Foreign Investment

How to Plan India Entry Strategy for your Business?

Entry Strategy

India as a market is vast and diverse. A population of more than 140 crore makes India a bank of customers/consumers. This increases the chance of any business, whether domestic or foreign, to survive in India. India is also an ideal destination for business as the Indian Government is consistently supporting the business sector through trade liberalization, tax regulations, and opening up to foreign investments. The diversity in culture and taste also comes in handy for foreign businesses to invest in India. The conducive environment and tremendous opportunities make India attract foreign businesses. However, to ensure the smooth functioning of a foreign business in India what is paramount is to have an “entry strategy” to enter the Indian market. Entry strategy refers to the sales and marketing structure that a business should adopt to expand itself in India. To determine an entry strategy several factors like the nature of the business, tax and regulatory environment, and approvals from the government come into the picture. If you are a business entity planning to enter the Indian market then below is a list of how to plan a market entry strategy into India.

Identification of target market

It is one of the most important steps while building an entry strategy. If a business entity is planning to make an entry into the Indian market, it must first consider the population tally and regions where its customers are based. A business must also research the psycho-graphics of its potential customers in relation to the products or services sold by a business.

The new entrant can have a local partner who helps the business to identify the complexities of the Indian business environment for a new entrant. The local partner will also help the investor with valuable market insights, governing laws, and other issues which is difficult for the new entrant to know. They can also help introduce the new entrant to the right network of people and assist the new entrant in reaching the target prospective clients.

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Conducting due diligence and market research – India Entry Strategy

After ascertaining the target market, the focus should be on analyzing the current and future potential of the market sector. India is a populous country with attractive opportunities there is no shortage of competition. For this purpose, detailed market research should be conducted for assessing the market trends, determining the size of the market, identifying competition, and understanding how the competitors function in the market and the laws that will be governing the business. Some of the important things which the new entrant must keep in mind while conducting market research are:

  • Localizing Product – India is a pluralistic society, so a “one solution fits all approach” might not work. The new entrant must try and localize the product as per the needs and preferences of the customers to meet customer satisfaction. One great example of product customization is that of McDonald’s. While entering the Indian market, McDonald had to leave their most demanded product “beef burgers” out of the shelf to not hurt the religious sentiments of the Indian population. Therefore, to do business in India, the new entrant must reform and diversify its products and services.
  • Price Sensitivity – India is a country where most of the population is between the low to middle-income group. A huge population in India is still below the poverty line. A significant amount of income of an Indian goes into affording the basic necessities making the market price sensitive. Therefore, pricing strategy is important and the entire success and failure of the product may depend upon it. Especially if the product is targeted towards the low to middle-income group.

Selecting a Market Entry Strategy

For finalizing which market to enter, market research on every market should be conducted. All market research should be compared and then using the results of market research, the final selection should be made. Choosing the right market plays an essential role in the success of the business therefore, it should be done carefully. Each market entry strategy has its advantages and disadvantages. The market strategy a business selects should align with the business objectives and must not be chosen primarily based on cost or convenience.

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Building a Business Plan

Based on the market strategy, the investor must create a business plan. A business plan consists of details on the products and/or services, strategies to reach the customers, meet the cost of the business, etc.

While building a business plan, there are a couple of factors that must necessarily be considered by the new entrant. These factors are as follows:

  • FDI Policy in India – In recent years, the Indian government has eased the FDI Policies. Favorable schemes have been introduced which have facilitated development initiatives and have enlarged FDI investment, especially in sectors like defence, research and development, and pharmaceutical. New entrant planning to invest in India must also research whether it falls under the automatic route or the government approval route to ensure proper compliance of FDI Policy.
  • Digitization – Post covid almost all sectors in India have either already digitized themselves or are in the process of digitization. To invite foreign participation in inducing new technologies, the Indian Government has reduced the barriers and is offering subsidies to businesses bringing new technology to India. So a new entrant can claim a subsidy while bringing new technology to India.
  • Simplified laws – To increase foreign participation India has simplified the regulatory and compliance requirements. However, a new entrant must get a hold of how the Indian judiciary functions and the laws under which it is going to be governed. The new entrant should consult a legal professional regarding the laws which will govern the new entrant. A few key legislation on which knowledge is required to formulate the entry strategy into India are:
  • The Companies Act, 2013[1] This Act will help the new entrant understand how the incorporation, management, restructuring, and dissolution of companies take place in India.
  •  The Foreign Exchange Management Act, 1999 (FEMA) – This Act regulates the inbound and outbound investment to and from India and also prescribes the sector-specific requirements
  • The Securities and Exchange Board of India (SEBI) – This Act lays down market rules which align with the best market practices. Penalties are also imposed under this Act for the breach of market rules. 
  • The Securities Contracts Regulation Act, 1956 – This Act governs the listing and trading of securities on stock exchanges in India.  
  • The Competition Act, 2002 – This Act acts as a watchdog for anti-competitive behavior, cartels, and unfair trade practices. Knowledge of this Act is necessary to ensure the new entrant does not get involved in activities that lead to a breach of this Act.
  • The Income Tax Act, 1961-  This Act prescribes the tax treatment of various transactions and securities in India and how tax is levied on different business frameworks in India.
  • The Indian Contracts Act, 1872 – This act deals with the formulation and regulation of Contracts in India. Any formal agreement entered into by the new entrant will be governed by this Act.
  • The Arbitration and Conciliation Act, 1996- This Act prescribes mechanisms for out-of-court settlement of disputes. It is better to insert a clause of dispute resolution in the formal agreements because Court proceedings usually take longer time due to the huge pendency of cases in Indian courts.
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Conclusion

Indian market is very dynamic and diverse. Entry into the Indian market requires careful study of customer preferences, existing distribution, sales, and marketing practices, market regulations, etc. Without in-depth research, it is very difficult for a new entrant to survive in the Indian market. Further, it is risky for a business to enter the Indian market without a proper entry strategy. Therefore, having a well-planned strategy to enter the Indian market is necessary for the success of a business.

Read Also: Market Entry Strategy in India for a Foreigner

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