Feasibility Study Framework Used by Global Firms Entering India

What Is a Feasibility Study, and Why Does It Matter for India Entry?

A feasibility study is a methodical and neutral analysis that assesses the viability of a company’s potential investment opportunity or project in terms of operational, legal, financial and strategic considerations. It evaluates the strengths, weaknesses, opportunities, and threats of the potential investment and helps to determine, based on empirical studies, whether the company’s plan is worth pursuing.

When multinational corporations consider ways to enter Indian markets, investing time and money into performing a feasibility study should provide clarity regarding

• the potential for adequate demand in the targeted marketplace
• the governing legislative and compliance parameters within the marketplace
• the best entry mode option, i.e., subsidiary, joint venture, branch, distributor, etc. and
• the scalability and sustainability of the business model within the Indian marketplace.

Failure to properly analyse the business feasibility may leave companies with wasted investments, barriers to entry, redundant products or services, or business failures.

Key Components of a Feasibility Study Framework for India

Market Research and Demand Analysis

• Potential Market Size and Demand: Estimate the demographics, purchasing power, income distribution, Urban vs. Rural Mix and Regional Differences of a Potential Market.
• Purchase Preferences and Behaviours: The marketplace in India is highly personalised, with separate products for each market segment having different tastes, levels of price sensitivity and quality expectations. Understanding these variances in purchase preferences and developing products/services accordingly is essential.

Regulatory, Legal and Compliance Environment

• Permissible Types of Entry and Foreign Direct Investment: Permitted business entity structures under Indian law include wholly owned subsidiaries, Joint Ventures, Branch offices, Distribution or franchise agreements etc.
• Regulatory Permissions: and licenses may differ based upon the particular Industry or Sector. It may also affect the viability of projects, whether for profit or not for profit.
• Ease of Doing Business: Rules and regulations can differ substantially from state to state, therefore, a framework must contain all the various provisions of each state.

Operational and Organizational Feasibility

• Evaluating Local Partners and Joint Ventures: For various multinational companies partnering with a local organization reduces the differences in culture, distribution channels, regulations and market insight.
• Infrastructure and Resources: Evaluate the availability of skilled workforce, logistics, warehousing, distribution network, supplier network and connectivity between regions.
• Management Structure and Governance Models: How will a global company’s practices sync with Indian practices? What oversight, compliance, and control must be in place to maintain quality and governance consistently?

How Global Firms Adapt the Framework for India’s Unique Market

When global companies are entering India, they adapt the standard feasibility framework to India’s unique situation.

Layered entry strategy: Global companies typically start with a liaison office, branch office, or distribution model to evaluate the market and test the waters before investing fully in India. By taking this approach, the firm is able to reduce its risk profile while also collecting valuable insights into the market.

Partner led market entry: Many global companies do not have enough familiarity with the regulations, compliance, and distribution channels of India and, therefore, prefer to partner with local companies to assist with distribution, regulatory compliance, supply chain management, and greater market penetration. Therefore, partner screening and a determination of the best joint venture approach are taken into account during the feasibility study.

Heightened cost and price sensitivity: Global companies recognize that the Indian consumer base is highly sensitive to both cost and price, and therefore implement lean operating cost structures, scalable business models, and realistic pricing strategies when entering India; they do not attempt to replicate their global premium segment strategies in the Indian marketplace.

Incremental investment and staged rollouts: Many global companies will test a limited number of major cities or regions, pilot products and services in those regions, and then roll out or scale their offerings based on market response and evaluation, thereby reducing their initial investment risk.