When you’re planning to enter India, there’s a lot to think about. First, you need to understand if it makes sense for your business – market research, opportunity scoping and thorough due diligence is key.
Once you’re satisfied that India is right for your business, the next step is to decide how you’re going to structure your operations. There are several options, including a contract with a local manufacturer, supplier or distributor; a liaison office; a project office or a branch, joint venture or subsidiary.
Each has its advantages and disadvantages, so it’s vital you make the right choice. The wrong decision could stop you from realising expected gains, or force you to stay in the market when it’s no longer right for your business.
To kick-off your decision-making process about how to structure your Indian operations, there are key questions you should ask yourself. Carefully appraise each one, and seek professional advice before making a decision.
What did your market research tell you? It’s important you understand your chances of success in India. Are you confident that your offering will resonate with customers? Will your brand translate? If you need to adapt your product or service to suit the market, you might consider setting up a lower-risk temporary structure, such as a project or liaison office. If you’re certain about your commercial opportunities, it may be time to think about a subsidiary, joint venture or branch.
How much time do you have? It takes time to manage fledgling operations in India. If you don’t have the capacity to be on the ground in the early stages, or the resources to send a UK employee over there, you’ll need to find a trusted partner to manage operations in the local market. Consider a temporary structure to begin with. This will give you the breathing space to find the right collaborator. Once that’s complete, you might want consider creating a more permanent entity.
Do you already operate internationally? If you’ve already expanded into international markets, you’ll have a better understanding of the compliance and legal demands of global operations. You might also have put in place robust management information systems that will help you oversee local operations. This experience will help you move into new markets with confidence. And it will help you take on a bigger risk profile.
What’s your risk appetite? Each overseas structure has a different risk profile. Generally speaking, the more investment you make, the higher the stakes: a contract with a local distributor is relatively straightforward; a joint venture or subsidiary requires huge upfront investment, and brings additional compliance and legal obligations. To make the right choice, you need to understand your risk appetite. Key considerations may include the size of your global business, level of investment available, and how your operations will be impacted if your foray into India does not go to plan.
What are the tax implications? While we don’t think this should be a key driver of your decision, it’s important to understand the implications from the start as it can often be difficult to unravel things later on. It's worth remembering that each structure has different tax implications and they will carry varying financial and administration burdens.
Over the coming months, our Spotlight on India series will continue to explore how UK middle market businesses can harness opportunities in India, while also mitigating risks. For further information and help weighing up expansion options, please contact Suneel Gupta or your usual RSM contact.