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With globalization at its peak across the world, many foreign companies are planning to expand their businesses globally. India is one of the most lucrative options for global businesses to expand their global footprint and set up a global business or a business with ties to global players. Even businesses operating in India want to integrate their international operations to expand themselves in the international market. The Indian government has taken steps to liberalize the Indian entry strategies for foreign companies and to ease doing business in India. Global businesses who want to expand their business presence in India can opt for the following two most preferred India entry strategies:
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Under this India Entry Strategy, the global business can establish a distinct entity in the form of a wholly owned subsidiary. This strategy is suitable for businesses that have multiple products and provide various services. It is a type of company where the parent or holding company owns the majority or all of the shares. The parent/holding company enjoys full-fledged control over the subsidiary company. However, as per Indian laws, both the parent/holding company and the subsidiary company are considered separate and distinct entities. In simpler words, it means, the subsidiary company is a separate legal entity from its parent company.
Setting up an Indian subsidiary company has the following benefits:
Under this India Entry Strategy, the foreign business incorporates itself in the form of a joint venture as per the rules and norms prescribed under the Companies Act, 2013. A joint venture is a combination of two or more parties for a defined purpose or project. Joint ventures are strategic partnerships with Indian partners. It is suitable for foreign companies that want to invest in or venture with the already established businesses in India. The incorporation of a joint venture is similar to that of a Partnership firm: however, in a joint venture, the businesses join together for a specific or defined purpose. A joint venture can be perpetual or for a limited period.
In summation, the two most preferred options for foreign companies to enter the Indian market are an Indian subsidiary company or a Joint Venture. A subsidiary provides a foreign company with complete ownership and control over its operations. A joint venture is a partnership between a foreign company and an Indian company for a defined purpose. Both entry strategies will have their own merits as well as demerits. The choice of the foreign company should depend upon factors such as industry and business aspects, company-specific factors, strategic considerations, financial considerations, tax implications, etc.
Read our Article: What is the Best Market Entry Strategy for India
Ankita is an Advocate and has joined Enterslice as a Legal Researcher. Her work focuses on General Civil and Commercial laws, Corporate Taxation Laws, Labour and Employment Laws and Dispute Resolution. She is a law graduate from School of Law, University of Petroleum and Energy Studies. Prior to joining Enterslice, Ankita has the experience of practicing law in Delhi and Odisha.
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