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International Business

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Benefits of International Business
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Differences between Domestic and International Business
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Export-Import Procedures and Documentation
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International Business
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International Trade in Services
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Modes of Entry into International Business
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Learning Objectives

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Learning Objectives

  • State the meaning of International Business
  • Distinguish between Internal and International Business
  • Discuss the scope of International Business
  • Enumerate the benefits of International Business
  • Discuss the documents required for import and export transactions
  • Identify the incentives and schemes available for international firms
  • Discuss the role of different organisations for the promotion of International Business
  • List the major international institutions and agreements at the global level for the promotion of international trade and development.

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Revision Notes & Summary

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Chapter 11: International Business

Learning Objectives

  • State the meaning of International Business.
  • Distinguish between Internal and International Business.
  • Discuss the scope of International Business.
  • Enumerate the benefits of International Business.
  • Discuss the documents required for import and export transactions.
  • Identify the incentives and schemes available for international firms.
  • Discuss the role of different organisations for the promotion of International Business.
  • List the major international institutions and agreements at the global level for the promotion of international trade and development.

Summary

  • International Business: Refers to business activities that take place across national frontiers, involving trade in goods and services, production, and marketing in foreign countries.
  • International vs Domestic Business: International business is more complex due to differences in nationality, mobility of factors, customer heterogeneity, business practices, political systems, regulations, and currencies.

Key Terms

  • International Business: Business transactions that occur across national borders.
  • International Trade: Exchange of goods and services between countries.
  • Bill of Entry: A customs document for importers to declare goods.
  • Bill of Exchange: A written order for payment in international transactions.
  • Letter of Credit: A bank guarantee for payment in international trade.

Major Documents Needed in Connection with Export Transaction

  1. Export Invoice: Contains details about goods, including quantity and value.
  2. Packing List: Statement of the number of cases and details of goods.
  3. Certificate of Origin: Specifies the country of production for tariff purposes.
  4. Certificate of Inspection: Ensures quality of goods before export.
  5. Bill of Lading: Receipt from shipping company acknowledging goods on board.
  6. Airway Bill: Receipt from airline for goods transported by air.
  7. Letter of Credit: Guarantee from the importer's bank for payment.

Export-Import Procedures

Export Procedure

  1. Receipt of Enquiry and Sending Quotations: Exporters respond to buyer inquiries with proforma invoices.
  2. Procurement of Import Licence: Necessary for certain goods as per EXIM policy.
  3. Obtaining Pre-shipment Finance: Financing for production and packing of goods.
  4. Production or Procurement of Goods: Preparing goods as per specifications.
  5. Pre-shipment Inspection: Ensuring quality through designated agencies.
  6. Excise Clearance: Obtaining clearance for excise duty on goods.

Import Procedure

  1. Trade Enquiry: Request for information from importer to exporter.
  2. Proforma Invoice: Document detailing quality, price, and terms of goods.
  3. Import Order or Indent: Document ordering goods from exporter.
  4. Bill of Entry: Customs document for assessment of import duty.
  5. Payment Documentation: Includes letter of credit and bill of exchange.

Advantages and Limitations of Wholly Owned Subsidiaries

Advantages

  • Full control over foreign operations.
  • Protection of technology and trade secrets.

Limitations

  • Requires 100% equity investment.
  • Higher political risks in foreign countries.
  • Full responsibility for losses from foreign operations.
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Practice Test – MCQs, True/False

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Multiple Choice Questions

A.

To verify the quality of the goods

B.

To claim tariff concessions or exemptions

C.

To ensure payment security

D.

To confirm the quantity of goods shipped
Correct Answer: B

Solution:

The certificate of origin acts as a proof that the goods have actually been manufactured in the country from where the export is taking place, allowing the importer to claim tariff concessions or other exemptions.

Chapter Concept:

Export-Import Procedures and Documentation

A.

Increased exposure to foreign investment risks

B.

Higher prospects for profits

C.

Limited market knowledge

D.

Increased competition in domestic markets
Correct Answer: B

Solution:

International business offers firms the prospect of higher profits by accessing markets where prices may be higher.

Chapter Concept:

International Business

A.

By restricting access to foreign goods

B.

By allowing consumption of a wider variety of goods and services

C.

By increasing domestic production only

D.

By reducing foreign trade
Correct Answer: B

Solution:

International business allows countries to consume goods and services produced in other countries, thereby enhancing their standard of living.

Chapter Concept:

International Business

A.

To act as a receipt for goods shipped

B.

To guarantee payment to the exporter

C.

To certify the origin of goods

D.

To provide a list of goods being exported
Correct Answer: B

Solution:

A letter of credit is a guarantee from the importer's bank to the exporter's bank that the payment will be honored up to a certain amount.

Chapter Concept:

Export-Import Procedures and Documentation

A.

Licensing

B.

Exporting

C.

Greenfield Venture

D.

Contract Manufacturing
Correct Answer: C

Solution:

A Greenfield Venture involves setting up a new firm altogether to start operations in a foreign country, giving the parent firm full control over its operations.

Chapter Concept:

Modes of Entry into International Business

A.

Higher mobility of factors of production

B.

Involvement of different currencies

C.

Diverse political systems and risks

D.

Varied business regulations and policies
Correct Answer: A

Solution:

International business is characterized by lower mobility of factors of production compared to domestic business.

Chapter Concept:

International Business

A.

Full control over production processes

B.

Lower investment risks in foreign countries

C.

Direct contact with overseas customers

D.

Complete independence in setting prices
Correct Answer: B

Solution:

Contract manufacturing allows international firms to utilize existing production facilities in foreign countries, minimizing the need for investment and reducing associated risks.

Chapter Concept:

International Business

A.

Details of the goods being exported

B.

Name of the vessel

C.

Insurance policy number

D.

Country of final destination
Correct Answer: C

Solution:

A shipping bill contains particulars of the goods being exported, the name of the vessel, the port at which goods are to be discharged, and the country of final destination, but not the insurance policy number.

Chapter Concept:

Export-Import Procedures and Documentation

A.

It only involves the trade of goods.

B.

It includes services and foreign investments.

C.

It is limited to developed countries.

D.

It does not require adaptation to local markets.
Correct Answer: A

Solution:

A common misconception is that international business only involves trade in goods, whereas it also includes services, foreign investments, and other activities.

Chapter Concept:

Differences between Domestic and International Business

A.

Exporting

B.

Licensing

C.

Joint Ventures

D.

Wholly Owned Subsidiaries
Correct Answer: B

Solution:

Licensing involves a contractual arrangement where a firm grants access to its patents, trade secrets, or technology to another firm in a foreign country for a fee called royalty.

Chapter Concept:

Modes of Entry into International Business

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International Business

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True or False

Correct Answer: True

Solution:

International business involves dealing with different political, social, cultural, and economic environments which add layers of complexity not present in domestic business.

Chapter Concept :

Differences between Domestic and International Business

Correct Answer: True

Solution:

International trade in services encompasses a wide range of activities including tourism, transportation, and business services, as highlighted in the text.

Chapter Concept :

International Trade in Services

Correct Answer: False

Solution:

International business involves not only the movement of goods but also services, capital, personnel, technology, and intellectual property across national borders.

Chapter Concept :

Differences between Domestic and International Business

Correct Answer: False

Solution:

International business includes not only the trade of goods but also services such as international travel, tourism, transportation, communication, banking, and advertising.

Chapter Concept :

International Business

Correct Answer: True

Solution:

In a wholly owned subsidiary, the parent company makes 100% investment in the foreign firm, allowing it to maintain full control over its operations.

Chapter Concept :

Modes of Entry into International Business

Correct Answer: True

Solution:

International business allows countries to earn foreign exchange, which is essential for importing goods that may not be available domestically.

Chapter Concept :

Benefits of International Business

Correct Answer: False

Solution:

Exporting is considered to have lower investment risks compared to other modes of entry like joint ventures or wholly owned subsidiaries, as it does not require much investment in foreign countries.

Chapter Concept :

Export-Import Procedures and Documentation

Correct Answer: False

Solution:

Exporting is not feasible when import restrictions exist in a foreign country, as it makes it difficult to sell goods there.

Chapter Concept :

Export-Import Procedures and Documentation

Correct Answer: True

Solution:

International business allows countries to earn foreign exchange, which is crucial for purchasing goods and services that are not available domestically.

Chapter Concept :

Benefits of International Business

Correct Answer: False

Solution:

International business includes not only the trade of tangible goods but also services, capital, personnel, technology, and intellectual property.

Chapter Concept :

International Business

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