May - 2003 issue > Cover Story

By Karthik Sundaram

On 20.0 South, 57.5 East, east of Madagascar and less than a 1,000 miles south-east of the African coast lies the sun-drenched tourist paradise of Mauritius. Another azure seas-bound island group are the Cayman in the Caribbean. Even as holidayers mill around the glorious beaches or explore some of the exotic flora and fauna of these islands, lawyers, bankers, and businessmen are quietly shaking hands on deals made behind glass doors in the downtown offices. The remarkable point here is that many of the businessmen today are Indians, and in the center of it all, is Raj Judge, partner at one of the most revered tech law firms in the world, Wilson Sonsini Goodrich & Rosati. Less than a decade ago, the compass was firmly pointed towards the United States, as startups and corporates alike from India rushed to set up offices in the Silicon Valley, even as the Internet economy went into high gear. Then the communications infrastructure in India opened up more secure and reliable cross-continent interaction online and in realtime, and many of the companies began leveraging the power of offshore development. The inevitable crash came, and cost-leveraging became even more critical. “Today's evolving business models are very different from what technology companies have traditionally followed,” says Judge, the head of the U.S.- India practice for his firm. There is a new found awareness of the advantages of being a global company at a younger stage in the lifecycle of a company. As communication costs continue to decline and the need for talent increases, companies are increasing their global presence. Judge says, “The new technology company is no longer just based in the Silicon Valley with subsidiary operations in India, it is global, with a footprint in the Cayman or Mauritius as well the U.S., Europe and India or China.”

What has changed is the very reason for setting up an India office. “From pure back-office support reasons, companies are now setting up offices in India for full operations. You have people like Rajesh Reddy and Bob Kondamoori-people who have worked in the valley-going back to set up a full-fledged company out of India, which develop total solutions for world markets,” notes Judge. VCs are also increasing their investments in India based companies, though the Indian laws have not yet completely allowed for traditional preferred stock financings. Judge sits on the board of the US-India Venture Capital Association and serves as a close advisor to some of the most active cross-boarder VCs today, including Westbridge Capital.

Unlike pure product companies, services companies out of India generate increasing income earlier in their lifespan. The emerging trend today is to take advantage of tax-beneficial countries like Bermuda, the Cayman Islands or Mauritius to reduce some of the tax burdens. India has a long standing tax treaty with Mauritius, and services companies are taking advantage of this. Some product companies are also seeing the benefits of tax planning.

As a company with principally all of its operations in India, it can set up as a Cayman or other offshore company, with subsidiaries in the U.S., Europe, India or anywhere else, and its income tax as well capital gains tax can sometimes be reduced. “Leveraging the offshore advantage takes careful planning and structuring early in the process,” says Judge.

When Ajit Prabhu and Arvind Melligeri set up their India office, it took a while to get the team up to speed. But now, Quest relies heavily on the Indian team to deliver engineering design services for turbines and power generation equipment—from design to product—for some of the largest manufacturing companies in the world. Raj Judge is helping them restructure globally and take advantage of some of the tax advantages in the Cayman and Mauritius. The move, he says, is a strategic one for expansion.

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