Although there is impetus and excitement about starting ventures and setting up subsidiaries in India, there is still a prevalent uncertainty factor that deter entrepreneurs from taking the first step. Understandably so, there are risks involved in setting up India operations. You are in a strange land, know only what your research has taught you about the people and the market, and more importantly, need to manage the behemoth from another country. When businesses don’t want to shoulder all the risks single handedly, the Build Operate Transfer model comes to their aid.
The BOT model is a mode of running business operations in which one company takes over the complete onus of business setup in India (Build), running the operations until the company is fully operational (Operate), and hand over the company to the foreign owners (Transfer).
1. What is the impetus for the BOT model?
The main motivation behind the Build Operate Transfer model is assured success. The operating organization assumes all executive roles for the company and ensures it becomes profitable. Moreover, the operating organization also takes care of all business compliance laws, manages human resources, and looks after the infrastructure management for the company.
There are additional benefits of the BOT model as well, for the business owner located abroad. Since the managers of the Indian subsidiary are themselves Indian, they understand the market better. They also know how to bring out the best in the Indian employees and guarantee maximum productivity and ultimately, profitability.
If instead, the business owner had just manged the business from afar while retaining complete ownership, they’d have to face a lot of hurdles. What about team building and morale boosting? What if the managers they’d hired to look after India operations moved on to better opportunities? Or worse, turned out to be incompetent?
The complete responsibility of ensuring the setup’s long-term success would fall on the business owner. And that would be iffy at best.
On the other hand, the BOT model provides sure-fire success.
2. What are the roles of the involved parties?
You may be wondering, if the Indian team take over all the operations, what is the role of the actual business owner?
The business owner remains a shareholder of the company and is also on the board of directors as one of the foreign directors. They also pour capital investments into the growing company. Only that they are not the full owners of the subsidiary formed in India until the transfer phase.
As per regulatory bylaws, all companies which are setup in India must have at least one director residing in India. The operating organization, often a business incubator and sometimes a PEO agency in India, assume the role of the local director.
Think of it as a garden in which the seeds are provided by the foreign business owner, and the incubator acts as a caretaker who sows these seeds, nurtures the growth of the trees till it bears fruit, and then hands over the ripe fruits back to the seed provider.
3. How is the BOT model different from PEO services in India?
The mode of working is very similar. But a professional employer organization in India is distinct from a business incubator in the sense that the PEO agency is not a part of the organization but rather apart from the organization.
The PEO offers a workforce in the form of human resources to a company which is owned by another individual.
But in the Build Operate Transfer model, the business incubator is the rightful owner until the transfer phase.
2. Engaging in the BOT Model
A lot of the infrastructure development projects in India are operating under the BOT model today. But the most shining successes of the BOT model are found in the IT industry. Software projects are primed for the Build Operate Transfer model, and have a proven track record for doing well. If you feel your business idea has the potential for growth, you can consider the BOT model for minimizing risk and maximizing your chances of success. If you need a incubator to partner up with, look no further than Remunance. Our Indcubate program will give you control over recruitment, a reduced burn rate, and the assurance of success.