Morgan Lewis Explores Manufacturing Ventures in India

Morgan Lewis’ George Cyriac, Rahul Kapoor & Theresa Kalathil discuss India’s role as a manufacturing powerhouse & investment strategies for the sector

Morgan Lewis’s India initiative draws on its lawyers’ personal connections to the country and experience with its customs to help clients navigate India’s unique economic and diverse cultural environment. Combining this local know-how with a global perspective, the team has been advising Indian and international companies on cross-border transactions investments into India, including into the manufacturing sector, for decades. 

The India initiative, comprising more than 30 lawyers, several of whom are India qualified, is led by lawyers from our Silicon Valley, Singapore, London, New York, Boston and Dubai offices. Collaborating across teams and offices, they advise clients on a variety of business, regulatory and governmental matters, from complex cross-border transactions and disputes to international tax planning and investment management. They also assist global companies with matters related to investments, expansion, and outsourcing as they enter into and further develop their business ventures in India.

Here, three Morgan Lewis partners tell us more.

George Cyriac

George Cyriac

I’m an M&A and private equity partner based in Singapore. I advise clients on cross-border mergers and acquisitions and private equity transactions in various sectors, including manufacturing, and I am a member of Morgan Lewis’s India Initiative. 

“I have worked on transactions in India throughout the investment cycle, including investments, disposals, and complex restructurings. I have previously worked in the India office of an affiliate of a US law firm and in New York for a number of years.”

Theresa Kalathil

Theresa Kalathil

I represent strategic and private equity sponsors on equity and asset acquisitions, mergers, corporate restructuring, divestitures and general corporate compliance matters, including in India and across Asia. Prior to joining Morgan Lewis, I worked in the capital markets department of a prominent law firm in India.”

Rahul Kapoor

Rahul Kapoor

I am a California-based partner at global law firm Morgan Lewis, where I advise clients in commercial, intellectual property and technology transactions, strategic alliances, joint ventures and corporate partnering transactions, including in the manufacturing sector. 

“I’m a leader of Morgan Lewis’s India initiative, the office managing partner of our Silicon Valley office, and leader of our corporate practice in Silicon Valley and San Francisco. I previously served as the firmwide hiring partner and on the firm’s Advisory Board. In addition to practising law, I taught an intellectual property strategy class for 10 years at UC Berkeley School of Law.”

Tell us about India’s emergence as a manufacturing powerhouse.

“India is the world’s fifth-largest economy by gross domestic product and the third-largest economy by purchasing power parity as of 2024, and with its rapidly growing population comes lucrative and diverse opportunities for companies on a global scale. India has attracted significant interest as a manufacturing hub, particularly for key sectors like automotive, electronics, engineering, chemicals, pharmaceuticals and consumer durables.

“The Indian manufacturing sector is projected to be one of the fastest-growing sectors in the local economy. With programmes like Make in India, the Indian government is seeking to drive forward the country’s manufacturing presence by providing local manufacturers with government incentives. Various state governments also actively compete with each other to attract new manufacturing units to their states and offer a range of incentives. The focus has not only been on manufacturing for export. There is also an emphasis on local production and expansion within India, as the rate of consumption in the country has increased significantly over the last decade.”

 

What are the options for investors in terms of entering the Indian manufacturing sector? 

“For international companies looking to enter the manufacturing space in India, there are several options to structure the entry. The preferred options include an equity joint venture (JV) with an existing Indian entity, a form of strategic alliance that is usually a contractual relationship between the international company and a manufacturer in India, or a wholly owned subsidiary set up in India to carry out manufacturing operations. We take a brief look at each of these options below and raise some important considerations.”

Equity Joint Venture

“JVs are a popular option employed by international companies looking to set up manufacturing in India. With this route, the company enters into a JV partnership with an Indian entity. Having an Indian partner is helpful for understanding the complexities of setting up shop in India, including compliance with various local and federal laws. However, there are some important considerations to keep in mind, such as the legal form of the JV, the lead time to setting up in India, and the level of investment permitted for the specific sector for the proposed JV.”

Considerations

“Additionally, key considerations in this structure include framing the governance rights of the JV and how the international partner can adopt practical measures to augment its legal rights, such as incorporating information rights and the right to appoint key employees.

“Decision-making authority is also usually a key area of focus for the international partner, as Indian law provides JV partners with certain additional statutory veto rights at certain equity percentage thresholds.

“Another important factor in structuring an equity JV is driven by tax considerations where, depending on the final structure of the JV, any dividends distributed by the JV will be subject to tax rates under the applicable tax treaty.”

Structuring for Exits

“However, given the challenges of operating JVs in general, it is also important to agree upfront the manner and terms on which parties can exit the JV, if required and conduct their business in India following such exit. This can help protect their business interests and provide for an orderly exit in such circumstances.

“Typically, we have seen such JVs in India being terminated by having one party buyout the interests of the other. The valuation of such buyouts, the protection of intellectual property (IP) following such buyout and the non compete obligations of the parties going forward are among several issues that need to be clearly spelled out upfront to avoid disputes later.”

Current State

“JVs have become an increasingly popular option in recent years. For instance, in March 2022, leading integrated manufacturing solutions company Sanmina Corporation announced that it entered into a JV agreement with Reliance Strategic Business Ventures Limited, a wholly owned subsidiary of India’s largest private sector company, Reliance Industries Limited (RIL), to create a world-class electronic manufacturing hub in India.”

Strategic Alliance

“Under this option, an international company would enter into a contractual arrangement with one or more Indian entities that would manufacture products or components of a product. This option can also be limited to just a licensing agreement whereby the international company enters into an agreement to licence its IP rights and technology to the Indian partner to manufacture products or components of products for the international company.”

Considerations

“The advantage of a strategic alliance is that it eliminates the need for the international company to set up or maintain a separate Indian entity. The right to make key decisions is often negotiated up front. However, careful consideration should also be given to how the arrangement is structured, as the process can be complex and can lead to significant time spent by the international entity to oversee the arrangement.

“Additionally, careful thought must be given to mitigating any IP rights compliance risks during the term of the strategic alliance and especially after the international entity’s exit.

“Other key areas of focus would include how any licensing fee or royalty would be taxable in India and the interplay with the applicable tax treaty. Guardrails should also be put in place to have the right strategies to mitigate the complexity of this option and to take advantage of the Indian partners’ extensive knowledge of the Indian market, without creating reliance on any one partner.”

Current State

“In recent years, India has seen a significant increase in contract manufacturing. While contract manufacturing in certain sectors, like pharmaceuticals, has been carried on successfully in India for decades, lately there has been a sharp increase in contract manufacturing in various other sectors, including electronic equipment. A notable recent example was the establishment of large manufacturing facilities in India by key Apple Inc. contract manufacturers Foxconn, Pegatron, and Wistron—whose facilities have been recently acquired by India’s Tata Group—to produce iPhones.”  

Operations Company

Some international companies choose to set up wholly owned subsidiaries in India for their manufacturing requirements.

Considerations

“The international entity will have complete control over the governance of the entity and use of its IP rights and can set the strategic direction of the venture without reference to other partners. However, the international company will be required to incorporate an Indian entity and ensure compliance with various local and federal laws, including labour laws. There will also need to be a strong and experienced management team located in India that can effectively establish and manage operations.

“Thought should be given to the tax treatment of any distributions to the international entity, and also to any capital gains taxes on the sale of the subsidiary in the event of the international entity’s exit.”

Current State

“Operations companies are particularly favoured by pharmaceutical companies. A recent example is the manufacturing agreement by Napo Pharmaceuticals Inc., a wholly owned subsidiary of Jaguar Health Inc., for the manufacture of Crofelemer Final in India.”

 

What do the next 12 months hold for you and Morgan Lewis?

“Whilst the global manufacturing sector faces some headwinds in 2024, there are certain sectors and geographies where there remain very positive opportunities for investors. India’s economy is projected to be one of the world’s fastest-growing in 2024 and manufacturing is front and centre of this anticipated expansion. India also continues to develop in certain key global industries that are especially relevant for manufacturing, such as automotive, electronics, engineering, chemicals, pharmaceuticals and consumer durables. We at Morgan Lewis will continue to build up and develop our own India Initiative, to bring to our clients best-in-class integrated transactional, intellectual property, regulatory and dispute resolution advice.”

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