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International Business

BY: VISHAL KADAM

Q) What is International Business? What are its importance? Q) Distinguish between International & Domestic Trade? Distinction between internal and international trade Distinction between internal and international trade in general involves transaction for mutual benefit For this reason both the trading parties will have equal interest. Trade is a case of geographic specific area. An area specialises in an activity and trade takes place. Trade needs optimising activity. Profits are measured by minimising cost and increasing volume of trade. International trade has certain distinguishing factors as compared with ordinary trade. 1. International trade is the trade between two countries which are geographically and politically different. This gives rise to a conflict of interests in terms of benefit. 2. International trade has more restriction than internal trade. The world has transformed from free trade to protection. 3. Under protection a country prevents trade to safeguard the interest of domestic industry. 4. The factors of production are perfectly mobile within a country and immobile within countries. This feature helps in retaining cost advantage in production. Different countries have different currencies. With this the problems of equating value and conversion of currencies arises. International liquidity is a major problem. Yet there is no mechanism to facilitate international payments. In 1930 IMF floated specialised instruments called Special Drawing Rights (SDR) as a common medium for international transaction. Due to disparities in economic development, SDR failed to provide adequate international liquidity. Presently the world is divided into trading blocks and associations. The international trade is highly segmented international trade leads specialised institutions for promoting international co-operation, trade international payments and development assistance. Q) What is FDI ? Foreign capital which enters the country in the form of equity capital is termed as Foreign Direct investment (FDI). It involves no interest payment, but only a share in the profit to the extent of shares owned by foreigners. In India equity participation by foreigners is permisible upto 51% of the capital of a project, with higher limits of investment in selected areas, such as technology, upgradation & exports. Foreign direct investment (FDI) is a measure of foreign ownership of productive assets, such as factories, mines and land. Increasing foreign investment can be used as one measure of growing economic globalization. Maps below show net inflows of foreign
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COMPILED
International Business

BY: VISHAL KADAM

direct investment as a percentage of gross domestic product (GDP). The largest flows of foreign investment occur between the industrialized countries (North America, North West Europe and Japan). But flows to non-industrialized countries are increasing. The foreign direct investor may acquire 10% or more of the voting power of an enterprise in an economy through any of the following methods: * By incorporating a wholly owned [subsidiary] or [company] * By acquiring shares in an associated enterprise * Through a [[merger]] or an [Takeover| acquisition] of an unrelated enterprise * Participating in an equity [[joint venture]] with another investor or enterprise *Foreign direct investment incentives may take the following forms:{Fact|date=June 2009} * Low [corporate tax]and [income tax] rates * Tax Holidays * Other types of tax concessions * Preferential [tariffs] * Special economic zones * Investment financial subsidies * [soft loan] or loan [guarantees] * Free land or land subsidies * Relocation & expatriation subsidies * Job training & employment subsidies * [[infrastructure]] subsidies * R&D support * Derogation from regulations (usually for very large projects) Q) What is Bilateral Investment Treaty? A bilateral Investment Treaty (BIT) is an agreement establishing the terms & conditions for private investment by nationals & companies of one state in another state, BIT are established through trade pacts .BITS grant investments made by an investor of one contracting state in the territory of the other number of guarantees, which typically include fair & equitable treatment, protection from expropriation, free transfer of means & full protection & security. Q8) What is regional integration framework? Regional integration can be understood as a convergent cooperation at the macro or micro level. Whereas at the macro level it is connected with the integration of large-scale geographical areas (such as already mentioned

It is always better to be “WIND” than the “OBJECT” carried away by it_ Vishal

COMPILED
International Business

BY: VISHAL KADAM

Mediterranean groupings), at the micro-level we speak about such forms of .new regionalism. as euroregions, working communities etc. These .new forms. are connected with the phenomenon of cross-border cooperation, which has been developing in Europe since 1950s. Q) What is the impact of FDI on distribution of wealth? Q) What is the trend of FDI in recent years? Foreign investment has played a very limited role so far. foreign investment was allowed generally in areas of hi-tech, sophisiticated technologies & substantial exports. The normal ceiling for foreign investment was 40% of the total equity capital, but a higher percentage of foreign equity was considered in priority industries is the technology was sophisiticated & not available in the country, or if the venture was largely export oriented. Foreign investment flows by category (us $ million) 94-95 A. Direct Investment a RBI automatic route b SIA/FIPB route c. NRI (40% & 100) d Acquisition fo shares 400 1314 171 701 442 95-96 2144 169 1249 715 --96-97 2821 135 1922 639 11 97-98 3557 202 2754 241 125 98-99 2462 179 1821 62 360

B. Portfolio Investment a. FIIS # b. Euro equities @ c. Off shore funds & others

3824 1503 2082 239

2748 2009 683 56

3312 1926 1366 20

1828 979 645 204

- 61 - 390 270 59

Total (A + B )

5,138

4,892

6,133

5,385

2401

The Foreign Exchange Management Bill (FEMA) was introduced by Govt. of India in parliament on August 4, 1998. The Bills aims “to consolidate and amend the law relating to Foreign Exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of Foreign Exchange Market in India”. It was adopted by parliament in 1999 and is known as Foreign Exchange Management Act, 1999. Chapter II of FEMA deals with the regulation & management of Foreign Exchange. Sec. 3 states that except as otherwise provided in this Act, no person shall in any manner deal in or transfer any foreign exchange or foreign security to any person not being an authorised person. Sec. 4 states that except otherwise provided in this Act, no person resident in India shall acquire, hold, own, possess or transfer any foreign exchange, foreign security or any immovable property situated outside India.
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COMPILED
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BY: VISHAL KADAM

Foreign Exchange means foreign currency and includes all deposits, credits and balances, payable in any foreign currency and any drafts, traveler’s cheques, letter of credit and bills of exchange, expressed or drawn in Indian currency but payable, in any foreign currency; any instrument payable, at the option of the drawee or holders thereof or any other party thereto, either in Indian currency or in Foreign currency or partly in one or partly in other. In 1973, Act of 1947 was replaced by Foreign exchange regulations Act, 1973 and which is now replaced by Foreign Exchange Management Act, 1999. Q) What are TRIPS? Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) The WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), negotiated during the Uruguay Round, introduced intellectual property rules for the first time into the multilateral trading system. The Agreement, while recognizing that intellectual property rights (IPRs) are private rights, establishes minimum standards of protection that each government has to give to the intellectual property right in each of the WTO Member countries. The Member countries are, however, free to provide higher standards of intellectual property rights protection. The Agreement is based on and supplements, with additional obligations, the Paris, Berne, Rome and Washington conventions in their respective fields. Thus, the Agreement does not constitute a fully independent convention, but rather an integrative instrument which provides "Convention-plus" protection for IPRs. The TRIPS Agreement is, by its coverage, the most comprehensive international instrument on IPRs, dealing with all types of IPRs, with the sole exception of breeders' rights. IPRs covered under the TRIPS agreement are: The TRIPS agreement is based on the basic principles of the other WTO Agreements, like non-discrimination clauses - National Treatment and Most Favoured Nation Treatment, and are intended to promote "technological innovation" and "transfer and dissemination" of technology. It also recognizes the special needs of the least-developed country Members in respect of providing maximum flexibility in the domestic implementation of laws and regulations. Part V of the TRIPS Agreement provides an institutionalized, multilateral means for the prevention of disputes relating to IPRs and settlement thereof. It is aimed at preventing unilateral actions. Q) What is EURO? EURO is the "Association of European Operational Research Societies" within IFORS, the "International Federation of Operational Research Societies". It is a "non profit" association domiciled in Switzerland. Its affairs are regulated by a Council consisting of representatives/alternates of all its members and an Executive Committee which constitutes its board of directors. Its aim is to promote Operational Research throughout Europe. The members of EURO are normally full members of IFORS and comprise the national OR societies of countries located within or nearby (in a broad sense) Europe. Each member is represented in the EURO Council by two representatives, one of whom votes, if required.

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COMPILED
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Council meetings are held annually, normally in conjunction with the EURO-k conferences. The Council elects a President, a President-Elect, three Vice-Presidents, and a Secretary. These six EURO officers form the Executive Committee. The President-Elect serves for only one year whereas all others are elected for two years. Since 1993 the Executive Committee is assisted by a Permanent Secretariat. Q) What is labelling? Environmental labelling schemes are complex, causing concerns about developing countries’ and small businesses’ ability to export. How do you use labelling to inform consumers about environmental protection without jeopardizing these weaker players? Opinions are divided. Two WTO committees are grappling with the question. In the Committee’s work programme Labelling is one of the subjects assigned to the Committee on Trade and Environment (CTE). It is part of an item (3b) on the committee’s work programme in which the committee is assigned to consider the relationship between the provisions of the WTO’s agreements and the requirements governments make for products in order to protect the environment. (In addition to labelling, this includes standards and technical regulations, and packaging, and recycling requirements.) In 2001, the Doha Ministerial Conference made this an issue of special focus for the regular CTE (i.e. the regular committee sessions that are not part of the Doha Round negotiations). (See paragraph 32(iii) of the Doha Declaration.) The use of eco-labels (i.e. labelling products according to environmental criteria) by governments, industry and non-governmental organizations (NGOs) is increasing. Concerns have been raised about the growing complexity and diversity of environmental labelling schemes. This is especially the case with labelling based on life-cycle analysis, which looks at a product’s environmental effects from the first stages of its production to its final disposal. These requirements could create difficulties for developing countries, and particularly small and medium-sized enterprises in export markets. WTO members generally agree that labelling schemes can be economically efficient and useful for informing consumers, and tend to restrict trade less than other methods. This is the case if the schemes are voluntary, allow all sides to participate in their design, based on the market, and transparent. However, these same schemes could be misused to protect domestic producers. For this reason, the schemes should not discriminate between countries and should not create unnecessary barriers or disguised restrictions on international trade. Q) What is Dumping? It occurs when goods are exported at a price less than their normal value, generally meaning they are exported for less than they are sold in the domestic market or thirdcountry markets, or at less than production cost. Q16) Explain the legal environment for International Business? Q17) What is the importance of intellectual property rights & Patents in IB? PATENTS Article 27 Patentable Subject Matter

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1. Subject to the provisions of paragraphs 2 and 3, patents shall be available for any inventions, whether products or processes, in all fields of technology, provided that they are new, involve an inventive step and are capable of industrial application.i Subject to paragraph 4 of Article 65, paragraph 8 of Article 70 and paragraph 3 of this Article, patents shall be available and patent rights enjoyable without discrimination as to the place of invention, the field of technology and whether products are imported or locally produced. 2. Members may exclude from patentability inventions, the prevention within their territory of the commercial exploitation of which is necessary to protect ordre public or morality, including to protect human, animal or plant life or health or to avoid serious prejudice to the environment, provided that such exclusion is not made merely because the exploitation is prohibited by their law. 3. Members may also exclude from patentability: (a) diagnostic, therapeutic and surgical methods for the treatment of humans or animals; (b) plants and animals other than micro-organisms, and essentially biological processes for the production of plants or animals other than non-biological and microbiological processes. However, Members shall provide for the protection of plant varieties either by patents or by an effective sui generis system or by any combination thereof. The provisions of this subparagraph shall be reviewed four years after the date of entry into force of the WTO Agreement. Article 28 Rights Conferred 1. A patent shall confer on its owner the following exclusive rights:

(a) where the subject matter of a patent is a product, to prevent third parties not having the owner’s consent from the acts of: making, using, offering for sale, selling, or importing1 for these purposes that product; (b) where the subject matter of a patent is a process, to prevent third parties not having the owner’s consent from the act of using the process, and from the acts of: using, offering for sale, selling, or importing for these purposes at least the product obtained directly by that process. 2. Patent owners shall also have the right to assign, or transfer by succession, the patent and to conclude licensing contracts. Article 29 Conditions on Patent Applicants 1. Members shall require that an applicant for a patent shall disclose the invention in a manner sufficiently clear and complete for the invention to be carried out by a person skilled in the art and may require the applicant to indicate the best mode for carrying out the invention known to the inventor at the filing date or, where priority is claimed, at the priority date of the application. 2. Members may require an applicant for a patent to provide information concerning the applicant’s corresponding foreign applications and grants. Article 30 Exceptions to Rights Conferred

1

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International Business

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Members may provide limited exceptions to the exclusive rights conferred by a patent, provided that such exceptions do not unreasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties. Patents: The agreement says patent protection must be available for inventions for at least 20 years. Patent protection must be available for both products and processes, in almost all fields of technology. Governments can refuse to issue a patent for an invention if its commercial exploitation is prohibited for reasons of public order or morality. They can also exclude diagnostic, therapeutic and surgical methods, plants and animals (other than microorganisms), and biological processes for the production of plants or animals (other than microbiological processes). Plant varieties, however, must be protectable by patents or by a special system (such as the breeder’s rights provided in the conventions of UPOV — the International Union for the Protection of New Varieties of Plants). The agreement describes the minimum rights that a patent owner must enjoy. But it also allows certain exceptions. A patent owner could abuse his rights, for example by failing to supply the product on the market. To deal with that possibility, the agreement says governments can issue “compulsory licences”, allowing a competitor to produce the product or use the process under licence. But this can only be done under certain conditions aimed at safeguarding the legitimate interests of the patent-holder. If a patent is issued for a production process, then the rights must extend to the product directly obtained from the process. Under certain conditions alleged infringers may be ordered by a court to prove that they have not used the patented process. An issue that has arisen recently is how to ensure patent protection for pharmaceutical products does not prevent people in poor countries from having access to medicines — while at the same time maintaining the patent system’s role in providing incentives for research and development into new medicines. Flexibilities such as compulsory licensing are written into the TRIPS Agreement, but some governments were unsure of how these would be interpreted, and how far their right to use them would be respected. A large part of this was settled when WTO ministers issued a special declaration at the Doha Ministerial Conference in November 2001. They agreed that the TRIPS Agreement does not and should not prevent members from taking measures to protect public health. They underscored countries’ ability to use the flexibilities that are built into the TRIPS Agreement. And they agreed to extend exemptions on pharmaceutical patent protection for least-developed countries until 2016. On one remaining question, they assigned further work to the TRIPS Council — to sort out how to provide extra flexibility, so that countries unable to produce pharmaceuticals domestically can import patented drugs made under compulsory licensing. A waiver providing this flexibility was agreed on 30 August 2003. Q) What is anti-dumping? If a company exports a product at a price lower than the price it normally charges on its own home market, it is said to be “dumping” the product. Is this unfair competition? Opinions differ, but many governments take action against dumping in order to defend their domestic industries. The WTO agreement does not pass judgement. Its focus is on how governments can or cannot react to dumping — it disciplines anti-dumping actions, and it is often called the “Anti-Dumping Agreement”. (This focus only on the reaction to
It is always better to be “WIND” than the “OBJECT” carried away by it_ Vishal

COMPILED
International Business

BY: VISHAL KADAM

dumping contrasts with the approach of the Subsidies and Countervailing Measures Agreement.) The legal definitions are more precise, but broadly speaking the WTO agreement allows governments to act against dumping where there is genuine (“material”) injury to the competing domestic industry. In order to do that the government has to be able to show that dumping is taking place, calculate the extent of dumping (how much lower the export price is compared to the exporter’s home market price), and show that the dumping is causing injury or threatening to do so. GATT (Article 6) allows countries to take action against dumping. The Anti-Dumping Agreement clarifies and expands Article 6, and the two operate together. They allow countries to act in a way that would normally break the GATT principles of binding a tariff and not discriminating between trading partners — typically anti-dumping action means charging extra import duty on the particular product from the particular exporting country in order to bring its price closer to the “normal value” or to remove the injury to domestic industry in the importing country.

There are many different ways of calculating whether a particular product is being dumped heavily or only lightly. The agreement narrows down the range of possible options. It provides three methods to calculate a product’s “normal value”. The main one is based on the price in the exporter’s domestic market. When this cannot be used, two alternatives are available — the price charged by the exporter in another country, or a calculation based on the combination of the exporter’s production costs, other expenses and normal profit margins. And the agreement also specifies how a fair comparison can be made between the export price and what would be a normal price. Calculating the extent of dumping on a product is not enough. Anti-dumping measures can only be applied if the dumping is hurting the industry in the importing country. Therefore, a detailed investigation has to be conducted according to specified rules first. The investigation must evaluate all relevant economic factors that have a bearing on the state of the industry in question. If the investigation shows dumping is taking place and domestic industry is being hurt, the exporting company can undertake to raise its price to an agreed level in order to avoid anti-dumping import duty. Detailed procedures are set out on how anti-dumping cases are to be initiated, how the investigations are to be conducted, and the conditions for ensuring that all interested parties are given an opportunity to present evidence. Anti-dumping measures must expire five years after the date of imposition, unless an investigation shows that ending the measure would lead to injury. Anti-dumping investigations are to end immediately in cases where the authorities determine that the margin of dumping is insignificantly small (defined as less than 2% of the export price of the product). Other conditions are also set. For example, the investigations also have to end if the volume of dumped imports is negligible (i.e. if the volume from one country is less than 3% of total imports of that product — although investigations can proceed if several countries, each supplying less than 3% of the imports, together account for 7% or more of total imports). The agreement says member countries must inform the Committee on Anti-Dumping Practices about all preliminary and final anti-dumping actions, promptly and in detail.
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They must also report on all investigations twice a year. When differences arise, members are encouraged to consult each other. They can also use the WTO’s dispute settlement procedure. Q) what is WTO? What is its impact on developing countries? The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters, and importers conduct their business. Impact on developing nations: Expansion of world trade. • • • • • Increase in agricultural exports. Large scale export of textile clothing. Domination of rich and developed countries on WTO. TRIPs and TRIMs. Uruguay round agreements and their impact.

Domination of MNCs international Business Q) Types of dumpings in International Market? Types of Dumping » Selling same product at different prices, at home and abroad » Selling in the foreign market at price < price in home market » Selling in the foreign market at price < “fair market value” which is often taken to mean < “normal average cost” » Seasonal - when exporter has a bumper crop » Cyclical - when exporter has a slump at home » Predatory - intended to eliminate competitors » Persistent - goes on and on Sporadic Dumping: it is the occasional sale of a commodity at below cost or at a lower price abroad than domestically inorder io unload an unforeseen and temporary surplus of the commodity without having to reduce domestic prices Persistent: Persistent dumping is a practice of selling a product below its production cost. Predatory: A type of anti-competitive event in which foreign companies or governments price their products below market values in an attempt to drive out domestic competition. This may lead to conditions where one company has a monopoly in a certain product or industry. Antitrust or competition laws forbid predatory dumping in many countries such as the U.S. and the European Union. Also referred to as "predatory pricing".: For example, suppose there are two companies selling identical products; Viva Concepts is a domestic firm and company Pragmatic is a foreign firm. Pragmatic wants to drive Viva Concepts out of the market, so it prices its product far below the cost of producing it. Viva Concepts must compete by lowering its prices, which eventually causes the company to lose money and exit the market.

It is always better to be “WIND” than the “OBJECT” carried away by it_ Vishal

COMPILED
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Business Dictionary: Deliberate pricing of merchandise or services for the sole purpose of driving competitors of similar products or services out of the market. Once these competitors are eliminated, the intent is to raise the price. Q) What is intellectual property? Why is it considered as an asset to the company? A product of the intellect that has commercial value, including copyrighted property such as literary or artistic works, and ideational property, such as patents, appellations of origin, business methods, and industrial processes. The Legal Term * Intellectual Property * Defined & Explained ... INTELLECTUAL PROPERTY - Property that can be protected under federal law, including copyrightable works, ideas, discoveries, and inventions. Such property would include novels, sound recordings, a new type of mousetrap, or a cure for a disease. Q) What is WTO? What are its objectives? The below said are the objectives of WTO: Raising standard of living of members of country and income, promoting full employment. • • • • • Better share of growth in a world trade. Settlement of trade disputes among members. Expanding production and trade. Optimum utilization of world resources. Free trade i.e. trade without discrimination. Protection and preservation of environment. Q 26. What is economic integration Elimination of tariff and non-tariff barriers to the flow of goods, services, and factors-ofproduction between a group of nations, or different parts of the same nation. Meaning of Economic Integration: • A process whereby countries cooperate with one another to reduce or eliminate barriers to the international flow of products, people or capital

Takes place either on region or commodity Levels Of Regional Economic Integration: Five levels of regional integrations: 1. Preferential Trade Agreement 2.Free Trade Area 3. Customs Union 4.Common Market 5. Economic Union • 6. Political Union

It is always better to be “WIND” than the “OBJECT” carried away by it_ Vishal

COMPILED
International Business

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Q 27. What is Preferential Trade Agreement(PTA): • • • The simplest form of economic integration Offers member countries tariff reductions in certain product categories Discrimination or preferential treatment for some countries is not allowed as it is against the principle of Most Favoured Nation (MFN) under the WTO Represents a unilateral relationship as tariffs would be reduced only in one direction

Q28. What is a Free Trade Area(FTA): • An agreement between two or more countries to remove all trade barriers between themselves. Each country determines its own barriers and maintains its own external tariffs on import against non-members. Tariffs and non-tariff barriers include quotas and subsidies on international trade in goods and services Examples of FTA are: The ASEAN Free Trade Agreement(AFTA) and the North American Free Trade Areas(NAFTA)

Customs Union: • An agreement between two or more countries to remove tariffs between themselves and set a common external tariff on imports from nonmember countries Each country determines its own barriers and maintains its own external tariffs on imports against non-members. A customs union has common policies on product regulations and movement of factors of productions in goods, services, capital and labor amongst members Unlike FTA, members of a customs union have common policies on external tariffs against non-members.

Common Market: • An agreement between two or more countries to remove all barriers to trade and allow free mobility of capital and labor across member countries.

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COMPILED
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Harmonize trade policies by having common external tariffs against nonmembers Example is the European Union (EU) previously known as European Economic Community(EEC)

Economic Union: • An agreement between two or more countries to remove barriers to trade, allow free flow of labor and capital and coordinate economic policies. Sets trade policies through common external tariffs on non-members. Integration is more intense in an economic union compared to a common market, as member countries are required to harmonize their tax, monetary, and fiscal policies and to create a common currency Example is the European Union(EU) where economic and monetary integration has created a single market with a common euro currency

• •

Political Union: • An agreement between two or more countries to coordinate their economic monetary and political systems. Required to accept a common stance on economic and political policies against non-members. Example is US where each US state has its own government that sets policies and laws. But each state grant control to the federal government over foreign policies, agricultural policies, welfare policies and monetary policies. Goods, services, labor and capital can all move freely without any restrictions among the US states and the government sets a common external trade policy

Q 29. What are Regional Trade Groups?

Q30. What is competitive advantage? Q31. What is comparative advantage? What are its importance in International Business? In the Ricardian model, countries are assumed to differ only in their productive capacities. It was in this model that David Ricardo first formally demonstrated the principle of comparative advantage. When defined in terms of productivity differences, comparative advantage is regularly confused with a simpler concept that economists call absolute advantage. It is worth taking a few moments to illustrate the differences. If the US has higher productivity in corn production compared to Switzerland, while
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Switzerland has higher productivity in watch production compared to the US, economists would say the US has an absolute advantage in corn production and Switzerland has an absolute advantage in watch production. In this case it is intuitive that if the US concentrates on corn production and Switzerland on watch production, then resources could be shifted from relatively lower productivity industries to higher productivity industries and the total combined output of corn and watches would rise. With greater output, and after an appropriate trading pattern is introduced, both countries could end up with more of both goods than before, meaning that both countries can gain from trade. For most who have studied economics this is what they remember as comparative advantage. However, they are only partially right. It is correct that this example of trade is consistent with comparative advantage; however, CA also covers cases that are less obviously advantageous for countries. For example, one might ask what happens if the US had higher productivity in both corn and watches compared to Switzerland? This is the question that Ricardo tackled when he formalized CA. His answer to the question also substantially expanded the number of situations in which technology differences could result in advantageous trade. Ricardo’s simple analysis demonstrated that even when one country is technologically superior in both goods, it could still be advantageous for countries to trade. In this circumstance, a comparative advantage is present for those products that the country can produce most-best in comparison to other countries, even if the most best product is produced less productively than in the other country. For example, suppose the US is 10X more productive in corn and only 2X more productive in watches compared to Switzerland. In this case the US is clearly most-best at producing corn (10x > 2x). At the same time though, Switzerland is ½X as productive in watches and (1/10)X as productive in corn. Thus, Switzerland’s most-best product and hence its comparative advantage is watches (since ½ > 1/10) even though it can’t produce them as effectively as the US. The reason both countries can benefit in this case is because productivity is not the only determinant of industry advantage; instead it is the combination of productivity and average wages. In countries with lower productivity in all industries, they will also have lower average wages. However, average wages for similar workers will lie somewhere in the middle of the range of the country’s industry productivities. In the example above, wage differences between the US and Switzerland in the absence of trade will fall in the range between 10X and 2X; perhaps wages will be 5X higher in the US in this example (which implies they are 1/5 as high in Switzerland). This means that for the relatively highest productivity industry in Switzerland (watches), productivity (1/2 as productive) will sufficiently exceed the average wage (1/5 as high) to make production in watches profitable in comparison to the US. Observers of this situation may well note that Switzerland’s advantage is due to low wages since wages are only 1/5 as high as in the US. However, it is a mistake to think that low wages gives an advantage in all industries. That’s because, as Ricardo showed, in the low wage country’s least productive industry (in this case corn), Switzerland’s wage advantage (1/5 as high) will be overwhelmed by its productivity disadvantage (1/10 as productive). This means that corn production will be unprofitable in Switzerland despite having lower wages. Looking at this same situation from the US perspective, the US is most-best at producing corn (10X as productive) but its wages are only 5X higher. That implies it will be profitable for the US to produce corn and sell it in Switzerland. At the same time though, the US productivity advantage in watches is only 2X higher, which is not enough to compensate for its 5X higher wages. That’s why the US will find cheaper watches in Switzerland. The most important conclusion from the Ricardian model is that advantages from trade do not disappear just because another country has lower wages; nor do they disappear
It is always better to be “WIND” than the “OBJECT” carried away by it_ Vishal

COMPILED
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just because another country is more productive in everything. Ricardo demonstrated that by specializing in producing the products that one has a comparative advantage (which MAY NOT be ones in which the country has an absolute advantage) the world can expand total world output with the same quantity of resources. The expansion of output is the realization of increased economic efficiency that economists always talk about. Finally, given the expanded output, international trade can assure that all countries in the model gain from the surplus that’s created. In other words, without raising the quantity of resources, the world economy would be able to produce greater output and generate higher living standards for everyone. Economic efficiency will rise both internationally and nationally. This is how all nations can benefit from free trade. It is important to note at this stage that the Ricardian model does not say that countries WILL gain from international trade; only that countries CAN benefit from increased output and trade if production is reorganized between countries appropriately while all resources are kept fully employed. The model is a gross simplification compared to the real world though, and thus it clearly does not incorporate everything that might happen with trade. Nevertheless the model does provide an insight that quite likely carries over to more complex situations. For example, the model results should cause observers of international trade situations to hesitate when fears grow that low wage countries may soon take over production of the world’s output, or when developing countries protect their markets because of fears that they cannot compete with the more developed countries in the world. These commonly expressed fears about international trade are shown, by virtue of the Ricardian model, to be based on a misperception. The Theory of Comparative Advantage - Overview Historical Overview The theory of comparative advantage is perhaps the most important concept in international trade theory. It is also one of the most commonly misunderstood principles. The sources of the misunderstandings are easy to identify. First, the principle of comparative advantage is clearly counter-intuitive. Many results from the formal model are contrary to simple logic. Secondly, the theory is easy to confuse with another notion about advantageous trade, known in trade theory as the theory of absolute advantage. The logic behind absolute advantage is quite intuitive. This confusion between these two concepts leads many people to think that they understand comparative advantage when in fact, what they understand is absolute advantage. Finally, the theory of comparative advantage is all too often presented only in its mathematical form. Using numerical examples or diagrammatic representations are extremely useful in demonstrating the basic results and the deeper implications of the theory. However, it is also easy to see the results mathematically, without ever understanding the basic intuition of the theory. The early logic that free trade could be advantageous for countries was based on the concept of absolute advantages in production. Adam Smith wrote in The Wealth of Nations, "If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage. " The idea here is simple and intuitive. If our country can produce some set of goods at lower cost than a foreign country, and if the foreign country can produce some other set of goods at a lower cost than we can produce them, then clearly it would be best for us to trade our relatively cheaper goods for their relatively cheaper goods. In this way both countries may gain from trade.

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The original idea of comparative advantage dates to the early part of the 19th century. Although the model describing the theory is commonly referred to as the "Ricardian model", the original description of the idea can be found in an Essay on the External Corn Trade by Robert Torrens in 1815. David Ricardo formalized the idea using a compelling, yet simple, numerical example in his 1817 book titled, On the Principles of Political Economy and Taxation. The idea appeared again in James Mill's Elements of Political Economy in 1821. Finally, the concept became a key feature of international political economy upon the publication of Principles of Political Economy by John Stuart Mill in 1848. David Ricardo's Numerical Example Because the idea of comparative advantage is not immediately intuitive, the best way of presenting it seems to be with an explicit numerical example as provided by David Ricardo. Indeed some variation of Ricardo's example lives on in most international trade textbooks today. (See page 40-5 in this text) In his example Ricardo imagined two countries, England and Portugal, producing two goods, cloth and wine, using labor as the sole input in production. He assumed that the productivity of labor (i.e., the quantity of output produced per worker) varied between industries and across countries. However, instead of assuming, as Adam Smith did, that England is more productive in producing one good and Portugal is more productive in the other; Ricardo assumed that Portugal was more productive in both goods. Based on Smith's intuition, then, it would seem that trade could not be advantageous, at least for England. However, Ricardo demonstrated numerically that if England specialized in producing one of the two goods, and if Portugal produced the other, then total world output of both goods could rise! If an appropriate terms of trade (i.e., amount of one good traded for another) were then chosen, both countries could end up with more of both goods after specialization and free trade then they each had before trade. This means that England may nevertheless benefit from free trade even though it is assumed to be technologically inferior to Portugal in the production of everything. As it turned out, specialization in any good would not suffice to guarantee the improvement in world output. Only one of the goods would work. Ricardo showed that the specialization good in each country should be that good in which the country had a comparative advantage in production. To identify a country's comparative advantage good requires a comparison of production costs across countries. However, one does not compare the monetary costs of production or even the resource costs (labor needed per unit of output) of production. Instead one must compare the opportunity costs of producing goods across countries. A country is said to have a comparative advantage in the production of a good (say cloth) if it can produce cloth at a lower opportunity cost than another country. The opportunity cost of cloth production is defined as the amount of wine that must be given up in order to produce one more unit of cloth. Thus England would have the comparative advantage in cloth production relative to Portugal if it must give up less wine to produce another unit of cloth than the amount of wine that Portugal would have to give up to produce another unit of cloth. All in all, this condition is rather confusing. Suffice it to say, that it is quite possible, indeed likely, that although England may be less productive in producing both goods relative to Portugal, it will nonetheless have a comparative advantage in the production of one of the two goods. Indeed there is only one circumstance in which England would not have a comparative advantage in either good, and in this case Portugal also would not have a comparative advantage in either good. In other words, either each country
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has the comparative advantage in one of the two goods or neither country has a comparative advantage in anything. Another way to define comparative advantage is by comparing productivities across industries and countries. Thus suppose, as before, that Portugal is more productive than England in the production of both cloth and wine. If Portugal is twice as productive in cloth production relative to England but three times as productive in wine, then Portugal's comparative advantage is in wine, the good in which its productivity advantage is greatest. Similarly, England's comparative advantage good is cloth, the good in which its productivity disadvantage is least. This implies that to benefit from specialization and free trade, Portugal should specialize and trade the good in which it is "most best" at producing, while England should specialize and trade the good in which it is "least worse" at producing. Note that trade based on comparative advantage does not contradict Adam Smith's notion of advantageous trade based on absolute advantage. If as in Smith's example, England were more productive in cloth production and Portugal were more productive in wine, then we would say that England has an absolute advantage in cloth production while Portugal has an absolute advantage in wine. If we calculated comparative advantages, then England would also have the comparative advantage in cloth and Portugal would have the comparative advantage in wine. In this case, gains from trade could be realized if both countries specialized in their comparative, and absolute, advantage goods. Advantageous trade based on comparative advantage, then, covers a larger set of circumstances while still including the case of absolute advantage and hence is a more general theory. The Ricardian Model - Assumptions and Results The modern version of the Ricardian model and its results are typically presented by constructing and analyzing an economic model of an international economy. In its most simple form, the model assumes two countries producing two goods using labor as the only factor of production. Goods are assumed homogeneous (i.e., identical) across firms and countries. Labor is homogeneous within a country but heterogeneous (non-identical) across countries. Goods can be transported costlessly between countries. Labor can be reallocated costlessly between industries within a country but cannot move between countries. Labor is always fully employed. Production technology differences exist across industries and across countries and are reflected in labor productivity parameters. The labor and goods markets are assumed to be perfectly competitive in both countries. Firms are assumed to maximize profit while consumers (workers) are assumed to maximize utility. (See page 40-2 for a more complete description) The primary issue in the analysis of this model is what happens when each country moves from autarky (no trade) to free trade with the other country - in other words, what are the effects of trade? The main things we care about are trade's effects on the prices of the goods in each country, the production levels of the goods, employment levels in each industry, the pattern of trade (who exports and who imports what), consumption levels in each country, wages and incomes, and the welfare effects both nationally and individually. Using the model one can show that, in autarky, each country will produce some of each good. Because of the technology differences, relative prices of the two goods will differ between countries. The price of each country's comparative advantage good will be lower than the price of the same good in the other country. If one country has an absolute advantage in the production of both goods (as assumed by Ricardo) then real wages of workers (i.e., the purchasing power of wages) in that country will be higher in both industries compared to wages in the other country. In other words, workers in the technologically advanced country would enjoy a higher standard of living than in the
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technologically inferior country. The reason for this is that wages are based on productivity, thus in the country that is more productive, workers get higher wages. The next step in the analysis is to assume that trade between countries is suddenly liberalized and made free. The initial differences in relative prices of the goods between countries in autarky will stimulate trade between the countries. Since the differences in prices arise directly out of differences in technology between countries, it is the differences in technology that cause trade in the model. Profit-seeking firms in each country's comparative advantage industry would recognize that the price of their good is higher in the other country. Since transportation costs are zero, more profit can be made through export than with sales domestically. Thus each country would export the good in which they have a comparative advantage. Trade flows would increase until the price of each good is equal across countries. In the end, the price of each country's export good (its comparative advantage good) will rise and the price of its import good (its comparative disadvantage good) will fall. The higher price received for each country's comparative advantage good would lead each country to specialize in that good. To accomplish this, labor would have to move from the comparative disadvantaged industry into the comparative advantage industry. This means that one industry goes out of business in each country. However, because the model assumes full employment and costless mobility of labor, all of these workers are immediately gainfully employed in the other industry. One striking result here is that even when one country is technologically superior to the other in both industries, one of these industries would go out of business when opening to free trade. Thus, technological superiority is not enough to guarantee continued production of a good in free trade. A country must have a comparative advantage in production of a good, rather than an absolute advantage, to guarantee continued production in free trade. From the perspective of a less developed country, the developed countries' superior technology need not imply that LDC industries cannot compete in international markets. Another striking result is that the technologically superior country's comparative advantage industry survives while the same industry disappears in the other country, even though the workers in the other country's industry has lower wages. In other words, low wages in another country in a particular industry is not sufficient information to know which country's industry would perish under free trade. From the perspective of a developed country, freer trade may not result in a domestic industry's decline just because the foreign firms pay their workers lower wages. The movement to free trade generates an improvement in welfare in both countries both individually and nationally. Specialization and trade will increase the set of consumption possibilities, compared with autarky, and will make possible an increase in consumption of both goods, nationally. These aggregate gains are often described as improvements in production and consumption efficiency. Free trade raises aggregate world production efficiency because more of both goods are likely to be produced with the same number of workers. Free trade also improves aggregate consumption efficiency, which implies that consumers have a more pleasing set of choices and prices available to them. Real wages (and incomes) of individual workers are also shown to rise in both countries. Thus, every worker can consume more of both goods in free trade compared with autarky. In short, everybody benefits from free trade in both countries. In the Ricardian model trade is truly a win-win situation. Defending Against Skeptics: The True Meaning and Intuition of the Theory of Comparative Advantage Many people who learn about the theory of comparative advantage quickly convince
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themselves that its ability to describe the real world is extremely limited, if not nonexistent. Although the results follow logically from the assumptions, the assumptions are easily assailed as unrealistic. For example, the model assumes only two countries producing two goods using just one factor of production. There is no capital or land or other resources needed for production. The real world, on the other hand, consists of many countries producing many goods using many factors of production. In the model, each market is assumed to be perfectly competitive, when in reality there are many industries in which firms have market power. Labor productivity is assumed fixed, when in actuality it changes over time, perhaps based on past production levels. Full employment is assumed, when clearly workers cannot immediately and costlessly move to other industries. Also, all workers are assumed identical. This means that when a worker is moved from one industry to another, he or she is immediately as productive as every other worker who was previously employed there. Finally, the model assumes that technology differences are the only differences that exist between the countries. With so many unrealistic assumptions it is difficult for some people to accept the conclusions of the model with any confidence, especially when so many of the results are counterintuitive. Indeed one of the most difficult aspects of economic analysis is how to interpret the conclusions of models. Models are, by their nature, simplifications of the real world and thus all economic models contain unrealistic assumptions. Therefore, to dismiss the results of economic analysis on the basis of unrealistic assumptions means that one must dismiss all insights contained within the entire economics discipline. Surely, this is not practical or realistic. Economic models in general and the Ricardian model in particular do contain insights that most likely carry over to the more complex real world. The following story is meant to explain some of the insights within the theory of comparative advantage by placing the model into a more familiar setting. Example case: Suppose it is early spring and it is time to prepare the family backyard garden for the first planting of the year. The father in the household sets aside one Sunday afternoon to do the job but hopes to complete the job as quickly as possible. Preparation of the garden requires the following tasks. First, the soil must be turned over and broken up using the roto-tiller, then the soil must be raked and smoothed. Finally, seeds must be planted or sowed. This year the father's seven-year-old son is anxious to help. The question at hand is whether the son should be allowed to help if one's only objective is to complete the task in the shortest amount of time possible. At first thought, the father is reluctant to accept help. Clearly each task would take the father less time to complete than the time it would take the son. In other words, the father can perform each task more efficiently than the seven-year-old son. The father estimates that it will take him three hours to prepare the garden if he works alone, as shown in the following table. Task Completion Time (hours) 1.0 1.0 1.0
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Roto-Tilling Raking Planting

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Total

3.0

On second thought, the father decides to let his son help according to the following procedure. First the father begins the roto-tilling. Once he has completed half of the garden, the son begins raking the roto-tilled section while the father finishes roto-tilling the rest of the garden plot. After the father finishes roto-tilling he begins planting seeds in the section the son has already raked. Suppose the son rakes slower than the father plants, and that the father completes the sowing process just as the son finishes raking. Note this implies that raking takes the son almost 2 hours compared to one hour for the father. However, because the son's work is done simultaneously with the father's work, it does not add to the total time for the project. Under this plan the time needed to complete the tasks in shown in the following table. Task Completion Time (hours) 1.0 1.0 2.0

Roto-Tilling Raking & Planting Total

Notice that the total time needed to prepare the garden has fallen from 3 hours to 2 hours. The garden is prepared in less time with the son's help than it could have been done independently by the father. In other words, it makes sense to employ the son in (garden) production even though the son is less efficient than the dad in every one of the three required tasks. Overall efficiency is enhanced when both resources (the father and son) are fully employed. This arrangement also clearly benefits both the father and son. The father completes the task in less time and thus winds up with some additional leisure time which the father and son can enjoy together. The son also benefits because he has contributed his skills to a productive activity and will enjoy a sense of accomplishment. Thus both parties benefit from the arrangement. However, it is important to allocate the tasks correctly between the father and the son. Suppose the father allowed his son to do the roto-tilling instead. In this case the time needed for each task might look as follows. Task Roto-Tilling Raking Planting Total Completion Time (hours) 4.0 1.0 1.0 6.0

The time needed for roto-tilling has now jumped to 4 hours because we have included the time spent traveling to and from the hospital and the time spent in the emergency

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room! Once the father and son return, the father must complete the remaining tasks on his own. Overall efficiency declines in this case compared to the father acting alone. This highlights the importance of specializing in production of the task in which you have a comparative advantage. Even though the father can complete all three tasks quicker than his son, his relative advantage in roto-tilling greatly exceeds his advantage in raking and planting. One might say that the father is most-best at roto-tilling while he is leastbest at raking and planting. On the other hand, the son is least-worse at raking and planting but most-worse at roto-tilling. Finally, because of the sequential nature of the tasks, the son can remain fully employed only if he works on the middle task, namely raking. Interpreting the Theory of Comparative Advantage The garden story offers an intuitive explanation for the theory of comparative advantage and also provides a useful way of interpreting the model results. The usual way of stating the Ricardian model results is to say that countries will specialize in their comparative advantage good and trade them to the other country such that everyone in both countries benefit. Stated this way it is easy to imagine how it would not hold true in the complex real world. A better way to state the results is as follows. The Ricardian model shows that if we want to maximize total output in the world then, first, fully employ all resources worldwide; second, allocate those resources within countries to each country's comparative advantage industries; and third, allow the countries to trade freely thereafter. In this way we might raise the wellbeing of all individuals despite differences in relative productivities. In this description, we do not predict that a result will carry over to the complex real world. Instead we carry the logic of comparative advantage to the real world and ask how things would have to look to achieve a certain result (maximum output and benefits). In the end we should not say that the model of comparative advantage tells us anything about what will happen when two countries begin to trade; instead we should say that the theory tells us some things that can happen. Q32. Q33. What is IMF? What are its Objective? International Monetary Fund also called, as IMF in short, is an international financial organization that was established in order to promote orderly exchange arrangements, international monetary cooperation and exchange stability among various member countries.This organization also aims to provide fast economic growth to its member countries besides providing highest employment levels. Temporary financial assistance is also provided by this organization to its member countries for easing off the balance of payments adjustments. Since its inception, the objectives of IMF have remained the same but for meeting the ever changing need it has evolved some operations like technical assistance, financial assistance and surveillance. The headquarters of this international organization lies at Washington D .C in United States and at present, there are 185 member countries of this organization.In the past some years, this organization has helped member countries in great way by observing the exchange rates to ensure stable global financial systems. The last country to join this prestigious organization is
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Montenegro, which joined on 18th January, 2007. It is very important to note here that all the United Nation member countries participate directly in International Monetary Fund with exception of North Korea, Andorra, Cuba, Monaco, Tuvalu, Liechtenstein, and Nauru. The main objective of International Monetary Fund it to provide financial assistance to all the member countries that are facing financial problems. All the member states that are facing problems regarding balance of payments can easily request for loans etc for improving the situation. This can also be done by making request for the organizational management of economies at IMF." But in return of getting assistance, the member countries of International Monetary Fund are also required to launch certain types of reforms that aim at improving the financial strength of member country. The reader should note here that many times, these reforms become quite essential as the member countries, that have fixed exchange rate policies, often engage in various types of monetary, fiscal and political practices that are harmful for them. All those countries that have budget deficits or are suffering from high inflation levels or have strict prices controls, are also suffering from balance of payment problem. These reforms are carried out by means of structural adjustment programs and basic motive of these reforms is to help the member countries to come out of crisis permanently, rather than helping them temporarily with financial assistance. These reforms, however, have been criticized for their non-transparent behaviour. Fast Facts on the IM • • • • • • • • • • • Membership: 186 countries Headquarters: Washington, DC Executive Board: 24 Directors representing countries or groups of countries Staff: approximately 2,478 from 143 countries Total quotas: $325 billion (as of 3/31/09) Additional pledged or committed resources: $500 billion Loans committed (as of 9/1/09): $175.5 billion, of which $124.5 billion have not been drawn Biggest borrowers: Hungary, Mexico, Ukraine Technical assistance: Field delivery in FY2009—173 person years during FY2009 Surveillance consultations: Concluded in 2008—177 countries in 2008, of which 155 voluntarily published information on their consultation (as of 03/31/09) Original aims: Article I of the Articles of Agreement sets out the IMF’s main goals: o promoting international monetary cooperation; o facilitating the expansion and balanced growth of international trade; o promoting exchange stability; o assisting in the establishment of a multilateral system of payments; and o making resources available (with adequate safeguards) to members experiencing balance of payments difficulties.

Q. What is the need and importance of world bank? World Bank is a term used to describe an international financial institution that provides leveraged loans to developing countries for capital programs. The World Bank has a stated goal of reducing poverty. The World Bank differs from the World Bank Group, in that the World Bank comprises only two institutions: the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA), whereas the latter incorporates these two in addition to three more: International Finance Corporation (IFC), Multilateral Investment Guarantee Agency (MIGA), and International Centre for Settlement of Investment Disputes (ICSID).

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The World Bank is one of two institutions created at the Bretton Woods Conference in 1944. The International Monetary Fund, a related institution is the second. Delegates from many countries attended the Bretton Woods Conference. The most powerful countries in attendance were the United States and United Kingdom which dominated negotiations. Although both are based in Washington, the World Bank is by custom headed by an American, while the IMF is led by a European. Key Factors The World Bank sees the five key factors necessary for economic growth and the creation of an enabling business environment as:

1. Build capacity: Strengthening governments and educating government officials. 2. Infrastructure creation: implementation of legal and judicial systems for the
encouragement of business, the protection of individual and property rights and the honoring of contracts. 3. Development of Financial Systems: the establishment of strong systems capable of supporting endeavors from micro credit to the financing of larger corporate ventures. 4. Combating corruption: Support for countries' efforts at eradicating corruption. 5. Research, Consultancy and Training: the World Bank provides platform for research on development issues, consultancy and conduct training programs (web based, on line, tele-/video conferencing and class room based) open for those who are interested from academia, students, government and non-governmental organization (NGO) officers etc. The Bank obtains funding for its operations primarily through the IBRD’s sale of AAArated bonds in the world’s financial markets. The IBRD’s income is generated from its lending activities, with its borrowings leveraging its own paid-in capital, plus the investment of its "float". The IDA obtains the majority of its funds from forty donor countries who replenish the bank’s funds every three years, and from loan repayments, which then become available for re-lending. Active Areas The World Bank is active in the following areas: • • • • • • • • • • • • • • • • • Agriculture and Rural Development Conflict and Development Development Operations and Activities Economic Policy Education Energy Environment Financial Sector Gender Governance Health, Nutrition and Population Industry Information and Communication Technologies Information, Computing and Telecommunications International Economics and Trade Labor and Social Protections Law and Justice
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• • • • • • • • • • • • • •

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Macroeconomic and Economic Growth Mining Poverty Reduction Poverty Private Sector Public Sector Governance Rural Development Social Development Social Protection Trade Transport Urban Development Water Resources Water Supply and Sanitation

Criteria Many achievements have brought the MDG targets for 2015 within reach in some cases. For the goals to be realized, six criteria must be met: stronger and more inclusive growth in Africa and fragile states, more effort in health and education, integration of the development and environment agendas, more and better aid, movement on trade negotiations, and stronger and more focused support from multilateral institutions like the World Bank.

1. Eradicate Extreme Poverty and Hunger: From 1990 through 2004, the proportion
of people living in extreme poverty fell from almost a third to less than a fifth. Although results vary widely within regions and countries, the trend indicates that the world as a whole can meet the goal of halving the percentage of people living in poverty. Africa’s poverty, however, is expected to rise, and most of the 36 countries where 90% of the world’s undernourished children live are in Africa. Less than a quarter of countries are on track for achieving the goal of halving under-nutrition.

1. Achieve Universal Primary Education: The number of children in school in
developing countries increased from 80% in 1991 to 88% in 2005. Still, about 72 million children of primary school age, 57% of them girls, were not being educated as of 2005. Promote Gender Equality and Empower Women: The tide is turning slowly for women in the labor market, yet far more women than men- worldwide more than 60% - are contributing but unpaid family workers. The World Bank Group Gender Action Plan was created to advance women’s economic empowerment and promote shared growth. Reduce Child Mortality: There is some improvement in survival rates globally; accelerated improvements are needed most urgently in South Asia and SubSaharan Africa. An estimated 10 million-plus children under five died in 2005; most of their deaths were from preventable causes. Improve Maternal Health: Almost all of the half million women who die during pregnancy or childbirth every year live in Sub-Saharan Africa and Asia. There are numerous causes of maternal death that require a variety of health care interventions to be made widely accessible. Combat HIV/AIDS, Malaria, and Other Diseases: Annual numbers of new HIV infections and AIDS deaths have fallen, but the number of people living with HIV continues to grow. In the eight worst-hit southern African countries, prevalence is above 15 percent. Treatment has increased globally, but still meets only 30 percent of needs (with wide variations across countries). AIDS remains the leading cause of death in Sub-Saharan Africa (1.6 million deaths in 2007). There are 300
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2.

3.

4.

5.

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to 500 million cases of malaria each year, leading to more than 1 million deaths. Nearly all the cases and more than 95 percent of the deaths occur in Sub-Saharan Africa. 6. Ensure Environmental Sustainability: Deforestation remains a critical problem, particularly in regions of biological diversity, which continues to decline. Greenhouse gas emissions are increasing faster than energy technology advancement. 7. Develop a Global Partnership for Development: Donor countries have renewed their commitment. Donors have to ful. Ll their pledges to match the current rate of core program development. Emphasis is being placed on the Bank Group’s collaboration with multilateral and local partners to quicken progress toward the MDGs’ realization. Q35. Role of WTO in economic integration The World Trade Organization (WTO) is an international organization designed by its founders to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1947. The World Trade Organization deals with regulation of trade between participating countries; it provides a framework for negotiating and formalising trade agreements, and a dispute resolution process aimed at enforcing participants' adherence to WTO agreements which are signed by representatives of member governments and ratified by their parliaments. Most of the issues that the WTO focuses on derive from previous trade negotiations, especially from the Uruguay Round (1986-1994). The organization is currently endeavouring to persist with a trade negotiation called the Doha Development Agenda (or Doha Round), which was launched in 2001 to enhance equitable participation of poorer countries which represent a majority of the world's population. However, the negotiation has been dogged by "disagreement between exporters of agricultural bulk commodities and countries with large numbers of subsistence farmers on the precise terms of a 'special safeguard measure' to protect farmers from surges in imports. At this time, the future of the Doha Round is uncertain."[ The WTO has 153 members, representing more than 97% of total world trade and 30 observers, most seeking membership. The WTO is governed by a ministerial conference, meeting every two years; a general council, which implements the conference's policy decisions and is responsible for day-to-day administration; and a director-general, who is appointed by the ministerial conference. The WTO's headquarters is at the Centre William Rappard, Geneva, Switzerland. Q37. What is Globalization? Why companies go global? Globalization (or globalisation) describes an ongoing process by which regional economies, societies, and cultures have become integrated through a globe-spanning network of communication and trade. The term is sometimes used to refer specifically to economic globalization: the integration of national economies into the international economy through trade, foreign direct investment, capital flows, migration, and the spread of technology. However, globalization is usually recognised as being driven by a combination of economic, technological, sociocultural, political, and biological factors. The term can also refer to the transnational circulation of ideas, languages, or popular culture through acculturation An early description of globalization was penned by the American entrepreneur-turnedminister Charles Taze Russell who coined the term 'corporate giants' in 1897. Although it was not until the 1960s that the term began to be widely used by economists and other social scientists. The term has since then achieved widespread use in the mainstream press by the later half of the 1980s. Since its inception, the concept of globalization has inspired numerous competing definitions and interpretations.
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The United Nations ESCWA has written that globalization "is a widely-used term that can be defined in a number of different ways. When used in an economic context, it refers to the reduction and removal of barriers between national borders in order to facilitate the flow of goods, capital, services and labor... although considerable barriers remain to the flow of labor... Globalization is not a new phenomenon. It began in the late nineteenth century, but it slowed down during the period from the start of the First World War until the third quarter of the twentieth century. This slowdown can be attributed to the inwardlooking policies pursued by a number of countries in order to protect their respective industries... however, the pace of globalization picked up rapidly during the fourth quarter of the twentieth century..." Saskia Sassen writes that "a good part of globalization consists of an enormous variety of micro-processes that begin to denationalize what had been constructed as national — whether policies, capital, political subjectivity, urban spaces, temporal frames, or any other of a variety of dynamics and domains." HSBC, world's largest bank, operates across the globe. Tom G. Palmer of the Cato Institute defines globalization as "the diminution or elimination of state-enforced restrictions on exchanges across borders and the increasingly integrated and complex global system of production and exchange that has emerged as a result." Thomas L. Friedman has examined the impact of the "flattening" of the world, and argues that globalized trade, outsourcing, supply-chaining, and political forces have changed the world permanently, for both better and worse. He also argues that the pace of globalization is quickening and will continue to have a growing impact on business organization and practice. Noam Chomsky argues that the word globalization is also used, in a doctrinal sense, to describe the neoliberal form of economic globalization. Herman E. Daly argues that sometimes the terms internationalization and globalization are used interchangeably but there is a significant formal difference. The term "internationalization" (or internationalisation) refers to the importance of international trade, relations, treaties etc. owing to the (hypothetical) immobility of labor and capital between or among nations. Finally, Takis Fotopoulos argues that globalization is the result of systemic trends manifesting the market economy’s grow-or-die dynamic, following the rapid expansion of transnational corporations. Because these trends have not been offset effectively by counter-tendencies that could have emanated from trade-union action and other forms of political activity, the outcome has been globalisation. This is a multi-faceted and irreversible phenomenon within the system of the market economy and it is expressed as: economic globalisation, namely, the opening and deregulation of commodity, capital and labour markets which led to the present form of neoliberal globalisation; political globalisation, i.e., the emergence of a transnational elite and the phasing out of the all powerful-nation state of the statist period; cultural globalisation, i.e., the worldwide homogenisation of culture; ideological globalisation; technological globalisation; social globalisation Globalization, since World War II, is largely the result of planning by politicians to break down borders hampering trade to increase prosperity and interdependence thereby decreasing the chance of future war. Their work led to the Bretton Woods conference, an agreement by the world's leading politicians to lay down the framework for international commerce and finance, and the founding of several international institutions intended to oversee the processes of globalization.
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These institutions include the International Bank for Reconstruction and Development (the World Bank), and the International Monetary Fund. Globalization has been facilitated by advances in technology which have reduced the costs of trade, and trade negotiation rounds, originally under the auspices of the General Agreement on Tariffs and Trade (GATT), which led to a series of agreements to remove restrictions on free trade. Since World War II, barriers to international trade have been considerably lowered through international agreements — GATT. Particular initiatives carried out as a result of GATT and the World Trade Organization (WTO), for which GATT is the foundation, have included: • Promotion of free trade: o elimination of tariffs; creation of free trade zones with small or no tariffs o Reduced transportation costs, especially resulting from development of containerization for ocean shipping. o Reduction or elimination of capital controls o Reduction, elimination, or harmonization of subsidies for local businesses o Creation of subsidies for global corporations o Harmonization of intellectual property laws across the majority of states, with more restrictions o Supranational recognition of intellectual property restrictions (e.g. patents granted by China would be recognized in the United States)

Cultural globalization, driven by communication technology and the worldwide marketing of Western cultural industries, was understood at first as a process of homogenization, as the global domination of American culture at the expense of traditional diversity. However, a contrasting trend soon became evident in the emergence of movements protesting against globalization and giving new momentum to the defence of local uniqueness, individuality, and identity, but largely without success. The Uruguay Round (1986 to 1994) led to a treaty to create the WTO to mediate trade disputes and set up a uniform platform of trading. Other bilateral and multilateral trade agreements, including sections of Europe's Maastricht Treaty and the North American Free Trade Agreement (NAFTA) have also been signed in pursuit of the goal of reducing tariffs and barriers to trade. World exports rose from 8.5% in 1970, to 16.2% of total gross world product in 2001. Measuring globalization Looking specifically at economic globalization, demonstrates that it can be measured in different ways. These centre around the four main economic flows that characterize globalization: • • • • Goods and services, e.g., exports plus imports as a proportion of national income or per capita of population Labor/people, e.g., net migration rates; inward or outward migration flows, weighted by population Capital, e.g., inward or outward direct investment as a proportion of national income or per head of population Technology, e.g., international research & development flows; proportion of populations (and rates of change thereof) using particular inventions (especially 'factor-neutral' technological advances such as the telephone, motorcar, broadband)

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As globalization is not only an economic phenomenon, a multivariate approach to measuring globalization is the recent index calculated by the Swiss think tank KOF. The index measures the three main dimensions of globalization: economic, social, and political. In addition to three indices measuring these dimensions, an overall index of globalization and sub-indices referring to actual economic flows, economic restrictions, data on personal contact, data on information flows, and data on cultural proximity is calculated. Data is available on a yearly basis for 122 countries, as detailed in Dreher, Gaston and Martens (2008). According to the index, the world's most globalized country is Belgium, followed by Austria, Sweden, the United Kingdom and the Netherlands. The least globalized countries according to the KOF-index are Haiti, Myanmar, the Central African Republic and Burundi. A.T. Kearney and Foreign Policy Magazine jointly publish another Globalization Index. According to the 2006 index, Singapore, Ireland, Switzerland, the Netherlands, Canada and Denmark are the most globalized, while Indonesia, India and Iran are the least globalized among countries listed. Effects of globalization Globalization has various aspects which affect the world in several different ways such as: • Industrial - emergence of worldwide production markets and broader access to a range of foreign products for consumers and companies. Particularly movement of material and goods between and within national boundaries. International trade in manufactured goods increased more than 100 times (from $95 billion to $12 trillion) in the 50 years since 1955. China’s trade with Africa rose sevenfold during 2000-07 alone. Financial - emergence of worldwide financial markets and better access to external financing for borrowers. By the early part of the 21st century more than $1.5 trillion in national currencies were traded daily to support the expanded levels of trade and investment. As these worldwide structures grew more quickly than any transnational regulatory regime, the instability of the global financial infrastructure dramatically increased, as evidenced by the Financial crisis of 2007–2010.

As of 2005–2007, the Port of Shanghai holds the title as the World's busiest port. • Economic - realization of a global common market, based on the freedom of exchange of goods and capital. The interconnectedness of these markets, however meant that an economic collapse in any one given country could not be contained.

India is right now home of almost every well known I.T company around the globe. Four Indians were among the world's top 10 richest in 2008, worth a combined $160 billion. In 2007, China had 415,000 millionaires and India 123,000. • Health Policy - On the global scale, health becomes a commodity. In developing nations under the demands of Structural Adjustment Programs, health systems
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are fragmented and privatized. Global health policy makers have shifted during the 1990s from United Nations players to financial institutions. The result of this power transition is an increase in privatization in the health sector. This privatization fragments health policy by crowding it with many players with many private interests. These fragmented policy players emphasize partnerships, specific interventions to combat specific problems (as opposed to comprehensive health strategies). Influenced by global trade and global economy, health policy is directed by technological advances and innovative medical trade. Global priorities, in this situation, are sometimes at odds with national priorities where increased health infrastructure and basic primary care are of more value to the public than privatized care for the wealthy.

Britain is a country of rich diversity. As of 2008, 40% of London's total population was from an ethnic minority group. The latest official figures show that in 2008, 590,000 people arrived to live in the UK whilst 427,000 left, meaning that net inward migration was 163,000. • Political - some use "globalization" to mean the creation of a world government which regulates the relationships among governments and guarantees the rights arising from social and economic globalization. Politically, the United States has enjoyed a position of power among the world powers, in part because of its strong and wealthy economy. With the influence of globalization and with the help of The United States’ own economy, the People's Republic of China has experienced some tremendous growth within the past decade. If China continues to grow at the rate projected by the trends, then it is very likely that in the next twenty years, there will be a major reallocation of power among the world leaders. China will have enough wealth, industry, and technology to rival the United States for the position of leading world power. Informational - increase in information flows between geographically remote locations. Arguably this is a technological change with the advent of fibre optic communications, satellites, and increased availability of telephone and Internet. Language - the most popular language is Mandarin (845 million speakers) followed by Spanish (329 million speakers) and English (328 million speakers). o About 35% of the world's mail, telexes, and cables are in English. o Approximately 40% of the world's radio programs are in English. o About 50% of all Internet traffic uses English. Competition - Survival in the new global business market calls for improved productivity and increased competition. Due to the market becoming worldwide, companies in various industries have to upgrade their products and use technology skillfully in order to face increased competition. Ecological - the advent of global environmental challenges that might be solved with international cooperation, such as climate change, cross-boundary water and air pollution, over-fishing of the ocean, and the spread of invasive species. Since many factories are built in developing countries with less environmental regulation, globalism and free trade may increase pollution. On the other hand, economic development historically required a "dirty" industrial stage, and it is argued that developing countries should not, via regulation, be prohibited from increasing their standard of living.

• •

The construction of continental hotels is a major consequence of globalization process in affiliation with tourism and travel industry, Dariush Grand Hotel, Kish, Iran.

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• •

Cultural - growth of cross-cultural contacts; advent of new categories of consciousness and identities which embodies cultural diffusion, the desire to increase one's standard of living and enjoy foreign products and ideas, adopt new technology and practices, and participate in a "world culture". Some bemoan the resulting consumerism and loss of languages. Also see Transformation of culture. o Spreading of multiculturalism, and better individual access to cultural diversity (e.g. through the export of Hollywood and, to a lesser extent, Bollywood movies). Some consider such "imported" culture a danger, since it may supplant the local culture, causing reduction in diversity or even assimilation. Others consider multiculturalism to promote peace and understanding between peoples. A third position gaining popularity is the notion that multiculturalism to a new form of monoculture in which no distinctions exist and everyone just shift between various lifestyles in terms of music, cloth and other aspects once more firmly attached to a single culture. Thus not mere cultural assimilation as mentioned above but the obliteration of culture as we know it today. o Greater international travel and tourism. WHO estimates that up to 500,000 people are on planes at any one time. In 2008, there were over 922 million international tourist arrivals, with a growth of 1.9% as compared to 2007. o Greater immigration, including illegal immigration. The IOM estimates there are more than 200 million migrants around the world today. Newly available data show that remittance flows to developing countries reached $328 billion in 2008. o Spread of local consumer products (e.g., food) to other countries (often adapted to their culture). o Worldwide fads and pop culture such as Pokémon, Sudoku, Numa Numa, Origami, Idol series, YouTube, Orkut, Facebook, and MySpace. Accessible to those who have Internet or Television, leaving out a substantial segment of the Earth's population. o Worldwide sporting events such as FIFA World Cup and the Olympic Games. o Incorporation of multinational corporations in to new media. As the sponsors of the All-Blacks rugby team, Adidas had created a parallel website with a downloadable interactive rugby game for its fans to play and compete. Social - development of the system of non-governmental organisations as main agents of global public policy, including humanitarian aid and developmental efforts. Technical o Development of a Global Information System, global telecommunications infrastructure and greater transborder data flow, using such technologies as the Internet, communication satellites, submarine fiber optic cable, and wireless telephones o Increase in the number of standards applied globally; e.g., copyright laws, patents and world trade agreements. Legal/Ethical o The creation of the international criminal court and international justice movements. o Crime importation and raising awareness of global crime-fighting efforts and cooperation. o The emergence of Global administrative law. Religious o The spread and increased interrelations of various religious groups, ideas, and practices and their ideas of the meanings and values of particular spaces

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Q.39. What are turnkey Contracts? Turn-key refers to something that is ready for immediate use, generally used in the sale or supply of goods or services.Turnkey is often used to describe a home built ready for the customer to move in. If a contractor builds a "turnkey home" they frame the structure and finish the interior. Everything is completed down to the cabinets and carpet. "Turnkey" is commonly used in the construction industry, for instance, in which it refers to the bundling of materials and labor by sub-contractors. 'Turnkey' is also commonly used in motorsports to describe a car being sold with drivetrain (engine, transmission, etc.) as a racer may prefer to keep the pieces to use in another vehicle to preserve a combination. Similarly, this term may be used to advertise the sale of an established business, including all the equipment necessary to run it, or by a business-to-business supplier providing complete packages for business start-up. An example would be the creation of a "turnkey hospital" which would be building a complete medical center with installed high-tech medical equipment. Use in business In a turnkey business transaction different entities are responsible for setting up a plant or a part of it. A complex project involving infrastructure facility, a chemical plant, or a refinery demands expertise which is not available with a single firm. The owner organizes the overall project with a turnkey firm and 'receives' the project on its completion and can then start to operate it. The 'agents' of the owner are: the principal engineering firm, the licensor (if any),service subcontractors (e.g. electrical contractor) and the suppliers. There may be several contracts drawn up by the principal engineering firm but they only identify the latter as the recipient of the services. The principal contract is the one that binds the owner and principal engineering firm. A turnkey project could involve the following elements depending on its complexity: • Project adminstration • licensing-in of process • design and engineering services • subcontracting • management control • procurment and expediting of equipment; • materials control • inspection of equipment prior to delivery • shipment, transportation • control of schedule and quality • pre-commisioning and completion • performance-guarantee testing • inventorying spare-parts • training of owner's/plant[[sub-system}}operating and maintence personnel A project-consultancy firm is often involved but it is required to stay independent of the turnkey enginneers and be responsible only to the owner - a watchdog so to speak. The project-consultancy firm has access to all sections of the infrastructure or plant (as applicable) but cannot direct the staff involved. The turnkey-contractor furnishes a wide variety of warranties and guarantees and accepts several liabilities. These include :
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• (a) warranties for the timeliness of deliveries of equipment, of erection and of completion times of civil and mechanical works; • (b) warranties for workmanship in construction annd erection of the works,according to specifications, and warranties guarantees that proper standards will be used • (c) liability for property or equipment under the control of the engineering company who contracts out the agreement to the turnkeycompany • (d) proper safety standards being implemented • (e}civil and mechanical engineering warranties; in the latter case the turnkey-contractor undertakes to asssure that mechanical performance will be maintained for a definite period • (f) training warranties of operating personnel in charge of specific operations, and • (g) the very important process warrranties and guarantees. Turnkey projects can also be extended, known as 'turnkey plus', where there is perhaps a small equity interest by the engineering firm or the main suppliers to ensure allegiance during the initial operational phases. Once the turnkey phase is over and the engineering firm receives the 'completion certificate', (from the owner), the latter will work independently or with the licensor (if any).

1. ^ Manual on Technology Negotiation,Unido.95.2.E ISBN 92-1-106302-7
Specific usage A prison turnkey The term turnkey is also often used in the technology industry, most commonly to describe pre-built computer "packages" in which everything needed to perform a certain type of task (e.g. audio editing) is put together by the supplier and sold as a bundle. This often includes a computer with pre-installed software, various types of hardware, and accessories. Such packages are commonly called appliances. Turnkey products are synonymous to "off-the-shelf" solutions - i.e. not bespoke. In the United States, the precise definition of the types of allowable contractual features for government contracts are contained in the Federal Acquisition Regulations. In real estate, turn-key is defined as delivering a location that is ready for occupation. The turn-key process includes all of the steps involved to open a location including the site selection, negotiations, space planning, construction coordination and complete installation. Q.40. What is strategic alliance? A Strategic Alliance is a formal relationship between two or more parties to pursue a set of agreed upon goals or to meet a critical business need while remaining independent organizations. Partners may provide the strategic alliance with resources such as products, distribution channels, manufacturing capability, project funding, capital equipment, knowledge, expertise, or intellectual property. The alliance is a cooperation or collaboration which aims for a synergy where each partner hopes that the benefits from the alliance will be greater than those from individual efforts. The alliance often involves technology transfer (access to knowledge and expertise), economic specialization [1], shared expenses and

shared risk.

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Types of strategic alliances Various terms have been used to describe forms of strategic partnering. These include ‘international coalitions’ (Porter and Fuller, 1986), ‘strategic networks’ (Jarillo, 1988) and, most commonly, ‘strategic alliances’. Definitions are equally varied. An alliance may be seen as the ‘joining of forces and resources, for a specified or indefinite period, to achieve a common objective’. According to Yoshino and Rangan[2] the Internationalisation Strategies can be categorized using the model displayed at the right side. Stages of Alliance Formation A typical strategic alliance formation process involves these steps: • Strategy Development: Strategy development involves studying the alliance’s feasibility, objectives and rationale, focusing on the major issues and challenges and development of resource strategies for production, technology, and people. It requires aligning alliance objectives with the overall corporate strategy. Partner Assessment: Partner assessment involves analyzing a potential partner’s strengths and weaknesses, creating strategies for accommodating all partners’ management styles, preparing appropriate partner selection criteria, understanding a partner’s motives for joining the alliance and addressing resource capability gaps that may exist for a partner. Contract Negotiation: Contract negotiations involves determining whether all parties have realistic objectives, forming high calibre negotiating teams, defining each partner’s contributions and rewards as well as protect any proprietary information, addressing termination clauses, penalties for poor performance, and highlighting the degree to which arbitration procedures are clearly stated and understood. Alliance Operation: Alliance operations involves addressing senior management’s commitment, finding the calibre of resources devoted to the alliance, linking of budgets and resources with strategic priorities, measuring and rewarding alliance performance, and assessing the performance and results of the alliance. Alliance Termination: Alliance termination involves winding down the alliance, for instance when its objectives have been met or cannot be met, or when a partner adjusts priorities or re-allocates resources elsewhere.

The advantages of strategic alliance includes: 1. Allowing each partner to concentrate on activities that best match their capabilities. 2. Learning from partners & developing competences that may be more widely exploited elsewhere 3. Adequency a suitability of the resources & competencies of an organization for it to survive. There are four types of strategic alliances: joint venture, equity strategic alliance, nonequity strategic alliance, and global strategic alliances. • Joint venture is a strategic alliance in which two or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage.
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• • •

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Equity strategic alliance is an alliance in which two or more firms own different percentages of the company they have formed by combining some of their resources and capabilities to create a competitive advantage. Nonequity strategic alliance is an alliance in which two or more firms develop a contractual-relationship to share some of their unique resources and capabilities to create a competitive advantage. Global Strategic Alliances working partnerships between companies (often more than 2) across national boundaries and increasingly across industries. Sometimes formed between company and a foreign government, or among companies and governments

Q44. What is J.V? How is it used to expand business? A joint venture (often abbreviated JV) is an entity formed between two or more parties to undertake economic activity together. The parties agree to create a new entity by both contributing equity, and they then share in the revenues, expenses, and control of the enterprise. The venture can be for one specific project only, or a continuing business relationship such as the Fuji Xerox joint venture. This is in contrast to a strategic alliance, which involves no equity stake by the participants, and is a much less rigid arrangement. The phrase generally refers to the purpose of the entity and not to a type of entity. Therefore, a joint venture may be a corporation, limited liability company, partnership or other legal structure, depending on a number of considerations such as tax and tort liability. Q) When are joint ventures used? Joint ventures are not uncommon in the oil and gas industry, and are often cooperations between a local and foreign company (about 3/4 are international). A joint venture is often seen as a very viable business alternative in this sector, as the companies can complement their skill sets while it offers the foreign company a geographic presence. Studies show a failure rate of 30-61%, and that 60% failed to start or faded away within 5 years. (Osborn, 2003) It is also known that joint ventures in low-developed countries show a greater instability, and that JVs involving government partners have higher incidence of failure (private firms seem to be better equipped to supply key skills, marketing networks etc.) Furthermore, JVs have shown to fail miserably under highly volatile demand and rapid changes in product technology. Some countries, such as the People's Republic of China and to some extent India, require foreign companies to form joint ventures with domestic firms in order to enter a market .A joint ownership venture may be brought about in three major ways: (i) Foreign investor buying an interest in a local company. (ii) local firm acquiring an interest in an existing foreign firm. (iii)Both the foreign and local entrepreneurs jointly forming a new enterprise. Brokers :In addition, joint ventures are practiced by a joint venture broker, who are people that often put together the two parties that participate in a joint venture. A joint venture broker then often make a percentage of the profit that is made from the deal between the two parties. Reasons for forming a joint venture Internal reasons 1.Build on company's strengths 2.Spreading costs and risks 3.Improving access to financial resources 4.Economies of scale and advantages of size 5.Access to new technologies and customers 6.Access to innovative managerial practices Competitive goals
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1.Influencing structural evolution of the industry 2.Pre-empting competition 3.Defensive response to blurring industry boundaries 4.Creation of stronger competitive units 5.Speed to market 6.Improved agility Strategic goals 1. Synergies 2. Transfer of technology/skills 3. Diversification Reasons for dissolving a joint venture 1. 2. 3. 4. 5. 6. 7. Aims of original venture met Aims of original venture not met Either or both parties develop new goals Either or both parties no longer agree with joint venture aims Time agreed for joint venture has expired Legal or financial issues Evolving market conditions mean that joint venture is no longer appropriate or relevant

Examples • • • • • • • • • • • • • • • • • • • • • • • • • • • AutoAlliance International (Ford + Mazda) Brewers Retail Inc. (Inbev, Molson Coors + Sapporo Breweries) CW Television Network (CBS Corporation + Warner Bros.) Bank DnB NORD (DnB NOR + NORD/LB) Dow Corning (Dow Chemical Company + Corning Incorporated) Fujitsu Siemens Computers (Fujitsu + Siemens AG) GlobalFoundries (AMD + Advanced Technology Investment Co. (ATIC)) Huawei Symantec (Huawei + Symantec) Hulu (NBC Universal + Fox Entertainment Group + ABC, Inc.) INTO University Partnerships specialises in creating JVs with British universities LG.Philips Components (LG + Philips) MSNBC (Microsoft + NBC Universal) Nokia Siemens Networks (Nokia + Siemens AG) NUMMI (General Motors + Toyota) Penske Truck Leasing (GE + Penske) PetroAlam (Royal Dutch Shell + Vegas Oil and Gas + GDF Suez) Prime Time Entertainment Network from the Prime Time Consortium (Warner Bros. + the Chris-Craft group of independent stations.) Shell-Mex and BP (Royal Dutch Shell + British Petroleum, 1931-1975) Sony BMG Music Entertainment (Sony Music Entertainment [part of Sony] + Bertelsmann Music Group [part of Bertelsmann]) Sony Ericsson (Sony + Ericsson) Strategic Alliance (Northwest Airlines + KLM) The Balfour Beatty Skanska, construction contractors (Balfour Beatty + Skanska) The Baseball Network (ABC, NBC, + Major League Baseball) Tata DoCoMo (Tata Teleservices + NTT DoCoMo) TNK-BP (BP + TNK (Tyumen Oil Co.)) TriStar Pictures (Columbia Pictures, HBO, + CBS) United Launch Alliance (ULA) (Boeing + Lockheed Martin)
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Uninor (Telenor + Unitech Group) Verizon Wireless (Verizon Communications + Vodafone) Virgin Mobile India (Virgin Group + Tata Teleservices) The XFL (NBC + World Wrestling Entertainment) NBC Universal (NBC [part of General Electric] + Vivendi Universal Entertainment [part of Vivendi]) Canara HSBC Oriental Bank of Commerce Life Insurance Company Limited. Canara Bank + HSBC + Oriental Bank of Commerce

Q.45. What is counter trade? Explain with example? Countertrade is exchanging goods or services that are paid for, in whole or part, with other goods or services. Contents 1 Types of countertrade 2 Necessity 3 Role of countertrade in the world market 4 References Types of countertrade There are five main variants of countertrade: • • • • • Barter: Exchange of goods or services directly for other goods or services without the use of money as means of purchase or payment. Switch trading: Practice in which one company sells to another its obligation to make a purchase in a given country. Counter purchase: Sale of goods and services to a country by a company that promises to make a future purchase of a specific product from the country. Buyback: occurs when a firm builds a plant in a country - or supplies technology, equipment, training, or other services to the country and agrees to take a certain percentage of the plant's output as partial payment for the contract. Offset: Agreement that a company will offset a hard - currency purchase of an unspecified product from that nation in the future. Agreement by one nation to buy a product from another, subject to the purchase of some or all of the components and raw materials from the buyer of the finished product, or the assembly of such product in the buyer nation.

Necessity Countertrade also occurs when countries lack sufficient hard currency, or when other types of market trade are impossible. In 2000, India and Iraq agreed on an "oil for wheat and rice" barter deal, subject to UN approval under Article 50 of the UN Gulf War sanctions, that would facilitate 300,000 barrels of oil delivered daily to India at a price of $6.85 a barrel while Iraq oil sales into Asia were valued at about $22 a barrel. In 2001, India agreed to swap 1.5 million tonnes of Iraqi crude under the oil-for-food program. The Security Council noted: "... although locally produced food items have become increasingly available throughout the country, most Iraqis do not have the necessary purchasing power to buy them. Unfortunately, the monthly food rations represent the largest proportion of their household income. They are obliged to either barter or sell items from the food basket in order to meet their other essential needs. This is one of the factors which partly explains why the nutritional situation has not improved in line with

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the enhanced food basket. Moreover, the absence of normal economic activity has given rise to the spread of deep-seated poverty." Role of countertrade in the world market This article contains weasel words, vague phrasing that often accompanies biased or unverifiable information. Such statements should be clarified or removed. (March 2009) The neutrality of this article is disputed. Please see the discussion on the talk page. Please do not remove this message until the dispute is resolved. (December 2007)

Noted US economist Paul Samuelson was skeptical about the viability of countertrade as a marketing tool, claiming that "Unless a hungry tailor happens to find an undraped farmer, who has both food and a desire for a pair of pants, neither can make a trade". (This is called "double coincidence of wants".) But this is a too simplistic interpretation of how markets operate in the real world. In any real economy, bartering occurs all the time. The volume of countertrade is growing. In 1972, it was estimated that countertrade was used by business and governments in 15 countries; in 1979, 27 countries; by the start of 1990s, around 100 countries. (Vertariu 1992). More than 80 countries nowadays regularly use or require countertrade exchanges. Officials of the General Agreement on Tariffs and Trade (GATT) organization claimed that countertrade accounts for around 5% of the world trade. The British Department of Trade and Industry has suggested 15%, while numerous scholars believe it to be closer to 30%, with east-west trade having been as high as 50% in some trading sectors of Eastern European and Third World Countries. A consensus of expert opinions (Okaroafo, 1989) has put the percentage of the value of world trade volumes linked to countertrade transactions at between 20% to 25%. According to an official US statement, "The U.S. Government generally views countertrade, including barter, as contrary to an open, free trading system and, in the long run, not in the interest of the U.S. business community. However, as a matter of policy the U.S. Government will not oppose U.S. companies' participation in countertrade arrangements unless such action could have a negative impact on national security." (Office of Management and Budget; "Impact of Offsets in Defense-related Exports," December, 1985). A large part of countertrade has involved military sales.

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Q.46. What is the need for studying country & company competitiveness while entering in IB?

MARKETING Q.47. What is MR? What is its importance in International Business? Market research is any organized effort to gather information about markets or customers. It is a very important component of business strategy. The term is commonly interchanged with marketing research; however, expert practitioners may wish to draw a distinction, in that marketing research is concerned specifically about marketing processes, while market research is concerned specifically with markets. Market research,as defined by the ICC/ESOMAR International Code on Market and Social Research, includes social and opinion research, [and] is the systematic gathering and interpretation of information about individuals or organizations using statistical and analytical methods and techniques of the applied social sciences to gain insight or support decision making. • • • • • • 1 History 2 Market research for business/planning 3 Financial performance o 3.1 Top ten of the market research sector 2006 4 See also 5 References 6 External links

History Market research began to be conceptualized and put into formal practice during the 1920s,[4] as an offshoot of the advertising boom of the Golden Age of radio in the United States. Advertisers began to realize the significance of demographics revealed by sponsorship of different radio programs, so they increasingly sought more direct feedback about their markets. Market research for business/planning Market research is for discovering what people want, need, or believe. It can also involve discovering how they act. Once that research is completed, it can be used to determine how to market your product. Questionnaires and focus group discussion surveys are some of the instruments for market research. For starting up a business, there are some important things: • Market information

Through Market information one can know the prices of the different commodities in the market, as well as the supply and demand situation. Information about the markets can be obtained from different sources, varieties and formats, as well as the sources and varieties that have to be obtained to make the business work.

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BY: VISHAL KADAM

Market segmentation

Market segmentation is the division of the market or population into subgroups with similar motivations. It is widely used for segmenting on geographic differences, personality differences, demographic differences, technographic differences, use of product differences, psychographic differences and gender differences. • Market trends

Market trends are the upward or downward movements of a market, during a period of time. The market size is more difficult to estimate if one is starting with something completely new. In this case, you will have to derive the figures from the number of potential customers, or customer segments. [Ilar 1998] Besides information about the target market, one also needs information about one's competitors, customers, products, etc. Lastly, you need to measure marketing effectiveness. A few techniques are: • • • • • • • Customer analysis Choice Modelling Competitor analysis Risk analysis Product research Advertising the research Marketing mix modeling

International Marketing Research follows the same path as domestic research, but there are a few more problems that may arise. Customers in international markets may have very different customs, cultures, and expectations from the same company. In this case, secondary information must be collected from each separate country and then combined, or compared. This is time consuming and can be confusing. International Marketing Research relies more on primary data rather than secondary information. Gathering the primary data can be hindered by language, literacy and access to technology. Role of marketing research The task of marketing research is to provide management with relevant, accurate, reliable, valid, and current information. Competitive marketing environment and the ever-increasing costs attributed to poor decision making require that marketing research provide sound information. Sound decisions are not based on gut feeling, intuition, or even pure judgment. Marketing managers make numerous strategic and tactical decisions in the process of identifying and satisfying customer needs. They make decisions about potential opportunities, target market selection, market segmentation, planning and implementing marketing programs, marketing performance, and control. These decisions are complicated by interactions between the controllable marketing variables of product, pricing, promotion, and distribution. Further complications are added by uncontrollable environmental factors such as general economic conditions, technology, public policies and laws, political environment, competition, and social and cultural changes. Another factor in this mix is the complexity of consumers. Marketing research helps the marketing manager link the marketing variables with the environment and the consumers. It helps remove some of the uncertainty by providing relevant information about the marketing variables, environment, and consumers. In the absence of relevant
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information, consumers' response to marketing programs cannot be predicted reliably or accurately. Ongoing marketing research programs provide information on controllable and non-controllable factors and consumers; this information enhances the effectiveness of decisions made by marketing managers. Traditionally, marketing researchers were responsible for providing the relevant information and marketing decisions were made by the managers. However, the roles are changing and marketing researchers are becoming more involved in decision making, whereas marketing managers are becoming more involved with research. The role of marketing research in managerial decision making is explained further using the framework of the "DECIDE" model: D : Define the marketing problem E : Enumerate the controllable and uncontrollable decision factors C : Collect relevant information I : Identify the best alternative D: Develop and implement a marketing plan E: Evaluate the decision and the decision process The DECIDE model conceptualizes managerial decision making as a series of six steps. The decision process begins by precisely defining the problem or opportunity, along with the objectives and constraints.[4] Next, the possible decision factors that make up the alternative courses of action (controllable factors) and uncertainties (uncontrollable factors) are enumerated. Then, relevant information on the alternatives and possible outcomes is collected. The next step is to select the best alternative based on chosen criteria or measures of success. Then a detailed plan to implement the alternative selected is developed and put into effect. Last, the outcome of the decision and the decision process itself are evaluated. Marketing research characteristics First, marketing research is systematic. Thus systematic planning is required at all the stages of the marketing research process. The procedures followed at each stage are methodologically sound, well documented, and, as much as possible, planned in advance. Marketing research uses the scientific method in that data are collected and analyzed to test prior notions or hypotheses. Marketing research is objective. It attempts to provide accurate information that reflects a true state of affairs. It should be conducted impartially. While research is always influenced by the researcher's research philosophy, it should be free from the personal or political biases of the researcher or the management. Research which is motivated by personal or political gain involves a breach of professional standards. Such research is deliberately biased so as to result in predetermined findings. The motto of every researcher should be, "Find it and tell it like it is." The objective nature of marketing research underscores the importance of ethical considerations, which are discussed later in the chapter. Marketing research involves the identification, collection, analysis, and dissemination of information. Each phase of this process is important. We identify or define the marketing research problem or opportunity and then determine what information is needed to investigate it., and inferences are drawn. Finally, the findings, implications and recommendations are provided in a format that allows the information to be used for
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management decision making and to be acted upon directly. It should be emphasized that marketing research is conducted to assist management in decision making and is not: a means or an end in itself. The next section elaborates on this definition by classifying different types of marketing research. Q.48. What is international Marketing? International Marketing – “marketing activities intended to facilitate the exchange or transfer of goods between nations” International Marketing – “The conduct and co-ordination of marketing activities in more than one country” Q.49. What is Market Segmentation? Market segmentation is a concept in economics and marketing. A market segment is a sub-set of a market made up of people or organiztions sharing one or more characteristics that cause them to demand similar product and/or services based on qualities of those products such as price or function. A true market segment meets all of the following criteria: it is distinct from other segments (different segments have different needs), it is homogeneous within the segment (exhibits common needs); it responds similarly to a market stimulus, and it can be reached by a market intervention. The term is also used when consumers with identical product and/or service needs are divided up into groups so they can be charged different amounts. These can broadly be viewed as 'positive' and 'negative' applications of the same idea, splitting up the market into smaller groups. While there may be theoretically 'ideal' market segments, in reality every organistion engaged in a market will develop different ways of imagining market segments, and create Product differentiation strategies to exploit these segments. The market segmentation and corresponding product differentiation strategy can give a firm a temporary commerical advantage. Q50. What is niche marketing? A niche market is the subset of the market on which a specific product is focusing; therefore the market niche defines the specific product features aimed at satisfying specific market needs, as well as the price range, production quality and the demographics that is intended to impact. Every single product that is on sale can be defined by its niche market. As of special note, the products aimed at a wide demographic audience, with the resulting low price (due to price elasticity of demand), are said to belong to the mainstream niche—in practice referred to only as mainstream or of high demand. Narrower demographics lead to elevated prices due to the same principle. In practice, product vendors and trade businesses are commonly referred as mainstream providers or narrow demographics niche market providers (colloquially shortened to just niche market providers). Small capital providers usually opt for a niche market with narrow demographics as a measure of increasing their gain margins. Nevertheless, the final product quality (low or high) is not dependant on the price elasticity of demand; it is associated more with the specific needs that the product is aimed at satisfy and in some cases with brand recognition with which the vendor wants to be associated (e.g., prestige, practicability, money saving, expensiveness, planet environment conscience, power, &c.). Q.51. What is Market Strategy? Marketing strategy is a process that can allow an organization to concentrate its limited resources on the greatest opportunities to increase sales and achieve a sustainable
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competitive advantage. A marketing strategy should be centered around the key concept that customer satisfaction is the main goal. Marketing strategy is a method of focusing an organization's energies and resources on a course of action which can lead to increased sales and dominance of a targeted market niche. A marketing strategy combines product development, promotion, distribution, pricing, relationship management and other elements; identifies the firm's marketing goals, and explains how they will be achieved, ideally within a stated timeframe. Marketing strategy determines the choice of target market segments, positioning, marketing mix, and allocation of resources. It is most effective when it is an integral component of overall firm strategy, defining how the organization will successfully engage customers, prospects, and competitors in the market arena. Corporate strategies, corporate missions, and corporate goals. As the customer constitutes the source of a company's revenue, marketing strategy is closely linked with sales. A key component of marketing strategy is often to keep marketing in line with a company's overarching mission statement. Basic theory: .Target Audience .Proposition/Key Element .Implementation Q52. What is concentrated Marketing Strategy? market concentration is a function of the number of firms and their respective shares of the total production (alternatively, total capacity or total reserves) in a market. Alternative terms are Industry concentration and Seller concentration.[1] Market concentration is related to the concept of industrial concentration, which concerns the distribution of production within an industry, as opposed to a market. Q.53. What is international Marketing? Explain the factors to be considered while selection of International Marketing for an existing business? International marketing can be defined as the application of marketing strategies, planning and activities to external or foreign markets. International marketing is of consequence to firms which operate in countries and territories other than their home country, or the country in which they are registered in and have their head office. The factors influencing international marketing are culture, political and legal factors, a country's level of economic development, and the mode of involvement in foreign markets. The reasons why a firm would engage in international markets are numerous, including the maturity within domestic markets or increasing general market share, sales or revenue.

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Culture Social norms, attitudes towards buying foreign goods, and the working practices of foreign markets are all cultural factors when opting to invest in foreign markets. Social norms affect business practices, since social norms are one factor in the demand for a product. In the tobacco industry, for example, adolescents in developing countries are often the focus for the marketing and advertisement campaigns due to their vulnerability. Tobacco companies will often use symbols and fabrications in western society associated with smoking as a means of attracting these prospective consumers.[15] A company marketing pork would experience less sales in an Islamic country, than it would in China (which is the world's largest consumer of pork). In Western societies, sexuality and sexual topics are often used in marketing communications (such as advertising, for instance). However, in a comparatively more conservative society (such as India for instance) social attitudes may shun the use of sexual topics to advertise products. Political and legal factors The following political/legal factors are of bearing in international marketing: .Government attitude to business .The level of governmental regulations, red-tape and bureaucracy .Monetary regulations .Political stability Not all governments are as open to foreign investment as others, nor are all governments equally favourable to business. Typically, a firm may opt to invest in an economy in which the government is more inclined to support business activity in a country. In other words, the "business-friendliness" of a foreign government is paramount in this instance. Additionally, some economies are more "liberal" and less regulated, by comparison to other economies. Excessive regulations can be a hindrance on a firm, since they contribute to additional costs to a firm. Conversely, regulations can aid in assisting firms, by easing the path of doing business. A firm seeking to invest in foreign markets must gauge the regulatory arrangement of the economy it is looking to invest in. Monetary regulations, akin to the above points, can hinder the ability to do business. A high level of monetary regulations can hamper foreign investment within an economy. Lastly, the political stability of a country is also a key factor in foreign investment decisions. Nation-states experiencing continual coup-d'etat can appear unattractive to invest in, since the continual changes in political system can compound the inherent risk in investing. Typically, a firm would opt to invest in a country which had a stable mode of government, and in which handovers of power were peaceful and non-violent. Even if a country is not a liberal democracy, a firm may often opt to invest in such an economy, if the country in question demonstrated a stable political system. The key factor in noting a nation-state's political stability is to avert excessive costs from diminshed production, coupled with the loss of current and non-current assets. Level of economic development The level of economic development of an economy can affect foreign investment decisions. Within the field of developmental economics, differing modes of economic development can be identified. These are: • Developing economy
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BY: VISHAL KADAM

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Newly-Industrialised country Industrialised country (also known as a developed country, advanced economy or first world economy)

A developing economy has a comparatively low general living standard (as defined by material lifestyle/level of material possession). Moreover, a developing economy may also be at subsistence level, or possess a large share of its Gross Domestic Product in primary industries. Accordingly, a developing country would not be a profitable market for high-end consumer goods, or fast-moving consumer goods commonly found in developed/advanced economies. Exports of machinery (related to the extraction and processing of raw materials) may be viable for a developing economy, due to primary industries possessing a large share of national income. A newly-industrialised economy is an economy which has experienced high recent economic growth, and thus has experienced a rise in general living standards. Coupled with the rapid economic growth, the emergence of a middle class leads to the development of a consumerist culture in the society. A newly-industrialised economy would consequently possess a small general demand for high-end consumer goods, but not to the extent of an advanced economy. A newly-industralised economy may export manufactured goods to other countries, and often possess secondary sector industries as a high percentage of its economic output. An industrialised economy is typically identified via a high Gross Domestic Product per capita, a high United Nations Human Development Index rating and a high level of tertiary/quaternary/quinary sector industries in the context of its national income. Thus, the high general living standard denotes the highest generalised demand for goods and services within all modes of economic development. Commonly, developed/advanced economies are high exporters of high-tech manufactured goods, as well as service sector products (such as financial services, for instance). Globalisation The greater economic ties/links between economies has presented a prime opportunity for firms trading internationally. The advantages to an international marketing firm are that regulations and costs are lower, which can promote the use of outsourcing to foreign economies. The disadvantages to a firm in a globalised economy include negative public relations resulting from the exploitation of low cost labour, concerns surrounding environmental degradation, etc. Regional trading blocks Within the past few decades, numerous regional trading blocks have emerged, as a means of encouraging and easing closer economic ties between neighbouring countries. Common examples of such blocks include the European Union, the North American Free Trade Agreement (NAFTA) and the Association of South East Asian Nations (ASEAN). Other examples are: • • • CARICOM (the Caribbean Community) EFTA (European Free Trade Association) ECOWAS (Economic Community of West African States)

Regional economic blocks often permit free (and thus less inhibited/restricted) trade between member nation-states. As such, a British firm would find trading in Germany less problematic (and vice versa, as both the United Kingdom and Germany are both EU member states), by comparison with a British firm trading with Mexico or Thailand.

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Such trading blocks can also, conversely, place restrictions/regulations on trade. To use the earlier example of the EU again, the EU may place regulations on the packaging, labelling and distribution of a product. Consequently, a UK firm trading in Germany would have to adhere to the European Union regulations, in order to trade legitimately within the European Union. Q.58. What are MNC’s? Why are MNC’s increasing? Definitions of Multinational Corporations Different types of definitions exist for Multinational Corporations because of the different kinds of multinational business organisations and each definition characterises a particular group. Further in maintaining a standard definition of Multinational Corporations there is the problem of gradual evolution of a domestic firm into a Multinational Corporation. The following are some of the definitions commonly used to define a Multinational Corporation: In the words of James Baker, “Multinational Corporations is a company, which has a direct investment based in several countries, generally derives 20% to 50% or more of its net profit from operations and whose policy decisions are based on the alternatives available anywhere in the world.” According to ILO report (i.e. International Labour Organisation), “ The essential nature of the Multinational Corporations lies in the fact that its managerial headquarters are located in one country, while the enterprise carries out operations in number of other countries.” According to Prof. Raymond Vernon, “Multinational Corporations means a company that attempts to carry out its activities on an international scale as though there are no national boundaries, on the basis of common strategy directed from a corporate centre.” Leonard Gomes, “Multinational Corporations is a corporation that controls production facilities in more than one country, such facilities having been acquired through the process of FDI (i.e. Foreign Direct Investments).” Q.59. What are Methods of formation of Multinational Corporations? Multinational Corporations are like big corporations. A company can become Multinational Corporations either by way of expansion and diversification. The following are the methods used by the companies to grow and become big. 1. Merger and Acquisition: Merger and Acquisition have played a vital role in the growth of most of the leading corporations in the world. Nearly 2/3 of the giant public corporations in the U.S.A. are the outcome of merger and acquisition. Merger means combination of the two companies, in which one company merges with another. After merger, acquired company looses its identity forever. British Leyland Motor Corporation and Associated Cement Company are the examples of merger. 2. Subsidiaries: This is another method of forming Multinational Corporations. Under this method a subsidiary or new company is opened in another company. The subsidiary again opens its subsidiary in another country. For example Uni-Lever is a Multinational Corporations, and Hindustan Lever is a subsidiary. Suppose Hindustan Lever opens its subsidiary in another country say Nepal, Bangladesh, etc, then automatically the parent company (i.e. Uni-Lever) will become large. 3. Joint Venture: It is a type of partnership between Multinational Corporations and domestic company. Multinational Corporations enters into joint venture through –
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Direct Foreign Investment: It means supply of capital through equity participation. Investment can also be made in this subsidiary. The profits earned by subsidiary and joint venture is re-invested or returned back to the parent company. Technical Know-How: Multinational Corporations agrees to supply raw materials, machinery or technical know-how. For supplying technology to subsidiary or joint venture, it may charge royalty, commission or fees for consultancy or share in the profits.

4.

Production and Marketing: Multinational Corporations can use the production facilities available in a developing country to produce goods and to be sold in other countries. For example, Modi Company of India and Rank Xerox have started a joint venture, which manufactures Xerox machines, which will be marketed by Rank Xerox in East European Markets.

5.

Production: To use the production facilities from other country, Multinational Corporations may invest in a domestic company. For example, Texas Instrument and Boeing Corporation have proposed to manufacture some of their parts in India, to be used in their product. Though this does not result into growth of Multinational Corporations but it generally leads to extension of activities.

6.

Turn Key Projects: Multinational Corporations can undertake the completion of project from its conception to completion stage at an agreed contract price. Sometimes Multinational Corporations also agree to operate and maintain the project for a specific period. Big projects like petro-chemical, steel plants, fertilizer projects, etc, requiring huge finance and state-of-art technology, can be given to Multinational Corporations for construction purpose.

1. Q.59. What are features of Multinational Corporations?
The term “Multinational” is a comprehensive term and includes international and transnational corporations. The Multinational Corporations organises and coordinates multiple activities across the country.

2. The development of Multinational Corporations dates back to second half of the 19th
century, but their real growth started after the Second World War. 3. The activities of Multinational Corporations are spread over a large number of countries. It maintains both manufacturing and marketing base in several countries, and is well accustomed with local customs and traditions. 4. Multinational Corporations are managed on Centralised Authority basis. The Parent company works like a holding company and the branches or subsidiaries function as per the policies and directions of the parent company. Multinational Corporations control and govern a group of mostly independent muti-domestic foreign subsidiaries producing goods and services mainly for the local market. 5. Multinational Corporations expand their activities either by taking over an existing company or by starting a new company in another country. 6. Multinational Corporations undertake both manufacturing and marketing activities and they are predominantly engaged in hi-tech and consumer goods industries. Majority of the Multinational Corporations are engaged in pharmaceutical, petrochemicals, engineering, defence, airlines, tele-communications, consumer goods industry, chemicals, automobiles, etc.

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7. The international trade is dominated by Multinational Corporations. They are rightly described as messengers of economic progress and international co-operation. 8. Multinational Corporations are like any other profit making organisation and their activities centre around economic gains only. They do not take much interest in social welfare activities of the host country. 9. Multinational Corporations provide technical, financial and other assistance to developing countries for their economic and industrial growth. 10. The ownership and management of Multinational Corporations group companies is vested with the main or parent company. The subsidiary companies are expected to operate under the control and guidance of the parent company. 11. Multinational Corporations are quality and cost conscious and are managed by professionals and expert. They have their own organization culture and systems. Multinational Corporations believe in “doing more with less”. 12. Multinational Corporations have well-developed research and development facilities, financial resources and a well established network of marketing, which is used to develop new product or technology and then sell it throughout the world. 13. In the past Multinational Corporations were established in developing countries, but in recent years Multinational Corporations from developing countries like India, south Korea, Japan, etc also shown are also operating at world level. 14. Multinational Corporations may be owned and managed privately or publicly Most of the Multinational Corporations are nationally controlled but internationally owned.

Q.60. What are TNC’s? How are they different from MNC’s? Transnational corporation (TNC), also called multinational enterprise (MNE), is a corporation or enterprise that manages production or delivers services in more than one country. It can also be referred as an international corporation. ILO defined MNC as a corporation which has his managerial head quarters in one country known as the home country and operates in several other countries known as host countries. The first modern TNC is generally thought to be the Dutch East India Company. Nowadays many corporations have offices, branches or manufacturing plants in different countries than where their original and main headquarter is located. This often results in very powerful corporations that have budgets that exceed some national GDPs. Trancenational corporations can have a powerful influence in local economies as well as the world economy and play an important role in international relations and globalization. The presence of such powerful players in the world economy is reason for much controversy. Transnational corporations -- those corporations which operate in more than one country or nation at a time -- have become some of the most powerful economic and political entities in the world today. From Joshua Karliner, in his book, The Corporate Planet: Ecology and Politics in the Age of Globalization [Sierra Club Books, 1997], we can gleam a host of fundamental realizations, including the fact that many of these companies have far more power than the nation-states across whose borders they operate. For example, the combined revenues of just General Motors and Ford -- the two largest automobile corporations in the world -- exceed the combined Gross Domestic Product (GDP) for all of sub-Saharan Africa. The combined sales of Mitsubishi, Mitsui, ITOCHU,
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Sumitomo, Marubeni, and Nissho Iwai, Japan’s top six Sogo Sosha or trading companies, are nearly equivalent to the combined GDP of all of South America. Overall, fifty-one of the largest one-hundred economies in the world are corporations. The revenues of the top 500 corporations in the U.S. equal about 60 percent of the country’s GDP. Transnational corporations hold ninety percent of all technology and product patents worldwide, and are involved in 70 percent of world trade. More than thirty percent of this trade is “intra- firm”; in other words, it occurs between units of the same corporation. The number of transnational corporations in the world has jumped from 7,000 in 1970 to 40,000 in 1995. While global in reach, these corporations’ home bases are concentrated in the Northern industrialized countries, where ninety percent of all transnationals are based. More than half come from just five nations: France, Germany, the Netherlands, Japan and the United States. But despite their growing numbers, power is concentrated at the top. i.e., the 300 largest corporations account for one-quarter of the world’s productive assets. The United Nations has justly described these corporations as “the productive core of the globalizing world economy.” Their 250,000 foreign affiliates account for most of the world's industrial capacity, technological knowledge, international financial transactions, and ultimately the power of control. In terms of energy, they mine, refine and distribute most of the world’s oil, gasoline, diesel and jet fuel, as well as build most of the world’s oil, coal, gas, hydroelectric and nuclear power plants. They extract most of the world’s minerals from the ground. They manufacture and sell most of the world’s automobiles, airplanes, communications satellites, computers, home electronics, chemicals, medicines and biotechnology products. They harvest much of the world’s wood and make most of its paper. They grow many of the world’s major agricultural crops, while processing and distributing much of its food. Given their dominance of politics, economics and technology, it is not surprising to find the big transnationals deeply involved in most of the world’s serious environmental crises. Transnational corporations exert significant influence over the domestic and foreign policies of the Northern industrialized government that host them. Surprise! Indeed, the interests of the most powerful governments in the world are often intimately intertwined with the expanding pursuits of the transnationals that they charter. At the same time, transnational corporations are moving to circumvent national governments. The borders and regulatory agencies of most governments are caving in (or being paid off) to the New World Order of globalization, allowing corporations to assume an ever more stateless quality, leaving them less and less accountable to any government anywhere. These corporations, together with their host governments, are reorganizing the world economic structures -- and thus the balance of political power -- through a series of intergovernmental trade and investment accords. These treaties serve as the frameworks within which globalization is evolving -- allowing international corporate investment and trade to flourish across the Earth. They include:   The Uruguay Round of the General Agreement on Tariffs and Trade (GATT) The World Trade Organization, which was created to enforce the GATT's rules.

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The proposed Multilateral Agreement on Investment. (MAI) The North American Free Trade Agreement (NAFTA). The European Union (EU).

These international trade and investment agreements allow corporations to circumvent the power and authority of national governments and local communities, thus endangering workers’ rights, the environment and democratic political processes. Q. 60. What are the benefits of MNC’s to the Host country? MERITS OF MULTINATIONAL CORPORATIONS For some, Multinational Corporations are an invaluable dynamic force and instrument for wider distribution of capital, technology and employment. For others, they are monsters which our present institutions, national or international, cannot adequately control, a law to themselves with no reasonable concept, the public interest or social policy can accept”. Multinational Corporations have no doubt been playing a vital role in establishing new industries, transmitting resources, technology and managerial skills and building up of physical and social infrastructure required for rapid progress of the poor countries. The services of Multinational Corporations are useful to both developed as well as developing countries. They have helped many countries, companies and industries to expand and develop. These organisations confer the following benefits upon the host and parent company: • The developing countries need both foreign capital and technology to exploit and use available resources for economic and industrial development. Multinational Corporations can supply the required financial and technical and other resources to the needy countries in exchange for economic gains. They raise investment, capital in countries where it is abundant and invest it where capital is scarce and interest rates are high. They locate labour incentive operations where wages are the lowest and thereby help raise incomes among the worlds lowest income groups. Technology is necessary to bring down the cost of production, improve quality of goods, and produce goods of uniform quality on a large scale. A developing country like India cannot divert its limited resources to develop technology of its own. Instead it can be bought readily by paying a price. Multinational Corporations are agents between developed and developing countries for transfer of capital, technology, resources and raw materials. They help less developed countries in obtaining latest techniques of production without undergoing the slow process of innovation, which involves invariably high costs. They work to equalise the cost of factors of production around the world. They provide an efficient means of integrating national economies. Multinational Corporations also help in creating some linkage effects of considerable significance. Such linkage effects may be either in a backward direction or a forward one. In developing countries, despite growth of output by 6-10% per unit, employment has been registering a growth rate of roughly 1-3% only. Less developed countries under these conditions are looking upon Multinational Corporations as an alternative source to fill the saving investment and foreign exchange gaps, which exist by and large in all countries. Multinational Corporations are dynamic and offer growth opportunities for domestic industries. The professional approach of Multinational Corporations in production and marketing helps to increase profitability of local industries. They also assist

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local producers to enter the global markets through their well-established international networks of production and marketing. • Multinational Corporations also stimulate domestic enterprises because to support their own operations, the Multinational Corporations may encourage and assist domestic suppliers. They help increase the competition and break monopoly. Multinational Corporations have access to many markets in different countries. They have the necessary skill and expertise to market products at international level. Further Multinational Corporations can undertake selling of products from one country to another on a large scale. Through their global marketing operations they promote exports from less developed countries and help them to develop a highly productive export sector. They also kindle a managerial revolution in the host countries through professional management and the employment of highly sophisticated management techniques. The home country or the country where the Multinational Corporations has its head office also benefits since the earnings of the Multinational Corporations are deposited with the home country. Therefore the home country earns substantial amount of foreign exchange without much efforts. It enhances the goodwill and reputation of the home country. It also ensures better bi-lateral relations between host and home country. Q. What are DEMERITS OF MULTINATIONAL CORPORATIONS Multinational Corporations have been subject to a number of criticisms, like those mentioned below: • The goals of Multinational Corporations and the host country differ ideologically. The goal of the Multinational Corporations is based on the growth and profit philosophy while that of host Government is based on growth and welfare. Both Multinational Corporations and host Government has nationalist sentiments and would certainly like to protect the interests of their nation at any cost. This creates a conflict between the two parties. Multinational Corporations are criticised on the point that they supply out-dated technology at high costs. Most of the time out-dated, obsolete and unwanted technology of developed countries is dumped on the soils of the developing countries. It is also argued that the technology transfer has failed to meet the local demands. Thus developing countries are forced to pay a high price for sub-standard technology. To some extent this criticism is true. Multinational Corporations develop new technology primarily for their own benefits. They do not take or develop technology to suit the needs of a particular country. They are more guided and governed by economic considerations than individual needs of a country. Multinational Corporations are guided by pure economic considerations and therefore has less regard for developing countries. To them a country is like a customer and trade means business. Multinational Corporations technology is designed for worldwide profit maximisation, not the development needs of poor countries in particular, employment needs and relative factor scarcities in these countries. In general, it is asserted, the imported technologies are not adapted to the consumption needs, the size of the domestic markets, resource availabilities and the stage of development of many of the LDCs. Through their power and flexibility, Multinational Corporations can evade or undermine national economic autonomy and control, and their activities may be inimical to the national interests of particular countries. There are instances of Multinational Corporations unduly interfering in the political ad social affairs of the small and under developed countries.

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Multinational Corporations buys raw materials at a cheaper rates and exports finished products at much higher rates to host countries. Japan has been importing Iron ore from India as raw material for its industries at a lower price and selling steel at a higher price. The working of Multinational Corporations is a burden on the limited resources of the developing countries. They charge high price in the form of dividend, commission and royalty paid by local subsidiary to its parent company. Further, Multinational Corporations are reluctant to accept the returns in local currency. This leads to outflow of hard earned foreign currency. Multinational Corporations prefer to invest in area of low risk and high profitability. Issues like social welfare, national priority, etc do not find any place on the agenda of Multinational Corporations. This is evident from the consumer goods industry. In India virtually from toothbrush to talcum powder, we find the presence of Multinational Corporations. Multinational Corporations may destroy competition and acquire monopoly. The tremendous power of the global corporations poses the risk that they may threaten the sovereignty of the nations in which they do business. Multinational Corporations can have unfavourable effect on the balance of payments of a country, For Instance, the coca-cola, until 1978 had remitted abroad nearly Rs. 6 crores on an initial investment of Rs. 6.6 lakhs in India. Multinational Corporations retard the growth of employment in the home country. The transnational corporations cause the fast depletion of some of the non-renewal resources in the host country.

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Q. What are business ethics? Why is it needed in International Business? Business ethics (also known as Corporate ethics) is a form of applied ethics or professional ethics that examines ethical principles and moral or ethical problems that arise in a business environment. It applies to all aspects of business conduct and is relevant to the conduct of individuals and business organizations as a whole. Applied ethics is a field of ethics that deals with ethical questions in many fields such as medical, technical, legal and business ethics. In the increasingly conscience-focused marketplaces of the 21st century, the demand for more ethical business processes and actions (known as ethicism) is increasing.[1] Simultaneously, pressure is applied on industry to improve business ethics through new public initiatives and laws (e.g. higher UK road tax for higher-emission vehicles).[2] Businesses can often attain short-term gains by acting in an unethical fashion; however, such behaviours tend to undermine the economy over time. Business ethics can be both a normative and a descriptive discipline. As a corporate practice and a career specialization, the field is primarily normative. In academia descriptive approaches are also taken. The range and quantity of business ethical issues reflects the degree to which business is perceived to be at odds with non-economic social values. Historically, interest in business ethics accelerated dramatically during the 1980s and 1990s, both within major corporations and within academia. For example, today most major corporate websites lay emphasis on commitment to promoting non-economic social values under a variety of headings (e.g. ethics codes, social responsibility charters). In some cases, corporations have redefined their core values in the light of business ethical considerations (e.g. BP's "beyond petroleum" environmental tilt). International business ethics While business ethics emerged as a field in the 1970s, international business ethics did not emerge until the late 1990s, looking back on the international developments of that
It is always better to be “WIND” than the “OBJECT” carried away by it_ Vishal

COMPILED
International Business

BY: VISHAL KADAM

decade.[6] Many new practical issues arose out of the international context of business. Theoretical issues such as cultural relativity of ethical values receive more emphasis in this field. Other, older issues can be grouped here as well. Issues and subfields include: • • • • • • • • The search for universal values as a basis for international commercial behaviour. Comparison of business ethical traditions in different countries. Also on the basis of their respective GDP and [Corruption rankings]. Comparison of business ethical traditions from various religious perspectives. Ethical issues arising out of international business transactions; e.g. bioprospecting and biopiracy in the pharmaceutical industry; the fair trade movement; transfer pricing. Issues such as globalization and cultural imperialism. Varying global standards - e.g. the use of child labor. The way in which multinationals take advantage of international differences, such as outsourcing production (e.g. clothes) and services (e.g. call centres) to lowwage countries. The permissibility of international commerce with pariah states.

Foreign countries often use dumping as a competitive threat, selling products at prices lower than their normal value. This can lead to problems in domestic markets. It becomes difficult for these markets to compete with the pricing set by foreign markets. In 2009, the International Trade Commission has been researching anti-dumping laws. Dumping is often seen as an ethical issue, as larger companies are taking advantage of other less economically advanced companies.

Q. What is business value? What are its components? business value is an informal term that includes all forms of value that determine the health and well-being of the firm in the long-run. Business value expands concept of value of the firm beyond economic value (also known as economic profit, Economic value added, and Shareholder value) to include other forms of value such as employee value, customer value, supplier value, channel partner value, alliance partner value, managerial value, and societal value. Many of these forms of value are not directly measured in monetary terms. Business value often embraces intangible assets not necessarily attributable to any stakeholder group. Examples include intellectual capital and a firm's business model. The Balanced scorecard methodology is one of the most popular methods for measuring and managing business value. Components of Business Value Shareholder Value For a publicly traded company, shareholder value is the part of its capitalization that is equity as opposed to long-term debt. In the case of only one type of stock, this would roughly be the number of outstanding shares times current shareprice. Things like dividends augment shareholder value while issuing of shares (stock options) lower it. This Shareholder value added should be compared to average/required increase in value, also known as cost of capital. For a privately held company, the value of the firm after debt must be estimated using one of several valuation methods, s.a. discounted cash flow or others. Customer Value

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COMPILED
International Business

BY: VISHAL KADAM

Customer value is the value received by the end-customer of a product or service. "Endcustomer" can include a single individual (consumer) or an organization with various individuals playing different roles in the buying/consumption processes. Customer value is conceived variously as utility, quality, benefits, and customer satisfaction. Employee Value Channel Partner Value The value a business underpins on partner relationships in the business. Partner value here stresses that it can be critical to a firms functioning. It ceases to exist or carry out business activities if partner value is diminished or lost. Supplier Value Managerial Value Societal Value Q.What is Corruption? The word corrupt (Middle English, from Latin corruptus, past participle of corrumpere, to destroy. when used as an adverb literally means "utterly broken". In modern English usage the words corruption and corrupt have many meanings: • • • • • • Political corruption: the abuse of public power, office, or resources by government officials or employees for personal gain, e.g. by extortion, soliciting or offering bribes.[2] Corporate corruption: corporate criminality and the abuse of power by corporation officials, either internally or externally. Putrefaction: the natural process of decomposition in the human and animal body following death. Data corruption: an unintended change to data in storage or in transit. Linguistic corruption: the change in meaning to a language or a text introduced by cumulative errors in transcription as changes in the language speakers' comprehension. Bribery in politics, business, or sport (including match fixing).

Q. What is Relationship Marketing? Relationship marketing is a form of marketing developed from direct response marketing campaigns conducted in the 1970s and 1980s which emphasizes customer retention and satisfaction, rather than a dominant focus on point-of-sale transactions. Relationship marketing differs from other forms of marketing in that it recognizes the long term value to the firm of keeping customers, as opposed to direct or "Intrusion" marketing, which focuses upon acquisition of new clients by targeting majority demographics based upon prospective client lists. Q. What is HRM Strategy?

Q. What is relationship marketing? What are its benefits? Relationship marketing is a form of marketing developed from direct response marketing campaigns conducted in the 1970s and 1980s which emphasizes customer retention and satisfaction, rather than a dominant focus on point-of-sale transactions.
It is always better to be “WIND” than the “OBJECT” carried away by it_ Vishal

COMPILED
International Business

BY: VISHAL KADAM

Relationship marketing differs from other forms of marketing in that it recognizes the long term value to the firm of keeping customers, as opposed to direct or "Intrusion" marketing, which focuses upon acquisition of new clients by targeting majority demographics based upon prospective client lists. Q. What is international financial market? International Financial Markets and the Implications for Monetary and Financial Stability", was chosen in recognition of the growing role played by asset markets and financial factors in shaping the environment in which monetary policy operates and in triggering episodes of financial instability. Q. What is deregulation financial market? Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.[1] Deregulation does not mean elimination of laws against fraud, but eliminating or reducing government control of how business is done, thereby moving toward a more free market. Q. What is integration of financial market? Q. What is cross border alliances? Why is it required? Cross-border alliances can be legally defined and therefore readily counted. Their number has surged since the mid 1990s, a trend particularly evident among U.S., European and Asian companies According to Booz-Allen & Hamilton, more than 20,000 cross border alliances were formed between 1996 and 2005. Almost all companies surveyed agreed that cross-border alliances would grow in importance to their business. Most cross border alliances are concentrated in relatively few industries--those typified by high entry costs, globalization, scale economies, and rapidly changing technologies--and span all elements of the value chain with particular emphasis on joint development activities. Given the range and scope of cross border activity and an equivalent range and scope of themes in cross-border alliances it is not surprising to see that the result is a complex patchwork of cross-border alliances, with emphasis on short- and long-term issues. As this occurs, the industry structure and the rational behavior of major players within the industry structure is also undergoing major change. Cross border alliances are international agreements on collaboration between two or more independent companies who exploit a tangible or intangible asset They consist primarily of joint ventures and cooperative business arrangements involving shared risk, cost, or reward without full ownership and with a significant degree of exclusivity. Supplier contracts are the loosest form of cross border alliance. Management or technology contracts are often a "stepping stone to further investment, and joint ventures are a more significant commitment of both tangible and intangible resources. My study focused on cross-border joint ventures. Cross-border alliances are only one of three options executives can use to achieve corporate goals and objectives in the face of changing market conditions. They are formed when they yield benefits that cannot be achieved in-house or through outright acquisition or merger. They have beers used by managements to: * Secure economies of scale in the R&D and manufacturing functions to offset the higher cost and risk of bringing new products to the market without losing the identity or independence of the company in the market place. * Reduce the cost and time required to establish major positions in new geographic markets compared with the cost of direct investment or acquisition.

It is always better to be “WIND” than the “OBJECT” carried away by it_ Vishal

COMPILED
International Business

BY: VISHAL KADAM

* Eliminate difficulties in successfully consummating mergers of equals that are complementary and where two managements can agree on a common vision and plan. particularly givers the poor experience of cross-border mergers in the 1980s and 1990s. * Participate in some of the more rapidly growing markets where involvement of a local partner is either required (eg. joint ventures in parts of Asia and South America) or desirable. Once in place however cross-border alliances are frequently difficult to manage and have their own costs Few of them have been used as vehicles to pursue multiple opportunities and even fewer could be considered a complete success on the scale needed to make a fundamental impact on the development of the company. In particular, links with a partner can create inflexibility, coordination difficulties and risk of competitive conflict. Q. What is Euro Market? The market comprised of the member countries of the European Union (EU). The Euromarket includes countries that have fixed external tariffs and no internal tariffs, and follow the monetary policy set by the European Central Bank. While many member states do use the Euro as their common currency, the Euromarket applies to all states in the EU. Q. What is LIBOR? London Inter-Bank Offer Rate. The interest rate that the banks charge each other for loans (usually in Eurodollars). This rate is applicable to the short-term international interbank market, and applies to very large loans borrowed for anywhere from one day to five years. This market allows banks with liquidity requirements to borrow quickly from other banks with surpluses, enabling banks to avoid holding excessively large amounts of their asset base as liquid assets. The LIBOR is officially fixed once a day by a small group of large London banks, but the rate changes throughout the day. Q. What is emerging markets? Why advance countries are interested in them? Q. What is Pre-shipment finance? Pre-shipment Finance : Pre-shipment funds are available in the form of credit or loan prior to the actual shipment of goods. These finances help an exporter in purchasing raw material & components, buying equipment & machinery & manufacturing or sorting the goods meant for export. Pre-shipment finance is also called as PACKING CREDIT Pre-shipment finance is available in the following forms: 1. 2. 3. 4. 5. 6. 7. 8. 9. Extended Packing Credit Loan Packing Credit Loan [Hypothecation] Packing Credit Loan [Pledge] Secured Shipping Loan Advance Against Back To Back Letter Of Credit Advance Against Red Clause Or Green Clause Letter Of Credit Packing Credit For Imports Against Advance License Entitlement. Pre-shipment Credit in Foreign Currency System Credit Against Proceeds Of Cheques /Drafts etc. Received Directly Towards Advance Payment For Exports.

Extended Packing Credit loan : This facility, though for a short period, is granted to those exporters who are rated first class by the bank. Loan is granted for making advance payment to suppliers for acquiring exportable goods. Once goods are taken by exporter in his own custody, the bank converts the clean advance into hypothication or pledge loan.
It is always better to be “WIND” than the “OBJECT” carried away by it_ Vishal

COMPILED
International Business

BY: VISHAL KADAM

Packing Credit loan [Hypothication] : In this case packing credit is extended for obtaining raw material, work-inprogress & finished goods. The goods acquired are treated as security for the loan granted. The exporter is in possession of the goods & is required to execute hypothecation deed in favour of the bank. The activity of the production or conversion of such raw materials & WIP into finished goods can be undertaken even by sub contractors.

Packing Credit Loan [Pledge] : This facility is available in case of seasonal goods or those acquired by the exporters under odd lots. The documents relating to acquisition of raw-materials are pledged to the bank while possession of the goods remain with the exporter. Secured Shipping Loan : Once the raw material is converted in to the finished goods, the same has to be handed over to transport operator or to the clearing & forwarding agent. The security loan can be obtained only after this. This type of loan is of short duration & is released against lorry receipt or railway receipt. The only condition which banks insist on, is that the goods are handled by approved transport operators or clearing & forwarding agents. Advance Aginst Back To Back Letter Of Credit : In this exporter opens a letter of credit in favour of the supplier instead of blocking the funds for purchase of raw material or finished products from manufacturers. When an exporter who has received original letter of credit from importer, requests his banker to open a L/C in favour of his suppliers. Generally banks are reluctant to open back to back L/C, but if it is opened, the original L/C is retained by the bank as a security. Advance Against Red Clause Or Green Clause Letter Of Credit : Red clause L/C authorizes the negotiating bank to make advances to the beneficiary (the exporter) to enable him to purchase the goods for export. Until & unless the goods are purchased & shipped, the exporter cannot obtain bill of lading & insurance policy. Incase he needs packing credit, he has to request the buyer to arrange for opening a red clause letter of credit which contains a special clause in red L/C authorizing & advancing bank to make either immediate payment to the beneficiary in full or in part as per the terms stated in the L/C & against specified documents & conditions. After executing the order, the exporter draws a draft asper the terms of credit & the proceeds thereof are first utilized by the bank in repayment of the advance under the red clause agreement. The term Green Clause envisages the grant of storage facilities at the port in addition to the pre-shipment credit facility to the beneficiary [the exporter]. The opening of such credit, covering import of goods, in India requires prior approval of RBI. Packing Credit For Imports Against Advance License Entitlement : This credit facility is available to manufacturer exp9orters who are not in receipt of L/C or confirmed export order. Finance is made available for imports against license
It is always better to be “WIND” than the “OBJECT” carried away by it_ Vishal

COMPILED
International Business

BY: VISHAL KADAM

for manufacturer of export goods. However, two conditions need to be fulfilled. They are: The bank must be satisfied that the imported material will be utilized for the goods meant for export only; The confirmed order or L/C should be produced within reasonable time not exceeding 60 days from the date of advance. Credit Against Proceeds Of Cheque/Drafts etc. : Bank can grant export credit at concessional rate of interest in such cases subject to following condition have been fulfilled : Accommodation is granted for the transit period stipulated by FEDAI for collection of the instruments or till the date of realization of proceeds thereof whichever is earlier. The bank`s past experience with the borrower & the letter`s track records are good. The bank must get satisfactory evidence that the instrument represents the advance remitted against as export order. The trade practices suggest the possibility of such instrument being received towards advance payments or the exporters are able to satisfy the ban with reasons for receiving payments directly. It is ensured by the bank in due course that the goods have been actually shipped. Rate of Interest : Pre-shipment advances are granted to the exporters at a very concessional rate of interest. The present rates of interest ( revised W.E.F. 24th June 1993 ) are as under :Pre-shipment Advance up to initial 180 days Pre-shipment Advance for a further period of 90 days Pre-shipment Advance beyond 270 days up to 360 days Pre-shipment advance against incentives receivable from the government covered by ECGC guarantees. ( up to 90 Days ) 13 % Per Annum. ( Concessional Rate ) 15 % Per Annum. ( Concessional Rate ) Bankers are free to determine Rate 13 % Per Annum.

Q. What is Packing Credit? What are its conditions? It can be given on production of sufficient evidence i.e. cable & telex / fax, the L/C or firm export order received by the exporter and lodged with the bank within a reasonable time { ( as agreed ) upon by the bank ) of the grant of such advance. It should reveal quantity & particulars of goods, value of the order, date of shipment / delivery period, terms of payment and name of the buyer. 1) It can also be given under the ' Red Clause ' L/C i.e. at the instance and responsibility of the foreign bank establishing L/C. In a Red Clause L/C, the packing credit advance is made against the deposit of L/C and execution of the letter of pledge / hypothecation / trust receipt and other loan documents.

It is always better to be “WIND” than the “OBJECT” carried away by it_ Vishal

COMPILED
International Business
2) i)

BY: VISHAL KADAM

Exporters who do not receive the export order in their name such as suppliers to merchant exporters and Export / Trading / Houses, are also eligible provided :They produce a letter from the concerned merchant / Export /Trading House that a portion of the ' Order ' has been allotted to them, detailing the goods to be supplied.

ii) The merchant exporter or Export / Trading neither has availed nor wish to seek packing credit in respect of the apportioned order, from any other bank / source. iii) The letter from merchant exporter or Export / Trading House is countersigned by the bank advising the L/C. 4) Sub-Contractors or Sub - Suppliers supplying the goods for exports under a consortia arrangement are also eligible for packing credit. 5) Where the goods are to be manufactured by the manufacturer and processed / packed etc. by Export / Trading House /Merchant Exporter before making the shipment. Pre-shipment Finance can be availed by both the parties i.e. the supplier as well as Export / Trading House or Merchant Exporter for the required period, subject to the condition that the total period of facility availed by both does not exceed the maximum period permitted for concessional finance. The pre-shipment credit is required to be liquidated from the proceeds of relative export bills when purchased, negotiated or discounted. However, this condition has been relaxed by the RBI. For instance, if for any reason, an exporter who has availed of preshipment credit, is confronted with the cancellation of the export order and, hence, unable to adjust the credit against relative export bill proceeds, the wiping off such out standings through export bill drawn on other importers either in same country or in any other country is permitted, provided the relative bills are in respect of the very goods, for which credit was originally granted. Q. What is Currency Risk in export trade? Definition: The risk that a business' operations or an investment's value will be affected by changes in exchange rates. For example, if money must be converted into a different currency to make a certain investment, changes in the value of the currency relative to the American dollar will affect the total loss or gain on the investment when the money is converted back. This risk usually affects businesses, but it can also affect individual investors who make international investments. also called exchange rate risk. Q. What is exchange rate? Rate at which one currency may be converted into another. The exchange rate is used when simply converting one currency to another (such as for the purposes of travel to another country), or for engaging in speculation or trading in the foreign exchange market. There are a wide variety of factors which influence the exchange rate, such as interest rates, inflation, and the state of politics and the economy in each country also called rate of exchange or foreign exchange rate or currency exchange rate. Q. What is Letter of Credit? What are the parties to letter of credit ? A standard, commercial letter of credit is a document issued mostly by a financial institution, used primarily in trade finance, which usually provides an irrevocable payment undertaking Parties to a Letter of Credit:

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COMPILED
International Business

BY: VISHAL KADAM

Following persons are generally parties, to a letter of Credit:

Buyer and seller agree terms, including means of transport, period of credit offered (if any), latest date of shipment, Incoterm to be used.

Buyer applies to bank for issue of letter of credit. Bank will evaluate buyer's credit standing, and may require cash cover and/or reduction of other lending limits.

Issuing bank issues L/C, sending it to the Advising bank by airmail or (more commonly) electronic means such as telex or SWIFT.

Advising bank establishes authenticity of the letter of credit using signature books or test codes, then informs seller (beneficiary). Advising bank MAY confirm L/C, i.e. add its own payment undertaking.

Seller should now check that L/C matches commercial agreement, and that all its terms and conditions can be satisfied, (e.g. all documents can be obtained in good time.) If there is anything that may cause a problem, an AMENDMENT must be requested.

It is always better to be “WIND” than the “OBJECT” carried away by it_ Vishal

COMPILED
International Business

BY: VISHAL KADAM

Seller ships the goods, then assembles the documents called for in the L/C (invoice, transport document etc.) Before presenting the documents to the bank, the seller should check them for discrepancies with the L/C, and correct the documents where necessary.

The documents are presented to a bank, often the Advising bank. The Advising bank checks the documents against the L/C. If the documents are compliant, the bank pays the seller and forwards the documents to the Issuing bank.

The Issuing bank now checks the documents itself. If they are in order (and it is a sight L/C), it reimburses the seller's bank immediately.

The Issuing bank debits the buyer and releases the documents (including transport document), so that the buyer can claim the goods from the carrier.

Benificiary : The exporter of goods in whose favour the L/C has been established. Customer/importer : The person we intends to import the goods and instructs bank to established Letter of Credit. • Issuing Bank: The Banker in the importers Country who opened the L/C. • Correspondent Bank or Advising Bank: The banker in the exporters country, who is authorised by the issuing bank to advise the beneficiary of the Credit and to effect such payment or to accept and pay such bills of exchange or to negotiate against Stipulated documents and on Compliance of Stipulated terms and condition specified by the importer on the exporter. • Confirming Bank: The banker in the exporters(beneficiary) country, who at the desire of the beneficiary adds confirmation to the letter of Credit so that beneficiary can get payment without recourse from the Confirming bank. The Confirming bank may be correspondent bank itself or some other bank. Generally following types of Letter of Credit are in operation. • • • Revocable or Irrevocable Letters of Credit Confirmed Credit Transferable Credit
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• •

COMPILED
International Business
• • • • • • •

BY: VISHAL KADAM

With or without Recourse Credit Revolving Letter of Credit Transit Credit Back to Back Credit The Sight Credit The Credit available against Time Draft (Usance Credit) The Deferred payment Credit.

Q) What is Bill of Ladding? A Bill of ladding is the document of “TITLE” (sometimes referred to as a BOL,or B/L) is a document issued by a carrier to a shipper against Mate Receipt, acknowledging that specified goods have been received on board as cargo for conveyance to a named place for delivery to the consignee who is usually identified. The standard short form bill of lading is evidence of the contract of carriage of goods and it serves a number of purposes: • It is evidence that a valid contract of carriage, or a chartering contract, exists, and it may incorporate the full terms of the contract between the consignor and the carrier by reference (i.e. the short form simply refers to the main contract as an existing document, whereas the long form of a bill of lading (connaissement intégral) issued by the carrier sets out all the terms of the contract of carriage); It is a receipt signed by the carrier confirming whether goods matching the contract description have been received in good condition (a bill will be described as clean if the goods have been received on board in apparent good condition and stowed ready for transport); and It is also a document of transfer, being freely transferable but not a negotiable instrument in the legal sense, i.e. it governs all the legal aspects of physical carriage, and, like a cheque or other negotiable instrument, it may be endorsed affecting ownership of the goods actually being carried. This matches everyday experience in that the contract a person might make with a commercial carrier like FedEx for mostly airway parcels, is separate from any contract for the sale of the goods to be carried, however it binds the carrier to its terms, irrespectively of who the actual holder of the B/L, and owner of the goods, may be at a specific moment.

It is always better to be “WIND” than the “OBJECT” carried away by it_ Vishal

Q) Explain the role of EXIM Bank in Export promotion? Q) What is export finance? Explain the role of exim bank in export finance? OR Q) What is Exim Bank? What are its Function? EXIM BANK FINANCE The Export - Import Bank of India ( EXIM Bank ) provides financial assistance to promote Indian Exporters through direct financial assistance, overseas investment finance for export production and export development, pre-shipment credit, buyer's credit, lines of credit, relending facilities, export bill rediscounting, refinance to commercial banks, finance for computer software exports, finance for export marketing and bulk import finance to commercial banks. The EXIM bank also extends non-funded facility to Indian exporters in the form of guarantees. The diversified lending programmes of the EXIM banks now covers various stage of exports i.e. from the development of export markets to expansion of production capacity, project exports, exports of technology services and export of computer software. Financing Programmes Loans to Indian Companies :1) Deferred payment exports :- Term finance is provided to Indian exporters of eligible goods & services which enables them to offer deferred credit to overseas buyers. Deferred credit can also cover Indian Consultancy, technology & other services. Commercial banks participate in this programme directly or under risk syndication arrangements. 2) Pre-shipment credit :- Finance is available from EXIM bank for companies executing export contracts involving cycle time exceeding 6 months. The facility also enables provision of rupee mobilisation expenses for construction / turnkey project exporters. 3) Term Loan for Export Production :- EXIM bank provides term loan / deferred payment guarantees to 100 % EOUs, units in free trade zones and computer software exporters. In collaboration with International Finance Corporation, Washington, EXIM bank provides to enable small & medium enterprises upgrade export production capability. 4) Facilities for deemed Exports :- Deemed exports are eligible for funded & non-funded facilities from EXIM bank. 5) Overseas Investment Finance :- Indian Companies establishing joint ventures overseas are provided finance towards their contribution in the joint ventures. 6) Finance for Export Marketing :- This programme, which is a component of a World Bank Loan, helps exporters implement their export market development plans. Loans to Foreign Governments, Companies & Financial Institutions :1) Overseas Buyer's Credit :- Credit is directly offered to foreign entities for import of eligible goods and related services on deferred payments. 2) Lines of Credit :- Besides Foreign Governments, Finance is available to foreign financial institutions & Govt. agencies to on lend in the respective country for import of goods and services from India. 3) Relating facility to banks overseas :- Re-lending facility is extended to banks overseas to enable them to provide term finance to their clients world-wide for imports from India. Loans to Commercial Banks in India :1) Export Bills Re-discounting :- Commercial banks in India who are authorised to deal in foreign exchange can re-discount their short term export bills with EXIM bank, for an unexpired usance period of not more than 90 days. 2) Re-finance of Export Credit :- Authorised dealers in foreign exchange can obtain from EXIM bank 100 % re-finance of deferred payment loans extended for export of eligible Indian goods. Guaranteeing of Obligations :EXIM bank participates with commercial banks in India in the issue of guarantees required by Indian Companies for export contracts and for execution of overseas construction and turnkey projects.

i

ORGANISATIONS :-

EXIM bank is fully owned by the Govt. of India and is managed by a Board of Directors with repatriation from the Govt., Financial Institutions, Banks, Business Community. The operations are grouped into Project Finance, Trade Finance, Overseas Investment Finance supported by Planning & Co-ordination groups.

Schemes of assistance operated by EXIM Bank of India :-

A) For Indian Exporters :1) Export ( Supplier's ) Credit :- enables Indian exporters to extend item credit to importer overseas, of eligible Indian goods. 2) Finance for Consultancy & Technology Services :- enables Indian exporters of consultancy and technology services to extend credit to importer overseas. 3) Pre-shipment Credit :- enables Indian exporters to buy R/M and other inputs for export contracts involving cycle time exceeding 6 months. 4) Foreign Currency Pre-shipment Credit :- enables eligible exporter to access finance through commercial banks for imports of R/M & other ouputs needed for export production. 5) Finance for EOUs & units in EPZs :- enables Indian companies to acquire indigeneous and imported machinery & other items for export production. 6) Foreign Currency lines of credit for imports :- enables eligible export oriented units to acquire imported machinery for export production. 7) Production Equipment.Finance :- enables eligible export-oriented units to acquire equipments. 8) Overseas Investment Finance :- enables Indian promoters to finance equity contribution in joint ventures set up abroad. 9) Project Preparatory Services Overseas :- enables Indian consultancy firms undertake project preparatory studies in developing countries by grant / loan financing. 10) Business Advisory & Technical Assistance Services Overseas :enables Indian Consultancy firms undertake specific financing. 11) Africa Project Development facility :- enables Indian consultancy firms undertake specific assignment in Sub-Saharan Africa through grant financing. 12) EC International Investment Partners Facility :- enables setting up of joint ventures in India between Indian Companies & enterprises in the European Community. B) For Commercial Banks :1) Re-finance of Export Supplier's Credit :- enables banks to offer credit to Indian exporters of eligible goods, who extend term credit over 180 days to foreign importer overseas. 2) Export bills re-discounting : enables banks to re-discount export bills with usance not exceeding 180 days. 3) Re-lending facility :- enables banks overseas to make available term finance to their client, for import of eligible Indian goods. assignments in select countries

4) Re-finance of Term Loans to EOUs :- enables banks to offer credit to eligible export-oriented units to acquire indigeneous and imported machinery and other assets for export production. 5) Re-finance of term loans for Computer Software Exports :- enables acquisition of imported and indigeneous computer system and project related assets. 6) Small Scale Industry ( SSI ) Export Bills Re-discounting :- enables banks to re-discount export bills of their SSI customers with usance not exceeding 90 days. 7) Bank Import Finance :- enables banks to offer to importers for bulk import of consumable inputs. C) For Overseas Entities :-

1) Lines of Credit :- enables overseas financial institutions, foreign governments, their agencies to on-lend terms loans to finance import of eligible goods from India. 2) Buyer's Credit :- enables overseas buyers to import eligible goods from India on deferred credit terms. Q) What is packing credit? What are its condition? Packing credit is the another name

for

preshipment

finance

Pre-shipment funds are available in the form of credit or loan prior to the actual shipment of goods. These finances helps an exporter in purchasing raw material & components, buying equipment & machinery & manufacturing or sorting the goods meant for export. Pre-shipment finance is available in the following forms : Extended Packing Credit Loan Packing Credit Loan [Hypothecation] Packing Credit Loan [Pledge] Secured Shipping Loan Advance Against Back To Back Letter Of Credit Advance Against Red Clause Or Green Clause Letter Of Credit Packing Credit For Imports Against Advance License Entitlement. Pre-shipment Credit in Foreign Currency System Credit Against Proceeds Of Cheques /Drafts etc. Received Directly Towards Advance Payment For Exports. Extended Packing Credit loan : This facility, though for a short period, is granted to those exporters who are rated first class by the bank. Loan is granted for making advance payment to suppliers for acquiring exportable goods. Once goods are taken by exporter in his own custody, the bank converts the clean advance into hypothication or pledge loan. Packing Credit loan [Hypothication] : In this case packing credit is extended for obtaining raw material, work-in-progress & finished goods. The goods acquired are treated as security for the loan granted. The exporter is in possession of the goods & is required to execute hypothication deed in favour of the bank. The activity of the production or conversion of such raw materials & WIP into finished goods can be undertaken even by sub contractors. 1. 2. 3. 4. 5. 6. 7. 8. 9.

Packing Credit Loan [Pledge] : This facility is available in case of seasonal goods or those acquired by the exporters under odd lots. The documents relating to acquisition of raw-materials are pledged to the bank

while possession of the goods remain with the exporter. Secured Shipping Loan : Once the raw material is converted in to the finished goods, the same has to be handed over to transport operator or to the clearing & forwarding agent. The security loan can be obtained only after this. This type of loan is of short duration & is released against lorry receipt or railway receipt. The only condition which banks insist on, is that the goods are handled by approved transport operators or clearing & forwarding agents. Advance Aginst Back To Back Letter Of Credit : In this exporter opens a letter of credit in favour of the supplier instead of blocking the funds for purchase of raw material or finished products from manufacturers. When an exporter who has received original letter of credit from importer, requests his banker to open a L/C in favour of his suppliers. Generally banks are reluctant to open back to back L/C, but if it is opened, the original L/C is retained by the bank as a security. Advance Against Red Clause Or Green Clause Letter Of Credit : Red clause L/C authorizes the negotiating bank to make advances to the beneficiary (the exporter) to enable him to purchase the goods for export. Until & unless the goods are purchased & shipped, the exporter cannot obtain bill of lading & insurance policy. Incase he needs packing credit, he has to request the buyer to arrange for opening a red clause letter of credit which contains a special clause in red L/C authorizing & advancing bank to make either immediate payment to the beneficiary in full or in part as per the terms stated in the L/C & against specified documents & conditions. After executing the order, the exporter draws a draft asper the terms of credit & the proceeds thereof are first utilized by the bank in repayment of the advance under the red clause agreement. The term Green Clause envisages the grant of storage facilities at the port in addition to the pre-shipment credit facility to the beneficiary [the exporter]. The opening of such credit, covering import of goods, in India requires prior approval of RBI. Packing Credit For Imports Against Advance License Entitlement : This credit facility is available to manufacturer exporters who are not in receipt of L/C or confirmed export order. Finance is made available for imports against license for manufacturer of export goods. However, two conditions need to be fulfilled. They are:

The bank must be satisfied that the imported material will be utilized for the goods meant for export only; The confirmed order or L/C should be produced within reasonable time not exceeding 60 days from the date of advance. Credit Against Proceeds Of Cheque/Drafts etc. : Bank can grant export credit at concessional rate of interest in such cases subject to following condition have been fulfilled : Accommodation is granted for the transit period stipulated by FEDAI for collection of the instruments or till the date of realization of proceeds thereof whichever is earlier. The bank`s past experience with the borrower & the letter`s track records are good.

The bank must get satisfactory evidence that the instrument represents the advance remitted against as export order. The trade practices suggest the possibility of such instrument being received towards advance payments or the exporters are able to satisfy the ban with reasons for receiving payments directly. It is ensured by the bank in due course that the goods have been actually shipped. Q) What is L/C? What is its importance in Export Finance? Refer Pg. No 58 & also add the below said Negotiation Bill Drawn Under L/C :An exporter can avail of post-shipment credit by drawing bills or drafts under the Letter Of Credit. The bank insists on production of the necessary documents as stated in the L/C. If all documents are in order the bank negotiate the bill & advance is granted to the exporter. Q) What is financial risk? How to evaluate the financial risk in International Business? Q) What are import export documents? What is the legal importance of the documents? The importers are required to furnish the following documents along with Bill of Entry • • • • • • • • • • • Invoice Packing list Letter of guarantee of bank Insurance policy Catalogue Contract of suppliers Price list Import license Insurance policy Bill of Lading Certificate of origin

Introduction An exporter without any commercial contract is completely exposed of foreign exchange risks that arises due to the probability of an adverse change in exchange rates. Therefore, it becomes important for the exporter to gain some knowledge about the foreign exchange rates, quoting of exchange rates and various factors determining the exchange rates. In this section, we have discussed various topics related to foreign exchange rates in detail. Export from India required special document depending upon the type of product and destination to be exported. Export Documents not only gives detail about the product and its destination port but are also used for the purpose of taxation and quality control inspection certification. Shipping Bill / Bill of Export Shipping Bill/ Bill of Export is the main document required by the Customs Authority for allowing shipment. A shipping bill is issued by the shipping agent and represents some kind of certificate for all parties, included ship's owner, seller, buyer and some other parties. For each one represents a kind of certificate document. Documents Required for Post Parcel Customs Clearance In case of Post Parcel, no Shipping Bill is required. The relevant documents are mentioned below: • Customs Declaration Form - It is prescribed by the Universal Postal Union (UPU) and international apex body coordinating activities of national postal administration. It is known by the code number CP2/ CP3 and to be prepared in quadruplicate, signed by the

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sender. Despatch Note- It is filled by the exporter to specify the action to be taken by the postal department at the destination in case the address is non-traceable or the parcel is refused to be accepted. Commercial Invoice - Issued by the exporter for the full realisable amount of goods as per trade term. Consular Invoice - Mainly needed for the countries like Kenya, Uganda, Tanzania, Mauritius, New Zealand, Burma, Iraq, Ausatralia, Fiji, Cyprus, Nigeria, Ghana, Zanzibar etc. It is prepared in the prescribed format and is signed/ certified by the counsel of the importing country located in the country of export. Customs Invoice - Mainly needed for the countries like USA, Canada, etc. It is prepared on a special form being presented by the Customs authorities of the importing country. It facilitates entry of goods in the importing country at preferential tariff rate. Legalised / Visaed Invoice - This shows the seller's genuineness before the appropriate consulate or chamber or commerce/ embassy. Certified Invoice - It is required when the exporter needs to certify on the invoice that the goods are of a particular origin or manufactured/ packed at a particular place and in accordance with specific contract. Sight Draft and Usance Draft are available for this. Sight Draft is required when the exporter expects immediate payment and Usance Draft is required for credit delivery. Packing List - It shows the details of goods contained in each parcel / shipment. Certificate of Inspection – It is a type of document describing the condition of goods and confirming that they have been inspected. Black List Certificate - It is required for countries which have strained political relation. It certifies that the ship or the aircraft carrying the goods has not touched those country(s). Manufacturer's Certificate - It is required in addition to the Certificate of Origin for few countries to show that the goods shipped have actually been manufactured and is available. Certificate of Chemical Analysis - It is required to ensure the quality and grade of certain items such as metallic ores, pigments, etc. Certificate of Shipment - It signifies that a certain lot of goods have been shipped. Health/ Veterinary/ Sanitary Certification - Required for export of foodstuffs, marine products, hides, livestock etc. Certificate of Conditioning - It is issued by the competent office to certify compliance of humidity factor, dry weight, etc. Antiquity Measurement – It is issued by Archaeological Survey of India in case of antiques. Shipping Order - Issued by the Shipping (Conference) Line which intimates the exporter about the reservation of space of shipment of cargo through the specific vessel from a specified port and on a specified date. Cart/ Lorry Ticket - It is prepared for admittance of the cargo through the port gate and includes the shipper's name, cart/ lorry No., marks on packages, quantity, etc. Shut Out Advice - It is a statement of packages which are shut out by a ship and is prepared by the concerned shed and is sent to the exporter.

Q) What is role of ECGC in International Business? Export Credit Guarantee Corporation of India Ltd. Export Credit Guarantee Corporation of India Limited, was established in the year 1957 by the Government of India to strengthen the export promotion drive by covering the risk of exporting on credit. Being essentially an export promotion organisation, it functions under the administrative control of the Ministry of Commerce, Government of India. It is managed by a board of directors comprising representatives of the Government, Reserve Bank of India, banking, insurance and exporting community. ECGC, the fifth largest credit insurer of the world,

presently covers 17.31% of India's total exports. The present paid-up capital of the company is Rs.1.50 bn, which is expected to be enhanced to Rs.5 bn by the year 2002. Major Functions: • • To provide a range of credit risk insurance covers to exporters against loss in export of goods and services To offers guarantees to banks and financial institutions to enable exporters obtain better facilities from them.

ECGC also helps exporters by • • • • • • Providing insurance protection to exporters against payment risks Providing guidance in export related activities Providing information on credit-worthiness of overseas buyers Providing information on about 180 countries with its own credit ratings Making it easy to obtain export finance from banks/financial institutions Assisting exporters in recovering bad debts

The covers issued by ECGC can be divided broadly into four groups: • • • • Standard Policy Specific Policies Financial Guarantees Special Schemes

Standard Policy: Shipments (Comprehensive Risks) Policy, which is commonly known as the Standard Policy, is the one ideally suited to cover risks in respect of goods exported on short-term credit; i.e. credit not exceeding 180 days. The policy covers both commercial and political risks from the date of shipment. Specific Policies: Specific Policies are designed to protect Indian firms against payment risks involved in international business. a. Exports on deferred terms of payment b. Services rendered to foreign parties and c. Construction works and turnkey projects undertaken abroad. These policies are issued separately for each specific contract, and cover risks normally from the date of contract. Financial Guarantees: Financial Guarantees are issued to banks in India to protect them from risks of loss involved in their extending financial support at pre-shipment and post-shipment stages. These also cover a host of non-fund based facilities that are extended to exporters. Special Schemes: Some special schemes include: • • • Transfer Guarantee meant to protect banks that add confirmation to Letters of Credit opened by foreign banks Insurance cover for Buyers Credit and Lines of Credit Exchange Fluctuation Risk Insurance

Risks covered under the Standard Policies:

Commercial Risks:

1) Insolvency of the buyer 2) Buyer`s protected default to pay for goods accepted by him. 3) Buyer`s failure to accept goods subject to certain conditions. Political Risks :

1) Imposition of restriction on remittances by the government in the buyer`s country or any government action which may block or delay payment to exporter. 2) War, revolution, or civil disturbances in the buyer`s country. 3) New import licensing restriction or cancellation of a valid import license in the buyer`s country, after the date of shipment or contract, as applicable. 4) license in the buyer`s country, after the date of shipment or contract, as applicable. 5) Cancellation of export license or imposition of new export licensing restriction in India after a date of contract (under contract policy). 6) Payment of additional handling, transport or insurance charges occasioned by interruption or diversion of voyage which cannot be recovered from the buyer. 7) Any other causes of loss occurring outside India, not normally insured by commercial insurers & beyond the control of the exporter &/or buyer. Risks not covered under Standard policy: The losses due to the following risks are not covered : 1) Commercial disputes including quality disputes raised by the buyer, unless the exporter obtains a decree from a court of low in the buyer`s country in his favour. 2) Causes inherent in the nature of the goods. 3) Buyer`s failure to obtain import or exchange authorization from authorities in his country. 4) Insolvency or default any agent of the exporter or of the collecting bank. 5) Loss or damage to goods which can be covered by commercial insurers. 6) Exchange fluctuation. 7) Discrepancy in documents. Q) What is SEZ? What are its Benefits? A Special Economic Zone in short SEZ is a geographically bound zones where the economic laws in matters related to export and import are more broadminded and liberal as compared to rest parts of the country. SEZs are projected as duty free area for the purpose of trade, operations, duty and tariffs. SEZ units are self-contained and integrated having their own infrastructure and support services. Within SEZs, a units may be set-up for the manufacture of goods and other activities including processing, assembling, trading, repairing, reconditioning, making of gold/silver, platinum jewellery etc. As per law, SEZ units are deemed to be outside the customs territory of India. Goods and services coming into SEZs from the domestic tariff area or DTA are treated as exports from India and goods and services rendered from the SEZ to the DTA are treated as imports into India. Benefits of SEZ

Apart from providing state-of-the-art infrastructure and access to a large well-trained and skilled work force, the SEZ also provides enterprises and developers with a favorable and attractive framework of incentives which include 100% income tax exemption for a period of five years and an additional 50% tax exemption for two years thereafter. Similarly, 100% FDI is also provided in the manufacturing sector. Exemption from industrial licensing requirements and no import license requirements is also given to the SEZ units. Read more about the benefits of SEZ units » Various SEZ Units in India The area under 'SEZ' covers a wide range of zones, including Export Processing Zones (EPZ), Free Zones (FZ), Industrial Estates (IE), Free Trade Zones (FTZ), Free Ports, Urban Enterprise Zones and others. Usually the goal of an SEZ structure is to increase foreign investment in the country. At present there are fourteen functional SEZs located at Santa Cruz (Maharashtra), Cochin (Kerala), Kandla and Surat (Gujarat), Chennai (Tamil Nadu), Visakhapatnam (Andhra Pradesh), Falta and Salt Lake (West Bengal), Nodia (Uttar Pradesh), Indore (Madhya Pradesh), Jaipur (Rajasthan), etc. Role of State Government in Establishment of SEZ Units State Governments play a very active role to play in the establishment of SEZ unit. Any proposal for setting up of SEZ unit in the Private / Joint / State Sector is routed through the concerned State government who in turn forwards the same to the Department of Commerce with its recommendations for consideration. Before recommending any proposals to the Ministry of Commerce & Industry (Department of Commerce), the States Government properly checks all the necessary inputs such as water, electricity, etc required for the establishment of SEZ units. The State Government has to forward the proposal with its recommendation within 45 days from the date of receipt of such proposal to the Board of Approval. The applicant also has the option to submit the proposal directly to the Board of Approval. Representative of the State Government, who is a member of the Inter-Ministerial Committee on private SEZ, is also consulted while considering the proposal. Q) What is DBK? DBK or drawback means refund of custom duties paid on the imports of raw material, components & packing material used for export products. Banks offer per-shipment as well as post-shipment advances against DBK entitlements. However ,the scheme of granting free advances against claims of DBK has been discounted with effect from 2nd March, 1992. Q) What is FOB Price? • Free on Board(FOB) The sellers’s responsibility ends the moment the contracted goods are placed on board the ship, free of cost to the buyer at a port of shipment named in the sales contract. ‘On board’ means that a Received for Shipment’ Bill of Lading is not sufficient. Such B/L if issued must be converted into ‘Shipped on Board B/L’ by using the stamp ‘Shiped on Board’ and must bear signature of the carrier or his authorised representative together with date on which the goods were ‘boarded’. Q) What is impact of incentives on export pricing? Q) What is negative list of exports? Negative list of exports contain those items which are either banned or cannot be freely exported.

The negative list of exports consists of these parts: Prohibited Items Restricted Items Canalised Items

Part I: Prohibited Items: The prohibited items are banned from exporting. The list of prohibited items contains ten items. The items are: All forms of wild animals. Exotic Birds. All items of plants. Beef. Human Skeletons. Tallow, fat and / or oils of any animals origin. Wood and wood products. Chemicals as notified by DGFT. Sandalwood items as notified by DGFT. Red sanders wood in any form.

Part II: Restricted Items: The restricted items are allowed to be exported only with special licensing by the DGFT . Some of the restricted items are as follows: Beche – de – Mer of sizes below three inches. Cattle Camel Chemical fertilizers and micronutrient fertilizers Fabrics / Textile items with imprints of excerpts or verses of the Holy Quran. De oiled groundnut cakes Fresh and frozen silver pomfrets of weight less than 300 gms. Fur of domestic animals, excluding lamb for skin. Fodder, including wheat and rice straw. Hides and skin as mentioned in the policy.

Part III: Canalised Items: The list contains those items which are to be exported only through designated canalized agencies. At present there are six items which are canalized. They are:

ITEMS CANALIZING AGENCIES 1.Petroleum ProductsIndian Oil Corporation Ltd. 2.Gum Karaya

The Tribal Co-operative Marketing Federation of India Ltd. ores and Concentrate 3.Mica waste and ScrapMMTC and MITCO 4.Mineral

Indian Rare Earths Ltd, Kerala Minerals and Metals Ltd, MMTC. 5.Niger SeedsNAFED, TRIFED. 6.OnionsNAFED.

Q) What are imports? Why imports are necessary? Q) What is th role of RBI in export promotion? Q) How is SEZ different from EPZ? Q) What is export pricing g what factors should be considered while fixing export price? Q) What are different terms used in export pricing? INCO TERMS While finalising the terms of import contract, the Importer, should, inter alia, be fully conversant with the mode of pricing and the manner of payment for the imports. As regards mode of pricing, the overseas supplier normally quote the terms prevailing in international trade. The importer for his benefits should know the meaning of the technical terminology. To avoid ambiguity in interpretation of such terms, International Chamber of Commerce, Paris, Has give detailed definition of a few standard terms popularly known as ‘INCO TERMS’. These terms have almost universal acceptance and are explained below: • Ex-work ‘Ex-work’ means that the seller’s responsibility is to make the goods available to the buyer at works or factory. The full cost and risk involved in bringing the goods from this

place to the desired destination will be borne by the buyer. This terms thus represents the minimum obligation for the seller. It is mostly used for sale of plantation commodities such as tea, coffee and cocoa. • Free on Rail (FOR)/Free on Truck (FOT) These terms are used when the goods are to be carried by rail, but they are also used for road transport. The seller’s obligations are fulfilled when the goods are delivered to the carrier. • Free Alongside Ship (FAS) Once the goods have been placed alongside the ship, the seller’s obligations are fulfilled and the buyer notified. The buyer has to contract with the sea carrier for the carriage of the goods to the destination and pay the freight. The buyer has to bear all costs and risks of loss or damage to the goods hereafter. • Free on Board(FOB) The sellers’s responsibility ends the moment the contracted goods are placed on board the ship, free of cost to the buyer at a port of shipment named in the sales contract. ‘On board’ means that a Received for Shipment’ Bill of Lading is not sufficient. Such B/L if issued must be converted into ‘Shipped on Board B/L’ by using the stamp ‘Shiped on Board’ and must bear signature of the carrier or his authorised representative together with date on which the goods were ‘boarded’. • Cost and Freight (C & F) The seller must on his own risk and not as an agent of the buyer, contract for the carriage of the goods to the port of destination named in the sale contract and pay the freight. This being a shipment contract, the point of delivery is fixed to the ship’s rail and the risk of loss or of damage to the goods is transferred from the seller to the buyer at that very point. As will be seen though the seller bears the cost of carriage to the named destination, the risk is already transferred to the buyer at the port of shipment itself.

• Cost Insurance Freight (CIF) The term is basically the same as C & F but with the addition that the seller has to obtain insurance at his cost against the risks of loss or damage to the goods during the carriage. Q)Explain the need and importance of SEZ? Q) Explain the merits and demerits of SEZ? A SEZ unit which has been set up for carrying on manufacturing, trading or service activity has both advantages as well as disadvantages. SEZ advantages are quite far more as compared to its disadvantages which are almost negligible. Advantages • • • • • 15 year corporate tax holiday on export profit – 100% for initial 5 years, 50% for the next 5 years and up to 50% for the balance 5 years equivalent to profits ploughed back for investment. Allowed to carry forward losses. No licence required for import made under SEZ units. Duty free import or domestic procurement of goods for setting up of the SEZ units. Goods imported/procured locally are duty free and could be utilized over the approval period of 5 years.

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Exemption from customs duty on import of capital goods, raw materials, consumables, spares, etc. Exemption from Central Excise duty on the procurement of capital goods, raw materials, and consumable spares, etc. from the domestic market. Exemption from payment of Central Sales Tax on the sale or purchase of goods, provided that, the goods are meant for undertaking authorized operations. Exemption from payment of Service Tax. The sale of goods or merchandise that is manufactured outside the SEZ (i.e, in DTA) and which is purchased by the Unit (situated in the SEZ) is eligible for deduction and such sale would be deemed to be exports. The SEZ unit is permitted to realize and repatriate to India the full export value of goods or software within a period of twelve months from the date of export. “Write-off” of unrealized export bills is permitted up to an annual limit of 5% of their average annual realization. No routine examination by Customs officials of export and import cargo. Setting up Off-shore Banking Units (OBU) allowed in SEZs. OBU's allowed 100% income tax exemption on profit earned for three years and 50 % for next two years. Exemption from requirement of domicile in India for 12 months prior to appointment as Director. Since SEZ units are considered as ‘public utility services’, no strikes would be allowed in such companies without giving the employer 6 weeks prior notice in addition to the other conditions mentioned in the Industrial Disputes Act, 1947. The Government has exempted SEZ Units from the payment of stamp duty and registration fees on the lease/license of plots. External Commercial Borrowings up to $ 500 million a year allowed without any maturity restrictions. Enhanced limit of Rs. 2.40 crores per annum allowed for managerial remuneration.

Disadvantages • • • Revenue losses because of the various tax exemptions and incentives. Many traders are interested in SEZ, so that they can acquire at cheap rates and create a land bank for themselves. The number of units applying for setting up EOU's is not commensurate to the number of applications for setting up SEZ's leading to a belief that this project may not match up to expectations.

Q). Explain the types and causes of disequilibrium in the balance of payments In general terms, a deficit in the balance of payments is called disequilibrium. Such a deficit may be at the capital account, current account ; occasional, chronic ; cyclical, enlarging deficits. Each type is caused by different set of factors. But in general, disequilibrium is an unfavourable position in BoP caused by continuous deficits which are large. Types of disequilibrium in BoP : Following are the different types of disequilibrium in BoP : 1. Cyclical disequilibrium : This is caused by the trade cycles. The economic activity changes in cyclical fashion with boom depression. In each state, the disequilibrium is caused depending on the spurt of incomes, intensity of demand for imports, domestic prices and nature of exports and imports. The impact of cyclical disequilibrium is found in developed economies as compared with less developed economies. 2. Secular equilibrium : Secular disequilibrium depends on the level of growth in an economy. An economy can be a primitive economy, or an economy under preparatory stage for development or an economy in the take-off stage or an economy with high mass consumption. These are the stages of growth as given by W.W.Rostow. Secular disequilibriumis characterised by the level of population, capital accumulation, technology and resources. 3. Structural disequilibrium : This is caused mainly due to the nature and composition of exports and imports. The elasticities of exports and imports determine the efficiency of any

methods of correcting the trade. For example , stagnant exports and elastic imports cause BoP problems. Correction of such disequilibrium will need structural changes in the composition of trade and foreign exchange position. Causes of disequilibrium in developing countries : BoP disequilibrium is common with most developing economies. Study of the factors and nature of disequilibrium will help in correction and design of methods of protection. Following are the important causes of disequilibrium : 1. Large population, increasing growth rates of population. 2. Stagnant exports due to out dated products 3. Increasing demand for imports. 4. Low productivity and poor growth rates. 5. Lack of bargaining power. 6. Large external debt due to which the burden of debt servicing increases. 7. Adverse terms of trade. 8. Cyclical fluctuations in economic activity. 9. Problems of international liquidity. 10. Absence of ant trading association or regional block 11. Weak currency 12. Absence of trade ties with developed economies. In addition all the problems of under development contribute to disequilibrium in BoP. Since there is no effective mechanism to correct, the disequilibrium becomes chronic.

Capital account : It deals with capital movements between one country and rest of the world. Capital movements can be private, governmental or institutional ( IMF, World Bank and others).It can be again classified as short term and long term capital movements. Other items include amortisation, debt servicing, monetary gold and miscellaneous. Amortisation is the loan liquidated, debt servicing is the repayment of principle and interest and non-monetary gold is the payments made interms of gold. These capital transactions will also have a debit or credit depending on the directions of flows. Capital account can show a deficit or a surplus revealing the strength of the economy. The deficits of the current account will be financed by the capital account. So there is a spill over of deficits of current acceptant into capital account. Finally, the balance of payments will have the deficit or surplus, reflecting the overall position of all the international transactions. Important ratios : 1. Balance of trade : Balance of trade is an important indicator of the efficiency of export sector and import substitution sector. It is the position of an economy interms of merchandise on current account. It is an important indicator because it will highlight the foreign exchange commitments of the country with respect to each country and currency. 2. Basic balance : This is the difference between exports + inflow of long term capital AND imports + out flow of private capital. It is measure of gross movements in currencies in and out of the economy. 3. Liquidity balance : In international trade, liquidity is a major consideration in international payments. Liquidity balance deals with the difference in the official exchange holdings over a given period of time. High liquidity balance improves the credit worthiness of a country. 4. Official settlement balance : It is a gross indicator of financial position arising out of the balance of payments. It is the difference between exports + all private capital inflows AND imports + all private out flows. It gives a clear picture of the balance of payments position pertaining to a given time period.

Q) What is LERMS? It stands for liberalized exchange rate management system (LERMS) was introduction March 1992, as a result the foreign exchange market in India effectively became a two ties one, with a direct exchange rate system in force, one rate was the administration (or official) one at which specified type or proportion of currency exchange had to be transacted by demand and supply in the transaction in March 1993 this system was abolished and now single market determined rate in applicable for all transaction.

Export Promotion Councils (EPC) Export Promotion Councils are registered as non -profit organisations under the Indian Companies Act. At present there are eleven Export Promotion Councils under the administrative control of the Department of Commerce and nine export promotion councils related to textile sector under the administrative control of Ministry of Textiles. The Export Promotion Councils perform both advisory and executive functions. These Councils are also the registering authorities under the Export Import Policy, 2002-2007. Commodity Boards Commodity Board is registered agency designated by the Ministry of Commerce, Government of India for purposes of export-promotion and has offices in India and abroad. There are five statutory Commodity Boards, which are responsible for production, development and export of tea, coffee, rubber, spices and tobacco. Federation of Indian Export Organisations (FIEO) FIEO was set up jointly by the Ministry of Commerce, Government of India and private trade and industry in the year 1965. FIEO is thus a partner of the Government of India in promoting India’s exports. Address: Niryaat Bhawan, Rao Tula Ram Marg, Opp. Army Hospital. Research & Referral, New Delhi 110057 Indian Institute of Foreign Trade (IIFT) The Indian Institute of Foreign Trade (IIFT) was set up in 1963 by the Government of India as an autonomous organisation to help Indian exporters in foreign trade management and increase exports by developing human resources, generating, analysing and disseminating data and conducting research. Address: B-21 Kutub Institutional Area, Mehrauli Road, New Delhi-110016 Indian Institution of Packaging (IIP) The Indian Institute of Packaging or IIP in short was established in 1966 under the Societies Registration Act (1860). Headquartered in Mumbai, IIP also has testing and development laboratories at Calcutta, New Delhi and Chennai. The Institute is closely linked with international organisations and is recognized by the UNIDO (United Nations Industrial Development Organisation) and the ITC (International Trading Centre) for consultancy and training. The IIP is a member of the Asian Packaging Federation (APF), the Institute of Packaging Professionals (IOPP) USA, the Insitute of Packaging (IOP) UK, Technical Association of PULP AND Paper Industry (TAPPI), USA and the World Packaging Organisation (WPO). Address: B-2, MIDC Area, P.B. 9432, Andheri (E), Mumbai 400096. Export Inspection Council (EIC) The Export Inspection Council or EIC in short, was set up by the Government of India under Section 3 of the Export (Quality Control and Inspection) Act, 1963 in order to ensure sound development of export trade of India through Quality Control and Inspection. Address: 3rd Floor, ND YMCA, Cultural Centre Bldg., 1, Jai Singh Road, New Delhi-110001. Indian Council of Arbitration (ICA) The Indian Council for Arbitration (ICA) was established on April 15, 1965. ICA provides arbitration facilities for all types of Indian and international commercial disputes through its

international panel of arbitrators with eminent and experienced persons from different lines of trade and professions. Address: Federation House, Tansen Marg, New Delhi-110001 India Trade Promotion Organisation (ITPO) ITPO is a government organisation for promoting the country’s external trade. Its promotional tools include organizing of fairs and exhibitions in India and abroad, Buyer-Seller Meets, Contact Promotion Programmes, Product Promotion Programmes, Promotion through Overseas Department Stores, Market Surveys and Information Dissemination. Address: Pragati Bhawan Pragati Maidan, New Delhi-10001 Chamber of Commerce & Industry (CII) CII play an active role in issuing certificate of origin and taking up specific cases of exporters to the Govt. Federation of Indian Chamber of Commerce & Industry (FICCI) Federation of Indian Chambers of Commerce and Industry or FICCI is an association of business organisations in India. FICCI acts as the proactive business solution provider through research, interactions at the highest political level and global networking. Address: Federation House, Tansen Marg, New Delhi-110001 Bureau of Indian Standards (BIS) The Bureau of Indian Standards (BIS), the National Standards Body of India, is a statutory body set up under the Bureau of Indian Standards Act, 1986. BIS is engaged in standard formulation, certification marking and laboratory testing. Address: 9, Manak Bhavan, Bahadur Shah Zafar Marg, New Delhi-110002 Textile Committee Textile Committee carries pre-shipment inspection of textiles and market research for textile yarns, textile machines etc. Address: Textile Centre, second Floor, 34 PD, Mello Road, Wadi Bandar, Bombay-400009 Marine Products Export Development Authority (MPEDA) The Marine Products Export Development Authority (MPEDA) was constituted in 1972 under the Marine Products Export Development Authority Act 1972 and plays an active role in the development of marine products meant for export with special reference to processing, packaging, storage and marketing etc. Address: P.B No.4272 MPEDA House, pannampilly Avenue, Parampily Nagar, Cochin-682036 India Investment Centre (IIC) Indian Investment Center (IIC) was set up in 1960 as an independent organization, which is under the Ministry of Finance, Government of India. The main objective behind the setting up of IIC was to encourage foreign private investment in the country. IIC also assist Indian Businessmen for setting up of Industrial or other Joint ventures abroad. Address: Jeevan Vihar, 4th Floor, Parliament Street, New Delhi-110001 Directorate General of Foreign Trade (DGFT) DGFT or Directorate General of Foreign Trade is a government organisation in India responsible for the formulation of guidelines and principles for importers and exporters of country. Address: Udyog Bhawan, H-Wing, Gate No.2, Maulana Azad Road, New Delhi -110011 Director General of Commercial Intelligence Statistics (DGCIS) DGCIS is the Primary agency for the collection, compilation and the publication of the foreign inland and ancillary trade statistics and dissemination of various types of commercial informations. Address: I, Council House Street Calcutta-700001

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