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 across national frontiers, including trade in goods and services, production, and marketing in foreign countries.
• International vs Domestic Business: International business is more complex due to factors like different nationalities, less mobility of production factors, customer heterogeneity, varying business practices, political systems, regulations, and currencies.

Major Differences between Domestic and International Business

Common Documents in Export Transactions

• Export Invoice: Contains details about goods, quantity, value, etc.
• Packing List: Statement of the number of cases and details of goods.
• Certificate of Origin: Specifies the country of production for tariff concessions.
• Certificate of Inspection: Ensures quality of certain products before export.

Common Documents in Import Transactions

• Bill of Entry: Form filled by the importer at customs.
• Letter of Credit: Guarantee from the importer's bank to the exporter.
• Shipping Bill: Main document for customs permission to export.
• Bill of Lading: Receipt from the shipping company acknowledging goods on board.

Advantages and Limitations of Wholly Owned Subsidiaries

Advantages

• Full control over operations in foreign countries.
• No need to disclose technology or trade secrets.

Limitations

• Requires 100% equity investment, unsuitable for small firms.
• Parent company bears all losses from foreign operations.
• Higher political risks in some countries.

Key Terms

• International Business
• International Trade
• Foreign Investment
• Bill of Exchange
• Letter of Credit
• Export Promotion Capital Goods Scheme (EPCG)
• Export Processing Zone (EPZ)
• 100% Export Oriented Unit (100% EOU)

Important Notes

• The complexity of international business requires understanding various formalities and documentation for export and import transactions.

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.

Common Mistakes and Exam Tips in International Business

Common Pitfalls

• Misunderstanding Key Documents: Students often confuse the roles of documents such as the bill of entry, bill of exchange, and letter of credit. It's crucial to understand that:
  • Bill of Entry is for customs clearance.
  • Bill of Exchange is a payment instrument.
  • Letter of Credit guarantees payment from the importer’s bank.
• Ignoring the Complexity of International Business: Many underestimate the complexities involved in international business compared to domestic business, such as differing regulations, political risks, and customer heterogeneity.
• Overlooking Pre-shipment Inspection: Failing to recognize the importance of pre-shipment inspection can lead to issues with quality control and compliance with export regulations.
• Neglecting to Obtain Necessary Licenses: Not checking whether an import license is required can delay transactions and lead to penalties.

Exam Tips

• Familiarize with Key Terms: Make sure to understand and memorize key terms such as 'proforma invoice', 'import general manifest', and 'dock challan'.
• Practice Document Flow: Be able to outline the flow of documents in an export-import transaction, including the sequence of obtaining licenses, invoices, and customs clearance.
• Understand Differences: Be prepared to discuss the differences between domestic and international business, focusing on aspects like stakeholder nationality, mobility of production factors, and political risks.
• Review Case Studies: Look at examples of international business transactions to better understand practical applications of the concepts.
• Stay Updated on Regulations: Keep abreast of current regulations and policies that affect international trade, as these can change and impact exam questions.