class 11 business studies ppt on international business

1. INTERNATIONA
L BUSINESS
By – Tanu
XI Commerce
Business Studies

2. INTRODUCTION
What is ‘International business’
‘International business refers to those business activities that take
place beyond the geographical limits of a country’.

3. FEATURES OF INTERNATIONAL
BUSINESS
 Involves two countries
 Use of foreign exchange
 Legal obligations
 High degree of risk
 Heavy documentation
 Time consuming
 Lack of personal contact

4. REASONS FOR INTERNATIONAL
BUSINESS
Uneven distribution of natural resources
Availability of factors of production
Specialisation
Cost benefits

6. ADVANTAGES OF INTERNATIONAL
BUSINESS
International business is important to both ‘Nations’ and ‘Business firms’ and offers
them several benefits –
A. Benefits to nations
 Earning foreign exchange
 More efficient use of resources
 Improving growth prospects and employment potentials
 Increased standard of living

7. B. Benefits to business firms
 Prospects for higher profits
 Increased capacity utilisation
 Prospects for growth
 Way out to intense competition in
domestic market
 Improved business vision

8. LIMITATIONS OF INTERNATIONAL
BUSINESS
o Different currencies
o Legal formalities
o Distance barriers
o Language barrier
o Difference in laws
o Information gap
o Transport problem

9. MODES OF ENTRY INTO
INTERNATIONAL BUSINESS

10. EXPORT TRADE
Export trade refers to selling of goods and services by a firm
of home country to a firm of foreign country

11. OBJECTIVES OF EXPORT TRADE
To sell surplus goods
To make better use of resources
To earn foreign exchange
To increase national income
To generate employment
To increase government revenue
To create international corporation

12. PROCEDURE OF EXPORT TRADE
I. Receipt of enquiry and sending quotations
II. Receipt of order or indent
III. Assessing importer’s credit-worthiness and secure a guarantee
for payments
IV. Obtaining export license
V. Obtaining pre-shipment finance
VI. Production or procurement of goods
VII.Pre-shipment inspection
VIII.Excise clearance
IX. Obtaining certificate of of origin
X. Reservation of shipping space

13. xi. Packing and forwarding
xii. Insurance of goods
xiii.Customs clearance
xiv.Obtaining mate’s receipt
xv.Payment of freight and issuance of bill of lading
xvi.Preparation of invoice
xvii.Securing payment

14. DOCUMENTS USED IN EXPORT
TRANSACTIONS
The documents required in exports transactions can be
broadly classified into three categories:
Document related to goods
Documents related to shipment
Documents related to payment

15. 1.DOCUMENTS RELATED TO
GOODS
 Export invoice: It is the bill issued by exporter to provide information such as
quantity of goods sent, total value of goods, number of packages, marks on
packing ,port of destination, etc.
 Packing list: It is a statement, which indicates the number of cases or
pack and the details of goods contained in packs.
 Certificate of origin: This certificates specifies the country in which the
goods are being produced.
 Certificate of inspection: In order to ensure that only good quality
products are exported, the govt. Has made it compulsory for certain
products be infected by some other authorised agency.

16. 2.DOCUMENTS RELATED TO
SHIPMENT
Mate’s receipt: It is issued by the commanding officer of the
ship to the exporter after cargo is loaded on the ship.
Shipping bill
Shipping order
Bill of lading
Airway bill
Marine insurance policy
Cart ticket
Consular invoice

17. 3.DOCUMENTS RELATED TO PAYMENT
 Letter of credit : It is a guarantee issued by the importer’s bank that it
will honour payment up to a certain amount of export bills to the bank
of the exporter.
 Bill of exchange: It is written instrument whereby the person issuing
the instrument directs the other party to pay a specified amount to a
certain person or the bearer of the instrument.
 Bank certificate of payment: It certifies that necessary documents
relating to the particular export consignment have been presented to
importer for payment has been received n accordance with the
exchange control regulation.

18. IMPORT TRADE
Import trade refers to buying of goods and services by a firm
of home country from a firm of foreign country.

19. OBJECTIVES OF IMPORT TRADE
♦ To Speed up industrialisation
♦ To meet consumer demand
♦ To improve standard of living
♦ To overcome famine
♦ To ensure national defence

20. PROCEDURE OF IMPORT TRADE
1) Trade enquiry
2) Procurement of import license
3) Obtaining foreign exchange
4) Placing order or indent
5) Obtaining letter of credit
6) Arranging for finance
7) Receipt of shipment advice
8) Retirement of import documents
9) Arrival of goods
10)Customs clearance and release of goods
a. Delivery order
b. Payment of dock charges
c. Bill of entry
d. Payment of import duty
e. Release order

21. DOCUMENTSUSED INIMPORT TRANSACTIONS
1.Trade enquiry - It is a written request by the importer to the exporter to provide information
regarding the price, terms and conditions on which the exporter will be able to supply goods.
2.Proforma invoice – It is a document that contains detailed information regarding price, quality,
grade, size, weight and all other relevant conditions on which their export will take place.
3.Import order or indent – It is a document in which the importer places order to the exporter for
supply of requisite goods. It contains details regarding price, quantity, grade, packaging and
marking details, delivery instructions, mode of payment, etc.
4.Shipment advice – It is a document that the exporter sends to the importer informing him that
the shipment of goods has been made. It provides information regarding shipment of goods like
invoice number, bill of lading or airway bill, name of the ship with date, description of goods and
quantity, etc

22. 5.Bill of entry – It is a document prepared by the importer, which shows the details of goods
imported and is used by custom authorities for determining import duty. It has to be in triplicate and
is to be submitted to the customs office. It contains details regarding name and address of importer
and exporter, name of the ship, description of goods, quantity and value of goods, etc.
6.Sight draft – It is a type of bill of exchange, in which the drawer(i.E. Exporter) instructs the bank
to hand over the relevant documents to the importer only against payment.
7.Usance draft – It is a type of bill of exchange, , in which the drawer(i.E. Exporter) instructs the
bank to hand over the relevant documents to the importer only against acceptance of bill the of
exchange.
8.Import general manifest – It is a document that contains the details of the imported goods on the
basis of this document, goods are unloaded from the carrier.
9.Dock challan – Dock charges are to be paid when all the formalities of the customs are
completed. It is a document prepared by importer, which specifies the amount of dock dues.

23. CONTRACT MANUFACTURING
Contract manufacturing is a type of international
business, in which a firm enters into a contract
with another firm in foreign country to
manufacture certain components or goods as
per its specifications.
It is also known as OUTSOURCING.
It can be done in three ways:
i. Production of certain components to be
used in producing final products
ii. Assembling of components into final
products
iii. Manufacture of the complete product

24. ADVANTAGES OF CONTRACT
MANUFACTURING
No need to set production facilities
Low investment risk
Lower cost of production
Better utilisation of idle capacity
Benefits of export incentives

25. LIMITATIONS OF CONTRACT
MANUFACTURING
 Risk of poor
quality
 Loss of control
over production
process
 No control over
output

26. LICENSING & FRANCHISING
LICENSING – licensing is a contractual arrangement in which one firm
grants access to its patents, trade secrets or technology to another firm in a
foreign country for a fee called royalty.
The firm that grants such permission is known as ‘licensor’ and the other
firm in the foreign country that acquires such rights is known as ‘licensee’.
When there is mutual exchange of knowledge, technology and patents
between the firms, it is known as ‘cross-licensing’.
FRANCHISING – It is a contractual agreement which involves grant of
rights by one party to another for use of technology, trademark and patents
in return of agreed payment for a certain period of time.
The company that grant the rights is known as ‘franchiser’ and the other
company is known as ‘franchisee’

27. FRANCHISING
V/S LICENSING
• Franchising and licensing are the same except in
these two differences:

28. ADVANTAGES OF LICENSING AND
FRANCHISING
• Less expensive mode
• No risk of loss
• Low risk of takeover
• Benefits of market knowledge
• Prevents misuse of trademarks and patents

29. LIMITATIONS OF LICENSING AND
FRANCHISING
Risk of competition
from
licensee/franchisee
Risk of leakage of
trade secrets

30. JOINT VENTURES
When two or more firms join together for a common purpose and
mutual benefit, it is known as joint venture.

31. ADVANTAGES OF JOINT VENTURE
o Less financial burden in global expansion
o Facilitates large-scale operations
o Benefits of local partner’s knowledge
o Sharing of cost and risks

32. LIMITATIONS OF JOINT VENTURE
 Risk of loss of trade secrets
 Conflict of interest

33. WHOLLY OWNED SUBSIDIARIES
A ‘wholly owned subsidiary’ is a company in which 100 per cent investment in its
equity capital is made by a parent company. The company making the investment
is known as ‘parent company’ or ‘holding company’.
There are two ways of establishing a wholly owned subsidiary In a foreign market:
1. Setting up a new company by making 100% investment in a foreign country.
It is also referred to as a Green field venture.
2. Acquiring an established company by investing 100% in its equity in a
foreign country and using that firm to manufacture and promote its product in the
host country.

34. ADVANTAGES OF WHOLLY
OWNED SUBSIDIARIES
• Full control
• No disclosure of trade secrets• Full control
• No disclosure of trade secrets

35. LIMITATIONS OF WHOLLY OWNED
SUBSIDIARIES
Huge investment
Huge risk
High political risk

36. EXPORT PROMOTION MEASURES
 Duty drawback scheme
 Export manufacturing under bond scheme
 Export processing zones (EPZs)
 Special economic zones (SEZs)
 100 per cent export oriented units (100% EOUs)
 Exemption from payment of sales tax
 Advance license scheme
 Export promotion capital goods scheme (EPCG)
 Scheme of recognising export firms as export house, trading house and
superstar trading house
 Export of services
 Export finance
(i) Pre-shipment finance or packaging credit
(ii) Post-shipment finance

37. ORGANISATIONAL SUPPORT
Department of commerce
Export promotion councils (EPCs)
Commodity boards
Export inspection council (EIC)
Indian trade promotion organisation (ITPO)
Indian institute of foreign trade (IIFT)
Indian institute of packaging (IIP)
State trading organisations (STC)

38. INTERNATIONAL TRADE
INSTITUTION AND AGREEMENTS
After the Ist and IInd world war, most of the economies of the world were
adversely affected.
They were unable to take up any development work due to scarcity of resources
and lack of common exchange rate.
As a result, 44 nations joined together in the Bretton woods conference to
identify measures to restore peace and normalcy in the world.
Their meeting resulted in the setting up of 3 international institutions:
(i) The World Bank group
(ii) The International Monetary Fund (IMF)
(iii) World Trade Organisations

39. WORLD BANK
World bank is a vital source of financial and technical
assistance to developing countries around the world.
It was set up in 1944 to support reconstruction of the war-
affected economies of Europe and assist in the development
of underdeveloped nations of the world.

40. FUNCTIONS OF THE WORLD
BANK
 To help in reconstruction of war-affected economies
 To bring balanced economic growth of international trade
 To develop infrastructure facilities
 To bring industrial and agricultural development
 To provide assistance to different countries for raising cash crops
 To provide resources for education, sanitation, healthcare and
small scale enterprises
 To improve standard of living of people

41. IMF is the second international organisation next to world
bank. It was established in 1945 and has its headquarters
located in Washington. IMF has 186 countries.
It aims to secure stability, facilitate international trade,
promote high employment and sustainable economic
growth and reduce poverty around the world.
INTERNATIONAL MONETARY
FUND (IMF)

42. o To promote international monetary cooperation through a
permanent institution.
o To facilitate expansion of balanced growth of international
trade.
o To promote exchange stability with a view to maintain
orderly exchange arrangements among member countries.
o To assist in the establishment of a multilateral system of
payments in respect of current transactions between
members.
OBJECTIVES OF IMF

43. FUNCTIONS OF IMF
Acting as a short-term
credit institution
Providing machinery
Acting as a reservoir of
the currencies
Acting as a lending
institution

44. WTO was established on January 1, 1995 to replace
General Agreement on Trade and Tariff (GATT), which
remained in force from 1948 to 1994. It’s headquarter is
situated at Geneva, Switzerland.
It was set up to promote free and fair trade amongst
nations.
WTO is the only international organisation, which deals
with the global rules of trade between nations. Its main
function is to ensure that trade flows as smoothly,
predictably and freely as possible.
WORLD TRADE ORGANISATION
(WTO)

45. GATT V/S WTO

46.  To ensure reduction of tariffs and other trade barriers imposed by
different countries.
 To improve standards of living.
 To create employment, increase income and facilitate higher
production & trade.
 To facilitate optimum use of world’s resources for sustainable
development.
 To promote an integrated, more viable and durable trading system.
OBJECTIVES OF
WTO

47. BENEFITS OF WTO
►Promotes international peace and facilitates
international business.
►Settles disputes between member nations.
►Make international trade smooth by framing rules and
regulations.
►Promotes standard of living.
►Provides more choice of products and qualities.
►Stimulates economic growth.
►Encourages good government.

48.  Agreements forming part of GATT
 Agreement on textile and clothing (ATC)
 Agreement on agriculture (AoA)
 General agreement on trade in services (GATS)
 Agreement on trade related aspects of intellectual property
rights (TRIPS)
AGREEMENTS OF WTO