Business expansion into new borders is exiting, but it comes with its own pros and cons. When considering expansion into India, businesses think of two options should they go with establishing entity or use third-party providers like Employer of Record (EOR) service providers.
If you are a business owner and thinking of business expansion this guide is for you to understand better and make better business decisions.
Let’s start with …
Establishing an Entity in India
Undoubtfully global business have better options, but when expanding to India and setting-up legal entity in India requires a subsidiary or a branch office. This process goes through a bit complicated process legally, but company will have overall control.
Let’s see pros and cons of establishing an Entity in India.
Pros of Establishing Business in India
Greater Control Overall:
Establishing a new legal entity gives you complete control over the day-to-day operational activities including talent hiring, talent management, business operations, business strategies and management. This allows you to have greater corporate culture and greater values based on your brand.
Brand Presence:
A physically located office helps you to enhance your brand’s credibility and visibility. It helps you to show long term commitment towards your customers or prospects in that region, which can help to build trust with your customers, partners and employees.
Long -Term Investment:
If you are planning to have a long-term presence in India, setting up an entity can be a worthwhile investment. This will allow you to build a rock-solid foundation for future growth and expansion.
Cons of Establishing Business in India
Complexity and Cost:
A complex regulatory environment and the associated paperwork make it both time-consuming and costly to set up a legal entity. This includes registering the business, obtaining necessary licenses, and setting up local bank accounts. In 2024, the cost for these activities in India generally ranged from INR 7,000 to INR 20,000.
Compliance Burden:
You will have to adhere to local labour laws, tax regulations, and other legal requirements, which may be difficult to handle without local expertise. Failure to comply might lead to fines and legal problems.
Administrative Overhead:
Local employment practice requirements for the administration of payroll, benefits, and other HR functions can add significant administrative overhead; this will require both dedicated resources and expertise in local employment practices.
Expand Your Business Without Settingup Any Entity in 150+ Locations
Using an Employer of Record (EOR) Service
An Employer of Record is simply a third-party organization that accepts the responsibility under the law regarding the hiring of persons on behalf of another organization. If one hires an EOR for hiring purposes, the company will take care of everything from payroll to taxes and labour laws within the region it operates. This model is beneficial to organizations wanting to expand their base and enter new markets, all without the hassle of establishing a local presence.
Pros of using EOR Services in India
Speed and Flexibility:
EOR services enable you to hire employees quickly and efficiently without the need to establish a legal entity. This is especially helpful in the case of short-term projects or when testing new markets.
Compliance Assurance:
EOR providers handle all compliance-related tasks, ensuring that your business adheres to local labour laws and regulations. This reduces the risk of legal issues and penalties.
Cost-Effective:
An EOR can often be more cost-effective than establishing a legal entity, especially for short-term or project-based arrangements. It does away with the requirement of huge up-front investment and associated continuous administrative expenses.
Cons of using EOR Services in India
Reduced Control:
While you still have control of the day-to-day activities, the EOR becomes the legal employer, potentially limiting your control of some HR functions. This may have an impact on the implementation of company-specific policies and practices.
Perceived Commitment:
Having an EOR probably will be seen as less of a commitment to the local market than establishing a legal entity. This will impact your reputation and relationships with stakeholders in that area.
Service Fees:
There are fees associated with EOR services, which can add up depending on the number of employees and the complexity of services required. It would be better to weigh the cost-benefit ratio before deciding.
EOR Vs Traditional Employment in India – What fit’s you?
Key Considerations to make a right decision
Business Goals:
Consider what your long-term business goals are and whether you have plans to establish a permanent presence in India or if something more flexible is needed. If the goal is to have a strong local presence, setting up an entity may be the way to go; otherwise, if it’s going to be on a short-term basis or very flexible, an EOR may be in order.
Budget:
Consider the cost of each alternative in terms of setup costs, ongoing administrative expenses, and service fees. Setting up an entity requires a considerable investment at the outset, while EOR services provide a pay-as-you-go model.
Compliance and Risk:
Assess your ability to manage compliance and legal risks associated with each approach. EOR providers offer expertise in local regulations, reducing compliance risks. However, having an in-house team can provide more control over compliance management.
Timeframe: Determine how quickly you need to hire and start operations in India. EOR services offer a faster route to market entry, while setting up an entity can take several months.
Conclusion
Both the creation of a legal entity in India and Employer of Record services have their advantages and disadvantages. The correct answer depends on the business needs, objectives, and resources. You can make your decision with adequate consideration of all the factors in the guide for starting a business under the global strategy of expansion.
