Chapter 11 International Business Solutions
Question - 1 : - Differentiate between International trade and International business.
Answer - 1 : -
| Points of difference | International trade | International business |
| Definition | International trade refers to the exchange of goods and services across the international boundaries of countries. | International business includes movement of capital, personnel, technology and intellectual property such as trademarks, know-how and copyrights, besides international trade. |
| Scope | Narrower | Wider (as it includes much more than international trade) |
| Implications | International trade involves the movement of finished goods and raw material as exports and imports across countries. | International business involves the movement of goods and services, emigration and immigration of human capital, and exchange of technology, technical know-how, copyrights and trademarks. |
Question - 2 : - Discuss any three advantages of international business.
Answer - 2 : -
The following are the advantages of international business.
(a) Medium for earning foreign exchange: By facilitating the exchange of goods and services in the international market, international business acts as a medium for acquiring sufficient foreign exchange reserves for nations. This in turn enables them to import goods that may not be available domestically—for example, technology, capital goods and petroleum products.
(b) Tool for speeding up economic growth: As international business provides a big platform to countries and local producers to cater to the needs of an international consumer base, it helps in promoting their growth prospects. It also helps in increasing employment opportunities for the people living in these countries.
(c) Means of improving living standards: International business facilitates the consumption of goods and services that are produced in other countries. This in turn helps the people living in the importing countries to enjoy a higher standard of living and facilitates the growth and development of the exporting countries.
Question - 3 : - What is the major reason underlying trade between nations?
Answer - 3 : -
The following are the important reasons that encourage nations to engage in trade.
(a) Difference in resource endowment: Every country is endowed with different kinds and combinations of resources. Thus, in order to obtain the resources which are not domestically available but are available in other countries, nations trade with one another.
(b) Aim of attaining specialisation: Because of the availability of distinct resources, culture, labour force and technical know-how, every country has a specialisation in particular types of products. Thus, countries trade with an aim of attaining specialisation in the goods in which they have a superior technical know-how or the goods that can be produced only with the domestically available specific resources which are not available in other countries.
(c) Difference in labour productivity and production cost: Production costs and labour productivity differ from one country to another. Thus, countries export the goods which they can produce efficiently at a low production cost. On the other hand, they import the goods which they are not able to produce efficiently at a lower cost.
Question - 4 : - Why is it said that licensing is an easier way to expand globally?
Answer - 4 : -
The following are the important reasons put forward in favour of licensing as an easier way for a company to expand globally.
(a) Less expensive: The licensor need not make huge investments abroad, and thus it is a relatively less expensive mode of entering into international markets.
(b) Lesser risk of government intervention: The business in the overseas market is managed by the licensee, who is a local person. Thus, licensing involves lesser risk of government intervention in the operations.
(c) Better knowledge and contacts: As the licensee is a local person, he or she has a better knowledge of the market conditions in his or her country than the licensor. This in turn helps the licensor to conduct the market operations smoothly and expand globally.
Question - 5 : - Differentiate between contract manufacturing and setting up wholly owned production subsidiary abroad.
Answer - 5 : -
| Basis of difference | Contract manufacturing | Wholly owned production subsidiary |
| Meaning | A firm hires a local manufacturer in another country on a contractual basis to produce goods as per its requirements. | The parent company buys equity in a firm in another country and acquires full control over it. |
| Control | The firm has limited control over the local manufacturer. | The parent company has full control over its operations in another country through the subsidiary. |
| Investment | Negligible investment is made abroad. | The parent company buys up the entire equity of the firm abroad and makes this firm its subsidiary. |
Question - 6 : - Discuss the formalities involved in getting an export licence.
Answer - 6 : -
Before exporting goods, it is mandatory for exporters and export firms to fulfill the legal formalities, including securing an export licence. The following are the formalities to obtain an export licence.
(a) Bank account number: An exporter must open an account in a bank authorised by the Reserve Bank of India and get an account number.
(b) IEC code: An export firm must obtain an IEC (Importer Exporter Code) from the Directorate General for Foreign Trade (DGFT) or the Regional Import Export Licensing Authority by submitting documents such as the exporter’s profile, prescribed certificates, two attested photographs and details of non-resident interest.
(c) Registration-cum-membership certificate: An export firm should get itself registered with the appropriate export promotion council, such as the Engineering Export Promotion Council (EEPC) and the Apparel Export Promotion Council (AEPC), and obtain a registration-cum-membership certificate (RCMC).
(d) Registration with ECGC: An export firm must also get itself registered with the ECGC (Export Credit and Guarantee Corporation) in order to protect itself from any uncertainties in payments brought upon by political or commercial risks.
Question - 7 : - Why is it necessary to get registered with an export promotion council?
Answer - 7 : -
If a firm wants to export goods, then it must first obtain an export licence. In order to obtain an export licence, 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. Once 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.
Question - 8 : - Why is it necessary for an export firm to go in for pre-shipment inspection?
Answer - 8 : -
Pre-shipment inspection refers to the inspection of goods before their final shipment in order to ensure that only quality goods are exported. The government has initiated measures such as compulsory inspection of certain goods by promulgating the Export Quality and Inspection Act, 1963, and designating various agencies to undertake inspection. Exporters are required to contact the Export Inspection Agency (EIA) or another designated agency and obtain an inspection certificate after getting the goods checked. However, in the case of goods exported by star trading houses, export houses, 100 per cent export-oriented units and industrial units set up in export processing zones (EPZs) or special economic zones (SEZs), no such inspection is required.
Question - 9 : - What is bill of lading? How does it differ from bill of entry?
Answer - 9 : -
A bill of lading is an essential document required at the time of an export transaction. It is issued by the shipping company as a token of acceptance that the goods have been put on board in its vessel. A bill of lading is an undertaking from the shipping company to transfer the goods to the port of destination. Bills of lading are freely transferable.
In contrast, a bill of entry is required at the time of an import transaction. It is a form supplied by the customs office and filled by the importer once the goods are received. A bill of entry is submitted at the customs office with information such as the name and address of the importer, name of the ship in which the goods were transported, number of packages, marks on the package, description of imported goods, quantity and value of the imported goods, name and address of the exporter, port of destination and customs duty payable.
Question - 10 : - Explain the meaning of mate's receipt.
Answer - 10 : -
A mate’s receipt is issued by the captain or commanding officer of a ship to an exporter. This receipt acts as evidence that the exporter’s cargo has been loaded on the ship. It contains information such as the name of the vessel, berth, date of shipment, condition of the cargo when it was loaded, description of the packages of the cargo, number of packages and marks on the packages. Once the port dues are received, the port superintendent gives the mate’s receipt to the C&F agent concerned. It is only after the mate’s receipt has been obtained that the shipping company will issue the bill of lading.