Explore topic-wise InterviewSolutions in .

Major items of India’s exports are: 

(i) Primary Products. 

(a) Agricultured and allied products. 

(b) Ores and minerals 

(ii) Manufactured Goods. 

(a) Textiles including garments 

(b) Gems and jewellery 

(c) Engineering goods 

(d) Chemicals and related products 

(e) Leather

No, I do not think it is the right policy to promote exports at the cost of unfulfilled domestic demand. But a country has no choice when its imports bills are too heavy and the goods which are being imported have no domestic substitute like petroleum products in case of India. 

Government can take following steps in this regard: 

1. We need to concentrate on making Indian industries more competitive in international market so that export demand for Indian goods increases especially for those which are in surplus in India. 

2. We need to provide Indian goods in domestic market at such competitive prices so that people are naturally not attracted towards foreign goods because gone are the days when we could stop foreign countries from entering the market through taxes and quota.Now we can stop them only through tough competition.

Exporting is a better way of entering into international markets than setting up wholly owned subsidiaries abroad in following ways: 

1. Easiest Way: It is easy to enter international markets through exports as compared to wholly owned subsidiaries.

2. Less Involving: It is less involving as compared to establishing a wholly owned subsidiary because firms need not invest that much time and money. 

3. Zero risk of Foreign Investment: Exporting does not require much of investment in foreign countries. Therefore, foreign investments risks are low as compared to when a firm starts its wholly owned subsidiary in foreign country. 

4. Less Costly: In a wholly owned subsidiary, 100% equity investment is to be made by foreign company. Therefore, small and medium size producers can’t think of this mode of entering into international business. 

5. Risk of Profit and Loss: In wholly owned subsidiary, 100% equity capital is contributed by foreign company alone. Therefore, it alone has to bear the risk of losses. 

6. Government Intervention: Some countries are averse to setting up of 100% wholly owned subsidiaries by foreign companies. This form of business operations is subject to high degree of political risks.

(b) International business

(a) International Trade

There are various ways of entering into international business. They are:

1. Exporting and Importing: Exporting means selling or sending goods and services form the home county to foreign country. Importing means purchasing goods and services from a foreign country or bringing them to the home county.

2. Contract Manufacturing: Contract manufacturing is a mode of entry into ‘ international business under which a business firm in a country enters into a contract with local manufacturer in the foreign country to get certain goods produced or services rendered as per its specification! However, the firm retains with itself the responsibility of marketing the goods.

3. Licensing and Franchising: Licensing is a contract arrangement in which a firm in a country allows a firm in a foreign country to use its patent or trademarks or technology for a consideration known as royalty. Franchising is very much similar to licensing. The patent company which gives the franchise for a fed is called the franchiser, and the other company is called the franchisee.

Franchising covers the business of restaurant, hotel, travel agency, wholesale trade, retail trade, etc.

1. Joint venture: Joint venture is a business jointly owned by two or more firms located in two different countries.

2. Wholly-owned Subsidiary: A wholly-owned subsidiary is subsidiary company which is owned by a parent company or holding company. In other words, a wholly-owned subsidiary is a subsidiary company in whose equity capital, 100% investment is made by the parent or holding company.

(a) Licensing 

We have compiled MCQ Questions for Class 11 Business Studies International Business with Answers free accessible here. MCQ Questions for Class 11 Business Studies with Answers were prepared according to the latest question paper pattern. Practicing these International Business Class 11 Business Studies MCQ Questions with Answers really effective to improve your basics and learn all the key concepts.

These Class 11 Business Studies Objective-type Questions with Solutions cover all topics involved in the latest CBSE Class 11 Business Studies Syllabus. So, you can practice different concepts MCQ Questions in Class 11 Business Studies from all with ease and test your problem-solving and time management skills.  Know your preparation level on MCQ Questions for Class 11 Business Studies with Answers. You can also verify your answers from our provided International Business 1 Class 11 MCQ Questions with Answers.

1. Which one of the following is not amongst India’s major trading partners?

(a) USA
(b) UK
(c) Germany
(d) New Zealand

2. Which one of the following is not amongst India’s major export items?

(a) Textiles and garments
(b) Gems and jewellery
(c) Oil and petroleum products
(d) Basmati rice

3. Which one of the following modes of entry permits greatest degree of control over overseas operations?

(a) Licensing/franchising
(b) Wholly owned subsidiary
(c) Contract manufacturing
(d) Joint venture

4. Which of the following is not an advantage of exporting?

(a) Easier way to enter into international markets
(b) Comparatively lower risks
(c) Limited presence in foreign markets
(d) Less investment requirements

5. Outsourcing a part of or entire production and concentrating on marketing operations in international business is known as

(a) Licensing
(b) Franchising
(c) Contract manufacturing
(d) Joint venture

6. The OECD stands for:

(a) Organization for Economic Co-operation and Development
(b) Organization for Economic Coordination and Development
(c) Organization for Environmental Cooperation and Development.
(d) Organization for Environmental Control and Development

7. A company can acquire full control over subsidiary’s operation in foreign market by owing—

(a) 85%
(b) 90%
(c) 100%
(d) 40%

8. Goods that are tangible means ——

(a) Customized goods
(b) Merchandise
(c) Free goods
(d) Licensed goods

9. Labour productivity and production cost differ among nations due to ——— —

(a) Geographical reason
(b) Agricultural reason
(c) Personal reason
(d) Government policies

10. Manufacturing and trade beyond the boundaries if one’s own country is :-

(a) Foreign trade
(b) Local trade
(c) Retail trade
(d) Internal trade

11. Currency used in International business is –

(a) Domestic currency
(b) International currency
(c) cryptocurrency
(d) visual currency

12. Which factor of production is not a part of domestic business?

(a) Land
(b) Labour
(c) Customer
(d) Capital

13. Which is the right sequence of stages of Internationalization ?

A) Domestic, Transnational, Global, International, Multinational 

B) Domestic, International, Multinational, Global, Transnational 

C) Domestic, Multinational, International, Transnational, Global 

D) Domestic, International, Transnational, Multinational, Global 

14. Subsidiaries consider the regional environment for policy / Strategy formulation is known as__________

A) Polycentric Approach 

B) Regiocentric Approach 

C) Ethnocentric Approach 

D) Geocentric Approach 

15. The Theory of Absolute Cost Advantage is given by__________

A) David Ricardo 

B) Adam Smith 

C) F W Taylor 

D) Ohlin and Heckscher 

16. The Theory of Relative Factor Endowments is given by____________ 

A) David Ricardo 

B) Adam Smith 

C) F W Taussig 

D) Ohlin and Hecksher 

17. The theory of comparative cost advantage is given by_____________

A) David Ricardo 

B) Adam Smith 

C) F W Taussig 

D) Ohlin and Hecksher 

18. Globalization refers to___________

A) Lower incomes worldwide 

B) Less foreign trade and investment 

C) Global warming and their effects 

D) A more integrated and interdependent world 

19. Identify the feature of coordination being highlighted in the given statement: “Coordination is not a one-time function, it begins at the planning stage and continues till controlling.”

(a) Coordination ensures unity of action.

(b) Coordination is an all-pervasive function.

(c) Coordination is a continuous process.

(d) Coordination is a deliberate function.

20. Identify the process that provides the requisite amount, quality, timing, and sequence of efforts, which ensures that planned objectives are achieved with a minimum of conflict.

(a) Management

(b) Planning

(c) Coordination

(d) Controlling

21. Coordination is considered to be the essence of management because ______.

(a) It is a common thread that runs through all the activities within the organisation.

(b) It is implicit and inherent in all functions of the organisation.

(c) It is a force that binds all the functions of management.

(d) All of the above.

22. It is a force that binds all the functions of management.

(a) Cooperation

(b) Coordination

(c) Planning

(d) Management hierarchy

23. This function of management related to placing the right person at the right job is____.

(a) Organising

(b) Staffing

(c) Planning

(d) Controlling

24. Supervision, communication, motivation, and leadership are the key elements of this function of management.

(a) Directing

(b) Controlling

(c) Planning

(d) Organising

25. This function of management relating to laying down the foundation for carrying out the other functions of management successfully is _____.

(a) Organising

(b) Staffing

(c) Planning

(d) Controlling

Answer:

1. Answer (d) New Zealand

2. Answer (c) Oil and petroleum products

3. Answer (b) Wholly owned subsidiary

4. Answer (c) Limited presence in foreign markets

5. Answer (c) Contract manufacturing

6. Answer (a) Organization for Economic Co-operation and Development

7. Answer  (c) 100%

8. Answer (b) Merchandise

9. Answer (a) Geographical reason

10. Answer (a) Foreign trade

11. Answer (b) International currency

12. Answer (c) Customer

13. Answer (B) Domestic, International, Multinational, Global, Transnational 

14. Answer (B) Regiocentric Approach 

15. Answer (B) Adam Smith 

16. Answer (D) Ohlin and Hecksher 

17. Answer (D) Ohlin and Hecksher 

18. Answer (D) A more integrated and interdependent world 

19. Answer (c) Coordination is a continuous process.

20. Answer (c) Coordination

21. Answer (d) All of the above.

22. Answer (b) Coordination

23. Answer (b) Staffing

24. Answer (a) Directing

25. Answer (c) Planning

Following are important international institutions related to international trade. I. World Bank The World Bank (the World Bank was known as the International Bank for Reconstruction and Development (IBRD) before its growth and expansion) was set up to assist the reconstruction of war affected countries and to facilitate the development of the underdeveloped nations of the world. Moreover, apart from investing in infrastructure development, agriculture, health and industry, the World Bank is significantly involved in programmes to remove poverty, increasing the income of the poor and providing technological support. Five Agencies of World Bank 

1. International Bank for Reconstruction and Development (IBRD): The International Bank for Reconstruction and Development (IBRD), established in 1945, which provides debt financing on the basis of sovereign guarantees. 

2. International Finance Corporation (IFC): The International Financial Corporation (IFC), established in 1956, which provides various forms of financing of without sovereign guarantees, primarily to the private sector. 

3. International Development Association (IDA): The International Development Association (IDA), established in 1960, which provides concessional financing (interestfree loans or grants), usually with sovereign guarantees. 

4. Multilateral Investment Guarantee Agency (MIGA): The Multilateral Investment Guarantee Agency (MIGA), established in 1988, which provides insurance against certain types of risks, including political risk, primarily to the private sector. The Multinational Investment Guarantee Agency, or MIGA, was established in April 1988 with the objective of encouraging foreign direct investment in the less developed countries. It aims at insuring investors against political and non-commercial risks, providing advisory services, etc.. 

5. International Centre for Settlement of Investment Disputes (ICSID): The International Centre for Settlement of Investment Disputes (ICSID), established in 1966, which works with governments to reduce investment risk.

Other Institutions: 

1. UNCTAD: The United Nation Conference on Trade and Development, or UNCTAD, was established in 1964 with the objective of integrating the developing countries with the world economy through discussions. It undertakes activities such as collecting research and data for policy making and extending technical assistance to the less developed countries as per their requirements. 

2. ITPO: The ITPO, or the Indian Trade Promotion Organisation, was formed on January 1, 1992, under the Companies Act, 1956. Its main objective is to maintain close interactions among traders, industry and the government. In order to fulfill this objective, the ITPO organizes trade fairs and exhibitions within and outside the country, thereby helping export firms to interact with international trade bodies. 

3. INTERNATIONAL MONETARY FUND: The IMF, or the International Monetary Fund, came into existence in 1945 with the objective of creating and ensuring a healthy international monetary system. In 2005, it had 191 members. It aims at facilitating a system of international payments and adjustments in exchange rates among national currencies in order to bring about balanced growth at the international level and increase the levels of employment and income

4. WORLD TRADE ORGANIZATION (WTO): Probably the only issue in economics where economists have a unanimous approach that free trade will bring about greater specialization and through comparative advantage will increase productivity and the rate of economic growth. For a long time, an effort is being made to bring all countries under preview of multilateral trade agreements. 

WTO AGREEMENTS 

Major WTO agreements are as follows: 

1. GATT: General Agreements on Trade and Tariff which preceded WTO is very much a part of WTO agreements. 

2. Agreements on Textile and Clothing (ATC): Under the ATC, the developed countries agreed to remove quota restrictions in a phased maimer during a period of 10 years starting from 1995. It is considered as a landmark achievement of WTO which made trade in clothing and textile as quota free. 

3. Agreement on Agriculture (AOA): It is a significant step in an orderly and fair trade in agricultural products. The developed countries have agreed to lower down the customs duties on their imports and subsidies to the exports of agricultural products. The developing countries have been exempted from making similar reciprocal offers. 

4. General Agreement on Trade in Services (GATS): Due to GATS the basic rules which govern trade in goods have become applicable to trade in services. 

5. Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS): The Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) is an international agreement administered by the World Trade Organization (WTO) that sets down minimum standards for many forms of intellectual property (IP) regulations as applied to nationals of other WTO members. It was negotiated at the end of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) in 1994. The TRIPS agreement introduced intellectual property law into the international trading system for the first time and remains the most comprehensive international agreement on intellectual property to date. In 2001, developing countries, concerned that developed countries were insisting on an overly narrow reading of TRIPS, initiated a round of talks that resulted in the Doha declaration. The Doha declaration is a WTO statement that clarifies the scope of TRIPS, stating for example that TRIPS can and should be interpreted in light of the goal “to promote access to medicines for all.”

b. Shipping bill 

(a) Bill of lading 

(i) Sight and Usance Drafts: In the case of sight draft, the drawer instructs the bank to hand over the relevant documents to the importer against payment. But in the case of usance draft, the drawer- instructs the bank to hand over the relevant documents to the importer against acceptance of the bill of exchange.

(ii) Bill of Lading and Airway Bill: Bill of lading is a document prepared and signed by the master of the ship acknowledging the receipt of goods on board. It contains terms and conditions on which the goods are to be taken to the port of destination. On the other hand, Airway Bill is a document wherein an airline/shipping company gives its official receipt of the goods on board its aircraft and at the same time gives an undertaking to carry them to the port of destination.

(iii) Pre-shipment and Post-shipment Finance: Pre-shipment finance is provided to an exporter for financing the purchase, processing, manufacturing or packaging of goods for export purpose while the post-shipment finance is provided to the exporter from the date of extending the credit after the shipment of goods to the export country

Correct Answer is: d. IMF

Export procedure: Imports and Exports (control) Act, 1947 regulates exports of goods from India. The Central Government announces rules, policies, procedures and incentives for exports from time to time. The procedure of export of goods from India is guided by these rules and regulations of the Government of India. But, in general, an export transaction has to pass through the following stages: 

1. Receiving enquiries and sending quotations: The exporter receives order from importer and sends quotations for goods. 

2. Receiving of Order or Indent: The order is received for export of goods containing instructions regarding goods, price, quality, quantity etc. 

3. Credit enquiry or obtaining Letter of Credit: The credit worthiness of the importer is verified. 

4. Obtaining Export License and Quota: The exporter of goods gets a license under Import and Export Control Act for sending the goods. 

5. Compliance with Foreign Exchange Regulations: The exporter gives an undertaking to comply with foreign exchange regulations and deposit the exchange with Reserve Bank of India on receipt of price. 

6. Fixing the Exchange Rate: The exchange rate is fixed on which the price is to be received. 

7. Obtaining the Shipping Order: The exporter takes steps in regard to packing and marketing of goods. Packing is done as per the instructions of the indent. 

8. Preparation of Invoice and Consular Invoice: After completing other formalities the exporter prepares the invoice. The invoice contains details such as name of ship, destination, packing marks, etc. 

9. Obtaining Customs Permit: Some customs formalities are observed before goods leave the country. Custom authorities clear the goods after getting export duties. 

10. Paying Dock Dues: Dock dues are paid to dock authorities. 

11. Shipping of Goods: Before the goods are actually loaded custom officials verify the goods and their quantity. 

12. Mate’s Receipt: A receipt for the goods is issued by captain of the ship or his assistant acknowledging the receipt of goods. 

13. Bill of Lading: It is a memorandum signed by master of ship acknowledging the receipt of exporter’s goods. 

14. Effecting Insurance: An insurance policy is obtained to safeguard the goods against the peril of the seas.

15. Certificate of Origin: Some importing countries require a certificate of origin for goods. This certificate is issued by the designate authorities of the country. 

16. Securing Payment: The exporter will secure payment for the exports. 

17. Obtaining Various Export Incentives: The exporter may be allowed some incentives by the government and these are received after completing the process of export.

World Bank is playing main role of providing loans for development works to member countries, especially to underdeveloped countries. 

The World Bank provides long-term loans for various development projects of 5 to 20 years duration.

1. World Bank provides various technical services to the member countries. For-this purpose, the bank has established The Economic Development Institute and a Staff College in Washington. 

2. Bank can grant loans to a member country up to 20% of its share in the paid-up capital. 

3. The quantities of loans, interest rate and terms and conditions are determined by the bank itself. 

4. Generally, bank grants loans for a particular project duly submitted to the bank by the member country. 

5. The debtor nation has to repay either in reserve currencies or in the currency in which the loan was sanctioned. 

6. Bank also provides loan to private investors belonging to member countries on its own guarantee, but for this loan private investors have to seek prior permission from those counties where this amount will be collected.

Following institutions help in promoting exports or facilitating foreign trade. 

1. Department of Commerce: It is under Ministry of Commerce, Government of India. It is the apex institution responsible for the country’s external trade and all matters connected with it. It formulates policies for foreign trade. It also formulates export and import policy of the country. 

2. Export Promotion Council (EPC): These are non-profit organizations which are registered with either Companies Act or Societies Registration Act. They aim at promoting and developing the country’s exports of particular products falling under their jurisdiction. 

3. Commodity Boards: Commodity boards are the boards established by Indian Government for development of production of traditional commodities and their products. There are 7 boards at present. 

4. Export Inspection Council (EIC): It was established under Export Quality Control and Inspection Act, 1963 which aims at sound development of export trade using quality control and pre-shipment inspection. 

5. Indian Trade Promotion Organization (ITPO): It was set up on 1 January, 1992 under the Companies Act, 1956 by the Ministry of Commerce. It is a service organization and maintains regular and close interaction with trade, industry and Government. It has five regional offices in Mumbai, Bangalore, Kolkata, Kanpur and Chennai and four international offices in USA, Germany, Japan and UAE. 

6. Indian Institute of Foreign Trade (IIFT): It was set up in 1963 as an autonomous body registered under the Societies Registration Act with the prime objective of professionalising the country’s foreign trade management. 

7. Indian Institute of Packaging (IIP): It was set up in 1966. It is a training cum research institute pertaining to packaging and testing. It caters to packaging needs with regard to both the domestic and export market. Its headquarters are in Mumbai and it has three regional offices in Kolkata, Delhi and Chennai. 

8. State Trading Organizations: It was established in May, 1956. Its main aim is to stimulate trade primarily export trade among different trading partners of the world. Under it more organizations were set up later like Metals and Minerals Trading Corporation (MMTC) and Handloom and Handicrafts Export Corporation (HHEC).

1. To Earn Foreign Exchange: Every country in the world is trying to earn a share in the global trade. This is due to the lowering of trade barriers since the inception of the World Trade Organisation (WTO), increased import bills, and increased global competition in the domestic market. Also, most developing countries row heavily from financial institutions like the World Bank and the International Monetary Fund (IMF) and other sources to finance their developmental activities and reduce the balance of payment deficits. It is, therefore, imperative that the import bills as well as foreign loans be paid back in foreign exchange. In order to achieve this, earning foreign exchange through various export activities is the need of the hour. 

2. To Motivate Organisations to Export: In order to motivate organisations to export and earn precious foreign exchange, governments offer certain incentives. These incentives help reduce the tax burden of the exporters and also achieve a competitive price-edge for their products in foreign markets. However, being a member of WTO, each country has to ensure that the incentives offered by its government do not give an unfair advantage to the exporters. Thus, no country is to give special trading advantages to another or to discriminate against its all nations stand on an equal basis and share the benefits of any move towards lower trade barriers (branch). Also, all export incentives have to comply with WTO norms and should be in line with its various principles. 

3. To Promote Interests of Indian Exporters and keeping commitment of WTO: In India, the framework of export incentives in the form of duty exemption and remission schemes has been devised keeping in mind the interests of exporters as well as the commitments India has made to WTO. The Duty Exemption Scheme helps exporters import duty-free inputs required for manufacturing export products. The Duty Remission Schemes enable post-exports replenishment/remission of duty on inputs. 

4. To Import Capital Goods: In addition to this, the Export Promotion Capital Goods (EPCG) scheme enables exporters to import capital goods at concessional rate of duty and suitable export obligation. 

5. To Reduce Bureaucratic Hurdles: The incentives detailed above are available to all eligible exporters in India. In addition, the government has launched the very ambitious scheme of Special Economic Zones (SEZs) in order to reduce bureaucratic hurdles in importing inputs for exports and exporting finished products from India. These SEZs are modelled on the highly successful Chinese Economic Zones. It is expected that the SEZs will be the engines of growth in international trade for India. 

6. To Correct Unfavourable Balance of Trade: During the period of planning, except two years, all other years have witnessed unfavourable balance of trade. It not only reduced the foreign exchange reserves of India but also made it difficult to achieve plan targets. Successful completion of plans, therefore, calls for turning of unfavourable balance of trade into favourable one which requires increase in exports. 

7. To Reduce Foreign Loans: India has to row large foreign funds to import essential machinery for economic and industrial development. Till March 2009, India had contracted foreign loans amounting to ? 11, 42,618 crore. These loans are to be repaid one day. To pay interest and repay the principal amount of these loans, it is necessary that a policy of export promotion be adopted. Foreign exchange earned as a result of larger exports will be utilized for the repayment of foreign loans. 

8. To Achieve the Objective of Self-Reliance: One of the main objectives of Indian plans is to make the country independent of foreign assistance. To achieve this objective, it is necessary to promote exports. By accelerating exports, large amount of foreign currency can be earned. ‘ 

9. To Sell Surplus Production: During the period of planning, new industries have been setup in India. In order to increase the sale of the products of these industries, their export is to be promoted. It becomes easy to increase exports under export promotion program. 

10. To Finance Imports: Successful execution of the plans necessitates import of machines and other capital goods from abroad. To earn necessary foreign exchange to meet their import bills, it becomes necessary to increase exports.

If a firm wants to export goods, then it must first obtain an export license. In order to obtain an export license, the firm is required to register itself with the Appropriate Export Promotion Council, such as the Engineering Export Promotion Council (EEPC) and the Apparel Export Promotion Council (AEPC). Such councils are set up by the government for promoting the export of various goods falling under their purview. O ice the registration is complete, the firm obtains the Registration-Cum-Membership Certificate (RCMC). This in turn enables it to take advantage of the benefits made available to export firms by the government. Thus, it is necessary for export firms to register themselves with an Export Promotion Council.

It is necessary for the exporter to become a member of the appropriate export promotion council and obtain a Registration Cum Membership Certificate (RCMC) for availing benefits available to export firms from the Government like duty exemptions, and these councils also provide incentives to the exporters.

An TEC number refers to the ‘Importer Exporter Code number. It is a 10-digit number granted by the Directorate General for Foreign Trade (DGFT) to an import/export firm depending upon the firm’s credibility. It is essential for an importer/ exporter to obtain this number as it is to be provided in various import/export documents. In order to obtain this number, an export or import firm submits an application to the DGFT or the Regional Import Export Licensing Authority along with documents and information such as the profile of the importer/exporter, fee receipt from a bank, non-resident’s interest details, certificate from the banker on the prescribed form, two photographs attested by the banker and a declaration about the applicant’s non-association with firms placed in the caution list. Once the final submission is done and authenticated, the DGFT or the Regional Import Export Licensing Authority issues an IEC number to the importer/exporter, which helps the firm concerned in availing itself of benefits granted by the DGFT to importers/exporters.

Import Export Code (IEC) number is given to an export firm by Director General for Foreign Trade (DGFT) which the firm needs to be filled in various export/import documents. For obtaining the IEC number, a firm has to apply to the DGFT with documents such as exporter/importer profile, bank receipt of requisite fee, certificate from the banker on the prescribed form, two copies of photographs attested by the banker, details of the non-resident interest and declaration about the applicant’s non¬association with caution listed firms.

As soon as order is confirmed and letter of credit is received, the exporter approaches the bank to receive pre-shipment finance which he needs to buy raw materials and other inputs to produce good to be exported. Firms require finance for various activities such as purchase of raw material and manufacture of goods. In the case of exporters, this finance is obtained from banks in the form of advances known as pre-shipment finance. These advances are called pre-shipment finance as they are used in operations completed before the final shipment of goods takes place. This type of credit is obtained by an exporter from his or her banker after the order has been confirmed and the letter of credit has been received from the importer. Once the bank extends credit, the exporter uses the funds to purchase raw materials to undertake production. Preshipment finance is also used for processing and packaging goods and transporting them to ports for shipment.

Pre-shipment finance is the finance that the exporter needs before shipment of the order for procuring raw materials and other components, processing and packing of goods and transportation of goods to the port of shipment or we can say pre-shipment to undertake export production.

The exporter sends reply to the enquiry of the importer in the form of a quotation. It is called Performa Invoice.

As soon as order is confirmed and letter of credit is received, the exporter approaches the bank to receive pre-shipment finance which he needs to buy raw materials and other inputs to produce goods to be exported. Firms require finance for various activities such as purchase of raw material and manufacture of goods. In the case of exporters, this finance is obtained from banks in the form of advances known as pre-shipment finance.

“Clearing and Forwarding Agent” means any person who is engaged in providing’any service, either directly or indirectly, concerned with the clearing and forwarding operations in any manner to any other person and includes a consignment agent.

c. Japanese goods are relatively cheaper for British consumers. 

The following are some of the advantages of foreign trade:

1. Optimum use of resources: Foreign trade helps in the optimum use of natural resources and avoids wastage’s of resources. It ensures the presence of stable price by avoiding wide fluctuations in prices. It tries to equalise the world price. 

2. Increased standard of living: It ensures more production to meet the demand of the people of different countries. By increased production, it becomes possible to increase income and the standard of living of its people. It also increases the standard of living by increasing more employment opportunities. It enables a country to import those goods which it cannot produce. 

3. Large scale production: It ensures large production because the production is carried on to meet the demand of its people as well as world market. Large scale production also ensures a great deal of internal economies which reduces the cost of production.

India is 10th largest economy in the world. 

Advantage of contract manufacturing:

• There is no investment risk in this strategy, as there is no investment in production facilities in the foreign country.

Disadvantage of contract manufacturing:

• This mode is not suitable in cases involving high tech products and technical secrets.

According to Roger Beneett, “International business involves commercial activities that cross national frontiers.” In the words of John D Daniels and Lee H Radebough, “International business is all about business transactions—private and governmental that involve two or more countries. Private companies undertake such transactions for profits; government may or may not do the same in their transactions.” 

According to Michael R Czinkota, “International business consists of transactions that are devised and carried out across national borders to satisfy the objectives of the individuals, companies and organizations. These transactions take on various forms which are often correlated.”

Advantage of Joint Venture:

• Joint venture facilitates easy entry into international business.

Disadvantage of Joint Venture:

• There is the risk of leakage of technology and trade secrets in case of joint venture.

Advantage of licensing and franchising:

• There is lesser risk of Government interference on the turnover of business in licensing or franchising, because the business in managed by local persons.

Disadvantage of licensing and franchising:

• There is danger that the licensee or franchisee may star an identical business, slightly different from the one licensed or franchised.

A joint venture refers to establishing a firm which is jointly owned by two or more independent firms. 

It can be entered into three ways: 

1. A foreign investor may buy interest in a local company

2. Local firm may acquire an interest in an existing foreign firm.

3. Both local and foreign firms jointly establish a new enterprise.

Since 1991, with the announcement of New Economic Policy, 1991 India also embarks on the path of globalisation. India was facing a severe financial crisis. It approached International Monetary Fund and World Bank for help. IMF agreed to led money to India on the condition that India will introduce structural changes in its economy. As a result, India announced the policy of LPG i.e. Liberalisation, Privatisation and Globalisation. Then on 1 January, 1995 WTO was formed. India became founder member of WTO and thereby was under a compulsion to follow rules and regulations of WTO. Therefore, it had to open up its economy for rest of the world and they also allowed India to enter their markets. Though the process of reforms has somewhat slowed down, India is very much on the path of globalisation.

Contract manufacturing can take three forms:

1. Getting produced certain parts of final products: In case of automobiles or purses or shoes some parts are got manufactured from foreign countries which are used for the production of final products later. 

2. Assembly of components into final products: In case of electronic items, different parts are assembled at that country where they are to be sold. 

3. Complete manufacture of the products: In some cases, commodities like garments a contract is given for complete manufacturing and products are sold in brand name of foreign companies.

It is called Royalty.

Contract manufacturing is a mode of entry into international business under which a business firm in a country enters into a contract with local manufacturer in the foreign country to get certain goods produced or services rendered as per its specification. However, the firm retains with itself the responsibility of marketing the goods.

Licensing is used for goods and franchising is used for services.

Manufacturing and trade beyond the boundaries of one’s own country is known as international business. International business is defined as those business activities that take place across the national frontiers. It involves not only the international movements of goods and services, but also of capital, personnel, technology and intellectual property like patents, trademarks, know-how and copyrights. 

Domestic and international businesses differ from each other in the following aspects:

(i) Nationality of Buyers and Sellers: In the case of domestic business, both the buyers and sellers are from the same country but in international business buyers and sellers come from different countries and their languages, attitudes, social customs and business goals and practices are not identical as in case of domestic business. This makes relatively more difficult for them to interact with one another and finalize business transactions.

(ii) Nationality of Other Stakeholders: The other stakeholders such as employees, suppliers, shareholders/partners and general public associated with firms doing international business have different nationalities while in the case of domestic business all such factors belong to one country. Therefore, decision making in international business becomes much more complex due to wider set of values and aspirations of the stakeholders belonging to different nations.

(iii) Mobility of Factors of Production: The degree of mobility of factors like labour and capital is generally less between countries than within a country due to legal restrictions and variations in socio-cultural environments, geographic influences and economic conditions.

(iv) Customer Heterogeneity Across Markets: Since buyers in international markets hail from different countries, they differ in their socio-cultural background. Differences in their tastes, fashions, languages, beliefs and customs, attitudes and product preferences cause variations in not only their demand for different products and services, but also in variations in their communication patterns and purchase behaviors. Such variations greatly complicate the task of designing products and evolving strategies appropriate for customers in different countries.

(v) Differences in Business Systems and Practices: The differences in business systems and practices are considerably higher among countries than within a country as countries differ from one another in terms of their socio-economic development, availability, cost and efficiency of economic infrastructure and market support services, etc which make it necessary for firms interested in international business to adapt their production, finance, human resource and marketing plans as per. the conditions prevailing in the international markets.

(vi) Political System and Risks: Political factors such as the type of government, political party system, political ideology, political risks, etc, have an impact on business operations. International business firms need to monitor political changes in the concerned countries and devise strategies to deal with diverse political risks. These firms also face discrimination as nations tend to favor products and services originating in their own countries to those ’coming from other countries while this is not a problem for business firms operating domestically.

(vii) Differences in Business Regulations and Policies: Every country has its own set of business laws and regulations. These laws, regulation and economic policies are more or less uniformly applicable within a country but they differ widely among nations. Tariff and taxation policies, import quota system, subsidies and other controls adopted by a nation are not the same as in other countries and often discriminate against foreign products, services and capital.

(viii) Difference in Currency: International business involves the use of different currencies while in domestic business all transactions are done in the same currency. International business firms have to keep exchange rate fluctuations into consideration in fixing prices of their products and hedging against foreign exchange risks.

The scope of international business is quite wide. It includes not only exports and, imports of goods abut also exports and imports of services. It includes even licensing franchising and foreign.investment.

The various activities which constitute the scope of international business are:

1. Exports and imports of merchandise 

2. Exports and imports of services 

3. Licensing and franchising 4. Foreign investments.

The two differences between domestic and international business are:

1. Economic Dependence : International trade is more likely to make the country too much dependent on imports from foreign countries. 

2. Inhibition of Growth of Home Industries : International business may discourage the growth of indigenous industry. 

3. Import of Harmful Goods : International business may lead to import of luxurious goods, spurious goods, dangerous goods, etc. It may harm the well – being of people.

It is said that licensing is an easier way to expand globally because of its advantages over other modes of international business. 

1. Less Expensive: Under the licensing, it is the licensee who sets up the business unit. Therefore, licensor has to invest no money. Therefore, it is considered as a cheaper way of entering*into international business. 

2. Zero Risk of Loss: Licensor need not take pain of risk of profits and loss. He is paid a pre-determined fees called royalty by the licensee. As long as licensor continues to produce under the license, licensor keeps on getting his fees irrespective of whether licensee is making profits or incurring losses. 

3. Less risk of government intervention or takeovers: A local person handles the business in foreign country. Therefore, there are lesser chances of government intervention or takeovers. 

4. Better knowledge of local needs: Since licensee is the local person, he has better understanding of local needs, marketing strategies and business environment. 

5. Safety of Intellectual Property Rights: As per the terms of the licensing, only licensee can make use of licensor’s copyrights, patents and brand names in foreign countries. Therefore, there is lesser risk of these intellectual property rights being missed by other local firms.

When the firm of country imports goods for the purpose of exporting the same goods to the firms of some other country with or without making any change in the goods meant for export it is known as entrepot trade.

The economic environment of countries involved in international business differs significantly in terms of legal framework, institutional set – up, monetary fiscal and commercial policy, resources availability, production techniques, etc.