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Challenges faced by companies

Not all MNCs are able to deal with the policy maze that is India. But those which do so are
winners.
In a recently-published WB report, India is ranked 132nd, in terms of ease of doing business'
and a disheartening 166th, in terms of starting up new businesses'.
It's quite apparent that it's a lot more difficult to start a new business in India than it is to remain
engaged in doing an existing one. I propose to identify some of the behavioural and policy
issues, which we need to address in such an environment, so that a fast-growing market can be a
profitable one too.
The gaps in the rankings essentially means that having navigated the regulatory environment to
overcome the start-up challenges, the organisation is relatively better-equipped to manage the
business going forward, as the hurdles are less, with a better ranking for ease of doing
business. Yet, one cannot ignore the key policy and regulatory challenges that companies and
organisations face in India. This gets even more amplified for new ventures.

GOVERNANCE FRAMEWORK
The biggest challenge that most multinational companies face is the unique architecture of the
Indian governance framework, which is badly intertwined between the Central and State
structures. Hence, the attractiveness of contiguity of geography needn't enable simplicity of
market access, and may not even offer benefits of scale due to logistics optimisation.
The reasons are simple. State laws and incentives are structured to attract investments which
local leadership see as critical to driving economic growth, and are also dependent on electoral
constituencies of ruling parties.
An interesting example is alcohol. You can buy a bottle of wine or beer within a mile's length of
desire in Bangalore, but 50 km away in the state of Tamil Nadu, you would be hard-pressed to
even locate a store.
It's not uncommon for neighbouring State Governments to have vastly differing legislations on
labour, land acquisition, commercial taxes, priority sector categorisation for incentives, and
intrastate movement of goods.
These come into play in a substantial way when planning investments in India. Very often,
companies get lured with incentives and/or hinterland market access, yet realise much later that it
doesn't translate to improved returns on capital employed.
A classic example is the currently applicable duty on automobiles, which includes customs duty,
CENVAT, excise duty, central sales tax, motor vehicles tax, passenger and goods tax, state sales

tax, and additional road user/toll taxes. All of which ensure that you could buy a car
manufactured in Gurgaon at a much cheaper price 2,000 km away in Goa or Pondicherry .
In addition, duties and levies see frequent changes in the Annual Central and State budgets
presentation exercise.

POLICY ENVIRONMENT
And not all MNCs are able to cope with the uncertainty and want of clarity around the policy
environment. A good example of the recent past is the telecom sector, which saw a huge
enthusiastic entry of large MNCs when the sector was opened up for FDI, and soon enough,
many exited, thanks to the ever-changing policy framework. The few that survived were mostly
Indian, and earned good returns. The boldest of them all, Vodafone, a start-up MNC, continues to
battle the Government in the Indian courts. The risk of an uncertain regulatory environment
eventually ensures that those who survive usually do so with good returns. This brings us to an
interesting conundrum, when we compare ourselves with China. While most statistics reveal that
FDI in China is almost three times that of India, yet, in terms of GDP growth, China delivers just
a percentage point more than India. Consequently, it may be assumed, with some degree of
certainty that the return on capital for investments, made by foreign firms in India is, on an
average, higher than China.
A recent McKinsey study showed that the nine market leaders by category in India enjoyed a
ROCE (Return on Capital Employed) of 48 per cent, and even the next 26 enjoyed a ROCE of 36
per cent. Implicit in the return is the reward for managing the regulatory risk. Interesting
inclusions in the list are Korean white-goods-maker LG and automobile giant Hyundai, and
Japanese automotive giant Suzuki. Surprisingly, these companies don't enjoy market leadership
in their very own home countries, which score far higher than India in terms of ease of doing
business' or starting up anew'. The one common theme visible across these companies is their
willingness to remain engaged with the regulatory environment and manage the concomitant
uncertainties. Their ability to win includes, in large measure, their capacity to allow scale to
subsume the vagaries of an uncertain political and regulatory environment.
Very few markets on the planet continue to offer the opportunity of scale to drive interest from
policymakers at a Government-to-Government level. This, in a sense, forces the Government to
ensure moderation in policy level interventions, and limits the risk of any potentiallydestabilising policy dispensation. Simultaneously, it leaves enough on the table to help enhance
returns by carefully understanding the policy regimen. As all countries emerge from their current
crises, there will be increased regulation, and business leaders need to build a deep understanding
of the regulatory environment and governance frameworks, to deliver improved returns for their
enterprise.

JOINT VENTURES
The coming decade will be a decade of momentous change, as India integrates better with the
global economy, focuses on driving greater competitiveness, and draws up a policy framework to
enable a more transparent governance structure. Those MNCs that participate in this process are

likely to position themselves more strongly to succeed, compared to those that rely on local
Indian partners or JVs. The reason isn't difficult to fathom. Indian JV partners would be mostly
family-owned or state PSUs, and, in most cases, diversified. Consequently, they may often have
competing priorities in leveraging their relationship with the Government, and hence deferring to
them for insights is fraught with inherent risks.
In fact, many a times these conflicting interests can make the task of setting up a new business in
India appear a lot more difficult than it might actually be. From my own experience of having
been involved in the setting up two new businesses for an MNC in India, a key driver of success
has been the ability to understand the regulatory environment and factor in the risk-reward from
policy changes in the best case scenario, while developing the business forecasts. You may not
always get it right, but if you do, then your fastest growing market could well be your most
profitable one too. A story that most shareholders like!
Marketing Strategies Of Global Brands In Indian Markets
With increasing globalization and international trade, a number of international brands are entering into
India which is one of the fastest growing and highly competitive markets in the world. Though, most of the
global firms failed to understand the needs of Indian consumers as well as the market characteristics but there
are a few of them who have been successful in positioning their brands into the Indian market because they
attempt to understand well the needs of target group before introducing a brand into the market. Even some of
the most successful brands in todays time had committed several blunders or mistake while initially entering
into Indian market. For instance, Kelloggs, McDonalds, LG, Reebok and Coca-Cola are among such global
brands who initially introduced standard products by following standardized global strategies but later realized
their mistakes and thus modified their product or services according to the needs of Indian consumers and
became successful. In todays scenario, for any Global brand to succeed in Indian markets, the companies need
to shift their focus from forming global strategies for the overall market, to the strategies that adapt to the local
market conditions in the India. The Global firms operating in India must try to be as local as they can be, by
converting themselves into Global brands i.e. being global at heart. The companies can achieve these objective,
either by using local manufacturing, producing Indianised variants of their products to take care of local
consumers tastes, to use local celebrities as brand ambassadors, and tackle the issue of price sensitivity of the
Indian consumers by launching value for money products which are affordable for the masses and forming long
term relationships with intermediaries in the market and instill in them a sense of confidence that they are your
brands partners in your journey towards success and they too will benefit if you as a company will succeed and
if your brands succeed in Indian market. It was beautifully illustrated in an article titled Made In India, Only
For India recently published in The Strategist stated that Now for most of the successful MNCs operating in
India, exclusively for India has become an integral part of their overall product development strategy. Through
this paper, it is attempted to highlight that MNCs must introduce the products or services matching to the needs
of Indian markets in order to be successful. For instance, Honda Motorcycles recently launched bike Dream
Yuga to tap the entry level segment to take on its competitor and erstwhile joint venture partner Hero Moto
Corps that holds leading market share in this segment. Similarly, GE Healthcare launched an
Electrocardiogram (ECG) machine especially to be used by rural markets where the clinics do not have much
space to operate those complex ECG machines which also runs on battery to overcome the electricity problem
caused by the frequent power-cuts in Indian rural markets. Even Korean automobile company launched Hyundai
Eon in the Indian market after conducting a research which revealed to them a slight change in preferences of
Indian consumers i.e. they now valued mileage, then styling, space, interiors and then finally pricing while
purchasing a care, while it earlier used to be mileage, price, styling and interior space, and it was based on this
research only that Hyundai Eon was launched in the Indian markets. So this new mantra of being global but
acting locally is being adopted by most of the MNCs to succeed in the Indian market. The MNCs and their
brands that are successful in Indian markets are switching to this strategy of presenting themselves as a local
company so that people can identify themselves with these firms as their own and this is the reason that why most
of the global firms are now focusing on local promotions, local products, pricing strategies as per local
requirements and local distribution for Indian markets instead of using their global marketing communications

mix to attract the Indian consumers to their brands. The growth for these brands in Indian markets has been
increasing throughout depending on how they are tapping the markets by offering more and more regional
flavors and tastes which are pushing these brands forward.

Six Challenges In Global Branding


Strong brands requires a clear strategic approach to handle the six efforts (6Es) involved in creating
strong brand.

8.1 Economic Assistance


The main challenge faced by the brand leaders is to focus on the short term returns. Brand is a long
term asset, introduction of price, discount or freebie promotion for initial acceptance of the product may lead to
brand dilution and failure in the long run.
8.2 Effect of Approving
There must be consistency in quality/performance, if not betterment so as to sustain the growing
complexity of International market in terms of Consumers changing tastes and multiplying competition. The
company must continuously innovate and maintain good customer relations though their consumer touches
points, so as to create brand loyalty among existing users.
8.3 Emotional Appeal
Emotional appeal is essential to communicate the Brand message. Consider the number of media
options available to consumers-200 or more television channels, Internet, Newspaper, magazines.
8.4 Effective Culture
Culture refers to how people in a society interact, what they believe. How they make decisions and
what meanings they attach to certain representations. Cultures are not static, but develop through
intergenerational and interpersonal learning and experience.
8.5 Economic, Legal and Political conditions
Condition implies the Economic, Legal and Political conditions prevailing in a foreign market. Law
related to Advertising content, product specifications, distribution options, etc vary from one country to another.
The Economic condition in UK made LG play down its tagline Life is Good in Advertisements due to recent
credit crunch.
8.6 Efficient distribution channel
Formation of distribution channel alliances in a foreign market. A distribution channel decision is vital
and rigid, that it expensive to change, once decision is made.

Why India?
India remains the world's third most attractive destination for investment by
multinationals during 2013-15

Huge workforce and outsourcing support

India emerges as one of the most attractive destinations for outsourcing services supported by huge
workforce
Around 65% of Indian population is in the working age group of 15 to 64 years. Approx250
mnIndians will join the workforce by 2030
Indias laborforce has a strong knowledge base with a significant English-speaking population and
high level of tertiary education supporting a diverse talent pool across industries

Foreign Companies Entering India

A foreign company planning to enter India, is required to meet all requirements of doing business
in India as required by domestic Indian businesses. In addition foreign companies are required to
seek governmental approval before investing in India. Some approvals are automatic, - RBI
Approvals - though application is required for those approvals. Special Permission - FIPB
Approvals - could be obtained to invest over and above the regular percentage allowed. See our
FDI in India Sector wise Guide for more information on various conditions of investing in India.
Also see Withholding Tax Rates For Foreign Companies Doing Business In India Under The Tax
Treaties & the Joint Ventures in India.

Strategies for Foreign Companies Doing Business with India


or Investment Routes for Investing in India, Entry Strategies for Foreign Investors

A foreign company planning to set up business operations in India has the following options:
1) As an Indian Company
A foreign company can commence operations in India by incorporating a company under the
Companies Act, 1956 through

Joint Ventures; or

Wholly Owned Subsidiaries

Foreign equity in such Indian companies can be up to 100% depending on the requirements of
the investor, subject to equity caps in respect of the area of activities under the Foreign Direct
Investment (FDI) policy. Details of the FDI policy, sectoral equity caps & procedures can be

obtained from Department of Industrial Policy & Promotion, Government of India. See also FDI in
India Sector wise Guide

Joint Venture With An Indian Partner

Foreign Companies can set up their operations in India by forging strategic alliances with Indian
partners.
Joint Venture may entail the following advantages for a foreign investor:

Established distribution/ marketing set up of the Indian partner

Available financial resource of the Indian partners

Established contacts of the Indian partners which help smoothen the process of setting up
of operations

Wholly Owned Subsidiary Company

Foreign companies can also to set up wholly owned subsidiary in sectors where 100% foreign
direct investment is permitted under the FDI policy.
Incorporation of Company

For registration and incorporation, an application has to be filed with Registrar of Companies
(ROC). 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.
See also Formation of Subsidiary in India | Incorporating company in India | Procedure for
Formation of Company in India

2) As a Foreign Company
Foreign Companies can set up their operations in India through

Liaison Office/Representative Office

Project Office

Branch Office

Such offices can undertake any permitted activities. Companies have to register themselves with
Registrar of Companies (ROC) within 30 days of setting up a place of business in India.
Liaison office/ Representative office

Liaison office acts as a channel of communication between the principal place of business or
head office and entities in India. Liaison office cannot undertake any commercial activity
directly or indirectly and cannot, therefore, earn any income in India. Its role is limited to
collecting information about possible market opportunities and providing information about the
company and its products to prospective Indian customers. It can promote export/import from/to
India and also facilitate technical/financial collaboration between parent company and companies
in India.
The approval for establishing a liaison office in India is granted by the Reserve Bank of India
(RBI).
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.
Branch Office

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

Export/Import of goods

Rendering professional or consultancy services

Carrying out research work, in which the parent company is engaged.

Promoting technical or financial collaborations between Indian companies and parent or


overseas group company.

Representing the parent company in India and acting as buying/selling agents in India.

Rendering services in Information Technology and development of software in India.

Rendering technical support to the products supplied by the parent/ group companies.

Foreign Airline/shipping Company.

A branch office is not allowed to carry out manufacturing activities on its own but is permitted to
subcontract these to an Indian manufacturer. Branch Offices established with the approval of
RBI, may remit outside India profit of the branch, net of applicable Indian taxes and subject to
RBI guidelines Permission for setting up branch offices is granted by the Reserve Bank of India
(RBI).
Branch Office on "Stand Alone Basis"

Such Branch Offices would be isolated and restricted to the Special Economic zone (SEZ) alone
and no business activity/transaction will be allowed outside the SEZs in India, which include
branches/subsidiaries of its parent office in India. No approval shall be necessary from RBI for a
company to establish a branch/unit in SEZs to undertake manufacturing and service activities
subject to specified conditions.

Laws
The major regulations of law in India affecting foreign investment are: The Foreign
Exchange management Act of 1999 ("FEMA") regulates foreign collaboration and equity
participation in India The Companies Act of 1956 regulates corporations and their
management in India The Industries Act of 1951 governs industrial regulations The
Monopolies and Restrictive Trade Practices Act of 1969 governs restrictive and fair trade
practices The New Industrial Policy of 1991 lays down the policy and procedure for foreign
investment
15. The corporate income tax effective rate for domestic companies is 35% while the
profits of branches in India of foreign companies are taxed at 45%. Companies incorporated in
India even with 100% foreign ownership, are considered domestic companies under the Indian
laws India has entered into tax treaties with a number of countries including, Australia,
Belgium, Canada, Denmark, France, Germany, Indonesia, Japan, Korea, Mauritius, Singapore,
the United Kingdom and the United States. These treaties endeavor to avoid double taxation and
attract know- how and technology. In many treaties the withholding tax on royalties and fees for
technical services coming from India is lower than the general tax rate
16. The New Export-Import Policy of 1992 provides substantial tax incentives for
investments in Export Oriented Units ("EOU's") Concessional rent for lease of industrial plots
Preferential power allocation and supply Exemption from import duty for capital goods and
raw materials for power sector industries as well as for trading companies primarily engaged
in export activity And industries located in the Export Processing Zones ("EPZ's") Import duty
exemption Complete tax holiday Decentralized "single window clearance

17. Remain Competitive High Performance Management and Benchmarking


Management Audit & Review Joint Ventures, Partnerships & Strategic Alliances
Assistance in Private Equity Investments Identification of Key Managerial Personnel
Market Research & Feasibility studies M&A advisory Acquisition Infusion of Private
Equity Investments, HNIs, Venture Capital Funds Due Diligence, Post-Merger
Integration Build Conceptualization Market Sizing India Entry Strategy, find which is
best route. Startups Strategic/Business planning (Formulate business Growth Plan and
Business Strategy for 3-5 years) Feasibility studies Identification of Local partner,
representative Grow Corporatization & Professionalization of Entrepreneurial firms Sales
and Marketing Strategy Generate capital raising alternatives Prepare investment kit for
fund raising Management support for startup ventures
stratergies
18. Commencement Understand vision Missions and goals Discuss assumptions and plans
Industry Analysis Current industry status Future opportunity Market, consumer and
competitor analysis Business Unit analysis Corporate structure Culture Processes and
operations Validation Validation of key findings Strategy Formulation Use multiple techniques
to be future ready Delivery Presentation and delivery of the report Implementation Assistance
in implementing the strategies

Ease at doing business in india


india improved its position from last years 134 to 130 in the World Bank Doing Business 2016
ranking, which was released on Tuesday.
Last years report ranked India at 140, but this years report features the recalculated 2015
rankings, in which India comes at 134, computed according to a new methodology. The WB
Doing Business reports, started in 2002, review business regulations and their enforcement
across 189 countries.
Focus area
Improving Indias ease of doing business ranking has been a focus area of the Narendra Modi
government since May 2014, and its efforts came in for praise by Augusto Lopez-Claros,
Director of the WB Global Indicators Group, which brings out the report.
My expectationis that if this process continues, if it is sustained, and the authorities show the
degree of determination which has been in evidence in the last year, then we could see
substantial improvements in the coming year, he said, briefing journalists. India also improved
its distance to the frontier, a measure of a countrys absolute performance.

Among South Asian economies, India made the biggest improvement in business regulation,
increasing its distance to frontier score by 2 points and moving up in the ease of doing business
ranking from 134 to 130. India ranks in the top 10 in Protecting Minority Investors (8), as its law
grants minority shareholders strong protection from conflicts of interest and provides extensive
rights to shareholders in major corporate governance, the report said.
The improvement in two indicators, starting a business and getting electricity, pushed India up
the ladder, according to the report. Now, companies can get connected to the grid and get on
with their business, 14 days sooner than before, the report said, based on the recently simplified
procedures in Mumbai and Delhi. The number of days it takes to start a new business has gone
up marginally from last year, from 28.4 to 29 this year, but the report has taken note of other
measures in the last year that made starting a business easier. The report commended the
legislative changes that eliminated the minimum capital requirement and the requirement to
obtain a certificate to start business operations.
Several other initiatives to simplify the start-up process were still ongoing on June 1, 2015, the
cut-off date for this years data collection, the report said. These include developing a single
application form for new firms and introducing online registration for tax identification
numbers. Mr. Lopez-Claros said India would need to further reduce the number of days it takes
to start a new business. It is still the case that in India, it takes 29 days to get a business
started Its a lot less than it used to be, which is good, but its certainly quite a bit higher than
the global average There are now 132 countries where it takes less than 20 days to get a
business started, India is not one of them So, we want to move the country in the direction of
increasingly being part of this set of high-performing countries, he said, naming construction
permit and enforcement of contracts as two indicators that have scope for improvement in the
immediate future. I think that what I want to emphasize here is not that there are bottlenecks,
which, of course, we understand we see a concerted effort on the part of the government to do
something about the business environment, he said.

Huge workforce and outsourcing support


India emerges as one of the most attractive destinations for outsourcing services supported by huge
workforce
Around 65% of Indian population is in the working age group of 15 to 64 years. Approx250 mn
Indians will join the workforce by 2030
Indias laborb force has a strong knowledge base with a significant English-speaking population and
high level of tertiary education supporting a diverse talent pool across industries.

Geographical advantage in terms of resources and location

Resources -To remain in the radar of foreign investors, India offers a rich bank of mineral resources
supported by low cost of production
Location -Foreign companies strategize to utilize India as a springboard to access some of the
regional South Asian, Middle East and even African markets

Continuously improving Infrastructure support

FOREIGN DIRECT INVESTMENT


Foreign Direct Investment (FDI) and the mechanisms (both substantive and procedural)
governing its inflow into India are regulated by the policies of the GoI and subjected to
review on an ongoing basis.
The GoI decided that a consolidated circular would be issued every year to update the FDI
policy. The latest FDI Policy (circular 1 of 2014), which is effective from April 17, 2014
(Consolidated FDI Policy), reflects the current policy framework on FDI.
(1) Areas where FDI is prohibited:
Under the current Consolidated FDI Policy, FDI is prohibited in the following areas or
activities: (i)Gambling and Betting, including Casinos, (ii) Lottery Business including
Government, private and online lotteries3, (iii) Business of Chit Funds, (iv) Real Estate
Business4 or construction of farm houses, (v)Trading in Transferable Development Rights,
(vi) manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco
substitutes and certain agricultural and plantation (vii) activities and activities / sectors
not opened to private sector including Atomic Energy and Railway Transport (other than
permitted activities) and (viii) Nidhi company5.