Without a specific strategy, an enterprise’s foundation in a foreign country, India or another, will be haphazard. The sales and marketing framework a company uses as it grows internationally is referred to as a market strategy. The Entry and Exit Strategies include distributing resources and technology, product awareness, translation, and other services necessary to make this happen.
What Are Business Entry And Exit Strategies?
A specific strategy must be in place for the existing business, just as when a business is being formed. Without such a plan, the company could suffer more significant losses or take on more liabilities than necessary. A method for the formation of the business must be developed concurrently with Entry and Exit Strategies. Although it may seem counterproductive, doing this moves the company’s development in the right direction. Before investing, venture capitalists frequently demand that a business plan include an exit strategy.
Legal Compliance While Entering Indian Markets
Foreign businesses must follow the following enactments’ provisions, rules, and regulations as Entry and Exit Strategies when they establish any business in India, whether directly, through a partner, or a third-party company;
- Companies Act, 2013
- The Industrial Disputes Act of 1948, the Trade Union Act of 1926, the Equal Remuneration Act of 1976, the Payment of Gratuity Act of 1972, the Workmen’s Compensation Act of 1923, the Employees’ Provident Funds & Miscellaneous Provisions Act -1952, and others are examples of labour and employment laws.
- Several environmental laws, including the Environment (Protection) Act 1986,Water (Prevention & Control of Pollution) Act – 1974, Air (Prevention & Control of Pollution) Act -1981, the Hazardous Wastes (Management, Handling and Transboundary Movement) Rules of 2008, the Manufacture, Storage & Import of Hazardous Chemicals Rules -1989, the Indian Forest Act of 1927, the Forest (Conservation) Act of 1980, the National Environment Tribunal Act of 1995
- Goods and Services Tax Act, 2017.
- Foreign Exchange Management Act, 1999.
- Limited Liability Partnership Act, 2008.
- Indian Partnership Act, 1932
- Reserve Bank of India regulations.
Strategies for Entering the Market
The following strategies are used for entering the market in India-
- Direct Exporting
- Indirect Exporting
- Local Manufacturing
- Contract manufacturing
- Assembly operation
- Fully integrated local production unit
- Joint venture
- Mergers and acquisitions
- Greenfield investment
- E-business strategy
The Exit of a Business
Regardless of the success and profit, a business has made in the Indian market; there are a variety of reasons why it might want to leave, including:
- Meeting the goal: A partnership or entity may only be established in India for a specific project or to fulfil a particular requirement or purpose. When it accomplishes this, it might want to leave the market.
- Unprofitable enterprise: A business founded in India might not be profitable for a long time or have only made a profit for a short while. To minimise losses, the company may need to exit the market appropriately if its revenue does not justify the costs incurred.
- Disaster: A natural or artificial catastrophe may have caused a foreign entity to lose resources. The entity might not be insured or guaranteed, but decide to take the insurance payout and leave. The organisation cuts its losses in this way.
- Legal justifications: The Indian legislature may pass new laws or amend existing laws in ways that are not favourable to business. Rules and procedures that must be followed may necessitate high costs, leaving the company with an insufficient profit margin.
- Cash-out: With the company making money, the owner or investors may want to sell their stock.
Exit Strategies of the Market
- Mergers & Acquisition
- Initial Public Offering (‘IPO’)
- Sale to a friendly buyer
- Management buyout (‘MBO’)
Protection for Entry and Exit Strategies
There should be more than just Entry and Exit Strategies for investors in a funding transaction (or investors). A typical shareholding agreement has much more room than that. The creative process begins there. A disagreement may cause one investor to withdraw, while another investor may be persuaded by the company’s success and want to join. Entries and exits can co-occur. As a result, numerous safeguards for such situations will be implemented. These consist of the following:
Clauses That Prevent Dilution
Convertible preferred stocks have anti-dilution provisions to help shield investors from a potential loss in value. It can happen when a company’s owner’s percentage of ownership decreases due to a rise in outstanding shares.
First Offer and First Refusal Rights:
Before offering his shares to other shareholders according to their shareholdings for acceptance or rejection, a shareholder who wants to sell his shares must first make that offer. The shareholder may offer the shares to a third party at the same price and subject to the same conditions if the other shareholders choose not to exercise their rights to purchase the shares. The primary distinction between Rofo and RoFR and pre-emptive rights or rights issue of shares is the onus of discovering the share price, including costs and due diligence thereof (to be conducted only by a Registered Valuer under IBBI guidelines).
Rights To Tag Along And Drag Along:
A shareholder who wants to sell all of his shares to a third party may demand that the other shareholders sell their shares on the same terms to the third-party buyer. The remaining shareholders also have the right to compel a shareholder who wants to sell their shares to a third party to agree to the same terms for the third-party buyer.
Voting rights allow shareholders of a company to choose board members, approve the issuance of new securities, and approve the payment of such deposits. The Companies Act of 2013 and a shareholding agreement, which must be written with appropriate citation to the laws but also to prevent the diluting of voting rights, govern it.
Voting rights must be adjusted to fit managerial control levels over personnel. Examples of such inclusions include selection as candidates for the board of directors, selection of individual directors retiring by rotation, etc.
Periodic Share Vesting
This is common in Employee Stock Option Plans (ESOP) and contributes significantly to Shareholding Agreements and Founder’s Agreements. Periodic vesting is based on an individual’s professional performance and fosters competition while giving the holder of such shares an intrinsic background.
Methods of Valuing Shares:
It is a method of calculating a company’s value by estimating the value of its shares. Absolute and relative categories can be used to classify it. Regarding this specific scenario, there are several laws, customs, and practises to consider, including the Company’s Net Asset Value (NAV) method, the Discounted Cash Flow (DCF) model, the weighted-average method, etc.
Analysis and Financial Projections:
Financial projections forecast a company’s future revenue and expenditures using actual or estimated financial data. They frequently include various scenarios that could affect the company’s profitability, such as higher sales or lower operating costs.
Entry and exit strategies are crucial components of any company’s capacity to react and adapt to changing conditions. Flexibility, which is the ability to respond and adjust pretty quickly, is vital for successful performance in any market, especially during times of significant change. A comprehensive view of requirements and intent should be created under a company’s goals. Entry and exit strategies are essential when profit and conflict converge. Without money, expansion cannot be done, and without a solid foundation, money cannot be granted. It is wise to consider due process.
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