Reaching the Consumer Market in India
DELHI – Determining the best route for market entry or expansion into India requires careful consideration of a wide variety of factors, including the intended scope of investment, nature of business activities, tax implications, and legal liability. Foreign companies should carefully weigh the advantages and drawbacks of each route to market, which can range from direct and indirect export to establishing a local business presence or acquiring an existing company in India.
While many foreign companies choose to rely on direct export and third-party distributors to sell their products and services, establishing a local business presence is oftentimes a prerequisite to long-term profitability and success.
Direct and Indirect Export
Exporting to India entails little risk to the producer and involves either selling directly to an importer or distributor in India (direct export) or selling to a local third-party distributor that purchases goods and resells them to an Indian importer (indirect export). While direct and indirect export can allow companies to avoid some of the challenges and risks associated with navigating international shipping and billing, clearing customs and complying with national and Indian export/import procedures, there are some significant shortcomings associated with this market entry option. When crafting a relationship with third-party distributors in India, due diligence reports on potential partners should include the following information:
- Company and personnel information, especially that related to directors and shareholders
- Corporate structure
- Financial information and status
- Whether or not the potential agent handles similar product lines, possibly resulting in a conflict of interest
- Whether the agent has adequate transportation and storage facilities
- Licenses, permits, approvals, and specific statutory compliance
- Any previous court orders or litigation issues against the distributor in question
- Proof of insurance
- References from previous clients and partners
One of the most significant drawbacks to serving the Indian market strictly through export is that companies have little to no control over how their product and brand is marketed to Indian consumers—ultimately precluding companies from building a brand with a strong, lasting reputation. Similarly, serving the Indian market from afar prevents businesses from acquiring a thorough understanding of the Indian market and anticipating changes in consumer demands and tastes. As India’s consumer culture continues to develop, success in the Indian market will increasingly be determined by whether or not a company can be sensitive to changing consumer preferences and provide buyers with local after-sales service and support.
Establishing a Local Presence
While establishing a local business presence in India entails more financial and legal risk than direct or indirect export, a local presence provides foreign companies with more direct control over operations, finances, and ultimately how a product or brand is showcased and marketed to consumers. Depending upon a foreign company’s size and desired level of commitment, options for market entry can range from the establishment of a liaison office to the creation of a wholly foreign-owned subsidiary.
This article is an excerpt from the July 2014 edition of India Briefing Magazine, titled “Passage to India: Selling to India’s Consumer Market.” In this edition of India Briefing Magazine, we explore several key growth sectors and industries that enhance India’s appeal to foreign companies seeking out new markets for their products and services. For overseas firms exploring the diverse range of options available for accessing and selling to the Indian market, we outline the fundamentals of India’s import policies and procedures, as well as provide an introduction to the essentials of engaging in direct and indirect export, acquiring an Indian company, selling to the government, and establishing a local presence in the form of a liaison office, branch office, or wholly owned subsidiary.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email email@example.com or visit www.dezshira.com.
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