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11th Business Studies Chapter 11 International Business

Class: 11Business Studies
Chapter: 11International Business
Contents:NCERT Solutions and Study Material

Class 11 Business Studies Chapter 11 Solutions

Differentiate between International trade and International business.
Points of difference International trade International business
DefinitionInternational 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.
ScopeNarrowerWider (as it includes much more than international trade).
ImplicationsInternational 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.

11th B St Chapter 11 Long Answer Questions

Discuss any three advantages of international business.

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.

What is the major reason underlying trade between nations?

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.

Why is it said that licensing is an easier way to expand globally?

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.

Differentiate between contract manufacturing and setting up wholly owned production subsidiary abroad.
On the Basis of difference Contract manufacturing Wholly owned production subsidiary
Meaning A firm hires a local manufacturer in the other country on a contractual basis to produce goods as per its requirements.The parent company buys equity in a firm in the other country and acquires or gets full control over it.
ControlThe firm has a partial or limited control over the local manufacturer.The parent company has complete or full control over its operations in the other country through the subsidiary.
InvestmentInsignificant or negligible investment is made abroad.The parent company buys the entire equity of the firm abroad and then makes this firm its subsidiary.
Discuss the formalities involved in getting an export licence.

Following formalities are involved in getting an export license:

    1. Get a bank account opened with an authorized bank, authorized by the Reserve Bank of India and get a registered account number.
    2. Obtain an IEC (Import Export Code) from the DGFT (Directorate General for Foreign Trade) or from the local authority dealing with import-export license.
    3. Get registered with the suitable export promotion council and obtain a membership cum registration certificate.
    4. Get registered with the ECGC (Export Credit and Guarantee Corporation) to protect itself from any type of risk of payment.
Why is it necessary to get registered with an export promotion council?

Registering a firm with export promotion council helps in following ways:

    • 1. In obtaining registration cum membership certificate
    • 2. To gather the benefits that are available to the export firms by the government
    • 3. The export promotion council carries out promotional activities which creates demand for domestic products in the international market.
    • 4. Get the required support for promoting its products.
Why is it necessary for an export firm to go in for pre-shipment inspection?

Pre-shipment inspection is essential as:

    1. It ensures that the quality of goods or items being exported is good.
    2. Products get exported by a proficient agency as chosen by the government.
    3. Government has made it obligatory to check for export goods based on the Export Quality control and Inspection Act, 1963 and appointed some agencies to carry out the task.
    4. It is essential to obtain an inspection certificate from the Export Inspection Agency for goods that are being exported.

11th B St Chapter 11 Short Answer Questions

What is bill of lading? How does it differ from bill of entry?

A bill of lading is different from a bill of entry in its way of working, a bill of entry is a document which is provided by the customs and needs to be filled as early as possible by importer as soon as the goods are received.
Whereas, a bill of lading is given or supplied by the shipping company and is required at the time of export transaction.
A bill of entry has all the details about the goods and destination where it i has to go.

Explain the meaning of mate’s receipt

A receipt that is issued by the commanding officer of the ship during the time a cargo is lands on board is called as mate’s receipt. It has all the details about the vessel’s name, shipment date, description of the package, numbers and the conditions to be followed while on cargo.

What is a letter of credit? Why does an exporter need this document?

A letter of credit is issued by the importer’s bank; it is a assurance to honour the payment of export bills to the exporter’s bank up to a assured amount. An exporter needs this document as this assures that the method of payment is sheltered by the security and hence is a protected way to resolve transactions that are international in nature.

Discuss the process involved in securing payment for exports.

The steps involved in securing payment for exports are:
1. The exporter needs to inform the importer about the shipment once it has been dispatched or shipped.
2. Exporter has to send the essential and important documents such as bill of lading, invoice copy, insurance policy, and letter of credit etc. These items are necessary to be given to the importer at the time of claiming the goods when they arrive and to get clearance from customs.
3. The documents are then sent through exporter’s bank along with the instructions that these should have to be delivered to the importer only when he accepts the bill of exchange.
4. The exporter bank receives the payment from the importer’s bank and the amount is then credited to exporter’s account.
5. Instant payment can also be received if the exporter submits the document that gives authority or by the signing a letter of indemnity.
6. Once the payment is made and received for exports, the exporter needs a certificate of payment from the bank which contains all the necessary documents informing that export consignment has been accessible to the import of payment and payment has been received according to exchange control regulations.

“International business is more than international trade”. Comment.

International business refers to the business transactions that take place across national boundaries. It encompasses all international activities including manufacturing and movement of goods, services, capital, personnel and intellectual property. On the other hand, international trade is an activity that is confined to just import and export of goods. It is itself a small part of international business. Therefore, we can say that international business is much bigger than international trade.
The following are some of the major operations that are a part of international business and help in distinguishing it from the international trade.

    • (a) Import and export of services: Trading of services is an important constituent of international business. Services that are a part of international business include travel and tourism, entertainment, communication, transportation, construction, advertising, R&D and banking.
    • (b) Licensing and franchising: International business includes activities related to licensing and franchising. Under licensing, a foreign firm is granted intellectual property rights by a home company, so that the firm abroad can produce and sell goods under the home company’s trademarks, patents or copyrights in exchange of a fee. Similarly, under franchising, a home country grants a foreign firm the right to produce and sell goods under a common brand name using the same operations support system in exchange of a fee.
    • (c) Foreign investment: It refers to the funds that are invested abroad for some returns. It is an important part of international business and involves two components, direct investment and portfolio investment.

11th B St Chapter 11 Long Answer Questions

What benefits do firms derive by entering into international business?

The following are some of the benefits that firms enjoy by entering into international business.
(a) Higher profits: International business allows firms to earn higher profits by taking advantage of the price differences prevailing between countries. For instance, if the price of a commodity in the domestic market is lower than that prevailing in international markets, a firm can benefit by selling the commodity in international markets.
(b) Growth prospects: Often, firms face a saturated domestic demand. In such cases, international trade provides a platform to them to increase their consumer base by opening up the route to overseas markets. This increases their growth prospects.
(c) Higher capacity utilisation: Sometimes, the production capacity of a firm may exceed the demand for its product in the domestic market. Therefore, in such cases, trading in international markets helps in utilising its capacity fully (by serving a larger consumer base). This in turn helps the firm to improve the profitability of its operations and benefit from the economies of scale by lowering production costs and increasing the per unit profit margin.
(d) Method to escape high domestic competition: International trading allows firms to escape the stiff competition in domestic markets. If domestic traders face high competition in domestic markets, they can turn towards international markets to sell their products and earn higher profits.
(e) Enhanced business perceptions: Every business firm strives to achieve long-term growth and expansion. This objective is aligned with the objective of stepping into international markets. Hence, companies aim at diversifying their products to enter into foreign markets to reap the benefits of overseas trading, and also to achieve growth

In what ways is exporting a better way of entering into international markets than setting up wholly owned subsidiaries abroad.

Exporting refers to the process of selling goods and services to companies in other countries as per their requirements. It involves the movement of goods by air or sea from the home country (where the goods are produced) to other countries (which import these goods). On the other hand, a wholly owned subsidiary is a firm in which a parent company makes an equity investment to acquire full control over it. Despite the fact that a parent company has full control over a wholly owned subsidiary abroad, the exporting model is a better way of entering into international markets. This is because of the following factors.
(a) Lesser complexities involved: Compared with setting up a wholly owned subsidiary, exporting is a much easier way of entering into international markets. This is because export management is a much simpler and easier process without complexities. On the other hand, the management of a wholly owned subsidiary is a complex and rigorous task.
(b) Less investment required: The amount of time and money required to be invested in an export business is less than that in a wholly owned subsidiary. This is because subsidiaries involve setting up manufacturing plants and starting operations in other countries, which require large amounts of money and effort. Thus, export is a favourable mode of entering into international markets.
(c) Less exposure to risks and losses: As exporting requires a smaller investment, the risk involved is negligible. On the other hand, in the case of a wholly owned subsidiary in another country, the parent company owns 100 per cent share, and thus, it bears the entire risk in case of failure of the subsidiary.

Rekha Garments has received an order to export 2000 men’s trousers to Swift Imports Ltd. located in Australia. Discuss the procedure that Rekha Garments would need to go through for executing the export order.

Rekha Garments will have to follow the given procedure to execute the export order.
1. At first place, Rekha should inquire about the importers credit value. In this case. She has to gain information about Swift Imports Limited. She can also ask for a letter of credit by importer’s bank.
2. After getting the information and completing the check, she needs to catalogue or register her company Rekha Garments to obtain an IEC so that she receives an export license.
3. Now she needs to obtain the pre-shipment investment or funds from importer’s bank so that she can get raw material for carrying on the production and packaging.
4. She then has to prepare the garments as per requirements of the importer and start working as soon as she receives the pre-shipment finance from the bank.
5. Then she needs to obtain a certificate of inspection from export inspection agency or any other similar authority
6. After that, she has to obtain excise clearance from the Excise commissioner. Who will issue the clearance certificate, only if the excise commissioner is satisfied.
7. then she has to obtain the certificate of origin which tells about the country where the goods are being produced.
8. then she has to apply to a shipping company to get shipping space. All necessary details such as types of goods, port name and shipment date have to be mentioned.
9. the Goods then have to be properly packed and labelled with all the important information
10. then it has to be insured against risks and get the custom clearance.
11. the goods are then loaded into the ship and mate’s receipt is issued.
12. this is followed by the issuing of bill of lading on receipt of freight, as a token of approval
13. After the shipping of goods, exporter arranges an invoice which includes goods that are being sent and the amount that has to be paid by importer.
14. Exporter then sends a set of documents to the banker that have to be given to the importer on the acceptance of bill of exchange. On receiving it, Swift Imports needs to instruct its bank to transfer money to exporter’s bank account.
15. The exporter then collects a bank certificate of payment by providing the necessary documents and bills of exchange that was presented to importer for payment, and that the payment is received according to exchange control regulations.

Your firm is planning to import textile machinery from Canada. Describe the procedure involved in importing.

Importing textile machinery from Canada needs the following steps:
1. Importer should obtain IEC (Import Export Code) by applying for it to the Regional import-export licensing authority. It is essential to complete the import procedure.
2. The Importer has to obtain RCMC or registration cum membership certificate that is issued by Import Promotional Council and Import Development authority.
3. Importer also wants a letter of credit to be issued in favour of the exporter from the bank, and gives the required instructions about the documents that have to be collected from exporter before making the payment.
4. Exporter then ships all the goods as per the specifications or instructions given to him by the importer. On reaching the importer’s country the ship captain informs the dock officer about the imported goods and submits them to the customs to get custom clearance
5. The Custom officer then checks the bill of entry and passes it to appraiser officer who is supposed to verify the details and then the bill is returned to importer to collect the custom duty

Identify various organisations that have been set up in the country by the government for promoting country’s foreign trade.

The organisations were setup to promote foreign trade are:

    1. Export Inspection Council: It was established by the Government of India under Section 3 of Export Quality Control and Inspection Act, 1963, with the aim of promoting exports by quality control and pre-shipment inspection.
    2. Indian Institute of Foreign Trade: This organization was setup under Societies Registration Act in 1963. It is an autonomous and self -sufficient body responsible for managing the country’s foreign trade. It provides training in international trade.
    3. Indian Institute of Packaging: It was setup in 1966 by the combined efforts of Ministry of Commerce, Indian packaging industry and other associated industries. It fulfils the packaging needs of exporters and domestic manufacturers.
    4. Department of Commerce: It is the supreme or apex body of Ministry of Commerce, dealing with making of policies that are related to foreign trade and import and export policies.
    5. Export Promotion Council: It aims at promoting exports of particular products and is registered under Companies Act.
    6. Indian Trade Promotion Organisation: This was formed in 1992 under Companies Act, 1956. It is responsible for maintaining close communications, interactions among traders, government and industry. They organise trade fairs that involve domestic and international goods.
What is IMF? Discuss its various objectives and functions.

IMF or International Monetary Fund was established in 1945, with its headquarters in Washington DC. The main aim of setting up IMF was to set up a scheme or system of methodical monetary system. Its objective is to assist a system of international payment and inspection of the adjustments to made in exchange rates for all the currencies.
1. to promote International monetary cooperation among all the member countries.
2. to promote the growth of employment and income and a reasonable and balanced growth of international trade.
3. to promote exchange steadiness to maintain proper and orderly exchange arrangement of goods among member countries.
4. to facilitate international payments among the member countries.

1. to providing short term credit to the member countries.
2. to settle on or determine the worth of a country’s currency and changing it to bring an orderly arrangement among the member countries.
3. to maintain the exchange rate stability
4. to become a lending institution of foreign currency.

Write a detailed note on features, structure, objectives and functioning of WTO.

WTO or World Trade Organisation was established in the year 1995. It was the successor of the GATT (General Agreement on Tariffs and Trade). It has it headquarters in Geneva. It looks after the trading of goods and service as well as Intellectual Property rights.

    • Features of WTO:
      1. to look after the trade of goods and services.
      2. decisions of WTO which are taken by member’s nations have to based on consent.
    • Objectives of WTO
      1. to reduce the tariff and non-tariff barriers that have been imposed on the country.
      2. to facilitate sustainable development by using optimal resources.
      3. to improve the standard of living for members of foreign countries
    • Functions of WTO:
      1. to act as a dispute settlement body
      2. to provides an environment where the member countries are optimistic and ready to discuss their grievances
      3. to establish common code of conduct to eradicate trade discriminations.
Last Edited: January 27, 2022