What You Don't Know About Launching in Asia
NEW YORK ( MainStreet) Cultural diversity is one of the biggest challenges businesses face as they expand into Asia, according to a new study.
"Many business owners underestimate the differences they will encounter, how much time it may take to hire and train foreign employees and establish a company in India or China," said Charles Edge, director of transfer pricing services at Bennett Thrasher.
A Jones Lang LaSalle India Corporate Real Estate Trends study found that 44% of companies surveyed globally plan to enter India over the next three years.
"India's astounding diversity of religions, languages and cultures requires businesses to adopt a more tailored approach," said Yash Kapila, managing director of corporate solutions with Jones Lang LaSalle.
The upside is that launching a private limited company (PLC) in India is cost efficient, requiring a minimum capital investment of only $2,500 compared to $15,000 to register a wholly foreign-owned enterprise in China.
"Philosophies underlying commerce in India are based on an adaptation of the British Common Law governing businesses while in China distinct law were formed for the purpose of furthering their experiment with market capitalism," said Ellice Consulting Managing Director James Berkeley, who has worked with companies, such as Hilton, Ericsson, Hardees and Caesars abroad.
Although about 90% of companies listed on the mainland China exchange have significant government investment, China imposes restrictions on foreign currency transactions and on the type of bank accounts that can be used.
"China also has a reputation for intellectual property theft and very little enforcement efforts are undertaken compared to India where a very aggressive tax authority often targets foreign companies doing business for audits," Edge told MainStreet.
In fact, foreign companies doing business in India are taxed 10% higher than Indian companies however the continent does have its advantages.
"English is widely spoken whereas in China English is not nearly as common. For this reason, businesses that require English speaking foreign employees, such as call centers, may have an easier time hiring in India," said Edge.
China grew its GDP 7.8% in 2012, and while India's GDP decelerated in 2012, it is expected to resume its 6% growth trajectory by 2014.
For those who don't have the resources to launch a branch or business in Asia yet, investing in Indian or Chinese equities is a viable option but both markets present challenges in terms of direct share ownership. Fund managers with Advisory Research limit risk by buying companies that do business in India and China that are listed on stock exchanges globally, including New York, London, Tokyo, Hong Kong and Singapore. For example, China Yuchai (NYSE: CYD) is a leading manufacturer of diesel and natural gas engines and YUE YUEN (HK: 551) manufactures athletic and casual footwear with production facilities in China, Vietnam and Indonesia.