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An Easy Guide on how US Companies can Enter Indian Markets

Wholly owned subsidiaries are fastest and cheapest entry strategy into India

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Wholly owned subsidiary is the cheapest and fastest entry strategy into India. Wikimedia
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  • It is fairly simple for foreign nationals to establish a company in India 
  • The entry strategy of wholly owned subsidiary or joint venture is the quickest and cheapest approach that foreign nations/ corporate entities can take
  • Here is a guide on how to go about and all that you will need to set up a company in India

August 30, 2017: India, one of the fastest growing economies in the world, attracts a number of business opportunities and investments from abroad. Each year, more Foreign Direct Investments have been flowing into India. With a population of over 1.2 billion, the labor, as well as market, is a great option for companies to expand.

It is often asked how a company based in the US or elsewhere can enter Indian markets and what should be the entry strategy. For example, we have seen our friends in USA asking: “How to register a USA company in India?” or “how to register a company in India from USA?”.

This article will tell you all that you should know to register your company in India.

There are two approaches for the entry into Indian market:

1. Register the company in India itself. This is by far the easiest and fastest entry strategy into India. Most foreign companies prefer to go with this approach. Up to 100% of foreign direct investment into a limited company and/ or private limited company does not require any permission from the central government. It is an automatic route. So clearly, the cheapest and fastest method for foreign nationals’ companies to enter India is to establish the company as either a joint venture or to incorporate it as wholly owned subsidiary.

What is a wholly owned subsidiary? It requires 100% of the shares of one company being owned by another company. For instance, if ABC company owns all the shares of XYZ company, then XYZ company becomes a wholly owned subsidiary of ABC company. To incorporate a wholly owned subsidiary, it is important that the full FDI is permitted inside the country, something that works only in automatic route mentioned above.

2. Establishing Branch/ Liaison Office. This method is not a frequently used entry strategy, mainly because the Project/ Liaison Office requires the approval of the RBI and/ or government, thus, increasing the cost and time invested as compared to the registration of the company in India itself. Important to note here is that a branch office or liaison office cannot be opened by a foreign national, restricting this option only to foreign companies.

What are the minimum requirements for starting a company in India? 

Minimum requirements for establishing a company in India are Two Directors, Two shareholders, and an Indian address. Minimum of two directors and two shareholders are required for starting a company in India. The directors should be persons whereas the shareholders can also be another corporate entity. It should also be ensured that any one of the directors should be both, an Indian national and an Indian resident.

The Indian address serves as the address to the registered office for the company. The legal jurisdiction will be applicable on the company of the city where the address is mentioned. India’s major metro cities like Mumbai, Bangalore, Delhi, Chennai are mostly opted by foreign companies to register their company offices.

Most foreign companies preferred the sort of legal entity structure wherein there are three directors. Out of these three, one is an Indian resident while the other two can be foreign nationals. This way, foreign nationals/ companies can own 100% shares as there are no minimum requirements for Indian residents’ shareholding.

What are the documents required for starting a company in India?

Foreign nationals serving as Directors of the company that is being established in India, have to submit copies of their passports and the address proof (such as Bank Statement, Driving license, etc.). The copy of these original documents has to be notarized by home country’s notary.

If a corporate company is becoming the shareholder, the Board Resolution that authorized the investment into the Indian company would also be needed. Additionally, the corporate entity’s certificate of incorporation is also required.

Fortunately, the presence of the foreign national in India is not required during this process, making it hassle-free.

What is the Incorporation Process? 

  • The two foreign nationals serving as Directors of the company must apply for Digital Signature Certificate (DSC). Also, all the directors of the company must apply for Director’s Identification Number (DIN).
  • In form INC-1, the application for the name of the company is required by the applicant.
  • When the Registar of Companies (ROC) has approved name of the company, the applicant is to file form INC-7 (Incorporation of Company), DIR-12 (The details of the appointed Directors), INC-22 (Change of address of the registered office).
  • Once the documents have been submitted, the ROC fees and stamp duty has to be paid online.
  • The ROC then verifies all the forms. For full satisfaction, it may ask to make some changes. Finally, the Certification of Incorporation is mailed.

The wholly owned subsidiary approach has been tried, tested and succeeded on numerous occasions.


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The year Chinese smartphone players dominated Indian market

India this year surpassed the US to become the second-largest smartphone market in the world after China.

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Smartphone. Pixabay
There are nearly 650 million mobile phone users in India — and over 300 million of them have a smartphone. For these users, Chinese players became the first choice this year as they launched devices with compelling features, thus dominating the budget and mid-range price segment in the country.
Chinese vendors captured 49 per cent of the Indian mobile phone handset market in the first quarter of 2017 — with a 180 per cent (year-on-year) revenue growth — threatening to wipe out domestic players from the overall handset segment.
Among the top Chinese brands, Xiaomi witnessed the biggest growth this year.
With a market share of 23.5 per cent and having shipped 9.2 million smartphones in the third quarter this year, Xiaomi became the fastest-growing smartphone brand with a growth rate of nearly 300 per cent (year-on-year) in the third quarter this year.
According to IDC, Samsung had 23.5 per cent market share in India, similar to Xiaomi, the Lenovo-Motorola combine was at 9 per cent, Vivo at 8.5 per cent and OPPO at 7.9 per cent.
For Xiaomi, its Redmi Note 4 device that was launched in January at Rs 9,999 for the base model (2GB RAM and 32GB onboard storage) proved to be a game-changer and its best-selling smartphone too. The company shipped approximately four million units of the device in this quarter, said IDC.
Chinese brands like Huawei (which sells its youth-centric sub-brand Honor in India), Vivo, Motorola (a Lenovo brand) and OPPO’s performance remained strong and contributed to more than half of the total smartphone shipments in the country.
Aiming to push its position up in the highly competitive Indian market, Honor launched flagship products at “unbeatable prices”, like the highly-successful Honor 8 Pro (Rs 29,999) and Honor 7X (starting at Rs 12,999).
Only one-fourth of India's population uses smartphones, thus making the country an attractive destination
Only one-fourth of India’s population uses smartphones, thus making the country an attractive destination
 Vivo and OPPO’s aggressive marketing spends also paid them hefty dividends. With smartphone growth nearing saturation in metros, Chinese players were also busy building their base in tier II and III cities.
When it comes to manufacturing in India, Xiaomi announced its third plant in the country based out of Noida and the first facility for power banks in partnership with Hipad Technology.
Spread across 230,000 square feet, the Noida unit is a dedicated facility for Xiaomi power banks where the Mi Power Bank 2i will be assembled. The company already has two smartphone manufacturing plants in Sri City, Andhra Pradesh, where more than 95 per cent of its smartphones sold in India are assembled locally.
Meanwhile, South Korean giant Samsung also announced that it would invest Rs 4,915 crore in expanding its Noida manufacturing plant to double the production capacity of both mobile phones and consumer electronics.
The Foreign Investment Promotion Board approved OPPO’s request to open single-brand retail stores in the country. With this decision, OPPO became the first smartphone company to get this opportunity in India.
The Chinese players also handled the post-demonetisation ripples well with high decibel marketing, increased credit line to distributors and efficient channel management.
Global vendors, led by Samsung, were able to withstand the aggressive Chinese players post-demonetisation owing to their good distributor coverage and penetration in the Indian market.
Aiming to gain a further foothold in the offline smartphone market, Xiaomi opened its first “Mi Home” store in Bengaluru in May and plans to add 100 such stores in the next two years.
Similarly, Lenovo-owned Motorola opened six “Moto Hubs” in Delhi-NCR and Mumbai and plans to open 50 more by the end of this year.
Huawei’s sub-brand Honor announced opening four more exclusive service centres in Kolkata, Hyderabad, Lucknow and Guwahati. Its service centres are already operating in 17 cities.
India this year surpassed the US to become the second-largest smartphone market in the world after China. Yet, according to Counterpoint Research, only one-fourth of India’s population uses smartphones, thus making the country an attractive destination for Chinese players in the mobile ecosystem. IANS