Challenges faced by foreign companies in India


There are various kinds of companies like Public, Private,or government-owned that operate in a country. Depending on their particular nature suitable rules and regulations have to be formulated for each kind of company_ Every country has specific rules and regulations applicable to home grown companies. Similarly, a company operating in a country other than its home country is required to follow the rules and regulations of the given local area of operation and the home country where it was originally incorporated. In India foreign company is mandate to follow special or modified provisions as compared to a domestic company. A ‘Foreign company’ is defined as an entity which is incorporated outside India , but has a place of business in. india or conduct any business activity in india in any other manner. India being the fastest growing economy in the world provides many opportunities to foreign companies to grow and develop their business_
The Foreign investment in india are governed by the rules and policies of FIJI FEMA , RBI and Companies Act 2013_


(A foreign company is any company or body corporate incorporated outside India which ,
1. has a place of business in india whether by itself or through an agent , physically or through electronic mode and
2_ Conduct any business activity in india in any other manner_ )1

There were a total number of 4162 foreign companies registered in India as on 30’iune 2021. Out of which 3323 foreign companies had an active status as on that date as per MCA portal.

Few Examples Of Foreign Companies Listed In India
Abbott India Limited, Ambuja Cements Ltd_ , Novartis India Limited , Nestle India Limited, 3M india Limited , ABL Limited , etc.

‘Section 2 Sub- Section 42 , Companies Act 2013.


There are so many challenges faced by foreign companies in the regulation of their Companies in India. Like

1 LEGAL CHALLENGES lndia’s legal system is complex and its courts are
overburdened with cases There are many procedural compliance that need to be adhered to before an establishment can begin it’s operation in india. Sometimes, even before operation begin, investors get entangled in legal disputes concerning property in general etc. . As result foreign companies must jump through multiple hoops in order to obtain the necessary permits and approval to begin business in india. Citizens and foreigners alike must wait months.

2. INFRASTRUCTURE CHALLENGE :- Selecting a suitable place in india can be quite a challenge for foreign companies_ Due to lack of professional infrastructure and high demands , Companies need to book office in under construction building way before they are completed. This create a quite a hassle in the beginning for the spaces are too large for the amount of people it holds_ Once a company grows and there is a scope of its expansion, a company should be considered as Lucky if it gets another office near the existing once. For instance, HP has more than 20 office in Bangalore which are scattered all over the city

3. RECRUITMENT CHALLENGE Recruitment is another Challenge for the companies as there is an enormous crowd applying for jobs in india , whereas the number quality and talented professionals is very less . The facts that India has become a hub for IT software and service sector, there is a race among top multinationals to hire the best available talent in the countiy. Also the supply of lab-our is enormous in the country.

4. PRICE CENTRIC CUSTOMER:- In india another problem that Companies face is the mentality of the people’s in buying goads and availing services_ India is more price centric nation , which does not witness as much brand loyalty, as it does consider the price .
Hence not only do the companies need to provide quality products, they also need to charge a competitive price for that People would compare features without going into the premium depth, hence choose a cheaper version The fall of telecom sector is a perfect example for the price centric mentality of the people for well settled Companies which entered India are used to these challenges _

5. POLITICAL INSTABILITY CHALLENGE:- Many foreign companies face the challenge of political instability when doing business in Indian market. This kind of problem mostly occurs when there is an absence of a reliable government authority. When this happens, it adds to business costs , increase risk of doing business and sometimes reduce manager’s ability to forecast business trends . Political instability is also associated with corruption and weak legal framework that discourage foreign investment.

G. LOBBYING CHALLENGE, foreign companies lobbying is directed at a range of business concern, from tariff structure to environmental regulations. Companies that have invested heavily in pollution control mechanism may lobby for very tough environmental standards in an effort to force non compliant competitors into weaker position. Corporation lobby tariffs to restrict competition of foreign companies.


In India it is also Challenge for foreign companies to know how to user protect and enforce their rights of its company name , logo , design etc. )

There are also some other challenges which are faced by foreign companies in india,

Multi window system – The different avenues of company policy are covered
under different governmental orders in india As a result there is no single window system that leads to a linear process of company formation. Multiple application for multiple permits and their individual response times can result in loss of precious time in the setup funnel

The Trust Factor – Indians are inherently sceptical, although they might
be extremely courteous, as a general rule, not a lot of people are
interested in working for a company they have never heard of. Lack of brand awareness is the primary reason for this kind of distrust , which ultimately hamper the output of the country.
Tax system
One of the reasons why india is considered a viable option for expansion in South Asia is because it does not enforce draconian laws and entry barriers for foreign investors However , the tax system in the country is still rather fragmented with different taxes coming into play based on the company turnover This cause a higher rate of tax payments overall as compared to those incurred by the company’s western counterparts

Foreign companies who Quit India
There is so much of excitement when it COMPS to the world’s fifth largest auto industry India_ However the market has seen complete contrast in the past few years While big players struggled in the country new entrants gained success Top 6 auto Companies which quit India operation in the past five years because of the competition and lack of brand in among the Indians ( Like Ford, Harley Davidson Fiat. , General motors , UM motorcycle, ) etc.


As we discussed above that foreign companies faced huge challenges in regulations in India_ But challenges not only faced by foreign companies but the home companies ( Indian ) faced challenges by the foreign companies Foreign companies impact some negative on the domestic company_
Profit Repatriation :- The main objectives of foreign companies is to
maximize the profits . Foreign companies in India regularly repatriate their profits from investment to the account of their parent Companies in the form of dividends or royalties transferred to shareholders as well as the simple transfer of accured profits _ It also helps them avoid larger taxes by using transfer prices . However this profit Repatriation results in huge capital outflows from the host country to the home country and negatively affects the balance of payments of the former

Crowding out the effect of foreign companies :- foreign companies can have both crowding in and crowding out effects in the host country economy The main adverse impact of crowding out effects is the monopoly Power over the market In general crowding out might take place dur to two reasons
L When domestic firms disappear because of higher efficiency and better product quality of foreign subsidiaries
2_ When they are wiped out because these foreign affiliates have better access to financial resources or engage in anticompetitive practices.

Dual Economy Effects :- FDL , specially made in the developing countries , can lead them to have a dual economy , which has one developed sector mostly owned by foreign firms and underdeveloped sectors owned by domestic firms . Since the country’s economy become overly dependent on developed sector , it’s economic structure changes . Often this developed sector is capita] intensive while another one is labour intensive . Therefore the dual economy effect hampers the economic development of countries as most of their citizens are located in the non developed labour intensive sector

Foreign companies in india regulated by The Companies Act 2013 , foreign direct investment , foreign exchange management Act ( FEMA ) 1999 governs the foreign companies business in india.


There are so many challenges which are faced by foreign companies in the regulation of its company in india , but if there is challenges or issue , there is also solutions to overcome these issues and challenges .
• There must be passed any separate legislation or law which only deals with foreign companies in India because of The Companies Act 2013 deals with all types of company in india so it creates confusions and misunderstanding for the foreign companies .
• And also there should be make easy the process of registeration of foreign companies in india . Because of there is complex procedure by which a foreign company facing challenges,
• There should be special fast track courts which only deals with solve the foreign companies in India related issues lastly because of there is contention for anything then there is long time consumated by courts because of courts already burdened by the huge number of cases so for staving the problem also facing challenges by foreign companies.
There must be focused on connectivity and transportation system which are not only faced by foreign companies but also the domestic company who suffer from this Challenge. But we can not absolutely says that there is totally problem with transportation system because the ruling government is working on this problem .
• There must be also control on foreign companies because of in india foreign
companies plays an vital role and which creates problems with domestic company
because of moreover population wants to purchase the product of foreign companies.

The increased number of foreign companies also curtail the independence of India
because of merely products we are dependent on the foreign companies and domestic company not promoted to produce that products So there should be imposed limits on the entry of foreign companies .

• Also focused on Repatriation of profits which is doing by foreign companies so there
should be made system which see that foreign companies are doing well and not committed any type of disturbance related taxes


There are a plethora of issues faced by foreign investors trying to invest in any country in
general Through this assignment , I highlighted the issues faced by investors trying to invest in India . These issues range from legal and procedural to political _ While there is an increase in foreign investment around the world , india needs to pay close attention to and ensure that these loopholes and issues are addressed before India can become the next global hub for foreign investment. Foreign companies also contribute in growing the Indian economy . So
government must be focused on this loopholes and make it clear that the Challenges faced by foreign companies and as well as domestic company should be solve and work upon it for betterment of companies situations.


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