Year: 2020

Management Notes

Recent Trends in Marketing

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Recent trends in marketing reflect the growing influence of digital technologies, consumer empowerment, and data-driven strategies. Digital marketing dominates with the use of SEO, social media, and content marketing to engage audiences online. Personalization has become vital, as businesses use data analytics to deliver tailored experiences. Influencer marketing leverages social media personalities to build trust and reach niche markets. Sustainability marketing is gaining traction, with brands promoting eco-friendly practices to align with consumer values. Omnichannel marketing ensures a seamless customer experience across digital and physical platforms. AI and automation are enhancing customer service through chatbots and predictive analytics. Lastly, user-generated content and interactive marketing are fostering community engagement and brand loyalty. These trends highlight the shift from product-focused to customer-centric strategies, reshaping how companies communicate and build relationships with their audiences.

Recent Trends in Marketing

1. More Emphasis on Quality, Value, and Customer Satisfaction

Today’s customers place a greater weight to direct motivations (convenience, status, style, features, services and qualities) to buy product. Today’s marketers give more emphasis on the notion, “offer more for less.”

2. More Emphasis on Relationship Building and Customer Retention

Today’s marketers are focusing on lifelong customers. They are shifting from transaction thinking to relationship building. Large companies create, maintain and update large customer database containing demographic, life-style, past experience, buying habits, degree of responsiveness to different stimuli, etc., and design their offerings to create, please, or delight customers who remain loyal to them. Similarly more emphasis is given to retain them throughout life. Marketers strongly believe: “Customer retention is easier than customer creation.”

3. More Emphasis on Managing Business Processes and Integrated Business Functions

Today’s companies are shifting their thinking from managing a set of semi independent departments, each with its own logic, to managing a set of fundamental business processes, each of which impact customer service and satisfaction. Companies are assigning cross-disciplinary personnel to manage each process.

Marketing personnel are increasingly working on cross- disciplinary terms rather than only in the marketing department. This is the positive development, which broadens marketers’ perspectives on business and also leads to broaden perspective of employees from other department.

4. More Emphasis on Global Thinking and Local Market Planning

As stated earlier, today’s customers are global, or cosmopolitan. They exhibit international characteristics. This is due to information technology, rapid means of transportation, liberalization, and mobility of people across the world. Companies are pursuing markets beyond their borders. They have to drop their traditions, customs, and assumptions regarding customers.

They have to adapt to their offering as per the cultural prerequisites. Decisions are taken by local representatives, who are much aware of the global economic, political, legal, and social realities. Companies must think globally, but act locally. Today’s marketers believe: “Act locally, but think globally.”

5. More Emphasis on Strategic Alliances and Networks

A company cannot satisfy customers without help of others. It lacks adequate resources and requirements to succeed. Company needs to involve in partnering with other organizations, local as well as global partners who supply different requirements for success.

Senior manager at top-level management spends an increasing amount of time for designing strategic alliance and network that create competitive advantages for the partnering firms. Merger, acquisition, and partnering are result of a strong thirst for strategic alliance and networks.

6. More Emphasis on Direct and Online Marketing

Information technology and communication revolution promise to change the nature of buying and selling. Companies follow direct channel in term hiring salesmen, setting own distribution network, designing network marketing, applying online marketing, and contracting with giant shopping/retailing malls.

People anywhere in the world can access the Internet and companies’ home pages to scan offers and order goods. Via online service, they can give and get advice on products and services by chatting with other users, determine the best values, place orders, and get next-day delivery.

As a result of advances in database technology, companies can do more direct marketing and rely less on wholesale and retail intermediaries. Beyond this, much company buying is now done automatically through electronic data interchange link among companies. All these trends portend a greater buying and selling efficiency.

7. More Emphasis on Services Marketing

As per general survey, about 70% people are, either directly or indirectly, involved in service marketing. Because services are intangible and perishable, variable and inseparable, they pose additional challenges compared to tangible good marketing. Marketers are increasingly developing strategies for service firms that sell insurance, software, consulting services, banking, insurance, and other services.

8. More Emphasis on High-tech Industries

Due to rapid economic growth, high-tech firms emerged, which differ from traditional firms. High-tech firms face higher risk, slower product acceptance, shorter product life cycles, and faster technological obsolescence. High-tech firms must master the art of marketing their venture to the financial community and convincing enough customers to adopt their new products.

9. More Emphasis on Ethical Marketing Behaviour

The market place is highly susceptible to abuse by those who lack scruples and are willing to prosper at the expense of others. Marketers must practice their craft with high standards. Even, governments have imposed a number of restrictions to refrain them from malpractices. Marketers are trying to sell their products by obeying and observing moral standards or business ethics.

10. Other issues

  • Craze for international standards and emphasis on quality, value and customer satisfaction. Application of TQM (even, Six Sigma) in every aspect of marketing management.
  • Changed attitude toward competition. They compete not for maximum gains but for maximum offers to customers.
  • Relationship marketing at both levels at internal functions of organization and at outside with service providers, to satisfy customers.
  • Concept of global and complex customers.
  • Marketing department is placed in the center of management. It enjoys unique and dominant status in organization.
  • Use of latest technology for survey and research.
  • More emphasis on after-sales services.
  • Entertaining value in advertising, etc.
Management Notes

Functions of Marketing

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Marketing is related to the exchange of goods and services. Through its medium the goods and services are brought to the place of consumption. This satisfies the needs of the customers. The following activities are undertaken in respect of the exchange of goods and services:

  1. Gathering and Analysing Market Information

Gathering and analyzing market information is an important function of marketing. Under it, an effort is made to understand the consumer thoroughly in the following ways:

  • What do the consumers want?
  • In what quantity?
  • At what price?
  • When do they want (it)?
  • What kind of advertisement do they like?
  • Where do they want (it)?

What kind of distribution system do they like? All the relevant information about the consumer is collected and analyzed. On the basis of this analysis an effort is made to find out as to which product has the best opportunities in the market.

  1. Marketing Planning

In order to achieve the objectives of an organization with regard to its marketing, the marketeer chalks out his marketing plan. For example, a company has a 25% market share of a particular product.

The company wants to raise it to 40%. In order to achieve this objective the marketer has to prepare a plan in respect of the level of production and promotion efforts. It will also be decided as to who will do what, when and how. To do this is known as marketing planning.

  1. Product Designing and Development

Product designing plays an important role in product selling. The company whose product is better and attractively designed sells more than the product of a company whose design happens to be weak and unattractive.

In this way, it can be said that the possession of a special design affords a company to a competitive advantage. It is important to remember that it is not sufficient to prepare a design in respect of a product, but it is more important to develop it continuously.

  1. Standardization and Grading

Standardization refers to determining of standard regarding size, quality, design, weight, colour, raw material to be used, etc., in respect of a particular product. By doing so, it is ascertained that the given product will have some peculiarities.

This way, sale is made possible on the basis of samples. Mostly, it is the practice that the traders look at the samples and place purchase order for a large quantity of the product concerned. The basis of it is that goods supplied conform to the same standard as shown in the sample.

Products having the same characteristics (or standard) are placed in a given category or grade. This placing is called grading. For example, a company produces commodity – X, having three grades, namely A’. ‘B’ and ‘C’, representing three levels of quality; best, medium and ordinary respectively.

Customers who want best quality will be shown ‘A’ grade product. This way, the customer will have no doubt in his mind that a low grade product has been palmed off to him. Grading, therefore, makes sale-purchase easy. Grading process is mostly used in case of agricultural products like food grains, cotton, tobacco, apples, mangoes, etc.

  1. Packaging and Labelling

Packaging aims at avoiding breakage, damage, destruction, etc., of the goods during transit and storage. Packaging facilitates handling, lifting, conveying of the goods. Many a time, customers demand goods in different quantities. It necessitates special packaging. Packing material includes bottles, canister, plastic bags, tin or wooden boxes, jute bags etc.

Label is a slip which is found on the product itself or on the package providing all the information regarding the product and its producer. This can either be in the form of a cover or a seal.

For example, the name of the medicine on its bottle along with the manufacturer’s name, the formula used for making the medicine, date of manufacturing, expiry date, batch no., price etc., are printed on the slip thereby giving all the information regarding the medicine to the consumer. The slip carrying all these is details called Label and the process of preparing it as Labelling.

  1. Branding

Every producer/seller wants that his product should have special identity in the market. In order to realise his wish he has to give a name to his product which has to be distinct from other competitors.

Giving of distinct name to one’s product is called branding. Thus, the objective of branding is to show that the products of a given company are different from that of the competitors, so that it has its own identity.

For instance, if a company wants to popularise its commodity – X under the name of “777” (triple seven) then its brand will be called “777”. It is possible that another company is selling a similar commodity under AAA (Triple ‘A’) brand name.

Under these circumstances, both the companies will succeed in establishing a distinct identity of their products in the market. When a brand is not registered under the trade Mark Act, 1999, it becomes a Trade Mark.

  1. Customer Support Service

Customer is the king of market. Therefore, it is one of the chief functions of marketer to offer every possible help to the customers. A marketer offers primarily the following services to the customers:

  • After-sales-services
  • Handling customers’ complaints
  • Technical services
  • Credit facilities
  • Maintenance services

Helping the customer in this way offers him satisfaction and in today’s competitive age customer’s satisfaction happens to be the top-most priority. This encourages a customer’s attachment to a particular product and he starts buying that product time and again.

  1. Pricing of Products

It is the most important function of a marketing manager to fix price of a product. The price of a product is affected by its cost, rate of profit, price of competing product, policy of the government, etc. The price of a product should be fixed in a manner that it should not appear to be too high and at the same time it should earn enough profit for the organization.

  1. Promotion

Promotion means informing the consumers about the products of the company and encouraging them to buy these products. There are four methods of promotion:-

  • Advertising
  • Personal selling
  • Sales promotion
  • Publicity

Every decision taken by the marketer in this respect affects the sales. These decisions are taken keeping in view the budget of the company.

  1. Physical Distribution

Under this function of marketing the decision about carrying things from the place of production to the place of consumption is taken into account. To accomplish this task, decision about four factors are taken.

They are:

(i) Transportation

(ii) Inventory

(iii) Warehousing

(iv) Order Processing.

Physical distribution, by taking things, at the right place and at the right time creates time and place utility.

  1. Transportation

Production, sale and consumption-all the three activities need not be at one place. Had it been so, transportation of goods for physical distribution would have become irrelevant. But generally it is not possible. Production is carried out at one place, sale at another place and consumption at yet another place.

Transport facility is needed for the produced goods to reach the hands of consumers. So the enterprise must have an easy access to means of transportation.

Mostly we see on the road side’s private vehicles belonging to Pepsi, Coca Cola, LML, Britannia, etc. These private carriers are the living examples of transportation function of marketing. Place utility is thus created by transportation activity.

  1. Storage or Warehousing

There is a time-lag between the purchase or production of goods and their sale. It is very essential to store the goods at a safe place during this time-interval. Godowns are used for this purpose. Keeping of goods in godowns till the same are sold is called storage.

For the marketing manager storage is an important function. Any negligence on his part may damage the entire stock. Time utility is thus created by storage activity.

Management Notes

Approaches to Marketing

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The study of marketing has been approached from multiple perspectives, reflecting its complex nature. For some, marketing means selling products in a shop or marketplace, while for others, it encompasses analyzing individual products and their movements in the market. Some view it as the study of the individuals—wholesalers, retailers, agents, etc.—who facilitate the movement of these products. Others focus on the behavior of commodities and the processes involved in their movement. The approaches to marketing have evolved through several stages, highlighting a process of development and adaptation.

  • Product or Commodity Approach

The commodity approach centers on the product itself, analyzing its flow from the original producer to the ultimate consumer. This study examines various aspects related to a specific commodity, including sources and conditions of supply, the nature and extent of demand, transportation, storage, standardization, and packaging. For example, if we consider rice, one must investigate its sources, the individuals involved in its buying and selling, transportation methods, selling challenges, financing, storage, and packaging. This method provides a comprehensive view of the marketing process for each product. While it is straightforward and yields valuable insights, it can also be time-consuming and repetitive.

  • Institutional Approach

The institutional approach focuses on the study of marketing institutions, such as middlemen, wholesalers, retailers, importers, exporters, and warehouses, that facilitate the movement of goods. Often referred to as the middlemen approach, this method emphasizes understanding the functions of these institutions in executing marketing activities. The activities of each institution contribute to the overall marketing process. However, this approach may not adequately capture the complete marketing functions or the interrelationships among different institutions.

  • Functional Approach

The functional approach prioritizes the various functions performed in marketing. This method breaks marketing down into specific functions, such as buying, selling, pricing, standardization, storage, transportation, advertising, and packaging. Each function is examined in detail to understand its nature, necessity, and importance. In this approach, marketing is seen as the “business of buying and selling” and includes all business activities involved in the flow of goods and services between producers and customers. However, this focus on individual functions may overlook their application in specific business operations.

  • Management Approach

The management approach is the most recent and scientific perspective, concentrating on marketing activities and the role of decision-making within a firm. It emphasizes how managers address specific problems and situations in the market. This approach evaluates current marketing practices to achieve specific objectives. Two key factors are considered: controllable factors (e.g., price adjustments, advertising) and uncontrollable factors (e.g., economic, sociological, psychological, and political influences). While the controllable factors can be managed by the firm, the uncontrollable factors limit marketing opportunities. Therefore, the managerial approach involves studying uncontrollable factors and making decisions regarding controllable ones, focusing on practical marketing aspects while somewhat neglecting theoretical foundations. Overall, it provides a comprehensive view of the business.

  • System Approach

The system approach views marketing as a network of interconnected objects and relationships. It emphasizes the interrelations and connections among various marketing functions, examining both internal and external marketing linkages. Internally, this approach fosters coordination among business activities—such as engineering, production, marketing, and pricing. Through feedback mechanisms, businesses can modify their processes to achieve desired outputs and customer satisfaction. The system approach underscores the importance of marketing information in understanding markets and achieving marketing objectives.

  • Societal Approach

Emerging recently, the societal approach considers the marketing process as a means for society to fulfill its consumption needs. This perspective prioritizes ecological factors—such as sociological, cultural, and legal elements—over how businesses meet consumer demands. It emphasizes the impact of marketing decisions on societal well-being, aiming to align marketing practices with broader societal goals.

  • Legal Approach

The legal approach concentrates solely on the regulatory aspects of marketing, particularly the transfer of ownership from seller to buyer. In India, for example, marketing activities are governed by laws such as the Sales of Goods Act and the Carriers Act. However, this narrow focus on legal frameworks may neglect other crucial aspects of marketing.

  • Economic Approach

The economic approach examines supply, demand, and pricing issues. While these factors are vital from an economic standpoint, this approach may not provide a comprehensive understanding of marketing as a whole.

Management Notes

Associate Company Concept, Definition, Features, Formation, Types

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According to Section 2(6) of the Companies Act, 2013, an Associate Company is defined as a company in which another company holds 20% or more of the total share capital but less than 50%. This percentage indicates that the holding company has significant influence over the associate company without exercising full control. It implies a relationship where the associate company can make its own independent decisions, yet it benefits from the financial and operational support of the holding company.

Features of an Associate Company:

  1. Significant Influence

The hallmark of an associate company is the significant influence that the holding company has over it. This influence arises from holding at least 20% of the voting power. Unlike a subsidiary, where the parent company has full control, the associate company retains operational independence.

  1. Equity Participation

An associate company generally involves equity participation from the holding company. The investment made by the holding company provides it with a voice in strategic decisions, thus allowing it to influence policies, management decisions, and major operational moves without outright control.

  1. Autonomy

An associate company operates as an independent legal entity. It has its own governance structure, board of directors, and operational processes. While the holding company may offer guidance and support, it does not manage the day-to-day activities of the associate company. This autonomy allows the associate company to make decisions that best suit its business environment.

  1. Limited Liability

Shareholders of an associate company enjoy limited liability protection, similar to other types of companies. The liability of the holding company is limited to the amount it has invested in the associate company. This characteristic helps to mitigate financial risk for both the holding and associate companies.

  1. Financial Reporting

An associate company must prepare its financial statements and report them in accordance with the Companies Act, 2013. The holding company is required to include the financial results of the associate company in its consolidated financial statements using the equity method of accounting. This method recognizes the investment in the associate company as an asset on the balance sheet and reflects the share of profits or losses.

  1. Strategic Partnerships

Associate companies often engage in strategic partnerships to enhance competitiveness, share expertise, or co-develop products and services. This arrangement allows companies to pool resources for mutual benefit while maintaining their distinct identities.

  1. Regulatory Compliance

An associate company is subject to the same regulatory compliance requirements as any other company under the Companies Act. This includes adhering to norms related to governance, reporting, and auditing. Additionally, it must disclose its relationship with the holding company in its financial statements.

Formation of an Associate Company:

  1. Incorporation

The first step in forming an associate company is its incorporation. This involves filing the required documents with the Registrar of Companies (ROC). The documents typically include the Memorandum of Association (MOA) and Articles of Association (AOA), which outline the company’s purpose, structure, and operational guidelines.

  1. Shareholding Structure

To qualify as an associate company, another company must hold at least 20% of the total share capital. The holding company can acquire shares through a private placement, public offering, or other means of capital investment.

  1. Board of Directors

The associate company must have its own board of directors. While the holding company may influence board appointments through its shareholding, the associate company’s management remains independent. The board is responsible for the overall governance and strategic direction of the company.

  1. Operational Independence

Once established, the associate company operates independently, making its own business decisions. This autonomy is crucial for its ability to adapt to market conditions, innovate, and pursue its objectives.

  1. Legal Compliance

Like any other company, an associate company must comply with all legal requirements under the Companies Act, 2013. This includes conducting annual general meetings (AGMs), maintaining financial records, and submitting reports to the ROC.

  1. Investment Agreements

The holding and associate companies may enter into investment agreements that outline the terms of their relationship, including the nature of influence, governance structures, and rights of shareholders. Such agreements help to clarify expectations and responsibilities.

  1. Auditing and Reporting

An associate company must undergo regular auditing to ensure compliance with financial regulations. The auditor’s report provides insights into the financial health of the associate company and is a critical component of its financial reporting.

Types of Associate Companies:

  1. Strategic Associates

These companies are formed through partnerships where both entities seek to leverage each other’s strengths to achieve strategic objectives. For example, a technology company might enter into an associate relationship with a manufacturing company to develop new products.

  1. Joint Ventures

In some cases, an associate company may be created as a joint venture between two or more companies, where they combine resources and expertise for a specific project. Joint ventures often take the form of associate companies, as each party may hold a significant stake.

  1. Investment Associates

Investment associates focus on generating returns through investments. A holding company may invest in a start-up or emerging business, thus creating an associate company aimed at capitalizing on market opportunities while minimizing risk.

  1. Community Enterprises

Some associate companies are established to serve community needs, such as local development or social entrepreneurship. In such cases, a larger company may partner with local organizations to create an associate company focused on sustainable development.

  1. Cross-Border Associates

With globalization, companies often establish associate relationships across borders. A foreign company may invest in a local firm, creating an associate company that leverages local knowledge while accessing international markets.

  1. Technology Associates

These associate companies focus on research and development, often involving companies in the tech sector. They collaborate to innovate and develop new technologies or products, benefiting from shared expertise.

  1. Public Sector Associates

Public sector organizations may also form associate companies to pursue specific objectives, such as infrastructure development or public service delivery. These companies often align with government policies and initiatives.

Management Notes

Small Company Concept, Definition, Features, Formation

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According to Section 2(85) of the Companies Act, 2013, a Small Company is defined as a company, other than a One Person Company (OPC), that meets the following criteria:

  1. Paid-up Capital: The paid-up share capital of the company does not exceed ₹2 crores (or any higher amount as may be prescribed).
  2. Turnover: The annual turnover of the company does not exceed ₹20 crores (or any higher amount as may be prescribed).

This definition highlights that small companies are primarily characterized by their limited scale of operations, which distinguishes them from medium and large companies.

Features of a Small Company:

  1. Limited Capital Requirement

One of the defining features of a small company is its limited capital requirement. The cap on paid-up capital (₹2 crores) allows entrepreneurs to establish businesses without substantial financial backing, making it accessible for new ventures.

  1. Small Scale of Operations

Small companies generally operate on a small scale, catering to niche markets or specific customer segments. Their operations are often localized, which allows them to respond quickly to market demands and changes.

  1. Fewer Regulatory Requirements

Small companies are subject to less stringent regulatory requirements compared to larger entities. This includes exemptions from certain compliance norms under the Companies Act, reducing the burden of documentation and procedural complexities.

  1. Simplified Governance

The governance structure of small companies is typically less complex. With fewer shareholders and directors, decision-making processes are often streamlined, allowing for quick and efficient management.

  1. Flexibility

Small companies have a higher degree of operational flexibility. They can adapt their business strategies and operations more readily to changing market conditions, customer preferences, and technological advancements.

  1. Easier Access to Financing

Small companies often have better access to financing options, including loans, grants, and government support schemes. Various initiatives aim to promote small businesses, offering financial assistance with favorable terms.

  1. Focus on Innovation

Due to their size and scale, small companies can often focus on innovation and creativity. They tend to be more agile, experimenting with new ideas and products, which can lead to niche market opportunities.

Formation of a Small Company:

The formation of a small company involves several essential steps, similar to any other type of company under the Companies Act, 2013:

  1. Choosing a Company Name

The first step in forming a small company is selecting a unique and appropriate name that complies with the Companies Act. The name should not resemble any existing company or trademark.

  1. Filing of Incorporation Documents

The next step is to prepare and file the necessary incorporation documents with the Registrar of Companies (ROC). These documents include:

  • Memorandum of Association (MOA): This document outlines the company’s objectives, scope of operations, and powers.
  • Articles of Association (AOA): This document contains the rules and regulations governing the internal management of the company.

  1. Obtaining Digital Signature and Director Identification Number (DIN)

Before filing incorporation documents, the directors of the company must obtain a Digital Signature Certificate (DSC) and a Director Identification Number (DIN). The DSC is required for online filings, while the DIN serves as a unique identification for directors.

  1. Paying Registration Fees

Upon filing the incorporation documents, the company must pay the requisite registration fees to the ROC. The fee varies based on the authorized capital of the company.

  1. Certificate of Incorporation

Once the documents are approved, the ROC issues a Certificate of Incorporation, signifying the legal formation of the company. This certificate contains important details, including the company’s name, registration number, and date of incorporation.

  1. Opening a Bank Account

After incorporation, the small company must open a bank account in its name to manage financial transactions. This account will be used for all business-related banking activities.

  1. Compliance and Registrations

Following incorporation, the company must comply with various regulatory requirements, including obtaining relevant licenses, registering for Goods and Services Tax (GST), and filing annual returns with the ROC.

Management Notes

Foreign Company Concept, Definition, Features, Formation

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According to Section 2(42) of the Companies Act, 2013, a Foreign Company is defined as any company or body corporate incorporated outside India that has a place of business in India. This definition implies that a foreign company can be any entity that is registered in another country but conducts business activities or has a physical presence in India, such as a branch office, project office, or liaison office.

Features of a Foreign Company:

  1. Incorporation Outside India

The defining characteristic of a foreign company is that it is incorporated outside the Indian jurisdiction. It operates under the laws and regulations of the country where it is registered, which influences its governance and operational practices.

  1. Business Presence in India

A foreign company must have a place of business in India, which can include branches, project offices, or subsidiaries. This presence enables the company to engage in business activities within the country, such as selling goods, providing services, or entering into contracts.

  1. Regulatory Compliance

Foreign companies are required to comply with the provisions of the Companies Act, 2013, as well as additional regulations set forth by the Reserve Bank of India (RBI) and other regulatory bodies. This includes adhering to reporting requirements, taxation norms, and foreign exchange regulations.

  1. Foreign Direct Investment (FDI) Norms

Foreign companies are subject to FDI norms established by the Indian government, which regulate the amount of foreign investment allowed in various sectors. These norms vary based on the nature of the business and can impact the level of control a foreign company can exert over its Indian operations.

  1. Limited Liability

Similar to domestic companies, foreign companies enjoy the benefit of limited liability, which means that the shareholders’ liability is limited to the amount they have invested in the company. This feature protects shareholders from being personally liable for the company’s debts beyond their investment.

  1. Management Structure

A foreign company can have a diverse management structure, often reflecting the corporate governance practices of its country of incorporation. However, it must comply with Indian laws regarding the appointment of directors and management personnel.

  1. Profit Repatriation

Foreign companies can repatriate profits back to their home country after fulfilling the necessary tax obligations in India. This ability to transfer profits is a critical consideration for foreign investors and businesses looking to operate in India.

Formation of a Foreign Company in India:

The process of establishing a foreign company in India involves several key steps, which ensure compliance with Indian laws and regulations:

  1. Choose the Type of Presence:

Foreign companies can establish different types of business presence in India, including:

  • Branch Office: A branch office serves as an extension of the foreign company, allowing it to conduct business activities in India.
  • Liaison Office: A liaison office acts as a communication channel between the foreign company and its Indian customers but cannot engage in commercial activities directly.
  • Project Office: A project office is set up for executing specific projects in India and is temporary in nature.

  1. Obtaining Approvals:

Depending on the nature of the business and the type of presence chosen, the foreign company may need to obtain approval from the Reserve Bank of India (RBI) and the Foreign Investment Promotion Board (FIPB). The approval process involves submitting an application detailing the purpose of the establishment and the planned activities in India.

  1. Filing with the Registrar of Companies (ROC):

Once the necessary approvals are obtained, the foreign company must register itself with the Registrar of Companies (ROC) in India. This process are:

  • Submitting required documents, such as the company’s charter documents (like MOA and AOA), details of directors, and proof of the registered office in India.
  • Completing the prescribed forms, which include details about the company’s business activities, shareholding structure, and compliance with FDI norms.

  1. Obtaining a Certificate of Incorporation:

Upon successful registration, the ROC issues a Certificate of Incorporation. This certificate serves as official proof of the foreign company’s establishment in India and allows it to commence business operations.

  1. Opening a Bank Account:

After receiving the Certificate of Incorporation, the foreign company must open a bank account in India to facilitate financial transactions. This account will be used for receiving payments, managing operational expenses, and handling employee salaries.

  1. Compliance with Taxation Laws

Foreign companies operating in India must comply with Indian taxation laws, including Goods and Services Tax (GST) and income tax. They are required to register for GST if their turnover exceeds the threshold limit and file regular tax returns.

  1. Annual Filings and Audits

Foreign companies must adhere to annual compliance requirements, including filing annual returns and financial statements with the ROC. Additionally, they must have their accounts audited by a qualified chartered accountant to ensure compliance with accounting standards and regulatory requirements.

Opportunities:

  • Access to a Growing Market:

India is one of the fastest-growing economies in the world, providing ample opportunities for foreign companies to expand their market reach and tap into a large consumer base.

  • Diversification:

Establishing a presence in India allows foreign companies to diversify their operations and reduce dependence on their home markets.

  • Cost Advantages:

Many foreign companies can benefit from lower operational costs in India, such as labor and production costs, enhancing their profitability.

Challenges:

  • Regulatory Hurdles:

Navigating the complex regulatory environment in India can be challenging for foreign companies. Compliance with various laws and obtaining necessary approvals may require time and resources.

  • Cultural Differences:

Understanding the local business culture, consumer behavior, and market dynamics is crucial for success. Foreign companies must adapt their strategies to align with Indian consumer preferences.

  • Competition:

Foreign companies face competition from both domestic players and other international firms. Developing a competitive edge in the Indian market requires effective marketing strategies and innovation.

Management Notes

Global Company

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The word global literally means worldwide, or all over the world. So, you’d think a global company must do business all over the world. But realistically, few, if any, companies could be said to do business with every single country in the world. A global company is one that does business in at least one country outside of its country of origin. Even expanding to one other country is a huge undertaking. It’s not as if someone wants to order some of your products and you ship them out to France or Bolivia or wherever and BOOM! you’re instantly a global company.

Becoming a global company means introducing your products and your company to the people of that country. It takes a great deal of research to determine which country to begin with and how to do the introductions. It means sending employees to the country to see it firsthand, talk with some of the people there and then decide if there’s a good fit. Of course, once a company decides to go global and has success in one country, it naturally tries expanding to another country, so global companies often have a presence in several countries.

Global Company Examples

Although using the term global in reference to business began in recent years, doing business globally isn’t new. One example is that of Coca-Cola, which was a fledgling startup in 1886. By the time of World War II, the 50-year-old company had managed to keep its item price to 5 cents, believing that everyone should be able to enjoy the treat. The company decided to provide its popular drink to U.S. soldiers wherever they were stationed, still at just 5 cents.

Today, people in over 200 countries enjoy not only Coke and its other regular and diet soft drinks, like Sprite and Fanta, but over 3,800 products ranging from bottled water and iced teas to juices, vitamin-enriched and soy-based beverages. A major reason for Coca-Cola’s success has been its strategy of looking at each market individually and providing beverages that fit with the local culture and tastes. Sometimes that means creating new products for a market or tweaking a beverage to be more in line with what people in that country are known to enjoy.

Some other companies that are now global include hospitality corporations Hyatt and Hilton Hotels, information technology leaders Cisco and Adobe, manufacturers Monsanto and 3M and financial services company American Express. Oh, and an internet search company you may have heard of called Google. What unites these very different institutions is that all have made Fortune’s October 2016 list of the 25 Best Global Companies to Work For. Employees cited how their company makes them feel valued, cares about their personal and professional development, keeps open lines of communication all the way to the CEO and encourages them to keep a good balance of work and family time.

Clearly, not only is it possible to expand globally with a great deal of success, but it’s also possible to do so without sacrificing the well-being of the employees that help you get there in the first place. In the long run, making your company a great place to work – the word fun was even mentioned many times – is a way to keep good employees that help you expand and grow globally without the pain of internal friction and high staff turnover.

It’s important to remember that these companies, though huge today with a presence in numerous countries, all began as small startups. Coca-Cola had its humble beginning at one drugstore in downtown Atlanta, Georgia. Google started out as the research project of two Stanford grad students, Sergey Brin and Larry Page. The key to successfully becoming a global company is to take it slow, one country at a time.

Global Company Benefits

The U.S. Small Business Administration reports that 96 percent of the world’s consumers live outside of the U.S. The obvious benefit to expanding globally is to increase sales and profits by reaching out. There are a number of other benefits, however, to having a presence in countries outside of the U.S.:

  1. Increase customer base

Selling in another country vastly increases your customer base. If the U.S. market is saturated with products like yours, and research shows that’s not the case in the country you’ve chosen to expand into, you have an untapped potential customer base available to you. While your product may have become familiar to U.S. customers, it’s brand new to those in a foreign country.

  1. Lower operating costs

If labor and/or manufacturing costs are cheaper in the new country, you stand to save on operating costs. That can make a huge difference to your bottom line.

  1. Take advantage of the difference in seasons

In situations where your product is seasonal or even somewhat seasonal, meaning sales are steady year-round and then surge during one season, expanding in countries where the seasons are opposite to the U.S. allows you to experience high sales levels throughout the year.

  1. Control product introductions

Remember, too, that you don’t have to provide your entire product line in the new country. You can begin with just seasonal products, announcing your presence with a big advertising splash. After the season ends, introduce other products one by one, creating media buzz each time you bring another product to the market. Since this market doesn’t know the extent of your product line, you can sell only the products that make the most sense in that market.

  1. Continue your company’s high growth rate

If your company had been growing rapidly, but growth has stalled in the U.S., you can get back on track by expanding to another country.

  1. Create new jobs

When you enter the market in a foreign country, you need employees or agents who can represent your company. Whether you have offices or manufacturing facilities there or just representatives, you’re creating work opportunities in that country. This helps that country’s economy and makes your company attractive.

Global Company Downfalls

Expanding to another country won’t be all sunshine and roses. That’s why it’s vital to fully research any country you’re considering in order to minimize unwelcome surprises:

  1. Different regulations and technologies

Just as states in the U.S. have different regulations for doing business, other countries have different employment and tax laws that you’ll need to understand in advance. Don’t risk being surprised by these after you’ve committed to the expansion.

  1. Infrastructure issues

Many countries do not have the reliable internet and cellphone services that the U.S. has. Particularly in developing countries, such as some in Africa, communication services are spotty or nonexistent. Whether you’re planning to open offices or a manufacturing facility in a country, or have agents there who represent you, be sure to verify that anywhere you’re considering expanding into has internet and cellphone communication. You’ll need them to put up a website, post on social media and communicate with your representatives in that country. Even travel in other countries can be problematic due to poor roads, traffic or other factors. Think of some of the older areas in European countries that have only narrow, winding streets and few places to park. They look charming, but could be a nightmare for your employees or distributors to do business.

  1. Parlez-vous Francais Don’t assume you’ll be doing business in English. Although you’ll find some English speakers, many people did not learn English in school and they conduct business fully in their native languages. Make sure the software you use to run your business, from sending emails to promoting on social media, support the country’s language. The moment you decide on the country, begin a rapid language learning program for you and others who will be working with you on the expansion.
  2. You’re not in Kansas anymore

Like Dorothy in “The Wizard of Oz,” you can feel as if you’ve landed in a bizarre place indeed because you don’t understand the culture. For example, something as simple as leaving the chopsticks upright in your rice bowl can be seen as rude in China. Using humor in a business discussion in Germany could nix the whole deal. And never say “no” during discussions in India. Opt for “we’ll see” or “I will try” instead. Ask the SBA or people you know who have a presence in the country what the differences are between how U.S. companies do business compared with the country you’re considering.

How to Become a Global Company?

When Coca-Cola began its expansion into foreign markets, it undertook extensive research about the country and its people, including their likes and dislikes as a group. As a result, the company came away with a good understanding of which products would be likely to sell well in that country, and which would not, as well as how to interact with the locals according to their customs.

  1. Research, research, research

You cannot do too much research before going global. Which country should you start with? What have others experienced when they started their global expansion? Contact the SBA and devour all information they have for you. The SBA has arrangements with many schools to provide help to businesses in their area. Contact area universities for help. Many times, interns will help with the research so you don’t have to do it all.

  1. Establish a local team in the country

Once you’ve chosen the country you want to expand into, find locals to help you do this. They know their country and often make a business of helping foreigners get established. Then, be sure to listen to the information and feedback the local team gives you. This may seem obvious, but it’s one of the biggest mistakes companies make when going global – they hire the local team, but discount the suggestions the team gives.

“One of the most disappointing mistakes that I’ve seen companies make is that they hire highly competent, intelligent local people to serve their overseas markets, but then fail to consider their input when making strategic decisions,” wrote business consultant Nataly Kelly in the Harvard Business Review. Company executives would ask her opinion, she said, instead of listening to the local team.

Maybe the advice seems contrary to what you’ve learned about business. That’s why other countries are called foreign. Their practices can seem strange to someone who has only done business in the U.S. You hired the local team for a good reason, so take their ideas seriously.

  1. Take it slow

It’s human nature to want to act on an idea once you have it in mind. Think about how long it took you to get your business to where it is today. Now you’re considering going into a foreign environment and putting your hard-earned profits on the line. Give it the time it takes to thoroughly research, seek advice from others who have expanded and from organizations that are designed to help businesses go global, and get the right local team in place.

Follow the 1-2-3 plan. The SBA makes it simple with its three-step plan:

  1. Get counseling
  2. Find buyers
  3. Get funding
Management Notes

Body Corporate and Corporate Body

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Body Corporate refers to an entity that is recognized by law as a separate legal personality, capable of owning assets, entering into contracts, and being subject to legal obligations. This term encompasses a wide range of organizational structures, including companies, cooperatives, and statutory corporations. The most notable feature of a body corporate is its ability to exist independently of its members or shareholders, which means that it can continue to exist even if the original members or shareholders change or leave.

According to the Companies Act, 2013, a body corporate is defined in Section 2(11) as “a company incorporated under this Act or under any previous company law and includes a foreign company.” This definition highlights that all companies, including private, public, and foreign entities, fall under the category of body corporates.

Features of Body Corporate

  1. Separate Legal Entity

One of the defining features of a body corporate is its status as a separate legal entity. This means that it can sue and be sued in its name, own property, and enter into contracts independently of its members or shareholders.

  1. Limited Liability

In most cases, members or shareholders of a body corporate enjoy limited liability, meaning they are only responsible for the company’s debts up to the amount of their investment. This feature provides a degree of financial protection to investors and encourages capital investment.

  1. Perpetual Succession

Body corporates enjoy perpetual succession, which means they continue to exist irrespective of changes in membership or ownership. This stability is essential for long-term planning and investment, as it ensures that the entity will not dissolve due to the departure or death of its members.

  1. Ability to Raise Capital

Being a body corporate allows an entity to raise capital through various means, including issuing shares, debentures, and other financial instruments. This ability to attract investment is crucial for growth and expansion.

  1. Regulatory Compliance

Bodies corporate are subject to specific regulatory frameworks governing their formation, operation, and dissolution. This includes compliance with laws related to corporate governance, financial reporting, and taxation.

  1. Management Structure

Most bodies corporate have a defined management structure, often comprising a board of directors responsible for making key decisions and overseeing the company’s operations. This structure provides clarity in governance and accountability.

Corporate Body

Corporate Body is often used interchangeably with body corporate but can have a more specific connotation. A corporate body typically refers to an organization that has been formed under specific laws or statutes, primarily focusing on companies and other forms of incorporated entities. While all corporate bodies are bodies corporate, not all bodies corporate qualify as corporate bodies in the strictest sense.

Features of Corporate Body:

  1. Incorporation

Corporate bodies are formed through the process of incorporation, which involves registering the entity with the relevant authorities, such as the Registrar of Companies. This incorporation grants the corporate body its legal status and recognition.

  1. Defined Purpose

Corporate bodies are typically established for specific purposes, such as conducting business, providing services, or achieving particular goals. This defined purpose guides the entity’s operations and strategic direction.

  1. Statutory Framework

Corporate bodies operate under specific statutory frameworks that outline their rights, obligations, and governance structures. These frameworks may vary based on the jurisdiction and the type of corporate body.

  1. Governance Structure

Similar to body corporates, corporate bodies also have a governance structure, usually consisting of a board of directors and other managerial positions. This structure ensures that the entity operates within its defined purpose and adheres to legal requirements.

  1. Regulatory Oversight

Corporate bodies are subject to regulatory oversight by relevant authorities, such as the Securities and Exchange Board of India (SEBI), especially if they are publicly listed. This oversight helps maintain market integrity and protects investors’ interests.

  1. Taxation

Corporate bodies are subject to specific taxation laws and regulations, which may differ from those applicable to individuals or unincorporated entities. The taxation framework for corporate bodies often includes corporate income tax, dividend distribution tax, and other relevant levies.

Differences between Body Corporate and Corporate Body

Aspect Body Corporate Corporate Body
Definition Broad term for entities recognized as separate legal entities More specific term, often referring to companies and similar entities
Scope Includes all types of incorporated entities, including cooperatives and statutory corporations Primarily focuses on companies and their specific legal frameworks
Regulatory Framework Subject to a wider range of regulations based on entity type Operates under specific statutory frameworks governing companies
Incorporation Can include entities not formed through traditional company law Typically formed through incorporation processes outlined in company laws

Legal Framework Governing Body Corporates and Corporate Bodies

In India, the Companies Act, 2013 is the primary legislation governing body corporates and corporate bodies. The Act provides the legal framework for the incorporation, regulation, and dissolution of companies, outlining various aspects such as:

  • Incorporation Process:

The Act defines the process for incorporating a company, including the requirements for registration, documentation, and compliance.

  • Corporate Governance:

Companies Act lays down the rules for corporate governance, including the composition of the board of directors, shareholder rights, and disclosure requirements.

  • Financial Reporting:

Companies are required to prepare and submit annual financial statements, ensuring transparency and accountability to shareholders and regulatory authorities.

  • Corporate Social Responsibility (CSR):

Certain companies are mandated to spend a portion of their profits on CSR activities, reflecting their commitment to social responsibility.

  • Winding Up and Liquidation:

The Act also provides provisions for the winding up of companies, ensuring a structured process for dissolving corporate bodies when necessary.

Management Notes

Listed Company Concept, Definition, Features, Formation

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Listed Company is defined as a company whose shares are listed on a recognized stock exchange, such as the Bombay Stock Exchange (BSE) or the National Stock Exchange (NSE) in India. The listing of shares facilitates public trading, enabling the company to access capital from a wide array of investors. Companies must comply with the regulations set forth by the stock exchange and the Securities and Exchange Board of India (SEBI) to maintain their listing status.

Features of a Listed Company:

  1. Public Ownership

One of the key features of a listed company is public ownership. Shares of the company are available for purchase by the general public, allowing individuals and institutional investors to become shareholders. This public ownership facilitates greater market liquidity and enhances the company’s visibility in the financial markets.

  1. Regulatory Compliance

Listed companies are required to comply with stringent regulatory requirements established by SEBI and the respective stock exchanges. These regulations cover various aspects, including corporate governance, financial disclosures, and insider trading rules. The primary goal of these regulations is to protect investors and ensure market integrity.

  1. Increased Access to Capital

Being listed on a stock exchange provides a company with enhanced access to capital. It can raise funds through various means, such as initial public offerings (IPOs), follow-on public offerings (FPOs), and issuance of additional securities. This access to capital is vital for expansion, research and development, and operational improvements.

  1. Market Valuation

Listed companies are subject to market valuation, as their share prices fluctuate based on supply and demand dynamics in the stock market. This market-driven valuation provides an immediate reflection of the company’s performance and investor sentiment. Investors can gauge the company’s financial health and growth prospects through its market capitalization.

  1. Liquidity

The shares of a listed company are generally more liquid compared to unlisted companies. Investors can buy and sell shares easily in the stock market, ensuring that they can convert their investments into cash relatively quickly. This liquidity factor attracts more investors to participate in the company’s growth journey.

  1. Accountability and Transparency

Listed companies are held to high standards of accountability and transparency. They must regularly disclose financial statements, annual reports, and other relevant information to keep investors informed. This transparency fosters trust and confidence among shareholders and potential investors.

  1. Enhanced Reputation

Being a listed company enhances its reputation and credibility in the market. Investors tend to view listed companies as more stable and trustworthy due to the rigorous regulatory scrutiny they undergo. This enhanced reputation can also lead to increased business opportunities and partnerships.

Formation of a Listed Company:

The process of becoming a listed company involves several key steps, ensuring compliance with regulatory requirements and successful entry into the capital markets:

  1. Incorporation of the Company

The first step in forming a listed company is to incorporate the company under the Companies Act, 2013. This involves choosing a unique name, preparing the Memorandum of Association (MOA) and Articles of Association (AOA), and registering the company with the Registrar of Companies (ROC).

  1. Meeting Eligibility Criteria

To qualify for listing, the company must meet certain eligibility criteria set by the stock exchanges. These criteria may include minimum net worth, profit records, and a specified number of public shareholders. The company must ensure compliance with these requirements before proceeding with the listing process.

  1. Appointment of Intermediaries

The company must appoint various intermediaries to facilitate the listing process, including:

  • Merchant Bankers: They assist in the IPO process, managing the issue and underwriting shares.
  • Legal Advisors: They provide legal guidance on compliance and regulatory matters.
  • Auditors: They conduct audits of financial statements to ensure accuracy and transparency.

  1. Drafting the Prospectus

The company must prepare a prospectus that provides comprehensive information about its business, financial performance, risks, and future plans. The prospectus serves as a key document for potential investors, outlining the investment opportunity and the terms of the IPO.

  1. Filing with Regulatory Authorities

The company must file the prospectus and other necessary documents with SEBI for approval. SEBI reviews the application to ensure compliance with securities laws and regulations. The approval process includes scrutiny of financial disclosures, risk factors, and corporate governance practices.

  1. Initial Public Offering (IPO)

Once SEBI approves the prospectus, the company can launch its Initial Public Offering (IPO). During the IPO, the company offers its shares to the public for the first time, allowing investors to subscribe to the shares at a predetermined price. The IPO is a critical milestone, as it determines the initial market price of the company’s shares.

  1. Listing on the Stock Exchange

After successfully completing the IPO, the company applies for listing on the stock exchange. This involves submitting the listing application along with the required documentation, including the IPO allotment details. Once approved, the company’s shares are officially listed and can be traded on the stock exchange.

  1. Post-Listing Compliance

After listing, the company must adhere to ongoing compliance requirements, including:

  • Regular disclosure of financial results, typically on a quarterly basis.
  • Submission of annual reports and other material information to the stock exchange.
  • Compliance with corporate governance norms, including board composition and shareholder meetings.

Advantages of Being a Listed Company:

  • Capital Raising Opportunities:

Listed companies can raise significant capital for expansion and development, facilitating growth and innovation.

  • Increased Visibility:

The listing enhances the company’s visibility in the market, attracting investors and potential business partners.

  • Employee Benefits:

Many listed companies offer employee stock options (ESOPs), aligning employees’ interests with those of shareholders and fostering motivation and loyalty.

Challenges of Being a Listed Company:

  • Regulatory Burdens:

Listed companies face extensive regulatory scrutiny, requiring substantial resources to ensure compliance with laws and regulations.

  • Market Volatility:

Share prices can be highly volatile, influenced by market sentiment and external factors, which may impact the company’s reputation and investor confidence.

  • Pressure for Performance:

Listed companies often face pressure from shareholders and analysts to deliver consistent financial performance, leading to short-term decision-making at the expense of long-term strategies.

Management Notes

Contingent Liabilities

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A contingent liability is a potential liability that may or may not become an actual liability. Whether the contingent liability becomes an actual liability depends on a future event occurring or not occurring.

In accounting, some contingent liabilities and their related contingent losses are:

  • Recorded with a journal entry
  • Are limited to a disclosure in the notes to the financial statements
  • Not recorded or disclosed

We have another Q&A that discusses the recording of contingent liabilities.

Examples of Contingent Liability

A company’s supplier is unable to obtain a bank loan. The company agrees to guarantee that the supplier’s bank loan will be repaid. As a result of the company’s guarantee, the bank makes the loan to the supplier. The company has a contingent liability. If the supplier makes the loan payments needed to pay off the loan, the company will have no liability. If the supplier fails to repay the bank, the company will have an actual liability.

If a company is sued by a former employee for $500,000 for age discrimination, the company has a contingent liability. If the company is found guilty, it will have an actual liability. However, if the company is not found guilty, the company will not have any liability.

A product warranty is also a contingent liability.

Types of Contingent Liabilities

Contingent liabilities are of two types which are:

  1. Explicit Contingent Liabilities
  2. Implicit Contingent Liabilities

Let us know more in details about the types

  1. Explicit Contingent Liabilities

These liabilities are specific types of obligations that are created by government or obligations which are legal in nature that are established by the law.

Some of the examples are:

  • Government insurance schemes on pension funds, bank bonds or bank deposits.
  • Student loan, mortgage loan
  • Currency exchange rates
  • Legal claims in which court orders to pay penalty for pending cases.

  1. Implicit Contingent Liabilities

These types of liabilities are legal obligations that are identified after the occurrence of an event. Government sets the amount for the liability in such cases. They are not recorded in the books as these events may occur or may not occur.

Some examples are:

  • Disaster relief fund for people affected by natural disaster.
  • Failure of central bank on paying its obligations like balance of payment
  • Social security

Let us discuss some of the contingent liabilities’ examples

  1. Product Warranty

This is one of the most common types of contingent liability examples. It occurs when a company launches a product with a warranty period with the condition that if the product fails to work within the period, it has to be repaired or replaced which becomes a liability for the company.

  1. Lawsuits

Lawsuits are legal proceedings by an individual, party or parties against another in civil court of law.

  1. Pending Investigations

If an individual or company is found to be defaulting in any form of payment, then they have to pay fine or penalty as ordered by court.

Recording of Contingent Liabilities

Contingent liabilities do not get recorded in financial statements of a company. These are obligations that are yet to occur but there is a probability that it may occur in future. Therefore, no accounting treatment exists for contingent liabilities.

But as accounting follows a conservative approach, there must be disclosure and therefore contingent liability needs to be updated in final statements of the company in the form of footnotes. Such a disclosure is made only when there is an obligation from a past event and the amount of the liability can be measured reasonably.

Difference between Provision and Contingent Liability

Provisions are a sum of money that is set aside in order to cover a probable expense that will happen in future. In this case the obligation is already present but the amount for such an obligation cannot be determined exactly.

Contingent liabilities are liabilities that are uncertain expenses that may or may not happen in future, but companies maintain it in order to encounter future uncertainties.

Provisions are recorded in the accounts. They get debited in Profit and Loss accounts whereas contingent liabilities are recorded as footnotes in financial

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