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Guide · India market entry
Distributor or subsidiary: which India entry model?
The distributor is cheaper, faster and teaches you less. The subsidiary is expensive, slow and teaches you everything. Most SMEs should start with one and plan for the other.
This is the decision overseas SMEs agonise over longest and often get wrong in a predictable direction — either committing to a subsidiary before demand is proven, or staying distributor-dependent long after the arrangement stopped serving them.
Both errors have the same root: treating it as a permanent choice rather than a stage. The useful question is not which model is better but which is right for the next eighteen months, and what would trigger a change.
What a distributor genuinely gives you
- Immediate market access — an existing customer base, relationships and route to shelf or to industrial buyers that would take years to build.
- Working capital — they hold inventory and carry receivables, which for an SME entering a new market is often the deciding advantage.
- Local compliance and logistics — import, clearance, warehousing and distribution handled by someone who does it daily.
- Low fixed cost — you pay margin on what sells rather than salaries on what might.
What it costs you, beyond margin
- Market visibility — you see what the distributor tells you. Pricing, customer feedback, competitive dynamics and lost-order reasons all arrive filtered.
- Brand control — how your product is positioned, priced and presented is largely theirs, and it will be optimised for their portfolio rather than your brand.
- Pace — they grow your category at the speed that suits their business, which is rarely the speed that suits yours.
- Exit cost — changing distributor means losing the customer relationships they hold, and in some structures it means a commercial dispute.
The middle options nobody mentions
The debate is usually framed as a binary and it is not. A liaison or representative arrangement, a small direct team working alongside a distributor, a marketing-only local presence, or a fractional arrangement where senior commercial leadership sits in India without a full organisation — all of these sit between the extremes.
The most under-used is the last. A distributor handling logistics and fulfilment, with your own senior marketing and market-development capability in India shaping positioning, generating demand and holding the distributor accountable, captures most of the advantages of both models at a fraction of subsidiary cost. That is essentially what a fractional or interim India lead provides.
Entity structure, permanent-establishment exposure and tax treatment of each of these arrangements are specialist questions that should be assessed by qualified advisers before you choose.
Questions
What overseas teams ask
At what revenue does a subsidiary make sense?
There is no universal threshold — it depends on margin structure, service obligations and how much of your cost is fixed. The more useful test is whether the things a subsidiary uniquely enables — direct customer relationships, local service, control of pricing and brand — are worth more to you than their cost. If you cannot articulate what the entity would do that the current arrangement cannot, it is probably premature.
Can we have a distributor and our own team?
Yes, and it is a common and effective structure, provided roles are explicit. Conflict arises when both parties believe they own the customer relationship. Defining who does demand generation, who does fulfilment, who holds the price and who owns which accounts prevents most of it.
What if our distributor blocks us from setting up directly?
Distribution agreements sometimes contain provisions that constrain this, which is one reason the agreement matters more than most entrants realise at signing. It is a legal question for counsel, and the practical lesson is to negotiate the exit and evolution terms at the start, when you have leverage.
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