This morning, Kegler Brown hosted a packed room for its “Exporting to India: Strategies for Success” seminar in partnership with JPMorgan Chase and the Ohio Department of Development. The half-day event also featured insights from Prem Behl, managing director of India’s Ohio Office, international business students from the University of Findlay, and a panel of practical experts on the Indian market, comprising providers of both goods and services. Presenters and attendees discussed financial strategies for success with Martha Gabrielse, director of global trade finance for JPMorgan Chase, and best practices in legal intelligence with Kegler Brown’s Asia-Pacific Team Leader, Vinita Mehra and its Global Team Leader, Martijn Steger. Also in attendance were local appointed and elected officials, business leaders from across Ohio, and previous winners of the Ohio Governor’s e-Award for Excellence in Exporting.
2. DOING BUSINESS IN
INDIA
Prem Behl
Managing Director
Ohio India Office
2
3. INDEX
1. India: Country Profile
-Geographical Profile…………………………………………………………………….04
-Demographic Profile…………………………………………………………………….08
-Political Profile…………………………………………………………………………….10
-Economic Profile………………………………………………………………………….11
2. Key Sectors & Market Opportunities
a. Aerospace & defense……………………………………………………………….20
b. Automotive …………………………………………………………………………….24
c. Heath Sciences…………………………………………………………………………28
d. Power (Cleantech & Utilities)……………………………………………………32
3. India-US Trade…………………………………………………..36
4. Conclusion: Doing Business in India…………………..42
3
5. Geographical Profile
• Total Area : 3.3 million sq.
km.
• World‟s 7th largest nation
• 28 states and 7 union
territories
• Bordering countries: China
Nepal, Bhutan, to the north,
Afghanistan and Pakistan to
the north-west, Myanmar
and Bangladesh to the east
and Sri Lanka to the south.
5
6. Geographical Profile
Climate Broadly classified as tropical monsoon. The country
has four seasons-summer (March-June),
monsoon(June-September), post-monsoon
(October-November), winter (December-February)
Natural Coal (fourth largest reserves in the world),
resources manganese, bauxite, iron ore, mica, chromites,
diamond, limestone, titanium ore, natural gas,
petroleum, and arable land
6
7. Geographical Profile
Flora and More than 47,000 species of flora and fauna
fauna and more than 89,000 species of fauna are
found here
Major Ganga, Yamuna, Brahmaputra, Godavari,
rivers Krishna, Cauvery, Narmada, Tapti
Coastline The coastline comprises of 7,517 km
encircling the mainland, the Andaman,
Nicobar and Lakshadweep islands.
7
9. Demographic Profile
Population 1.2 billion (urban:30%, rural: 70%)
Worlds 2nd most populous nation
Population 1.6% per annum
growth rate
Birth rate 20.97 (births/1,000 population)
Death rate 7.48 (deaths/1,000 population)
9
10. Demographic Profile
Life expectancy 66.8 years
Sex ratio 940 females per 1,000 males
Literacy rate 74.04%(male: 82.1%, female: 65.5%)
Languages Hindi is the official language of India. Apart
from Hindi, there are 21 official languages in
the country.
Religions Hinduism, Islam, Christianity and Sikhism are
the four main religions in India. Other religions
are Buddhism, Jainism, Judaism and
Zoroastrianism.
10
11. Political Profile
• India is a secular state and the largest democracy in the world with a
parliamentary form of government.
• The President of India is Smt. Pratibha Patil
• Currently, the Government of India is led by the United Progressive Alliance
(UPA) under Prime Minister Dr. Manmohan Singh.
Government of India
Legislative Executive Judiciary
Rajya Supreme
Sabha President
Court
(Upper
House) Vice
High Courts
President
Lok Sabha
(Lower Prime District
House) Minister Courts
11
12. Economic Profile
Economic reforms began in
1991. Today, the Indian
economy is characterized by:
• Liberalized foreign
investment and trade policy.
• Significant role being played
by the private sector and
deregulation.
12
13. Economic Profile
• India has grown to become a trillion dollar
economy :
- Self-sufficient agricultural sector.
- Diversified industrial base.
- Stable financial and services sector.
13
14. Economic Profile
• The Economy of India is:
- 9th largest in the world by nominal GDP $1.846
trillion
- 3rd largest in PPP terms at $4.469 trillion
• GDP has been growing at an average rate of 8.6% for
the last 5 years.
• The country's per capita GDP :
-Nominal was $1,527
-PPP was $3,703 in 2011, making it a lower-middle
income economy.
14
15. Economic Profile
Domestic consumption fuelling economic growth:
• India has been and continues to be relatively
insulated from external shocks due to its strong
domestic consumption pattern
• Consequently, India was relatively unaffected by
the global recession in 2009, recording a GDP
growth rate of 6.8%
15
16. Economic Profile
Domestic consumption fuelling economic growth:
•Increasing urbanization and modern technology
have brought about a remarkable change in the
lifestyles and consumption pattern of Indians.
•Private domestic consumption accounts for more
than 50% of the country‟s GDP and is one of the key
factors driving overseas investments in the country.
16
17. Economic Profile
India's GDP is 8.5% for FY11 and is projected to be 8.7% for
FY12
17
18. Economic Profile
FDI in India:
• India is the second-most attractive destination for
FDI (after China) in the world. Source: UNCTAD‟s
World Investment Prospects Survey 2010-2012
31.5%
18
21. Aerospace and Defense
Sector Overview:
•India is the world‟s 9th largest civil aviation market in the
world and ranks 4th in domestic passenger volumes (45.3
million)
•India‟s national budget for 2011-12 pegged the defense
outlays at US$ 36.54 billion. Of this capital expenditure,
which primarily caters to acquisition of defense hardware
and modernization requirements of defense services,
accounts for US$ 15.38 billion.
21
22. Aerospace and Defense
Sector Overview:
•The Indian military is expected to spend roughly
around US$ 80 billion over the next four to five
years.
•It ranks among the top 10 countries in the world
in terms of military expenditure.
•India is one of the largest users and importers of
conventional defense equipment.
22
23. Aerospace and Defense
Foreign direct investment:
The policy for foreign direct investment (FDI) in
the defense sector is up to 100% for Indian
private sector participation, with FDI permissible
up to 26%, both subject to licensing and GoI
approval.
23
24. Aerospace and Defense
Outlook:
Aerospace and Defense Industry growth is
driven by factors:
• Progressive policy changes initiated by the
Government of India (GoI) to modernize and
develop its aerospace and defense industry
• Cost advantages
• Talent base
• IT competitiveness
24
25. Automotive
Sector Overview:
• India is the world‟s largest three wheeler, second-
largest two-wheeler and seventh largest car market in
the world.
• The Indian automobile industry is estimated to have a
total turnover of US$ 73 billion for the year 2010-2011.
•In 2010-2011 the total number of vehicles
manufactured in India were: 17,916,035.
•Exports of vehicles have grown at a CAGR of 25% over
the period 2007–11.
25
26. Automotive
Sector Overview:
•India proximity to the south-east Asian and African
markets makes it an ideal location for small vehicle
manufacturing.
• India ranks fifteenth in the world in availability of
engineers and scientists.
•The cost of manpower is also 20%–40% cheaper than
counterparts in America.
•Automotive OEMs, tier-I suppliers are viewing India as a
sourcing base with more than 35 International Purchasing
Office in the country operated by various multinational
players and component suppliers, to source components.
26
27. Automotive
Foreign direct investment:
•FDI of up to 100% is allowed under the automatic
route.
•200% weighted deduction on R&D expenditure.
•Most state governments offer additional incentives to
vehicle manufacturers, in order to encourage them to
set up manufacturing units in their respective states.
27
28. Automotive
Outlook:
•India is the second-fastest growing vehicle market in the world:
-Primarily due to the rising personal disposable income and a
growing middle class.
-The number of households in the middle income group is expected to
rise to 170 million by 2015 providing immense scope for growth in
the passenger car density, which is currently 11 per 1000 people
-The increasing working population, favorable government policies
and availability of low cost finance were the key drivers of domestic
market growth.
-India is poised to become one of the top five vehicle producing
nations.
- By 2020, vehicle production is set to treble from 2009 levels and
the size of the component sector is set to grow from US$ 30 to
US$ 110 billion.
28
29. Heath Sciences
Sector Overview:
•The Indian life sciences industry has evolved
tremendously, with pharmaceutical, biotechnology and
health care domains driving growth in the sector.
• The growth of the country‟s healthcare sector in the
recent years is due to:
- Large population
- Evolving patient demographics
- Increasing healthcare expenditure
-Growing urbanization
- Increasing disposable income
-Private sector participation
29
30. Heath Sciences
Sector Overview:
• India is the 3rd-largest pharmaceutical market in the world in
terms of volume and 14th in terms of value.
• The domestic pharmaceutical market size is estimated at US$
12.76 billion in 2010 and is expected to grow at a CAGR of 9.5% till
2015.
• Indian biotechnology sector was valued at US$ 4 billion in 2010-
11.
• The Contract Research and Manufacturing Services(CRAMS) sector
is valued approximately at US$ 7.6 billion in 2011-12 and has
grown at a CAGR of 47.2% from 2007 to 2012
• The Indian medical equipment and supplies market in 2010 was
estimated at US$ 3.6 billion and is estimated to reach US$6.41
billion by 2014 at a CAGR of 15.5%
30
31. Heath Sciences
Outlook:
The key factors contributing to the growth of the Indian health
care market are:
• Rise in the number of middle class households with
increasing levels of disposable income
• Demand from the urban middle class for better healthcare
services
• Changing disease patterns: It is estimated that by 2012, 50
percent of the spending on in-patient beds would be on
lifestyle related diseases associated with the increasing levels
of urbanization
31
32. Heath Sciences
Outlook:
• Substantial demand from high quality and specialty
healthcare from tier II and tier III cities.
• Increase in Government spending on healthcare: The
Union Government has allocated US$ 5.6 billion in
2011-12 on healthcare, an increase 11% from the
previous fiscal year.
32
33. Power
(Cleantech & Utilities)
Sector Overview:
• India‟s power generation capacity, as on 31 May 2011 is
estimated at around 174.9 Giga Watt (GW) (excluding captive
power generating capacity of 19.5 GW), with the private
sector contributing just over 21.8% of the installed capacity.
Source: Ministry of Power
- Coal, gas and diesel fuel-based thermal power plants
form a major portion (65%) of the installed capacity,
accounting for nearly 113.9 GW of the total installed
capacity in the country.
- The share of renewable energy in the installed capacity
increased from 3% in 2002 to around 11% in 2010.
33
34. Power
(Cleantech & Utilities)
Sector Overview:
•The total quantum of power generated in the
country has increased from 704.5 billion units (BU) in
FY07–08 to 788.4 BU in FY2010–11, recording a
growth rate of 3.8% in the last four years.
•At the end of FY11, the total electricity peak demand
met was only 110.26 GW, resulting in a peak deficit of
9.8%, while the electricity energy availability was
788.4 BU, which has resulted in an energy deficit of
8.5%
34
35. Power
(Cleantech & Utilities)
Foreign direct investment:
• The power sector enjoys a favorable regulatory
environment.
•FDI of up to 100% in all power sector segments
(excluding nuclear)
35
36. Power
(Cleantech & Utilities)
Outlook:
• The sector recorded highest ever capacity additions in 2010-11
of around 16 GW. These additions were made mainly across
hydro and thermal projects
• The Government of India released US$ 889 million toward
Accelerated Power Development and Reform Program (RAPDRP).
-Out of these around US$ 867 million will be disbursed to
state utilities as loans and the remaining will be given out
as grants.
• The government‟s independent transmission projects initiative,
along with related state initiatives, is expected to open new
opportunities in the transmission BOT sector, thereby attracting
both Indian and international developers.
36
38. US-India Bilateral Trade
• Bilateral trade grew at a CAGR of 11.69% between 2006-10
• Indo-US trade of all products amounted to US$ 44.7 billion in 2010
and US$ 57.7 billion in 2011
India-US Bilateral Trade 2009-2011 (figures in US$ billion)
70
60 57.78
50
44.78 36.16
40 37.6
Exports to
25.53 India
30
21.16 19.25 21.62
16.44 Imports from
20
India
10 Total Bilateral
Trade in Goods
0
2009 2010 2011
• Bilateral trade of products and services is expected to touch a record
US$ 100 billion in 2012
38
40. US-India Bilateral Trade (US Imports)
Percentage Share of Major Items Exported from India to
USA
Iron & Steel Products,
Electrical 3.4%
Machinery, 4.0%
Machinery,
4.8%
Textiles,
Organic 17.7%
Chemicals, 5.1%
Pharmaceutical
Products,
8.6% Precious Stones &
Metals,
22.0%
Mineral
Fuel, Oils, 10.9%
40
41. Ohio-India Trade
Growth in Ohio’s Exports
•India emerged as Ohio‟s 12th largest export market in
2010
•Ohio‟s exports to India have grown by almost 50%
from US$ 380 million in 2009 to US$ 566 million in
2010
41
42. Ohio-India Trade
Ohio’s Top Exports to India
•Industrial Machinery: $ 253 million
•Electric Machinery: $ 49.4 million
•Optic/Medical Instruments: $ 41.2 million
•Plastics and Articles thereof: $ 36.5 million
•Aircraft and Spacecraft: $ 29.4 million
•Pearls, Stones, etc.: $ 24.2 million
•Miscellaneous Chemical Products: $ 17.1 million
•Articles of Iron or Steel: $ 14.8 million
•Iron and Steel: $ 13.3 million
•Dye, Paint, etc.: $ 8.8 million
42
44. Conclusion
• Purchasing power growth in India along with advances in
technology and an increasing focus on quality are factors
which make India a favorable market for overseas players
• India has emerged as the 12th largest market for Ohio‟s
exports
• Growth in spending in Indian sectors such as healthcare and
medical equipment, aerospace and defense and clean energy
provide good export prospects for Ohio companies
44
46. Understanding the Indian Culture:
Hofstede Framework & Study Abroad Experience
Presented by: Adrian Inkrott, Amanda Purdy, Andrew
Glotfelty, Cory Miles, Jacqueline Fries-Gomez, Jeremy
Espinoza, Lauren Mathias, Sakiko Okuma, Shoayb Bascal
Faculty Advisor: Dr. Ghose and Professor Gamba
47. About UF
The University of Findlay (UF) is one of the largest and most diverse private
educational institution’s in Northwest Ohio
• UF’s College of Business has partnership programs with local corporations
– Unique emphasis on international business majors
– MBA program that draws students from different countries; i.e. India
• Top tier of U.S. News & World Report’s “America’s Best Colleges” in the Midwest
• “Best Midwestern College” by the Princeton Review for the past four years
• Professionally qualified professors
- Real-world international experience
48. Governor’s ‘Excellence in Exporting’ Award
• Recipient of 2009 (e-award)
• UF is the second private university to have won the E-Award
• UF is one of only five organizations in Findlay, OH to have received the award
49. Hofstede Framework
Theory pioneered by Dr. Geert Hofstede
• The most comprehensive studies of how values in the workplace are
influenced by culture
• Paradigm used by numerous researchers
Model of cultural dimensions (five sub-categories)
• Hofstede analyzed a large data base of employee values, scores collected
by IBM between 1967 and 1973 covering more than 70 countries
- The results found clear patterns of similarity and difference amid the
responses along these dimensions
Cultural differences
• Between nations are found on the deepest level; i.e. on the level of values
• Among organizations are identified on the level of practices
*Source: geert-hofstede.com
50. Power Distance – U.S. vs. India
India – 77 United States – 40
• High ranking • Low ranking
• Large gaps • Equality among ranks
- Compensation - Supervisors
- Authority - Employees
- Respect
Not reflected as an objective difference in power distribution, but rather
the way people perceive power differences.
51. Individualism
India – 48 United States – 91
• Focus on long term • Highly individualistic
relationships
• Look after ones self and
• Low job turnover immediate family
• Often hire based on friends • High graphical mobility
and family
• Not shy
• Prepare to be asked personal
• Employees take initiative
questions
• Merit based hiring and
• Reward and recognize the
promotion
entire team, not just
individuals
52. Masculinity vs. Femininity
India – 52 United States – 62
High ranking, high degree of gender differentiation. Males dominate a
significant portion of the society and power structure.
A low ranking, low level of differentiation, discrimination between
genders. Females are treated equally to males in all aspects of the
society.
Masculinity Femininity
• Competition • Cooperation
• Achievement • Modesty
• Heroism • More consensus-oriented
• Material reward for success
53. Uncertainty Avoidance
India – 40 United States – 46
Low UA societies (India and United States)
•More relaxed attitude to uncertainty and ambiguity
•More tolerance for a variety of opinions
Uncertainty Avoidance dimension is the degree to which the member’s
of a society feel uncomfortable with uncertainty and ambiguity.
54. Long-Term vs. Short-Term Orientation
India – 61 United States – 29
• Enduring culture • Short term oriented
• Thrifty and persistent • Focus on traditions and filing
social obligations
• Sense of shame in regards to
status • Measure performance on
short term basis
• Remain at one job much of
life time - Quarterly profit/loss
• Quick results
• Absolute truth
55. Ohio Energy Industry
Largest Industry is Oil and Gas related
• Contributed $1.5 billion to gross state product in 2008
More than 7,500 employed by advanced energy manufacturers
Leading the U.S. as component supplier for wind turbine original equipment
manufacturers
Lucky number 7
• 7th largest coal reserves in the U.S.
• 7th largest producer of biomass and biofuel related goods in the U.S.
2nd largest solar manufacturer in the U.S.
• 1,500 employed in our solar energy industry
*Source: nccet.com
56. Ohio Aerospace Industry
• “Birthplace of Aviation”
• Accounts for 15,200 employees in manufacturing
• Over 120 companies involved in the industry
• Top leader in aircraft engine manufacturing
• Top leader in educating highly skilled workers
– 11 schools of engineering in Ohio
*Source: Ohiomeansbusiness.com
57. India’s Energy Demand (Current)
Ranks 3rd in the world of energy consumption
• Over a third of the populous has no access to the grid
Coal meets more demand than any other resource at 40%
• India is the 3rd largest producer of coal in the world
• Coal imports rose roughly 20% in 2010
Oil meets roughly 25% of Indian energy needs
Is the 5th largest market for wind energy in the world
Per capita energy consumption is still low compared to developing countries
58. India’s Energy Demand (Future)
Government hopes to reduce reliance on imports
• Projected to reach 53% of the supply of energy in India (currently at 30%)
• Encouraging more efficient supply sources
- Particularly nuclear, planning to start build 18 nuclear plants by 2025
55% of rural population has no access to electricity
• Government-led initiative is called REC
Government is also encouraging alternative sources of energy
• Primarily wind and solar through the use of tax breaks
• Projected to move from 10th to 3rd in G20 countries in clean power
investments
• 100% FDI is possible in renewable energy sector
59. India’s Aerospace Demand
Like the rest of India, industry is growing rapidly
• Civil aviation has grown at a rate of 41%
• Boeing has projected demand for $100 billion worth of commercial
aircrafts
• Estimate growth in repairs and parts market expected to grow at 10%
annually
Government support
• There is no duty on imports of aerospace related products
• Current cap of 26% on FDI in defense sector but this appears to be
loosening
63. Why India?
• India is the 4th largest economy in the world as measured by
purchasing power.
• India has a consumer base of 1.2 billion people.
• The youngest population of the world – hence sustainable, long term
growth is assured.
• Modern (organized) retail converging with the consumption boom will
open up many opportunities for small and mid-size consumer
companies.
• Rapid growth in the number of middle class consumers.
• Eager and savvy consumer market with growing buying potential.
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64. India’s FDI Regime
• 100% foreign investment permitted in most sectors on automatic basis except:
– Banking (74%).
– Telecom services (74%).
– Civil Aviation (49%).
– Insurance (49%).
– Retail trading: New – Single Brand up to 100% . Multi-Brand – Not allowed.
– 100% FDI is allowed in cash and carry wholesale formats, B2B sales.
• Certain sectors where FDI is prohibited:
– Atomic Energy.
– Lottery business, Gambling and Betting.
– Agriculture
– Railway Transport
– Arms and Ammunition
– Coal and Ignite
• Certain sectors where there are minimum capitalization requirements:
– Non-banking financial services activity (certain activities – fee based and fund based).
– Real estate construction and development projects.
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65. Potential Investment Opportunities
Information Technology
Software and Services - $50 billion
IT-enabled Services - $17 billion
E-Commerce - $8.9 billion
Biotechnology
$4.5 billion by 2010
Retail
$300 billion by 2010
Healthcare
$16 billion potential
Energy
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66. Markets with Significant Export Potential
Airport and Ground Handling Mining and Mineral Process
Equipment Equipment
Computers and Peripherals Oil and Gas Field Machinery
Education Services Pollution Control Equipment
Electric Power Generation, Safety and Security Equipment
Distribution and Transmission
Equipment Telecommunications Equipment
Machine Tools Textile Machinery
Medical Equipment Water Treatment
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67. Structuring Investments – FDI
Liaison Office
Operate as a Foreign
Company
Branch Office
Strategic Investor Project Office
Operate as an Indian
(FDI)
Company
Joint Ventures
Private
Acquisition of Wholly owned
shares/business Subsidiary
assets of an existing Public
Investing Indian Company
in India
Invest in a U.S. company with a services
fulfillment subsidiary in India
Invest in a Caymans or Mauritius company
Financial Investor
with a services fulfillment sub in India
(FII or FVCI)
Direct investment in an India company from
outside India (Mauritius/Singapore subs)
Direct investment in an Indian company from
outside India through a venture capital fund
registered with the SEBI
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68. Other Entry Routes
A. Direct Sales from U.S. (using freight forwarder).
Key considerations:
•Use accurate Incoterms 2010 for international sale or, even better, spell out in detail
who is responsible for what.
– Most common terms:
– EXW, FOB, CIF, DDU, DDP
•Payment Terms
• NOT Incoterms!
• The Incoterms generally indicate WHAT must be paid by each party not WHEN it
must be paid.
• Do not confuse liability with responsibility.
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69. Other Entry Routes
• Payment Terms
– Usually determined in the purchase contract
– Major options, based upon increasing risk
• Paid in advance (if exceeds 100,000 additional criteria to be fulfilled and imports
to be made in 6 months).
• Letter of credit (must adhere to UCPDC).
• Documents against payment.
• Open account (remittance against imports should be completed no later than 6
months, except for payments withheld for guarantee performance, disputes,
etc.)
• Interest on import bills allowed if overdue for less than 3 years at rate
prescribed for trade credit from time to time.
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70. Other Entry Routes
• Decide on-Who is the “importer of record”?
• Exporting directly can suit high value products or services. However, winning
new customers is likely to require significant investments in building relations
and several visits.
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71. Other Entry Routes
• Import/Export Process and Timeline:
(Assumption: standard container of goods to a large city port in India.)
• India stands at 109 ranking of 183 economies on the ease of trading across borders.
• Indicator.
– Number of Documents to export (e.g. bill of lading, export declaration forms, commercial
invoice): 8
– Time to Export: 16 days
– Cost to Export: $1095 per container.
• Procedures to Export
– Document Preparation: 8 days
– Custom Clearance: 2 days
– Ports and Terminal Handling: 3 days
– Inland Transportation: 3 days
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72. Other Entry Routes
Key Considerations: All U.S. exports are subject to U.S. export control regulations.
• BIS/EAR 2011 rules and regulations implementing changes to Export Controls on India
(“Final Rule”)
– Final rule adds India to country group A:2; the group consisting of countries adhering to Missile
Technology Control Regime.
– Results in elimination of license requirements to export or re-export certain controlled products
(i.e., classified as EAR99) to India.
– However, no unlicensed exports to prohibited parties or for prohibited end-users.
– Final rule does not impact license requirement for export of defense articles to India subject to
jurisdiction of ITAR and Arms Export Control Act.
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73. Other Entry Routes
Key Considerations: Labeling and Marking Requirements
• Labeling is an important element for products being exported to India. All
packets or even containers should carry pertinent declarations.
• English or Hindi is the favorable language for labeling.
• Custom authorities have to ensure that all pre-packaged commodities
(especially those intended for direct retail sale) have all the legally required
information before they enter the retail market or sold for consumption.
w w w . k e g l e r b r o w n . c o m
74. Other Entry Routes
Key Considerations: Import Tariffs
• Peak rates reduced from 350% (June 1991) to an average 10% currently for
some products.
• India‟s tariffs still very high --– range from 0% - 150% based upon classification
of goods in accordance with Harmonized System or HS.
• Exports to India are zero-rated for VAT. All import and export of goods to/from
India are exempted from sales tax.
• Types of custom duties:
w w w . k e g l e r b r o w n . c o m
75. Other Entry Routes
– Basic Customs Duty (BCD): This duty is levied either as 1) a specific rate based on the unit of
the item (weight, number, etc.), or more commonly, 2) ad-volorem, based on the assessable
value of the item. In some cases, a combination of the two is used.
– Additional Customs Duty (ACD): This duty is typically referred to as Countervailing duty or
(CVD) and is levied on the assessed value of goods plus BCD. It is payable only if the imported
product is such as if produce in India it would be liable for an excise duty.
– Special Additional Customs Duty (known as Special CVD): Special CVD tax is applicable on
all items (to offset the disadvantage to like Indian goods due to high excise duty on their input). It
is levied at the rate of 4 percent of the BCD and the ACD on all imports.
– [Anti-dumping Duty: This is levied on specified goods imported from specified countries,
including the United States, to protect indigenous industry from injury.
– Safeguard Duty: The Indian government may by notification impose a safeguard duty on
articles after concluding that increased imported quantities and under current conditions will
cause or threaten to cause serious injury to domestic industry.]
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76. Other Entry Routes
– Customs Education Cess: Effective, 2004, India introduced a new education cess (duty)
assessment. The current rate is 3 percent of BCD and ACD.
– Customs Handling Fee: The Indian government assesses a 1 percent customs handling fee
on all imports in addition to the applied customs duty.
– Total Duty Payable = BCD + ACD + Special CVD + Education Cess + Customs Handling Fee.
w w w . k e g l e r b r o w n . c o m
77. Other Entry Routes – Associated Taxes
• Dividends declared can be repatriated freely through an authorized
Indian bank.
• Dividends are tax-free in the hands of shareholders.
– A distribution tax of 16 % is payable by company.
• Corporate income tax rate for foreign companies is 41.2%. For
domestic companies, 30.99%.
• Withholding tax on royalties/technical fees/interest income.
– Domestic tax law – 10%.
– Indo-US DTAA – 10% for right to use of any industrial, commercial
or scientific equipment.
– 20% in any other case.
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78. Taxation in India
• The tax rate provision of domestic law could be utilized as it is less
than DTAA.
• Service tax rate is 10.3%.
– Computed on the “Gross Amount” charged by the service provider.
• Sales tax rate (CST & VAT). Varies from state to state, depending
upon classification of goods. Varies from 0% to 12.5%.
• Tax incentives are available during a limited time for 100% Export-
Oriented Unit, under Software Technology Park Scheme and Special
Economic Zones Units, etc.
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79. Taxation in India
• Elaborate Transfer Pricing Regulations
• These rules govern minimum profit margin to be maintained by the
Indian companies in transaction associated enterprises.
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80. Other Entry Routes
B. Technology Collaborations and Trademark License
• Foreign entities can provide technical know-how and/or license their trademark to
Indian companies against payment of fee and royalty.
• Key considerations.
• Protection of Intellectual Property.
• Registration of trademarks, copyrights and patents (“first to file” – jurisdiction).
• Trade Secrets: No statutory protection of trade secrets or confidential information.
However, several court precedents enforce confidentiality agreement through mandatory
injunctions.
• Indian IP laws do not provide for automatic assignments.
• Advantage of lower withholding taxes on royalty income stream.
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81. Other Entry Routes
C. Agency Relationship:
• Creation:
– Relationship between Agent and Principal is primarily contractual in nature and governed
by terms of contract entered into between them.
– The Indian Contract Act, 1872 (Act) provides the framework of rules and regulation that
govern formation and performance of an agency contract.
– NO WRITTEN CONTRACT---- One may be implied, provisions of Chapter X of the Act (i.e.
agency law) will provide the framework for governance of performance of the relationship.
– Agency contract should contain limitations, termination events, territory, products or
goods, commission structure and time of payment.
– Depending upon conduct of the parties----exclusivity can be presumed.
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82. Other Entry Routes
• Termination:
– If Agency is fixed for a term, it can be terminated before the expiring of the term in
accordance with an express reservation in the contract or for sufficient cause.
– Reasonable notice must be given of termination without case.
– Right to indemnity and/or the right to compensation to the Agent in the event of termination
of the agency contract is subject primarily terms and conditions of the agency contract.
– Unless the contract provides payment or full indemnity, the indemnity payable to the Agent
is generally equitable.
– No limitation on amount of indemnity/compensation to which an Agent is entitled – it is the
Court, which determines the amount of indemnity/compensation that may be paid.
– However, Agent needs to prove he has actually incurred a loss or that loss is eminent.
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83. Other Entry Routes
– Right to indemnity under agency law entitles an Agent to the following:
Commission remuneration and all expenses incurred.
Right to lien over Principal property – received by Agent, until amount due to Agent for
commission, disbursements and services in respect for same has been paid.
– Statute of Limitation:
Agent must bring a suit for claiming compensation and indemnity within a period of 3 years from
the date of cause of action.
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84. Other Entry Routes
C. Distributor/ Franchisee Relationship:
• Relationship between Distributor/Franchisee & Principal is contractual in
nature and governed by the terms of the contract.
• No specific law in India which governs the payment of
indemnity/compensation to the Distributor/Franchisee and it is open to parties
to determine the conditions and amount of compensation.
• Avoidance of Permanent Establishment (“PE”) status is critical.
• Restrictive Covenants (i.e. non-compete and non-solicitation) difficult to
impose post-termination/expiration of the agreement.
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85. Contract: Enforcement In India
• Legal Jurisdiction: Drafting choice of law and forum
provision is crucial.
• Remember, certain issues may be subject to a law different
from one agreed upon by parties. For example: IP
transfer, registration, protection in vendor territory, real
estate, labor laws, bankruptcy, enforcement of foreign
judgment/award.
• If the parties want to quickly end disputes arising from the
contract, an arbitration clause is necessary to avoid lengthy
civil procedures.
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86. Contract: Enforcement In India
• Practical Tips:
– Negotiations: Contract negotiations can be expected to go more
slowly in India – particularly if dealing with India bureaucracy.
– Different Approach to Communication: Indian parties may not
disagree with you directly about contractual issues. Instead, they
may suggest that the matter be discussed at another time or find
some way to avoid an outright negative response.
– Flexibility: It is recommended that U.S. companies build
considerable flexibility into their approach so that prices and other
contract conditions can be adjusted.
– Believe: Relationships and respect. Building a lasting and trusting
relationship is very important for a successful business venture in
India.
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87. Practical Advice: Identify the Obstacles
• There are some internal barriers that might provide
obstacles in doing business or establishing business in
India. It is necessary to be cognizant about them in order to
be well prepared. For example:
– Corruption.
– Infrastructure mess.
– Surfacing of stringent Corporate Governance/Corporate Social
Responsibility.
– Slow Reform Process.
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88. Things to Ponder
• Have knowledge of Indian business and market – Evaluate Product Strategies
and related Pricing.
• Analyze and identify the region/state most appropriate for your business
needs.
• Do Business in India…the Indian Way: „Think Global, Act Local‟
– The Indianized Chinese
– Kellogg's – no to cold cereals?
– KFC – Tandoori Chicken preferred to the „KFC experience‟
– McDonalds – „McVeggie Burger‟ & „McAloo Tikki‟
– Domino‟s – „Pepper Paneer‟ & „Chicken Chettinad‟
– Pizza Hut/Pizza Express – spicing it up
• Due Diligence is the Key.
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89. Legal Advice
• This presentation is designed to provide an overview of a
number of legal principles and considerations.
• As each legal issue is fact dependent, this presentation
should not be used or viewed as legal advice, and your
legal counsel should be consulted on the application of
your particular factual situation to the current law.
• Copyright: 2012 Kegler, Brown, Hill & Ritter LPA
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90. Thank You
Vinita Bahri-Mehra, Esq.
Kegler, Brown, Hill & Ritter Co., L.P.A.
65 E. State Street, Suite 1800
Columbus, Ohio 43215, USA
Direct Dial: 1 614 225 5508
Fax: 1 614 464 2634
Email: vmehra@keglerbrown.com
Firm Web Page: www.keglerbrown.com
Global Business page: www.keglerbrownglobal.com
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We know we are living in a global age. Technology has brought the world much closer together. This means that people of different cultures find themselves working together and communicating more and more. This is exciting and interesting, but it can also be frustrating and fraught with uncertainty.Building connections with people from around the world is just one dimension of cultural diversity. You also have issues like motivating people, structuring projects, and developing strategy.Added the fifth dimension years later.
not reflect an objective difference in power distribution, but rather the way people perceive power differences. Power Distance (PDI): This dimension expresses the degree to which the less powerful members of a society accept and expect that power is distributed unequally. The fundamental issue here is how a society handles inequalities among people. People in societies exhibiting a large degree of power distance accept a hierarchical order in which everybody has a place and which needs no further justification. In societies with low power distance, people strive to equalize the distribution of power and demand justification for inequalities of power.
***Both democracy, largest in the world. We choose not to include information regarding collectivism.Individualism versus collectivism (IDV): The high side of this dimension, called Individualism, can be defined as a preference for a loosely-knit social framework in which individuals are expected to take care of themselves and their immediate families only. Its opposite, Collectivism, represents a preference for a tightly-knit framework in society in which individuals can expect their relatives or members of a particular in-group to look after them in exchange for unquestioning loyalty. A society's position on this dimension is reflected in whether people’s self-image is defined in terms of “I” or “we.”
Masculinity versus femininity (MAS): The masculinity side of this dimension represents a preference in society for achievement, heroism, assertiveness and material reward for success. Society at large is more competitive. Its opposite, femininity, stands for a preference for cooperation, modesty, caring for the weak and quality of life. Society at large is more consensus-oriented.
The members of a society feel uncomfortable with uncertainty and ambiguity.in which practice counts more than principles.Uncertainty avoidance (UAI): The uncertainty avoidance dimension expresses the degree to which the members of a society feel uncomfortable with uncertainty and ambiguity. The fundamental issue here is how a society deals with the fact that the future can never be known: should we try to control the future or just let it happen? Countries exhibiting strong UAI maintain rigid codes of belief and behaviour and are intolerant of unorthodox behaviour and ideas. Weak UAI societies maintain a more relaxed attitude in which practice counts more than principles.
Long-term versus short-term orientation (LTO): The long-term orientation dimension can be interpreted as dealing with society’s search for virtue. Societies with a short-term orientation generally have a strong concern with establishing the absolute Truth. They are normative in their thinking. They exhibit great respect for traditions, a relatively small propensity to save for the future, and a focus on achieving quick results. In societies with a long-term orientation, people believe that truth depends very much on situation, context and time. They show an ability to adapt traditions to changed conditions, a strong propensity to save and invest, thriftiness, and perseverance in achieving results.