Unit 10: International Trade

Meaning of International Business

Business transaction taking place within the geographical boundaries of a nation is known as domestic or national business. It is also referred to as internal business or home trade. Manufacturing and trade beyond the boundaries of one’s own country is known as international business. International or external business can, therefore, be defined as those business activities that take place across the national frontiers. It involves not only the international movements of goods and services, but also of capital, personnel, technology and intellectual property like patents, trademarks, know-how and copyrights.

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Benefits of International Business

International business is important to both nations and business firms. If offers them several benefits. Growing realization of these benefits over time has in fact been a contributory factor to the expansion of trade and investment amongst nations, resulting in the phenomenon of globalization. Some of the benefits of international business to the nations and business firms are discussed below.

Benefits to Countries

Earning of foreign exchange: International business helps a country to earn foreign exchange which it can later use for meeting its imports of capital goods, technology, petroleum products and fertilizers, pharmaceutical products and a host of other consumer products which otherwise might not be available domestically.
More efficient use of resources: As stated earlier, international business operates on a simple principle – produce what your country can produce more efficiently, and trade the surplus production so generated with other countries to procure what they can produce more efficiently. When countries trade on this principle, they end up producing much more than what they can when each of them attempts to produce all the goods and services on its own.
Improving growth prospects and employment potentials: Producing solely for the purpose of domestic consumption severely restricts a country’s prospects for growth and employment. Many countries, especially the developing ones, could not execute their plans to produces on a larger scale, and thus create employment for people because their domestic market was not large enough to absorb all that extra production.
Increased standard of living: In the absence of international trade of goods and services, it would community to consume goods and services produced in other countries that the people in these countries are able to consume and enjoy a higher standard of living.

Benefits to Firm

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i. Prospects for higher profits: International business can be more profitable than the domestic business. When the domestic prices are lower, business firms can earn more profits by selling their products in countries where prices are high.

ii. Increased capacity utilization: Many firms setup production capacities for their products which are in excess of demand in the domestic market. By planning overseas expansion and procuring orders from foreign customers, they can thinking of making use of their surplus production capacities and also improving’ the profitability of their operations. Production on a larger scale often leads to economies of scale, which in turn lowers production cost and improves per unit profit margin.

iii. Prospects for growth: Business firms find it quite frustrating when demand for their products starts getting saturated in the domestic market. Such firms can considerably improve prospects their growth by plunging into overseas markets. This is precisely what has prompted many of the multinationals form the developed countries has got almost saturated, they realized their products were in demand in the developing countries and demand was picking up quite fast.

iv. Way out to intense competition in domestic market: When competition in the domestic market is very intense, internationalization seems to be the only way to achieve significant growth. Highly competitive domestic market drives many companies to go international in search of markets for their products. International business thus acts as a catalyst of growth for firms facing tough market conditions on the domestic turf.

v. Improved business vision: The growth of international business of many companies is essentially a part of their business policies or strategic international comes from the urge to grow, the need to become more competitive, the need to diversify ad to gain strategic advantages of internationalization.

EXPORT-IMPORT PROCEDURES AND DOCUMENTATION

A major distinction between domestic and international operations is the complexity of the latter. Export and import of goods is not that straight forward as buying and selling in the domestic market. Since foreign trade transactions involves movement of goods across frontiers and use of foreign exchange, a number of formalities are needed to be performed before the goods leave the boundaries of a country and enter into that of another. Following sections are devoted to a discussion of major steps that need to be undertaken for completing export and import transactions.

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What is export?

Export refers to the method of selling goods and services created in one country to another country. These goods and services can be physical goods such as machinery, raw materials, consumer products, and intangible goods such as banking, software development, or consulting.

Export Example

India is a country that exports a wide range of goods and services to other countries around the world. Here are some examples of Indian exports:

Gems and Jewellery: India is one of the world’s largest exporters of gems and jewellery, accounting for over 14% of global exports in this category.

Pharmaceuticals: India is a major supplier of affordable generic drugs to countries worldwide with pharmaceuticals being one of its top export sectors.

Textiles and Clothing: India is a leading export of textiles and clothing, with products such as cotton yarn, fabrics, and ready-made garments being shipped to European countries, the US, and the Middle East.

Export procedure

The number of steps and the sequence in which these are taken vary from one export transaction to another. Steps involved in a typical export transaction are as follows.

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Receipt of enquiry and sending quotations: The prospective buyer of a product sends an enquiry to different exporters requesting them to send information regarding price, quality and terms and conditions for export of goods. Exporters can be informed of such an enquiry even by way of advertisement in the press put in by the importer. The exporter sends a reply to the enquiry in the form of a quotation- referred to as proforma invoice.

2. Receipt of order or indent: In case the prospective buyer (i.e., importing firm) finds the export price and other terms and conditions acceptable, it places an order for the goods to be dispatched. This order, also known as indent, contains a description of the good ordered, prices to be paid, delivery terms, packing and marking details and delivery instructions.

3. Assessing the importer’s creditworthiness and securing a guarantee for payments: After receipt of the indent, the exporter makes necessary enquiry about the creditworthiness of the importer. The purpose underlying the enquiry is to assess the risks of nonpayment by the importer once the good reach the importer destination. To minimize such risks, most exporters demand a letter of credit from the importer.

4. Obtaining export licence: Having become assured about payments, the exporting firm initiates the steps relating to compliance of export regulation export of goods in India is subject to custom laws which demand that the export firm must have an export licence before it proceeds with exports.

5. Obtaining pre-shipment finance: Once a confirmed order and also a letter of credit have been received, the exporter approaches his banker for obtaining pre-shipment finance to undertake export production. Pre-shipment finance is the finance that the exporter needs for procuring raw materials and other components, processing and packing of goods and transportation of goods to the port of shipment.

6. Production or procurement of goods: Having obtained the pre-shipment finance from the bank, the exporter proceeds to get the goods ready as per the specifications of the importer. Either the firm itself goes in for producing the good or else it buys from the market.

7. Pre-shipment inspection: The Government of India has initiated many steps to ensure that only good quality products are exported from the country. One such step is compulsory inspection of certain products by a competent agency as designated by the government. The government has passed Export Quality control and Inspection Act, 1963 for this purpose.

8. Excise clearance: As per the central Excise Tariff Act, excise duty is payable on the materials used in manufacturing goods. The exporter, therefore, has to apply to the concerned Excise commissioner in the region with an invoice. If the Excise commissioner is satisfied, he may issue the excise clearance.

9. Obtaining certificate of origin: Some importing countries provide tariff concessions or other exemptions to the good coming from a particular country. For availing such benefits, the importer may ask the exporter to send a certificate of origin.

10. Reservation of shipping space: The exporting firm applies to the shipping company for provision of shipping space. It has to specify the types of goods to be exported, probable date of shipment and the port of destination. On acceptance of application for shipping, the shipping company issues a shipping order.

11. Packing and forwarding: The goods are then properly packed and market with necessary details such as name and address of the importer, gross and net weight, port of shipment and destination, country of origin, etc. The exporter then makes necessary arrangement for transportation of goods to the port.

12. Insurance of goods: The exporter then gets the goods insured with an insurance company to protect against the risks of loss or damage of the goods due to the perils of he sea during the transit.

13. Customs clearance: The goods must be cleared from the customs before these can be loaded on the ship. For obtaining customs clearance, the exporter prepares the shipping bill. Shipping bills is the main document on the basis of which the customs office gives the permission for export. Shipping bill contains particulars of the good being exported, the name of the vessel, the port at which goods are to be discharged, country of final destination, exporter’s name and address, etc.

14. Obtaining mated receipt: The goods are than loaded on borded on board the ship for which the mate or the captain of the ship issues mate’s receipt to the port superintendent. A mate receipt is a receipt issued by the commanding office of the ship when the cargo is loaded on board, and contains the information about the name of the vessel, berth, date of shipment, description of packaged, marks and number, condition of the cargo at the time of receipt on board the ship, etc. The port superintendent, on receipt of port dues, hands over the mate’s receipt to the C&F agent.

15. Payment of freight and issuance of bill of lading: The C&F agent surrenders the mates receipt to the shipping company for computation of freight. After receipt of the freight, the shipping company issued a bill of lading which serves as an evidence that the shipping company has accepted the good for carrying to the designated destination. In the case the goods are being sent by air. this document is referred to as airway bill.

16. Preparation of invoice: After sending the goods. An invoice of the dispatched good is prepared. The invoice states the quantity of paid by the importer. The C&F agent gets it duly attested by the customs.

17.Securing payment: After the shipment of goods, the exporter informs the importer about the shipment of goods. The importer needs various documents to claim the title of goods on their arrival at his/her country and getting them customs cleared.

What is import?

Import refers to purchasing goods and services from another country into one’s own country. These goods and services can be physical items such as machinery, raw materials, finished consumer products, and intangible goods such as transportation, tourism, or consulting. Importing is to access goods and services that are unavailable or more expensive that are unavailable or more expensive domestic or to supplement domestic production.

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Example of import

India is a country that imports various goods and services from other countries. Here are- some example of Indian imports:

Crude oil: India heavily depends on imported crude oil to meet its energy needs, as domestic production is limited. Major oil- producing countries such as Saudi Arabia, Iraq, and Iran are major sources of India’s oil imports.

Electronics: India imports many electronic goods, such as computers, smart phones, and television primarily from countries such as china, South Korea, and Japan.

Precious metals: India is a major importer of precious metals such as gold and silver, used in jewellery-making and as a store or value. These metals are primarily sourced from countries such as Switzerland, the United Arab Emirates, and South Africa.

IMPORT PROCEDURE

Import trade refers to purchase of goods from a foreign country. Import procedure differs from country to country depending upon the country’s import and custom policies and other statutory requirements. The following paragraphs discuss various steps involved in a typical import transaction for bringing goods into Indian Territory.

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Trade enquiry: The first thing that the importing firm has to do is to gather information about the countries and firms which export the given product. The importer can gather such information from the trade directories and/or trade associations and organizations. Having identified the countries and firms that export the product, the importing firm approaches the export firms with the help of a trade enquiry for collecting information about their export prices and terms of exports.
Procurement of import license: There are certain goods that can be imported freely, while others need licensing. The importer need to consult the export import (EXIM) policy in force to know whether the goods that he or she wants to import are subject to import licensing. In case goods can be imported only against the license, the importer needs to procure an import license.
Obtaining foreign exchange: Since the suppler in the context of an import transaction resides in a foreign country, he/she demands payment in a foreign currency. Payment in foreign currency involves exchange of India, currency into foreign currency. In India, all foreign exchange transactions are regulated by the exchange control department of the reserve bank of India (RBI).
Placing order or indent: After obtaining the import license, the importer places an import order or indent with the exporter for supply of the specified products. The import order contains information about the price, quantity size, grade and quality of goods ordered and the instructions relating to packing, shipping. Ports of shipment and destination, delivery schedule, insurance and mode of payment.
Obtaining letter of credit: If the payment terms agreed between the importer and the overseas supplier is a letter of credit, then the importer should obtain the letter of credit from its bank and forward it to the overseas supplier. As stated previously, a letter of credit 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.
Arranging for finance: The importer should make arrangements in advance to pay to the exporter on arrival of goods at the port. Advanced planning for financing imports is necessary so as to avoid huge demurrages (i.e., penalties) on the imported goods lying an cleared at the port for want of payments.
Receipt of shipment advice: After loading the goods on the vessel, the overseas supplier dispatches the shipment advice to the importer. A shipment advice contains information about the shipment of goods. The information provided in the shipment advice includes details such as invoice number, bill of lading/airways bill number and date, name of the vessel with date, the port of export, description of goods and quantity, and the date of sailing of vessel.
Retirement of import documents: Having shipped the goods, the overseas supplier prepares a set of necessary documents as per the terms of contract and letter of credit and hands it over to his or her banker for their onward transmission and negotiation to the importer in the manner as specified in the letter of credit.
Arrival of goods: Goods are shipped by the overseas supplier as per the contract. The person in charge of the carrier (ship of airway) informs the officer in charge at the dock or the airport about the arrival of goods in the importing country.
Customs clearance and release of goods: All the goods imported into India have to pass through customs clearance after they cross the Indian borders. Customs clearance is a somewhat tedious process and calls for completing a number of formalities.

World Trade Organization (WTO) and major Agreements

What is WTO?

The world trade organization or the WTO is the only such global international entity that deals with the rules and regulations related to international trade between different countries. Such regulation and obligations only cover countries that hold membership to the world trade organization the functioning of the WTO is based on negotiated and signed WTO agreements between member counties. It has to be kept in mind that the WTO agreements will have to be ratified by the parliaments of the member countries.

In which year was WTO Established?

The world trade organization was established on January 1, 1995, following the Marrakesh Agreement which was ratified on April 15, 1994. The General Agreement on Tariff and Trade was substituted by the Marrakesh Agreement.

Do you know?

The income in the annual budget of the world Trade Organization is accumulated form the contribution made by member countries. The formula for the contribution is consistent with the volume of international trade of each member country. India has already made an advance payment to the tune of Rs. 33 crores as its contribution to the WTO for the year 2020.

Objectives of WTO

The six key objectives of the world trade organization have been discussed below.

Establishing and enforcing rules for international Trade: The international trading rules by the world trade organization are established under three separate agreements- rules relating to the international trade a goods; the agreement on Trade-Related Aspects of intellectual property Rights (TRIPS) and the General Agreement on Trade in Services (GATS).

The enforcement of rules by the WTO takes place by way of a multilateral system of disputes settlement in the instances of violation of trade rules by member countries. The members are obligated under ratified agreements to honor and abide by the procedures and judgments.

2. Acting as a Global Apex Forum: World Trade Organization is the global forum for monitoring and negotiating further trade liberalization. The premise of trade liberalization measures undertaken by WTO is based on the benefits of member counties to optimally utilize the position of comparative advantage due to a free and fair trade regime.

3. Resolution of Trade Disputes: Trade disputes, before the WTO, usually arise out of deviation from agreements between member countries. The resolution of such trade disputes does not take place unilaterally but through a multilateral system before the dispute settlement body.

4. Increasing Transparency in The Decision-Making Process: The world trade organization attempts to increase transparency in the decision-making process by way of more participation in the decision-making and consensus rule, in particular. The combined effect of such measures helps to develop institutional transparency.

5. Collaboration Between International Economic Institutions: The global economic institutions include the world trade organization, the international monetary fund, the united nations conference on trade and development, and the world bank.

With the advent of globalization, close cooperation has become necessary between multilateral institutions. These institutions and implementation of a global economic policy framework. In the absence of regular consultation and mutual cooperation, policymaking way is disrupted.

6. Safeguarding The Trading Interest of Developing Countries: Stringent regulations are implemented by the WTO to protect the trading interests of developing countries. It supports such member countries to leverage the capacity for carrying out the mandates of the organization, managing disputes, and implementing relevant technical standards.

Features of WTO

The major feature of the world trade organization are-

The scope of WTO is far more expensive than the erstwhile General Agreement on Trade and Tariff. For instance, GATT solely focused on goods while excluding textiles and agriculture. On the other hand, and investment policies along with intellectual property.

WTO Secretariat has formalized and bolstered the mechanisms for the review of policies as well as he settlement of disputes. This aspect has become crucial due to the proliferation of member countries and more goods and services being covered by the WTO. Another important consideration in this regard is the substantial increase in open access to different international markets.
There are rules implemented for the protection of small and weak countries against the discriminatory trade practices of developed countries.
National treatment articles and most favored nation (MFN) clause permits equal access to markets for just treatment of both domestic and foreign suppliers.
Each member country of the WTO the member a single voting right and all members enjoy privilege on the global scale.
The WTO agreements encompass all the number states and act as a common forum of deliberation for the members.

Roles and Functions of WTO

The broad reach of WTO and its functions have been mentioned below.

Implementation of Rules for Review of Trade policy: The international rules of trade provide stability and assurance and lead to a general consensus among member countries. The policies are reviewed to ensure that even with the ever-changing trading scenarios, the multilateral trading system thrives. It also helps in the facilitation of a transparent and stable framework for conducting business.

Forum for member countries discuss future strategies: The WTO, as a forum, allows for trade negotiations in the multilateral trading system. In the absence of trade negotiations, growth may stunt, and issues related to tariff and dumping may go unaddressed. Further liberalization of trade is also subject to consistent trade negotiations.

Implementing and Administering Bilateral and Multilateral Trade Agreements: The bilateral or multilateral trade agreements have to be necessarily ratified by the parliaments of respective member counties. Unless such ratification comes through, the non-discriminatory trading system cannot be put into practice. The executed agreements will ensure that every member is guaranteed to be treated fairly in other member’s markets.

Trade Dispute settlement: The dispute settlement by the WTO is concerned with the resolution of trade disputes. Independent experts of the tribunal interpret the agreements and give out judgment mentioning the due commitments of the concerned member state. It is encouraged to settle the disputes by way of consultation among the members as well.

Optimal Utilization of the world’s Resources: Resources across the worlds can be further optimally utilized by harnessing the trade capacities of the developing economies. It required special provision in the WTO agreement for the lease-developed economies. Such measures may include providing greater trading opportunities, longer duration to implement commitments, and also support to build the sue infrastructure.

Short Answer Questions

Differentiate between international trade and international business.

Ans:

International trade and international business are related but distinct concepts. International trade specifically refers to the exchange of goods and services across national borders, focusing on imports, exports, and trade policies such as tariffs and quotas. It primarily deals with tangible goods and intangible services exchanged between countries.

In contrast, international business encompasses a broader range of activities, including international trade, foreign direct investment, global marketing, and the management of multinational corporations. It involves not only the buying and selling of goods and services but also strategic operations, cultural considerations, and navigating the economic, legal, and political challenges of conducting business globally. In essence, international trade is a subset of the broader field of international business

2. Discuss any three advantages of international business.

Ans:

Optimal use of available resources: International businesses reduce the waste of domestic resources. It helps countries make the best use of their natural resources. Each country produces those products that have the greatest advantage.
Improving the standard of living of people: The sale of surplus products from one country to another leads to increased income and savings for people in the first country. This will improve the standard of living of the population of the exporting country.
Cultural Development: International business encourages the exchange of cultures and ideas between more diverse countries. You can adopt a better way of life, clothing, food, and more from another country.

3. What is the major reason underlying trade between nations?

Ans:

The major reason underlying trade between nations is comparative advantage. This principle suggests that countries engage in trade because they can produce certain goods or services more efficiently (at a lower opportunity cost) than others. By specializing in the production of goods where they have a comparative advantage and trading with other nations, countries can:

Increase efficiency: Resources are allocated more effectively globally, leading to higher productivity.
Expand markets: Nations access a broader range of goods and services than they could produce domestically.
Promote economic growth: Trade stimulates innovation, competition, and investment.
Benefit from economies of scale: Producing for larger markets reduces costs per unit.
Enhance consumer choices: People gain access to a variety of products not produced locally.

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

Ans: Licensing is often considered an easier way to expand globally because it allows companies to enter international markets with reduced risk, cost, and effort. Here are some key reasons why licensing simplifies global expansion:

1. Lower Financial Risk

The licensee (local partner) bears the financial burden of establishing and operating the business in the foreign market, reducing the licensor’s capital investment and financial exposure.

2. Local Market Expertise

Licensees are typically local businesses that understand the market, culture, regulations, and consumer preferences. This minimizes the need for the licensor to invest heavily in market research and adaptation.

3. Faster Market Entry

Licensing agreements can expedite the process of entering new markets because the local licensee already has the infrastructure, connections, and expertise needed to launch and operate the business.

4. Reduced Regulatory Hurdles

In some countries, regulatory frameworks favor partnerships with local entities, making licensing an effective way to navigate complex legal and regulatory landscapes.

5. Limited Operational Involvement

The licensor doesn’t need to manage day-to-day operations in the foreign market. This allows the company to focus on its core business while the licensee handles local operations.

6. Differentiate between contract manufacturing and setting up wholly owned production subsidiary abroad.

Ans:

Aspect	Contract Manufacturing	Wholly Owned Production Subsidiary
Definition	Outsourcing production to a third-party manufacturer abroad.	Establishing and owning a production facility abroad.
Ownership	No ownership of production facilities.	Full ownership of the production facility.
Control	Limited control over production processes.	Full control over production processes.
Cost	Lower initial investment; pay for services.	High initial investment in infrastructure and setup.
Risk	Lower risk due to shared responsibilities	Higher risk due to full ownership and investment.

7. Discuss the formalities involved in getting an export license.

Ans:

Having become assured about payments, the exporting firm initiates the steps relating to compliance of export regulation export of goods in India is subject to custom laws which demand that the export firm must have an export licence before it proceeds with exports.

8. Why is it necessary to get registered with an export promotion council?

Ans:

To obtain an export license, the formalities generally involve the following steps:

Registration: The exporter must first register with the relevant government authority (e.g., Directorate General of Foreign Trade (DGFT) in India) to obtain an Exporter Identification Number (EIN) or a similar registration number.
Eligibility: Ensure compliance with all regulations and eligibility criteria set by the governing body, including financial stability, compliance with international trade laws, and industry-specific requirements.
Application Submission: Submit the necessary application forms, which typically include details about the exporter, the products to be exported, destination countries, and any specific trade restrictions.
Document Preparation: Prepare documents such as invoices, shipping details, tax records, and any other relevant certifications that demonstrate the legality and compliance of the products for export.
Customs Clearance: Apply for customs clearance, which may include submitting a declaration for specific goods if they are subject to export control regulations (e.g., military or dual-use items).
Approval and Licensing: After review, the licensing authority issues an export license if all conditions are met. Some goods may require additional permits depending on their nature or destination.
Periodic Compliance: Regular monitoring and compliance with the regulations are necessary, as licenses may be revoked or updated periodically.

9. Why is it necessary for an export firm to go in for pre-shipment inspection?

Ans:

The Government of India has initiated many steps to ensure that only good quality products are exported from the country. One such step is compulsory inspection of certain products by a competent agency as designated by the government. The government has passed Export Quality control and Inspection Act, 1963 for this purpose. Following reason show necessity of inspection.

Ensures product quality and compliance.
Reduces risk of financial losses and returns.
Builds trust with buyers.
Meets insurance and regulatory requirements.
Ensures smooth customs clearance

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

Ans:

A Bill of Lading (B/L) is a legal document issued by a carrier to acknowledge receipt of cargo for shipment. It serves as a contract between the shipper and the carrier, detailing the goods being transported and their destination. The Bill of Lading is also a document of title, meaning it can be transferred to another party, often used in international trade.

On the other hand, a Bill of Entry is a document required by customs authorities when goods are being imported or exported. It provides detailed information about the goods, their value, the classification of the goods, and the applicable duties. The Bill of Entry is primarily used to ensure that customs clearance is done correctly and that the correct tariffs or taxes are applied to imported or exported goods.

Differences:

Purpose: The Bill of Lading is a transport document, while the Bill of Entry is a customs declaration document.
Use: The Bill of Lading is used to track the shipment, while the Bill of Entry is used for customs clearance and compliance.
Issuer: The Bill of Lading is issued by the carrier or shipping company, while the Bill of Entry is submitted by the importer/exporter to the customs authorities 11.Explain the meaning of mate’s receipt.

Ans:

The goods are than loaded on borded on board the ship for which the mate or the captain of the ship issues mate’s receipt to the port superintendent. A mate receipt is a receipt issued by the commanding office of the ship when the cargo is loaded on board, and contains the information about the name of the vessel, berth, date of shipment, description of packaged, marks and number, condition of the cargo at the time of receipt on board the ship, etc. The port superintendent, on receipt of port dues, hands over the mate’s receipt to the C&F agent.

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

Ans: Letter of Credit (LC) is a financial document issued by a bank on behalf of a buyer, ensuring that a seller (exporter) will receive payment for goods or services provided, as long as the terms and conditions of the LC are met. It acts as a guarantee from the bank that the payment will be made to the exporter as long as they meet the agreed-upon conditions, such as providing the correct documentation (e.g., shipment details, invoices, insurance certificates, etc.).

Why does the exporter need a Letter of Credit

Payment Assurance: The LC provides security to the exporter that the buyer’s payment will be made, reducing the risk of non-payment or fraud.
Risk Mitigation: It mitigates the risk associated with international transactions, where the exporter might not be familiar with the buyer’s financial situation or trustworthiness.
Protection Against Political or Economic Instability: In cases where the exporter is dealing with buyers in countries with unstable economies or political climates, an LC ensures that the payment will be made even if these factors interfere.
Fulfilling Transaction Terms: The LC outlines the terms and conditions for payment, making the agreement clear and reducing potential disputes between the exporter and buyer.
Facilitates Financing: The exporter can use an LC to obtain financing from a bank based on the expected payment, improving their cash flow.

13. Discuss the process involved in securing payment for exports.

Ans:

Securing payment for an expert typically involves the following steps:

Agreement/Contract: Draft a formal agreement or contract outlining payment terms, scope of work, timelines, and rates (hourly, project-based, etc.).
Invoice: After completing the work or at agreed intervals, the expert submits an invoice detailing the services provided, the amount due, and payment methods.
Payment Terms: Ensure that payment terms (e.g., due dates, late fees) are clearly defined in the agreement and invoice.
Payment Methods: Establish the accepted payment methods, such as bank transfer, PayPal, checks, or online platforms.
Confirmation: Once payment is received, the expert provides confirmation of payment and ensures any follow-up is handled (such as providing receipts).
Dispute Resolution: Include a clause in the agreement to address any payment disputes or delays.

Long Answer Questions

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

Ans: International business is indeed broader than just international trade. Here are some key points to illustrate this distinction:

Scope of Activities– International trade focuses on the exchange of goods and services between countries. International business encompasses a wide range of activities, including trade, investment, licensing, franchising, partnerships, and management of international operations.
Foreign Investment-International trade deals with the import and export of products. International business involves foreign direct investment (FDI), where companies invest in operations, such as building factories or acquiring companies abroad.
Multinational Enterprises (MNEs)-Trade generally involves transactions between buyers and sellers across borders. International business includes the operations of multinational companies, which have subsidiaries, affiliates, and production facilities in multiple countries.
Global Supply Chain Management-While international trade focuses on the flow of goods, international business involves the entire global supply chain, including sourcing materials, production, logistics, and distribution.
Cross-Cultural Management– Trade can occur with minimal understanding of cultural differences. International business requires managing diverse teams, navigating cultural differences, and adapting marketing strategies to various international markets.
Regulations and Compliance-International trade mainly concerns tariffs, customs, and trade agreements. International business involves understanding and complying with a wide range of international regulations, such as labor laws, environmental standards, and corporate governance in different countries.
Market Entry Strategies– International trade may involve simple exporting or importing. International business requires strategic decisions regarding entering foreign markets, such as joint ventures, mergers, acquisitions, and establishing local subsidiaries.
Risk Management: International trade risks primarily involve currency fluctuations and tariffs. International business deals with broader risks, including political instability, economic fluctuations, and geopolitical tensions across different regions.

2. What benefits do firms derive by entering into international business?

Ans:

Benefits of International Business

Benefits to Countries

Earning of foreign exchange: International business helps a country to earn foreign exchange which it can later use for meeting its imports of capital goods, technology, petroleum products and fertilizers, pharmaceutical products and a host of other consumer products which otherwise might not be available domestically.
More efficient use of resources: As stated earlier, international business operates on a simple principle – produce what your country can produce more efficiently, and trade the surplus production so generated with other countries to procure what they can produce more efficiently. When countries trade on this principle, they end up producing much more than what they can when each of them attempts to produce all the goods and services on its own.
Improving growth prospects and employment potentials: Producing solely for the purpose of domestic consumption severely restricts a country’s prospects for growth and employment. Many countries, especially the developing ones, could not execute their plans to produces on a larger scale, and thus create employment for people because their domestic market was not large enough to absorb all that extra production.
Increased standard of living: In the absence of international trade of goods and services, it would community to consume goods and services produced in other countries that the people in these countries are able to consume and enjoy a higher standard of living.

Benefits to Firms

Prospects for higher profits: International business can be more profitable than the domestic business. When the domestic prices are lower, business firms can earn more profits by selling their products in countries where prices are high.
Increased capacity utilization: Many firms setup production capacities for their products which are in excess of demand in the domestic market. By planning overseas expansion and procuring orders from foreign customers, they can thinking of making use of their surplus production capacities and also improving’ the profitability of their operations. Production on a larger scale often leads to economies of scale, which in turn lowers production cost and improves per unit profit margin.
Prospects for growth: Business firms find it quite frustrating when demand for their products starts getting saturated in the domestic market. Such firms can considerably improve prospects their growth by plunging into overseas markets. This is precisely what has prompted many of the multinationals form the developed countries has got almost saturated, they realized their products were in demand in the developing countries and demand was picking up quite fast.
Way out to intense competition in domestic market: When competition in the domestic market is very intense, internationalization seems to be the only way to achieve significant growth. Highly competitive domestic market drives many companies to go international in search of markets for their products. International business thus acts as a catalyst of growth for firms facing tough market conditions on the domestic turf.
Improved business vision: The growth of international business of many companies is essentially a part of their business policies or strategic international comes from the urge to grow, the need to become more competitive, the need to diversify ad to gain strategic advantages of internationalization.

3. In what ways is exporting a better way of, entering international markets than setting up wholly owned subsidlaries abroad.

Ans:

Exporting and setting up a wholly-owned subsidiary abroad are two common strategies for entering international markets. Here are the main advantages of exporting compared to setting up a subsidiary:

Lower Initial Investment and Risk: Exporting typically requires a lower initial investment compared to setting up a wholly-owned subsidiary. Establishing a subsidiary involves significant costs related to infrastructure, staffing, legal compliance, and operations in a foreign country. Exporting, on the other hand, involves fewer upfront costs.
Flexibility and Scalability: Exporting offers greater flexibility, as companies can scale their operations up or down based on market conditions without the long-term commitment of setting up a subsidiary. It’s easier to enter and exit markets when exporting.
Less Complexity: Managing a wholly-owned subsidiary requires understanding and complying with the laws, regulations, and market conditions in the foreign country. Exporting, while not without its own challenges, is generally simpler and involves fewer operational complexities.
Reduced Liability: With exporting, the company is typically not exposed to the same level of liabilities as it would be with a wholly-owned subsidiary. A subsidiary may be subject to local taxes, lawsuits, or political instability, whereas exporting limits exposure to those risks.
Easier Market Testing: Exporting allows businesses to test a foreign market before committing large amounts of resources to it. If the export strategy is successful, the company can then consider the possibility of setting up a subsidiary or another more permanent operation.
Utilizing Local Intermediaries: When exporting, companies can rely on intermediaries such as distributors, agents, or resellers who are familiar with the local market. These intermediaries help reduce the need for the company to establish its own presence abroad, which can be a costly and time-consuming process.

4. 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.

Ans:

Order Confirmation and Contract:
Review and Accept Order: Carefully review the order details, including quantity, specifications, delivery timeline, and payment terms.
Negotiate and Finalize Contract: If necessary, negotiate terms and draft a legally binding export contract outlining all agreed-upon aspects of the transaction.

2. Production and Quality Control:

Production Planning: Plan production to meet the order quantity and delivery deadline, ensuring efficient resource allocation.
Quality Control: Implement strict quality control measures throughout the production process to ensure the final product meets the agreed-upon standards.

3. Export Documentation:

Prepare Essential Documents: Obtain necessary documents, including:
Commercial Invoice: Detailed invoice specifying goods, quantity, value, and buyer/seller information.
Packing List: Itemized list of goods packed in each container/shipment.
Bill of Lading: Issued by the shipping company, it serves as a contract for the carriage of goods.
Certificate of Origin: Certifies the country of origin of the goods.
Other Relevant Documents: Depending on the product and destination, additional documents may be required.

4. Export License (if applicable):

Check Export Regulations: Determine if any export licenses or permits are required for the specific goods and destination country.
Apply for Licenses: If necessary, apply to the relevant authorities for the required export licenses.
Pre-shipment Inspection (if applicable):
Arrange Inspection: If required by the buyer or the destination country, arrange for a pre-shipment inspection by a designated agency to verify product quality and quantity.

6. Shipping and Insurance:

Choose Mode of Transport: Select the most suitable mode of transport (sea, air, or land) based on cost, delivery time, and product characteristics.
Book Shipping: Book cargo space with a shipping company and arrange for transportation to the port of export.
Purchase Insurance: Obtain adequate insurance coverage to protect against potential losses during transit.

7. Customs Clearance:

Prepare Customs Documentation: Complete customs declaration forms with accurate information about the goods.
Customs Clearance: Obtain customs clearance from the relevant authorities at the port of export.

8. Payment Collection:

Present Documents: Present the necessary documents to the buyer’s bank or your own bank, depending on the agreed-upon payment method (e.g., Letter of Credit, Documentary Collection).
Receive Payment: Once the payment is confirmed, receive the funds in your account.

9. Post-Shipment Activities:

Track Shipment: Monitor the shipment’s progress to ensure timely delivery.
Address any Issues: If any issues arise with the buyer or during transit, address them promptly and professionally.

10. Maintain Records:

Keep Detailed Records: Maintain accurate records of all transactions, including contracts, invoices, shipping documents, and payment receipts.

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

Ans:

Trade enquiry: The first thing that the importing firm has to do is to gather information about the countries and firms which export the given product. The importer can gather such information from the trade directories and/or trade associations and organizations. Having identified the countries and firms that export the product, the importing firm approaches the export firms with the help of a trade enquiry for collecting information about their export prices and terms of exports.
Procurement of import license: There are certain goods that can be imported freely, while others need licensing. The importer need to consult the export import (EXIM) policy in force to know whether the goods that he or she wants to import are subject to import licensing. In case goods can be imported only against the license, the importer needs to procure an import license.
Obtaining foreign exchange: Since the suppler in the context of an import transaction resides in a foreign country, he/she demands payment in a foreign currency. Payment in foreign currency involves exchange of India, currency into foreign currency. In India, all foreign exchange transactions are regulated by the exchange control department of the reserve bank of India (RBI).
Placing order or indent: After obtaining the import license, the importer places an import order or indent with the exporter for supply of the specified products. The import order contains information about the price, quantity size, grade and quality of goods ordered and the instructions relating to packing, shipping. Ports of shipment and destination, delivery schedule, insurance and mode of payment.
Obtaining letter of credit: If the payment terms agreed between the importer and the overseas supplier is a letter of credit, then the importer should obtain the letter of credit from its bank and forward it to the overseas supplier. As stated previously, a letter of credit 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.
Arranging for finance: The importer should make arrangements in advance to pay to the exporter on arrival of goods at the port. Advanced planning for financing imports is necessary so as to avoid huge demurrages (i.e., penalties) on the imported goods lying an cleared at the port for want of payments.
Receipt of shipment advice: After loading the goods on the vessel, the overseas supplier dispatches the shipment advice to the importer. A shipment advice contains information about the shipment of goods. The information provided in the shipment advice includes details such as invoice number, bill of lading/airways bill number and date, name of the vessel with date, the port of export, description of goods and quantity, and the date of sailing of vessel.
Retirement of import documents: Having shipped the goods, the overseas supplier prepares a set of necessary documents as per the terms of contract and letter of credit and hands it over to his or her banker for their onward transmission and negotiation to the importer in the manner as specified in the letter of credit.
Arrival of goods: Goods are shipped by the overseas supplier as per the contract. The person in charge of the carrier (ship of airway) informs the officer in charge at the dock or the airport about the arrival of goods in the importing country.
Customs clearance and release of goods: All the goods imported into India have to pass through customs clearance after they cross the Indian borders. Customs clearance is a somewhat tedious process and calls for completing a number of formalities.

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