India: Vender

Distance Selling

Most Popular Forms of Direct Marketing

Mail order, telemarketing, teleshopping, e-commerce and sales by cell phone.

Type of Products

Product categories ranging from cosmetics to kitchenware, education, home care, natural products and electronic products.

Evolution of the Sector

One of the fastest growing sectors in India. According to industry reports, the direct selling sector in India reported a total turnover of USD 1,062 million during the year 2009. There are roughly 20 direct selling companies in India with nation-wide coverage and approximately 100 smaller companies with localized city specific presence. Online selling through Internet is slowing getting introduced in India, though not still a widely accepted mode of selling.

Direct Marketing Enterprises

IDSA, Indian direct selling association
DMA, Indian direct marketing association

Distribution Network

Commercial Intermediaries

Trading Companies

 

• Type of Organization

A distributor acts as an importer and typically purchases the product on his own account and stocks the products before selling it to the retailer or even to an end user.

Wholesalers

 

• Type of Organization

Import-export wholesalers are particularly useful for their logistic organization, information processing, product promotion and selection. Normal wholesalers who mainly offer a logistic service, stocking goods so as to supply retailers, as they need them.

Nevertheless with competition increasing in the Indian distribution market, manufacturers are directly getting in touch with the retailers, leading to an evolution in wholesaling. As a result many wholesalers have opted for a more vertical integration of their activity by even developing their own brand names and retailing goods themselves.

Using a Commercial Agent

The Advantages

To have on-the-ground presence an agent, representative, or a distributor could be appointed. It is advisable to appoint regional representatives & dealers, considering the fact that India is a diverse country with 30 local languages.

Where to Be Vigilant

When evaluating a distributor or agent, the Indian firm’s business reputation, financial resources, willingness and ability to invest, marketing strength should be checked.

In addition, one should be aware of:

1. The long-list syndrome: The potential representative offers you a long list of foreign clients, which may be outdated and the relationships may no longer exist.

2. The no follow-through syndrome: Generally the Indian agent projects a professional image in terms of having a qualified workforce and countrywide presence. A foreign company should make sure that such an agent should not leave everything on its network and sales should not suffer due to lack of follow-up.

Elements of Motivation

Exclusivity, higher sales commissions, incentives for achieving sales targets, foreign trips, frequent communication per fax, mail, phone, plus regular visits to India .

The Average Amount of Commission

- From 5 to 15% for regular business transactions, and from 10 to 25% for occasional transactions.

- From 1 to 4% in the case of bulk materials (iron ore or coal).

- Up to 40% in the case of medical, laboratory, scientific analytical instruments, and software products.

Breach of Contract

It depends upon the terms and conditions of the contract. But, in case the local agent goes to court, it may be time consuming for the foreign company and favorable results cannot be always guaranteed.

Finding a Commercial Agent

Infobanc, Agents in India
Alibaba
Global representation

Setting Up a Commercial Unit

The Advantages

Setting up a commercial unit in India should be considered in case the foreign company has long-term business interests in the country.

Where to Be Vigilant

State government support and flexibility, cost and availability of power, law & order situation. Other factors to take into account include labor availability and cost, labor relations and work culture, and proximity to resources and/or markets. In the area of labor law, an employer with more than 100 workers cannot fire them without permission from a government labor commissioner -- something usually not so easy to obtain.

Different Possible Forms of Settlement

 

• A Representative Office

Most of the foreign companies initially establish a presence in India with a representative office that is not directly engaged in commercial transactions in India to obtain market information, provide necessary promotional & service support, and explore further opportunities for business and investments.

A liaison office is not allowed to undertake any commercial activity and cannot earn any revenue in India.

• A Branch Office

A branch of a foreign company is limited to the following activities by the RBI: representing the parent company and acting as its buying/selling agent; conducting research for the parent company, carrying out import and export trading activities; promoting technical and financial collaborations between Indian and foreign companies, rendering professional or consulting services, rendering services in Information Technology and development of software in India, and rendering technical support to the products supplied by the parent/group companies.

The branch office is allowed to repatriate the profits generated from the Indian operations to the parent company after payment of taxes.

• A Company

It can offer an effective means of guaranteeing better protection for proprietary information, obtaining credit, and penetrating the Indian market more effectively.
For setting up of an office in India, a foreign company needs an approval of the Reserve Bank of India (RBI).
A foreign company also needs to register with the Registrar of Companies (ROC) within 30 days of setting up a place of business in India.

Franchising

Evolution of the Sector

However franchising in India is in its early stages of development, accounting for only 3% of India ’s total retail market. Today, India has around 40,000 franchisees, growing at a rate of 40% per annum. The annual turnover from franchising is approximately USD2.7 billion and total investments made by franchisees are approximately 1.1 billion USD.

Some of the challenges faced by the franchising system in India are:

• Lack of Legal Framework: no specific law on franchising.

• Expensive Real Estate: retail space is extremely expensive and the quality is relatively poor.

• Understanding local Culture and Tastes: “Indianization” of products is vital to a franchise success.

• Resistance to Fees & Cap on Royalty: The foreign franchisers should also be prepared to face stiff resistance from prospective Indian franchisees toward the franchisee fees/royalty payments, which are considered high.

Some Big Franchises

Hertz, car rentals
Avis, car rentals
Radisson, hotels
Kentucky Fried Chicken, restaurant
Domino’s Pizza, restaurant
TGI Friday, restaurant
Ruby Tuesday, fast food
Subway, fast food
Baskin Robbins, fast food
Pizza Hut, restaurant
NII, computer training schools
Apollo, Hospitals for healthcare

For Further Information

FAI, Franchising Association of India
The official directory of FAI
Franchise in India

Customs Procedures

Import Procedures

Incase of EDI (Electronic Data Interchange): No formal Bill of Entry is filed as it is generated in the computer system, but the importer is required to file a cargo declaration having prescribed particulars required for processing of the entry for customs clearance.
Incase of non-EDI more documents are also generally required.
Green Channel facility : Some major importers have been given the green channel clearance facility. They have to make a declaration in the declaration form at the time of filing of Bill of Entry. The appraisement is done as per normal procedure except that there would be no physical examination of the goods.
For details, visit the website: Central Board of Excise & Customs- CBEC.

Specific Import Procedures

Electronic Data Interface (EDI), and enabling e-payment of duties, implementation of customs Risk Management System (RMS), automation of customs formalities to Special Economic Zones (SEZ).

Certain goods are prohibited under Foreign Trade (Development and Regulation) Act, 1992.

Importing Samples

Samples for non-commercial use are allowed incase the goods are supplied free of charge.

For duty free clearance the value of individual sample should not exceed Rs.5000/- and aggregate value should not exceed Rs.60 000/- per year or 15 units of samples in a year. However, the Prototypes of engineering goods can be imported even if the value is more than Rs.5000/-.

Customs Duties and Taxes on Imports

Average Customs Duty (Excluding Agricultural Products)

The average customs duty is around 15%.

Though this is relatively high, but as per the WTO commitments India is going to slowly reduce it.

The Central Board of Excise & Customs- CBEC is the apex body for customs matters.

Products Having a Higher Customs Tariff

Alcohol, wines, pet foods, some processed food products, and some manufactured goods are attracting higher customs tariff; however the tariff rate keeps on changing although the general trend is downwards.

Preferential Rates

Applicable to imports from those countries with which India has signed special Trade Agreements. For details on Trade Agreements, visit the site of Ministry of Commerce.

Customs Classification

India uses the harmonized system.

Method of Calculation of Duties

Customs duties are levied either as a Specific Rate (prescribed per unit of item) or Ad-valorem (a percentage on CIF value of item), or, sometimes, as a combination of both.

Method of Payment of Customs Duties

Consignment Purchase, cash-in-advance (pre-payment), down Payment, open account, documentary collections, letters of credit.
For more information, visit the site: Indian Customs & Excise Gateway –ICEGATE.

Import Taxes (Excluding Consumer Taxes)

Education Cess: This is chargeable at 2% on the aggregate of customs duties. It has been introduced as a special interim measure to raise special resources for investment in education.

Labeling and Packaging Rules

Packaging

All pre-packaged commodities imported into India must carry the following declarations on the label:
- name and address of the importer,
- generic or common name of the commodity packed,
- net quantity in terms of standard unit of weights and measurement,
- the maximum retail sales price (MRP) at which the commodity in packaged form may be sold to the end consumer.

Languages Permitted on Packaging and Labeling

English and/or Hindi.

Unit of Measurement

All imported goods as well as transport documents must show standard units of measurement and weight.

Mark of Origin "Made In"

Not mandatory, except in the case of foodstuffs and drinks and also where preferential import duties are claimed.

Labeling Requirements

The packaging and Labeling requirements for packaged food products is laid down in the Part VII of the Prevention of Food Adulteration (PFA) Rules, 1955, and the Standards of Weights and Measures (Packaged Commodities) Rules of 1977.

Specific Regulations

In specific cases, the product label also has to contain:

• The purpose of irradiation and license number in case of irradiated food
• Extraneous addition of coloring material
• Non-vegetarian food – must have a symbol of a brown color-filled circle inside a brown square outline prominently displayed on the package
• Vegetarian food must have a similar symbol of green color-filled circle inside a square with a green outline prominently displayed