Get an in-depth understanding of the satellite office model, the benefits and risks of choosing India, and strategic insights for the successful setup and operation of your satellite office.
A satellite office is essentially an extension of a parent company situated in a different country. For instance, if your headquarters is in Dallas, and you decide to open a new branch office in New York, the idea is fundamentally the same, except that your new office is located in an entirely different country, such as India, within a different timezone. A satellite office is staffed with your own people—employees that you have hired, trained, and managed. It is your responsibility to oversee all office-related tasks, just as you would do in your primary office.
The concept of a satellite office significantly differs from outsourcing. Outsourcing involves hiring an external vendor in a low-cost country such as India. These outsourcing companies usually specialize in specific domains, such as bookkeeping or tech support, and you hire them to outsource non-core functions. The key difference lies in the fact that, in an outsourcing arrangement, you are not responsible for hiring, managing, or retaining any of the employees. Instead, you entrust the vendor with tasks that need to be accomplished, without concerning yourself with the operational intricacies of the project. However, a major drawback often associated with outsourcing is the potentially lower quality of work due to the lack of control over the vendor's work processes or the personnel assigned to your project.
Why should a company consider India as a potential location for a satellite office? There are several reasons. First and foremost, India is renowned for its large, highly skilled talent pool available at a fraction of the cost when compared to the US. India, culturally, places a high emphasis on higher education, resulting in a large number of highly educated individuals. In addition, due to historical British influence, most Indians are proficient in English. Consequently, if you are an English-speaking company seeking a cost-effective way to source top-tier talent, India stands out as a preferred destination.
In the face of a talent shortage, several industry leaders have embarked on a transformative journey by strategically extending their operations to India. This proactive approach has led to unparalleled growth and innovation.
Global accounting firms like RSM and BDO have successfully navigated this path, with RSM's Indian team catapulting from just 50 to a remarkable 2,000 in two short years. BDO followed a similar trajectory, growing its Indian workforce by a striking 400% within the same timeframe.
Meanwhile, U.S.-based hardware store chain Lowe's expanded its presence by inaugurating a second satellite office in India, taking its total Indian workforce to an impressive 3,600. On the financial front, hedge fund magnates DE Shaw, Millennium, and AQR Capital Management have all established several offices in India, housing hundreds of local employees.
Not to be left behind, Japanese e-commerce firm Rakuten is aggressively adding 1,000 more employees, with a plan to increase its Indian workforce to a robust 3,000.
These success stories are just a tip of the iceberg. Today, approximately 40% of Fortune 500 firms have satellite offices in India. Moreover, more than 2,400 global companies have already set up satellite offices in India, with the trend showing no sign of slowing down - over 100 new satellite offices are being established annually.
In the wake of COVID-19, these numbers have only strengthened, underlining the fact that India, with its vast pool of talent, has become a global hub for companies seeking sustainable solutions to the talent crunch. This strategic pivot has transformed a potential crisis into remarkable opportunities for growth.
In the following sections, we'll delve into the steps involved in setting up a satellite office in India, addressing considerations such as whether India is a good fit, the best city for your office, legal entity options, and much more. Stay tuned for these insights to help guide your next steps.
Setting up a satellite office in India involves several steps. While the following offers a general guide, please note that your specific situation might necessitate additional steps.
India offers an abundant pool of skilled talent, but it might not be a good fit for every company. Sensitive industries such as defense or semiconductors may find India less suitable due to potential geopolitical fluctuations. Additionally, the availability of specialized skills that your business requires may vary in India. It can be beneficial to consult with recruiters to gauge the availability and cost of the talent you need.
Cultural differences also play a significant role. If your business requires a deep understanding of local culture, India might or might not be a suitable choice. To ascertain whether India is a good fit, conduct thorough research to see how industry leaders or other companies in your sector are leveraging India's resources.
Once you've determined whether India is a good fit, it's important to consider what kind of office setup you're seeking. Are you looking for a physical office, a hybrid setup, or a fully remote operation? Your choice will significantly impact the city that best suits your needs.
A traditional office setup, where your team members share a physical space, fosters collaboration, learning, and potentially higher productivity. It also facilitates the development of a cohesive company culture. However, a physical office, especially in cities like Mumbai, could be quite expensive, potentially diminishing the cost savings you might anticipate from setting up in India.
On the other hand, a fully remote setup expands your talent pool exponentially. The flexibility of remote work can be a significant attraction for employees and set you apart from other employers. However, it requires robust processes and checkpoints to ensure productivity. Working conditions might also vary for employees in India, given the prevalence of multigenerational homes. Therefore, investment in better equipment or workspace might be necessary.
A concern with remote work is the risk of "moonlighting," or an employee taking up two jobs, which could pose issues regarding data privacy and security. While there are ways to ensure data protection in a remote setup, managing these aspects is generally more straightforward in a traditional office setting.
Ultimately, there isn't a one-size-fits-all answer. The choice of office setup depends on your specific situation, preferences, and business needs.
In the next sections, we will explore the best city fit for your office, legal entity options, human capital strategy, and more crucial aspects of setting up a satellite office in India.
The choice of city for your satellite office in India will depend on your budget and the talent you're seeking. There are several options, each with its pros and cons.
In conclusion, your choice of city will depend on the type of talent you're seeking, your budget, and other specific requirements. Careful analysis and consultation with local experts can help you make the best decision.
There are several ways to meet the legal requirement of opening a satellite office in India. However, in our experience, we've identified three prominent methods that businesses most frequently adopt. These comprise setting up a Wholly Owned Subsidiary (WOS), utilizing the Employer of Record (EOR) model, and employing the Test Before Invest model. Let's delve deeper into each.
Registering a WOS means that you have a subsidiary of your U.S. company in India. The most significant advantage of this model is that you have complete control over your office in India. This setup is easier to explain to your U.S. employees and clients; your office in India is indeed your office, and your team members are not outsourced personnel. However, this option isn't without its challenges.
For instance, registering a wholly owned subsidiary necessitates the inclusion of at least one Indian resident as a director and a shareholder with at least 0.1% shareholding. These roles bring potential risks, such as fraud, as these individuals become legal owners and representatives of your company. While measures can be taken to minimize such risks, they can never be entirely eliminated.
Furthermore, establishing a wholly owned subsidiary is a time-consuming process, and ongoing compliance can be a heavy burden. Lastly, this model may expose your US brand to harmful exposure from potential lawsuits from employees in India. However, once your Indian team exceeds a size of 100, registering your WOS may make more sense than the LTP model.
Your WOS can be registered as either a Private Limited Company or a Limited Liability Partnership, both options are relatively similar
The EOR model provides a relatively risk-free way to set up your India office. It allows you to operate in India without registering your own legal entity. In this setup, a third party acts as your employer of record, taking over all responsibilities and liabilities associated with compliance.
You can start building your team in India in just a few weeks as opposed to waiting for months to get your WOS setup. You are also shielded from any potential lawsuits and fraud in India.
The EOR model offers flexibility based on your needs and team size. You can switch to a WOS when ready or continue using the EOR as a worry-free way to operate your India office.
While the EOR model can save you time and compliance headaches, it does come with its drawbacks, including potential long-term costs that can become significant as your team grows. You may also encounter reluctance from some potential employees to work under this model as it is often confused with outsourcing.
Finally, the model that we advocate for is the Test Before Invest model. True to its name, this model allows you to assess the viability of your team in India prior to making substantial investments. The implementation of this model is threefold:
Starting with a smaller team keeps your payroll expenditure manageable, while also ensuring the team size remains controllable. This strategy enables you to learn, make initial missteps, and refine your processes with a smaller team before fully committing. Utilizing an EOR, as previously discussed, mitigates the necessity for WOS registration and compliance-related tasks and liabilities. Lastly, having expert guidance at every juncture of the process is pivotal to maximizing your test-before-invest period.
This model can be employed for 2-3 years, or until you gain confidence in the Indian market. If at the end of this testing period, you find the Indian market unappealing, simply terminate the operation. Conversely, if the market proves favorable, you can choose to transition to the WOS model or continue using the EOR model.
It is also important to be cognizant of the potential drawbacks of this model, with the most significant one being the additional cost. The consulting support, though invaluable, does come at an expense over and above your EOR fees. While we firmly believe that this consulting support will be one of the most effective investments you make in the Indian market, it's essential to understand that it does entail an additional financial commitment.
The next step involves crafting your talent acquisition strategy. You should answer essential questions about the size, structure, and composition of your Indian team. When crafting your talent acquisition strategy, you need to consider the unique challenges of the Indian talent market, such as title inflation, 2-3-month notice periods, potential offer rejections, employee drop-offs, lack of brand awareness, and a skewed male-to-female ratio. It is advisable to work with a local expert to understand the nuances of the Indian talent market and craft a strategy that works in India.
The next stage is to localize your HR policies for your Indian office. Localizing HR policies is necessary to ensure they are both compliant and effective in India. It is recommended that you work with a labor compliance attorney who can recommend necessary changes to your policies. Remember, India does not have at-will employment, so your HR policy needs to be updated accordingly. Also, as a best practice, you should avoid any ambiguities in policies, or using a "case-by-case" approach, as could lead to a never-ending list of requests for exceptions from your India team.
Operating mechanisms refer to how work will get done between your main office and your Indian office, encompassing key aspects like working hours, communication preferences, and meeting cadence.
As you evolve, you should adjust these mechanisms to better fit your organization's needs and foster effective collaboration between your offices.
With the key building blocks of your India office established, the focus should now shift to cultural integration. Cultural integration has two primary aspects: country-specific and company-specific integration.
Understanding India as a country, its people's likes and dislikes, forms the essence of country-specific integration. This process involves educating your U.S. team about Indian culture and vice versa.
Often, companies tend to invest too much time in this aspect, which may not be entirely necessary. Basic understanding and respect for each other's country-specific cultures should suffice. Both Indian and U.S. cultures have several similarities, and a few fundamental principles should guide interactions. For instance, avoid conversations around religion and politics, and refrain from making assumptions or judgments based on stereotypes. By adhering to these basics, you're already well on your way to successful cultural integration between your two offices.
The greater challenge lies in company-specific cultural integration. Every company has its distinct culture, encompassing interpersonal dynamics, decision-making processes, and communication styles. Documenting your company's culture and training your Indian team in it is critical.
This task can prove challenging as some elements of your company culture might not align with local practices. For instance, asking many questions early on is a common practice in U.S. corporate culture. However, in India, this might be perceived negatively as exposing ignorance. These cultural clashes can hinder achieving your desired results in India.
To address these potential issues, compile a list of such cultural nuances specific to how work gets done in your company and orient your Indian team to them. Cultural integration is an ongoing process, not a one-time training or reading material. Constant reinforcement is key to success. For instance, a smart way address to the Q&A cultural nuance discussed earlier would be to discuss it during orientation, provide regular feedback, and encourage your Indian team members to ask questions during calls. If they're hesitant to ask questions, don't hold it against them but give them the opportunity to adapt.
Pro tip: As part of cultural integration, ensure that someone from the U.S. office visits the Indian office at least once or twice a year. If your budget allows, consider more frequent visits. This practice not only helps to strengthen the bond with the Indian team but also demonstrates your commitment to them, thereby fostering loyalty and improving retention.
Your IT infrastructure is crucial for your Indian venture's success, serving as its operational backbone. Here's a roadmap for your IT infrastructure setup in India:
Fraud risk management is often overlooked, yet critical in your India strategy. The principal fraud risk source can be your director or shareholder in India, with access to your bank accounts and legal representation of your firm. Instances where directors unauthorizedly take out loans, contracts, or gradually deplete bank accounts are not unheard of. To mitigate such risks, the director/shareholder of your Indian operations should ideally not be a company employee. They should lack a comprehensive understanding of your business operations. Hence, we recommend using a nominee director/shareholder for your wholly owned subsidiary or consider engaging firms offering such services. If complete safety is your priority, opt for the LTP model over a wholly owned subsidiary.
Finally, setting realistic expectations with your U.S. leadership is crucial. Expect to invest two years before reaping all the benefits that India offers. The first year is typically for learning and understanding the nuances of your India operations. Implementation of the lessons learned in the second year starts yielding results. However, it is only by the third year that you truly appreciate the advantages, including access to a talented labor pool at a reduced cost.
We trust this information was helpful and provided some clarity. If you're intrigued by the potential of expanding to India, we suggest reaching out to us. We house the experts mentioned throughout this guide, and we can answer any queries you may have about setting up an office in India, starting with whether it's the right move for your organization.
Have a question about our services? Talk to us today to find out how an India office can help your organization.
