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Globalization has harmonized cultures and trends in terms of international trade. It has not just enlarged the businesses and their profits but also helped local entrepreneurs attract foreign investors. In this way, international businesses get the opportunity to make investments in different countries. In order to invest in India, there are different entry strategies available. Joint ventures, wholly owned Subsidiaries and Franchising are important modes of business entry strategy for India. In a joint venture, the ownership and risks are shared while in a wholly owned subsidiary, there is a total command of the parent company and franchising allows using the brand name and the selling of its products and services. Let’s understand each business entry strategy to select the right one for your business.
Joint Ventures are organizations that are owned mutually by two or more independent businesses. Joint Ventures are a lucrative option if the company believes that working with locals provides knowledge about the local conditions and facilitates acceptance of their involvement by the government and consumers. There are three ways in which a joint venture can be formed, they are:
A wholly owned subsidiary is the best business entry strategy if the international organization aims to have full control over the company. The foreign parent business makes the majority investment in its equity capital and therefore acquires full control over the subsidiary. There are two ways in which a wholly-owned subsidiary can be set up in India:
A franchise business is an authority given by an organization to someone permitting them to sell goods or services or undertake activities that the organization controls. In a franchise business, a franchiser is a person who grants the right to another to sell products or services under the brand name of the organization. The person or entity to whom the franchise is granted is called the franchisee. A franchise is an arrangement where a company sells another business the right to sell its products or services in return for payment. In a franchise, a license is granted to produce or sell a product under the conditions granted by the owner of these rights. The license allows the local entity to have access to the business’s proprietary knowledge, process and trademarks in order to sell products or provide services under the organization’s name.
The essential features of the three business entry strategies are as follows:
In order to invest in India different business entry strategies are available. To make an efficient investment, it is important to settle the expectations and be aware of the legal basis of each business entry strategy of the country. Joint Ventures are strategic alliances where two or more businesses come together to benefit from a common purpose and every business has its specific role in the joint venture. So joint ventures are generally formed to utilize the expertise of other businesses for a common purpose. Wholly owned subsidiaries are incorporated when there is a need to diversify the products or services that are in a foreign market. Franchising is a suitable business entry strategy for expanding the supply chain of a business. In a franchise business, a new spot at a new location is opened by the franchisee under the brand name of the franchiser to expand the business reach. Franchise business is most common in food, dining and restaurant chains.
In summation, it can be said that the most suitable business entry strategy varies from business to business. It mainly depends upon the business objective. If the international organization is trying to diversify its product or service in India then the most suitable business entry strategy can be a wholly-owned subsidiary as it provides full control to the parent company over the management and operations. If an international organization wants to take benefit of certain expertise provided by a local business in India then the suitable business entry strategy can be a joint venture. Finally, if the international organization is only interested in providing services in the different markets under its brand name without substantial investment then a suitable business entry strategy can be a franchise business. Thus, an international organization has to analyze what could be the most suitable business entry strategy in India based on its business objectives and legal framework regulatory that particular entry strategy.
Read our Article: How to Plan India Entry Strategy for your Business?
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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