The 45th Annual Wisconsin International Trade Conference

1
The 45th Annual Wisconsin International Trade
Conference

• Panel Discussion
• Business in India
• By Neil Mehta

2
Agenda

• Overview of India
• Establishing an Indian Office
• Doing Business in India A Cultural Perspective

3
Overview

• A booming economy, buoyant stock markets and a
  thriving middle class makes India an attractive
  investment destination
• Indian economy is on a robust growth trajectory,
  with rising foreign exchange reserves
• Prominent among the changes are the rapid
  urbanization and improving literacy rates
• Other changes include
• Increasing awareness and availability of the
  Internet
• Rapid increase in the number of mobile phone
  users
• A cultural shift from that of savings and thrift
  to spending on luxury items and vacations, and
  more

4
Overview

• Location The Indian peninsula is separated from
  mainland Asia by the Himalayas. The Bay of Bengal
  in the east, the Arabian Sea in the west, and the
  Indian Ocean to the south surround the Country
• Area 3.3 Million square kilometers
• Geographic Coordinates Lying entirely in the
  Northern Hemisphere, the mainland extends between
  latitudes 84' and 376' north, longitudes 687'
  and 9725' east.
• Capital New Delhi
• Border Countries Afghanistan and Pakistan to the
  north-west China, Bhutan and Nepal to the north
  Myanmar to the east and Bangladesh to the east
  of West Bengal. Sri Lanka is separated from India
  by a narrow channel of sea, formed by Palk Strait
  and the Gulf of Mannar
• Coastline 7,516.6 km encompassing the mainland,
  Lakshadweep Islands, and the Andaman Nicobar
  Islands
• Climate The climate of India can broadly be
  classified as a tropical monsoon one. But, in
  spite of much of the northern part of India lying
  beyond the tropical zone, the entire country has
  a tropical climate marked by relatively high
  temperatures and dry winters. There are four
  seasons - winter (December-February) summer
  (March-June) south-west monsoon season
  (June-September), and post monsoon season
  (October- November)
• Natural Resources Coal, iron ore, manganese ore,
  mica, bauxite, petroleum, titanium ore, chromate,
  natural gas, magnetite, limestone, dolomite,
  barites, kaolin, gypsum, apatite, phosphorus,
  steatite, fluorite, etc.
• Government Type Sovereign Socialist Democratic
  Republic with a Parliamentary system of
  Government
• Administrative Divisions 29 States and 6 Union
  Territories.
• Constitution The Constitution of India came into
  force on 26th January 1950

Source Government of India, Ministry of External
Affairs
5
Overview Demographics
Kolkata
Government
Mumbai
Hyderabad
Chennai
Bangalore
6
Overview Demographic trends
Russia
Source Human Development Report 2005-2006
7
Overview Agricultural Exports
US (Million)
Source Economic Survey 2005-06
8
Overview Consumer Market Segment Growth (5 years)
Source FICCI, India Economic Profile
9
Overview Roadways in India
Source National Highways Authority of India
10
Overview Business Climate

• Indian Government has liberalized the foreign
  investment rules substantially over the last
  decade
• Foreign Direct investment (FDI) is open to almost
  all sectors
• India's foreign trade policy has been formulated
  with a view to invite and encourage FDI in India
• FDI investment in India were valued at
• 23.88 Billion from April 2008 to January 2009
• Increase of 65 over the same period the previous
  year (April 2007 to January 2008)

11
Overview Business Climate

• Highest Foreign Direct Investment Equity Inflows
  by sector from April 2008 to January 2009 (U.S.
  Billions)

Source Government of India, Ministry of External
Affairs
12
Overview Business Climate

• Top Foreign Direct Investment Equity Inflows by
  country from April 2008 to January 2009 (U.S.
  Billions)

Source Government of India, Ministry of External
Affairs
13
Establishing an Indian Office

• Focus will be on several types of entities
• Liaison office
• Project office
• Branch Office
• Subsidiary

Source Reserve Bank of India
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Establishing an Indian Office

• Liaison Office
• Definition/Criteria A liaison office can only
  carry on liaison activities
• A channel of communication between the parties in
  India and the head office abroad
• No business activity in India is allowed and
  can not earn any income in India
• Expenses are met through inward remittances of
  foreign exchange from head office abroad
• Establishing a Liaison Office
• Obtain Approval from the Reserve Bank of India
  (Form FNC-1)
• Permission initially granted for three years,
  but can be extended
• Liaison office must file an Activity Certificate
  on an annual basis

Source Reserve Bank of India
15
Establishing an Indian Office

• Project Office
• Definition/Criteria Projects granted to foreign
  companies in India by Indian Entities
• Secured from an Indian Company, a contract to
  execute a project in India
• Project funds met through
• Inward remittances of foreign exchange from
  abroad
• Through an International Financing Agency
• Cleared by the appropriate Indian authority
• Indian entity has been granted a Term Loan by a
  Public Financial Institution
• Establishing a Project Office
• Obtain approval from the Reserve Bank of India
  (Notification No. FEMA 95/2003-RB)
• Permission granted based on criteria above
• If criteria are not met applications need to be
  forwarded to the Central Office of the Foreign
  Exchange Department of the Reserve Bank at Mumbai
  for approval

Source Reserve Bank of India
16
Establishing an Indian Office

• Branch Office
• Definition/Criteria
• Granted for companies engaged in manufacturing
  and trading activities
• Purpose
• Represent parent company in various matters, e.g.
  buying/selling agents in India
• Conduct research
• Undertake export and import activities and
  trading on wholesale basis
• Promotion of possible technical and financial
  collaborations between the Indian companies and
  overseas companies
• Rendering professional or consultancy services
• Rendering services in Information technology and
  development of software in India
• Rendering technical support to the products
  supplied by the parent/group companies
• Establishing Branch Office
• Obtain Approval from the Reserve Bank of India
• Branch office is not allowed to carry out
  manufacturing, processing activities
  directly/indirectly
• Branch Office is also not allowed to undertake
  retail trading activities of any nature in India.
  
• Branch Offices have to submit Activity
  Certificate annual basis

Source Reserve Bank of India
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Establishing an Indian Office

• Subsidiary
• Location
• Key Factors/Considerations
• Reliable Employee pool with required skill sets
• Telecommunications infrastructure
• Power infrastructure
• Incorporation
• Hiring of local service provider to establish
  subsidiary
• Cost Approximately 7,500 to 20,000 which
  includes
• Incorporation
• Registration
• Service Fees
• Does not include initial capitalization provided
  to the Indian subsidiary by the parent company
  abroad

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Establishing an Indian Office

• Subsidiary
• Corporate Structure
• Directors
• Shareholders
• Selection of a Managing Director (e.g. President
  and CEO)
• Funding and Budgetary Guidelines
• Short Time periods
• Limit of Delegation of Authority
• Operational Implications
• Indian Subsidiary is a separate legal entity from
  U.S. company
• Document relationships including inter-company
  agreements

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Establishing an Indian Office

• Subsidiary
• Employees
• Initial three month probation
• Employee can be terminated after probationary
  period with 30 to 90 days notice/severance
• Benefits should be competitive, but not excessive
• Compensation consists of five parts
• Special Economic Zones (SEZ)
• A designated duty free enclave
• Treated as foreign territory for purposes of
  trade operations, duties and tariffs
• Companies can avail tax deductions

20
Establishing an Indian Office

• Subsidiary Incorporation tasks and schedule
• Incorporation, including
• Engage service provider to complete incorporation
  process
• Enter into agreement between parent company,
  service provider and initial Indian directors and
  shareholders
• Directors acquire Directors Identification Number
  and digital signature
• Checking of name availability and name
  reservation
• Prepare and file charter documents (Memorandum of
  Association and
• Articles of Association), with registration fee
  and stamp duty
• Appointment of initial directors
• Issuance of shares to initial shareholders
• Print share certificates and prepare minute book
• Register company and pay registration and filing
  fees

Start to 30 days from start
Source Fenwick West, LLP
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Establishing an Indian Office

• Subsidiary Incorporation tasks and schedule

Source Fenwick West, LLP
22
Indian Business A Cultural Perspective

• Culture
• Defines our fundamental beliefs on how the world
  works
• Drives the way we interact and communicate with
  others
• India is complex
• Different cultures within India
• Path to success sometimes difficult
• Efficiency and adhering to deadlines are not
  always driving factors
• The Indian Psyche
• Aggressiveness can often be interpreted as a sign
  of disrespect, leading to lack of motivation
• Take the time to get to know Indians as
  individuals in order to develop professional
  trust
• Indians will invite you to their home and indulge
  in personal talk
• Indians respect people who value their family

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Indian Business A Cultural Perspective

• Culture
• The Indian Psyche (continued)
• Criticism needs to be given constructively
• Indians are used to a system of hierarchy in the
  work place
• Hesitation to say No
• Women are treated with respect in the work place
• Values need to be respected
• Non-verbal communication

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The 45th Annual Wisconsin International Trade
Conference

• Panel Discussion
• Business in India
• By Neil Mehta