diligence and sound contractual agreement with the partner are a must for success.

US Department of Commerce has excellent services for US companies to find the right Indian partner.

 

7. Market Entry Options

Options include creating a wholly owned subsidiary, a joint venture with a local company or opening a branch or liaison office in India.

Department of Industrial Policy and Promotion under government of India provides excellent information for foreign companies pursuing entry into India.

 

8. Know Industry and Professional Associations in India

Through membership with key Industry associations, businesses gain access to local business resources, make valuable contacts, keep track of changing laws governing their business etc.

- Depending on the industry/sector of interest Confederation of Indian Industry, FICCI, AMCHAM, ASSOCAM, and NASSCOM are a few industry associations that a foreign business must look into.  India One Stop provides a comprehensive list of professional organizations in India that foreign companies must know.

- Export Assistance from US: The U.S. Commercial Service helps U.S. companies to expand their business to worldwide markets and has the largest presence, outside US, with 7 offices in India. U.S. Commercial Service offices are located in 107 U.S. cities and 145 U.S. Embassies and Consulates worldwide to take advantage of.

 

Summary:

A thorough planning before expanding your business to India or making your investments in India will go a long way for a profitable and worry-free operation in India. 

Submitted by Navin Pathak on Sun, 12/05/2010 - 9:47am.

Selling your products or services internationally is the key to your business growth. To assess whether you are ready for exporting, first ask yourself the following three questions:

  1. Do you currently have a successful product or service in the domestic market?
  2. Is your product or service reasonably attractive for the foreign markets? (To answer this, you may consider unique features of the product, not too easy to copy, attractive for foreign customers & their ability to pay for it, export and import regulations, etc.)
  3. Are you ready to commit dedicated resources (financial, manufacturing capacity, staff, time...) to support marketing abroad?

If the answer to each of these questions is an unqualified yes, you are way ahead of the game. There is of course a lot more to know and do before you are really ready to jump in the International arena, but all of it is rather straightforward and an extensive Eco system exists to support you to do it successfully. Here are some of the important items you need to do:

1. Market Research

This is the most important first step. You can do it yourself or hire a consultant to do all or part of the research. The objective is to choose an initial target market in a well-defined geographic territory and a local sales channel appropriate for your product. With the help of your local partner and potential customers, you will need to understand the selected market's requirements for price, style, packaging, labeling, etc. for your product taking into account export/import regulations and cultural preferences.

A lot can be gleaned from the trade magazines and the research reports available on the Internet. It is priceless, however to attend a trade show that attracts foreign customers and distributors. You can exhibit at the show, take a speaking role in a business forum, and hold meetings with the perspective buyers and distributors. It is also a good place to gauge customer interest, their ability to pay, getting feed back in modifying your product, checking what your competition is offering, what channels they are using etc.

2. Sales Channel management

If you intend to use a distributor for selling your product, you first have to select a distributor and create a legally binding agreement with the distributor.

Prior to committing anything in writing, conduct a thorough due diligence on potential distributors such as, checking on their track record, verifying their commitment to your product, etc.

Keep the agreement concise, cover all aspects of business operations, responsibilities and money flow in advance. For instance, does it cover who is responsible for and will pay for local product registrations?

You need to pay special attention to training, promotional material, customer support, performance tracking, delivery schedules, quality inspections, frequency and means of communications, etc.

Make sure both sides have a skin in the game, gain more or less equally from the terms and conditions because either both succeed or neither does.

Get the distributor up and running. Make sure to frequently visit the market, distributors, and prospects.

3. Shipping your product overseas

You can do it yourself but it will not be easy. A thorough knowledge of export paper requirements for your product is a must. Alternately you can use an international freight forwarder or an integrator for this purpose.

A friendly and experienced freight forwarder can be a very valuable partner that can take care of numerous export issues, reduce your shipping costs and free you to attend to what you know best: producing and marketing your product.

If you have simple and infrequent shipments with no personalized service required, an integrator such as UPS may be a good choice.

4. Develop working knowledge of export payment mechanisms

Your choices include cash, letter of credit, open account etc.

Cash payments can be in the form of wire transfer, check or credit card, wire transfer is the safest option. You need to be aware of the issues with checks and credit cards (processing fee, delay in collection, fraud etc.)

A letter of credit is issued by a bank on behalf of the buyer in favor of the seller. In effect, the bank promises to make the payment to the buyer upon presentation of the documents listed in the letter of credit. There are further nuances to various forms of letter of credit that affect terms and timing of the payment.

Open account i.e. waiting for the payment after goods are shipped and received by the buyer is the most risky of the methods and should be avoided or used only in a known and proven relationship.

5. Learn how to arrange for export financing

The availability of working capital for an export transaction is important for worry free operations. You may make use of the credit of the foreign buyer for this purpose (through a transferable letter of credit, for instance).

If you need working capital for exporting, you may use the US SBA's Guaranteed Export Working Capital Loan Program. US-based exporters can benefit from the programs by obtaining a working capital guarantee from Ex-Im Bank.

6. Know who can help you

Your local, regional, national, or international chambers of commerce are a good source of information and support.

Export.gov set up by the US Commercial Service has detailed research reports specific to many industry sectors in numerous countries written by experts in International trade. You can also sign up and make use of extensive services offered by the US commercial service.

Export consulting companies can be very helpful in getting you up and running in no time.

 

Have fun doing this and your business will go from surviving to thriving in no time.

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