by Dafydd Williams, Senior Director Advisory Services APAC, High Street Partners
India boasts Asia’s third-largest economy, over a billion inhabitants, and a projected 6.2 percent growth rate next year. And if that’s not enough reason to look to India as a destination for overseas expansion, Raghuram Rajan, chief economic adviser to the Indian Finance Ministry, gives us one more. Speaking in Singapore, Rajan estimated that the country’s growth rate could reach 12 percent in the near future — well above its average of about 8 percent in recent years — and pointed to job creation as a central component of the government’s plan to achieve its growth potential.
All of this means that it’s time to explore taking full advantage of India’s commercial opportunities. Frequently, this will require setting up a company in the country. Registering a company incorporated in India comes with more
If you do decide to set up a company in India, keep these six things in mind:
1. English-speaking doesn’t mean easy. Just because English is widespread doesn’t mean India is an easy place to do business. Indians have specific ways of conducting business that make it easy for important points to get lost in translation.
2. Entering the market is difficult. Government regulation can make it complicated for companies looking to set up in India. Foreign companies may want to consider alternative structures, like joint ventures, for faster time to market and lower
3. Don’t take yes for an answer. Indian business culture involves a keen desire to help and a “can-do” attitude. Unfortunately, this can lead local business partners to overpromise and under-deliver. Review the resources required to deliver on a promise and any potential obstacles to uncover any issues before they take you by surprise.
4. All of India is not created equal. Twenty-eight separate states and more than 60 spoken languages mean that doing business in India is not a homogenous experience. Be sure to understand the specific norms of the region in which you are operating.
5. An incomplete infrastructure. India’s infrastructure has not yet completely caught up to its economic growth. Rajan, the adviser to India’s finance ministry, has acknowledged that infrastructure improvement is vital to the country’s growth, and the central government has already approved $13 billion in new projects this year. But power outages, sewage issues, and poor water quality remain common issues, even in industrialized areas. Expect unexpected delays.
6. Do your transfer pricing homework. In recent years India has been focusing increasingly on transfer pricing and tightening the framework to clamp down on historical abuse of transfer pricing by foreign owned companies. Even the simplest cost plus intercompany service arrangement is required to prepare a transfer pricing report and submit a transfer pricing certificate with the annual tax return. Arms’ length margins for cost plus are higher than most countries in India. Expect a minimum of 15% and work upwards.
And as a bonus tip, don’t be surprised by outrageously long resumes from Indian job applicants, who frequently submit 6-7 page CVs, complete with florid self-descriptions, for entry-level positions. A gem from one Indian’s CV: “I laugh easily, but do not suffer fools gladly.” There you have it. Whether or not that makes him a good fit for your office culture is a question we leave up to you.
Get these tips in chart form here.
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