May 10, 2018
The ever-changing and ever-evolving global business landscape offers tremendous opportunities for everyone with a vision and plan. The trade-barriers today are low and the geographical boundaries only exist on a map or globe. That is why businesses around the world are trying to make a global mark by expanding their operations offshore and going international. Technology companies are no longer an exception. They have joined the bandwagon to expand their activities offshore, which is proving to be a profitable stride. They are doing so either by outsourcing a part of their business to developing, yet, resourcefully rich countries like India, or setting up a holding company there.
While there are several effective options available to technology companies for the possible expansion, in this article, we will only talk about the wholly-owned subsidiary model and the strategic research for setting up a technology subsidiary company, largely through which numerous technology companies are establishing, managing and developing their businesses in India and reinforcing their brand-equity while earning huge profits. Therefore, the focus of this article is not just an international marketplace where a firm in one country has buyers and suppliers in another, but, we are going to examine the procedure and implications for the technology subsidiary function when a technology brand steps in the Indian trade and commerce territory.
Before we go further and take a deeper dig at the topic, let us first understand what a wholly-owned subsidiary company structure or a captive center is. So, a captive center is a company in which the foreign or parent company holds 100% shares i.e. absolute control. This whole ownership allows the parent company to appoint the management and leadership of the captive center. Although the subsidiary comes under the umbrella of the parent, it works independently and its industry or line of business may vary from that of the parent. This model gives the foreign companies a wide range of benefits which we will talk about in the later part of this blog.
Foreign companies can earn a variety of economies and several other benefits from the subsidiary or captive center model.
–Depending on the subsidiary country, they can enjoy substantial savings on the costs involved in setting up an infrastructure and running operations.
–The foreign company can also enjoy the easy availability of skilled talent and cost of hiring which is much lower than that in the parent company.
–100% ownership gives greater control over the operations of the subsidiary company and leads to faster decision-making. This is a noteworthy strategic advantage.
–The subsidiary company structure keeps the risk of losing intellectual properties at the lowest. Both the companies are able to keep their trade secrets, internal knowledge,and IP in-house, thus keeping them secured and protected.
–Since the parent and subsidiary companies are under the same umbrella brand, there is an advantage of a unified financial system. So the parent company does not have to prepare a separate financial report for the subsidiary. The parent can also invest the profits from the subsidiary in some other strategic projects.
–A subsidy company structure also allows mitigating the financial risks. The losses of the parent company can be offset by the subsidiary and vice-versa. This not only provides better operational efficiency but also brings tax benefits.
–By integrating operations and leveraging advantages of each other, both the firms can obtain significant operational and strategic efficiencies.
–The subsidiary model can help the parent company with greater value and innovation in all four Ps of marketing.
The above are a few of the key advantages that the wholly-owned subsidiary brings, in particular.
In the list of preferred destinations where a parent company can set up a holding or subsidiary company and run it smoothly, profitably and sustainably, India has been able to secure a high-preference place for the foreign multinationals, especially the technology companies. The country has been witnessing a good influx of technology MNCs for the last decade and it appears that this influx is set to grow further with impressive pace in years to follow.
But why should technology companies invest in setting up subsidiaries in India? Why is India an irresistible temptation as a location for the leading technology companies, especially from the United States, to come and set up a subsidiary company here
The answer to this question is simple and to a good extent – obvious. India already holds an attraction for the foreign companies for subsidiary establishments. The reason is the rising economy, cost advantages, availability of skilled workforce and ease of running operations. Besides, the government has been encouraging in this too. To quote an example, if the foreign direct investment (FDI) comes through the automatic route, the parent company does not even need an approval from the government. This expedites the process.
However, the pull is stronger for the technology companies. Technology is one of India’s core-competency areas and activity in this space in India only continues to grow. According to the technology companies of India, the country’s digital economy has the potential to reach US$ 4 trillion by 2022. India Brand Equity Foundation (IBEF) expects Indian IT and Business Process Management (BPM) industry to grow to US$ 350 billion by 2025.
Clearly, these figures speak a lot. India technology industry has bright prospects and a promising future. The workforce is quite talented and easily available. The IT MNCs looking to expand surely find India a lucrative business geography.
There are certain basic requirements for the incorporation of a subsidiary which are as following:
–Stakeholders and directors: The first and foremost condition for setting up a subsidiary in India is that it needs to have at least two shareholders and two directors. Also, it is mandatory that at least one of the two directors is an Indian resident.
–Digital signature certificates: The directors must provide digital signature certificates (DSC).According to the IT Act, 2000, there are provisions to ensure that the documents are secure and authentic by using digital signatures on them and submitting them electronically.
–Director’s identification number (DIN): All the appointed directors are required to have a director’s identification number (DIN). The objective of DIN is to protect the interest of the stakeholders by maintaining the database of directors and keeping them traceable. The directors must inform the central government if there is any change in their address or other crucial details. Thus, the database of the directors stays fresh and up-to-date.
–Registered office: The subsidiary company must have a registered office in India so that the parent company has an official physical address and any verification and communication activity by the ministry of corporate affairs MCA can be performed easily.
Once all the steps above are completed, only a few other formalities remain such as name approval application, documentation, declaration etc. and a taxation process to follow. The entire process generally takes three to six months.
A partnership with an Indian technology company with strong credentials can multiply the success chances considerably. It is because its credibility must be backed by years of proven success and it has the location advantage. That partner must be completely aware of the market dynamics and have access to all the required resources including talent, legal, logistics, taxations etc.. That is why you need a technology expert and TechJini boasts of being one. With its core knowledge of the vertical, a dedicated team of experts, location advantage and technology upper-hand, it makes one perfect partner for a foreign company for setting up a holding company and managing and expanding its operations in India.
We at TechJini keep your strategic priorities as our primary goal and assist you to make the most of this partnership. We know the establishment and management process deeply and are versed in what it takes to make it sustainable. We help you establish and run a subsidiary sustainably. With our passion for technology and expertise in project management, we make the best choice for managing your operations in India.
So if you are a foreign firm looking to set your foot in Indian markets and go for long strides by setting up a subsidiary in India, let us assist you to reach far distances. Let us manage your Indian subsidiary on the behalf of your brand and we can assure you great results. Please write to us or call us with your expansion plans. We would love to hear from you.