International Business Meaning International Business conducts business transactions all over the world.

. These transactions include the transfer of goods, services, technology, managerial knowledge, and capital to other countries. International business involves exports and imports. International Business is also known, called or referred as a Global Business or an International Marketing. An international business has many options for doing business, it includes, 1. 2. 3. 4. 5. Exporting goods and services. Giving license to produce goods in the host country. Starting a joint venture with a company. Opening a branch for producing & distributing goods in the host country. Providing managerial services to companies in the host country.

Features of International Business

1. Large scale operations: In international business, all the operations are conducted on a very huge scale. Production and marketing activities are conducted on a large scale. It first sells its goods in the local market. Then the surplus goods are exported. 2. Integration of economies: International business integrates (combines) the economies of many countries. This is because it uses finance from one country, labour from another country, and infrastructure from another country. It designs the product in one country, produces its parts in many different countries and assembles the product in another country. It sells the product in many countries, i.e. in the international market. 3. Dominated by developed countries and MNCs: International business is dominated by developed countries and their multinational corporations (MNCs). At present, MNCs from USA, Europe and Japan dominate (fully control) foreign trade. This is because they have large financial and other resources. They also have the best technology and research and

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development (R & D). They have highly skilled employees and managers because they give very high salaries and other benefits. Therefore, they produce good quality goods and services at low prices. This helps them to capture and dominate the world market. Benefits to participating countries: International business gives benefits to all participating countries. However, the developed (rich) countries get the maximum benefits. The developing (poor) countries also get benefits. They get foreign capital and technology. They get rapid industrial development. They get more employment opportunities. All this results in economic development of the developing countries. Therefore, developing countries open up their economies through liberal economic policies. Keen competition: International business has to face keen (too much) competition in the world market. The competition is between unequal partners i.e. developed and developing countries. In this keen competition, developed countries and their MNCs are in a favourable position because they produce superior quality goods and services at very low prices. Developed countries also have many contacts in the world market. So, developing countries find it very difficult to face competition from developed countries. Special role of science and technology: International business gives a lot of importance to science and technology. Science and Technology (S & T) help the business to have largescale production. Developed countries use high technologies. Therefore, they dominate global business. International business helps them to transfer such top high-end technologies to the developing countries. International restrictions: International business faces many restrictions on the inflow and outflow of capital, technology and goods. Many governments do not allow international businesses to enter their countries. They have many trade blocks, tariff barriers, foreign exchange restrictions, etc. All this is harmful to international business. Sensitive nature: The international business is very sensitive in nature. Any changes in the economic policies, technology, political environment, etc. have a huge impact on it. Therefore, international business must conduct marketing research to find out and study these changes. They must adjust their business activities and adapt accordingly to survive changes.

Importance of International Business

1. Earn foreign exchange: International business exports its goods and services all over the world. This helps to earn valuable foreign exchange. This foreign exchange is used to pay for imports. Foreign exchange helps to make the business more profitable and to strengthen the economy of its country. 2. Optimum utilisation of resources: International business makes optimum utilisation of resources. This is because it produces goods on a very large scale for the international market. International business utilises resources from all over the world. It uses the finance and technology of rich countries and the raw materials and labour of the poor countries. 3. Achieve its objectives: International business achieves its objectives easily and quickly. The main objective of an international business is to earn high profits. This objective is achieved easily. This it because it uses the best technology. It has the best employees and managers. It produces high-quality goods. It sells these goods all over the world. All this results in high profits for the international business. 4. To spread business risks: International business spreads its business risk. This is because it does business all over the world. So, a loss in one country can be balanced by a profit in another country. The surplus goods in one country can be exported to another country. The surplus resources can also be transferred to other countries. All this helps to minimise the business risks. 5. Improve organisation's efficiency: International business has very high organisation efficiency. This is because without efficiency, they will not be able to face the competition in the international market. So, they use all the modern management techniques to improve their efficiency. They hire the most qualified and experienced employees and managers. These people are trained regularly. They are highly motivated with very high salaries and other benefits such as international transfers, promotions, etc. All this results in high organisational efficiency, i.e. low costs and high returns. 6. Get benefits from Government: International business brings a lot of foreign exchange for the country. Therefore, it gets many benefits, facilities and concessions from the government. It gets many financial and tax benefits from the government. 7. Expand and diversify: International business can expand and diversify its activities. This is because it earns very high profits. It also gets financial help from the government. 8. Increase competitive capacity: International business produces high-quality goods at low cost. It spends a lot of money on advertising all over the world. It uses superior technology, management techniques, marketing techniques, etc. All this makes it more competitive. So, it can fight competition from foreign companies. Advantages of International Business Faster growth: economies that have in the past been open to foreign direct investments have developed at a much quicker pace than those economies closed to such investment e.g. communist Russia cheaper imports: this is down to the simple fact that if we reduce the barriers imposed on imports (e.g. tariffs, quota, etc.) then the imports will fall in price New technologies: by having an open economy we can bring in new technology as it happens rather than trying to develop it internally Spur of foreign competition: foreign competition will encourage domestic producers to increase efficiency. Carbaugh (1998) states that global competitiveness is a bit like golf, you get better by playing against people who are better than you.

 Increase consumer income: multination will bring up average wage levels because if the multinationals were not there the domestic companies would pay less. Increased investment opportunities: with globalisation companies can move capital to whatever country offers the most attractive investment opportunity. This prevents capital being trapped in domestic economies earning poor returns. Disadvantages Cultural Identity Issues Culture is a major export in the world. It displays and promotes values and lifestyles worldwide. The "culture consumer" in other countries is sometimes overwhelmed by American ideas. Products also carry cultural ideas and messages. There are values of the culture the make the product. For example: Coca-Cola, McDonalds, Nike, and Microsoft all sell products that symbolize American values and symbolize and reflect American corporate culture. Social Welfare Issues: Maintaining safety standards, minimum wages, workers compensation and Health benefits are all social welfare issues that cost business money. If a running shoe is made in a country where these issues are not met than the shoe can be sold for less in Canada. The down side to this is that substandard safety conditions cause death and injury in the workplace. Environmental Issues: In Canada, businesses are urged by the government and environmental groups through laws and regulations to keep our air, land and water clean. This is a costly process so businesses decide to move their operations to countries; i.e. Mexico, where it is less regulated. Political Issues: Precious commodities such as gold, diamond, oil or farmland are so important for countries to have control that wars have been started and as a result people are killed. Trade of these items has caused political alliances that do not help the people in the trading nation but only the powerful corporations that control the commodity. World Trade Organization (WTO) World Trade Organization (WTO), international organization established to supervise and liberalize world trade. The WTO is the successor to the General Agreement on Tariffs and Trade (GATT), which was created in 1947 in the expectation that it would soon be replaced by a specialized agency of the United Nations (UN) to be called the International Trade Organization (ITO). Although the ITO never materialized, the GATT proved remarkably successful in liberalizing world trade over the next five decades. By the late 1980s there were calls for a stronger multilateral organization to monitor trade and resolve trade disputes. Following the completion of the Uruguay Round (198694) of multilateral trade negotiations, the WTO began operations on January 1, 1995. Functions of WTO The former GATT was not really an organisation; it was merely a legal arrangement. On the other hand, the WTO is a new international organisation set up as a permanent body. It is designed to play the role of a watchdog in the spheres of trade in goods, trade in services,

foreign investment, intellectual property rights, etc. Article III has set out the following five functions of WTO; (i) The WTO shall facilitate the implementation, administration and operation and further the objec-tives of this Agreement and of the Multilateral Trade Agreements, and shall also provide the frame work for the implementation, administration and operation of the plurilateral Trade Agreements. (ii) The WTO shall provide the forum for negotiations among its members concerning their multilateral trade relations in matters dealt with under the Agreement in the Annexes to this Agreement. (iii) The WTO shall administer the Understanding on Rules and Procedures Governing the Settlement of Disputes. (iv) The WTO shall administer Trade Policy Review Mechanism. (v) With a view to achieving greater coherence in global economic policy making, the WTO shall cooperate, as appropriate, with the international Monetary Fund (IMF) and with the International Bank for Reconstruction and Development (IBRD) and its affiliated agencies. Objectives of WTO (i) To implement the new world trade system as visualised in the Agreement; (ii) To promote World Trade in a manner that benefits every country; (iii) To ensure that developing countries secure a better balance in the sharing of the advantages resulting from the expansion of international trade corresponding to their developmental needs; (iv) To demolish all hurdles to an open world trading system and usher in international economic renaissance because the world trade is an effective instrument to foster economic growth; (v) To enhance competitiveness among all trading partners so as to benefit consumers and help in global integration; (vi) To increase the level of production and productivity with a view to ensuring level of employment in the world; (vii) To expand and utilize world resources to the best; (viii) To improve the level of living for the global population and speed up economic development of the member nations. WTO Organizational Structure The WTO Ministerial Conference is the highest governing body of the WTO, which meets in every two years and mainly takes decisions on inter-state trade agreements. During periods between the Conferences the working of the WTO is handled by the General Council, which it is accountable to the Ministerial Conference. Two structures are operating at the level of General Council: 1. Body for settlement of disputes overseeing the procedures of dispute settlement.

2. The Trade Policy Review Body that controls regular review of trade policy of individual members to WTO (every two years). Besides the above bodies, structure of WTO includes many committees, councils and commissions with diverse functions arising out from the nature of multilateral agreements. WTO includes three independent counsels with special responsibility: o o o The Council for Trade in Goods (Goods Council) The Council for Trade in Services (Services Council) The Council for Trade-Related Aspects of Intellectual Property Rights (TRIPS Council)

There are also four committees dealing with the following issues: For Trade and Environment For Trade and Development For Balance of Payments Restrictions For Budget, Finance and Administration.

The head of WTO is Director-General. He heads Secretariat, and he is elected every four years. ROLE OF WTO IN THE INTERNATIONAL ECONOMY WTO is successor of the General Agreement on Tariffs and Trade (GATT) signed in Geneva in 1947. Importance of GATT GATT, the multilateral Agreement, under which rules of fair international trade were established, was in force since 1948. It was also used as international forum for negotiations on abolition of trade barriers that envisaged abolition of quotation of import and export (quantitative restrictions) and significant reduction of tariffs. Importance of GATT is especially evident in the historic aspect. In 1930th, increasing of number of trade barriers led to reduction of international trade resulted in the great depression and world economic crisis of 1930th that in its turn appeared a reason of start of the II World War. Establishment of international trade organization was the best guarantee for avoidance of uncontrolled protectionism and its negative consequences. Principles of GATT Trade without discrimination that envisages providing by the Member States of the most favoured nation treatment, and providing of equal rights and obligations to the imported and domestic goods. Integration of the countries to the international market and joint planning of development of international trade on the base of both multilateral and bilateral agreements. Encouraging of fair competition on the basis of mutual compromise.

Settlement of disputes through negotiations and consultations, and if it is impossible, settlement of disputes by relaying on decisions of special bodies of the GATT. Primary use of tariff methods of protection of domestic market instead of establishment of quantitative restrictions and other technical barriers. Ensuring of predictable and transparent trade policy of each parties.

WhatIsaTariff? In simplest terms, a tariff is a tax. It adds to the cost of imported goods and is one of several trade policies that a country can enact. Types of Tariffs: On the basis of Purpose: Revenue Tariff: To provide state with the revenue. Levied on luxury goods. Protective Tariff: To maintain and encourage those branches of home industry protected by the duties. On the Basis of Origin and Destination: Ad Valorem Duty: Levied as the percentage of the total value of the imported common duty. Specific Duty: Levied per physical unit of the imported commodity. Compound Duty: Levied a percentage ad valorem duty plus a specific duty on each unit of the commodity. Eg. 1 lac + 10% of the price. On the Basis of Country-wise Discrimination: Single Column Tariff: A uniform rate of duty is imposed on all similar commodities irrespective of the country from which they are imported. Double Column Tariff: Two different rates of duty have been imposed. Triple Column Tariff: Two or more tariff rates are levied on each category of commodity. SpecificTariffs A fixed fee levied on one unit of an imported good is referred to as a specific tariff. This tariff can vary according to the type of good imported Ad Valorem Tariffs the phrase ad valorem is Latin for "according to value", and this type of tariff is levied on a good based on a percentage of that good's value. Non-tariff barriers to trade include: Licenses A license is granted to a business by the government, and allows the business to import a certain type of good into the country. For example, there could be a restriction on imported cheese, and licenses would be granted to certain companies allowing them to act as importers. This creates a restriction on competition, and increases prices faced by consumers. Import Quotas An import quota is a restriction placed on the amount of a particular good that can be imported. This sort of barrier is often associated with the issuance of licenses. For example, a country may place a quota on the volume of imported citrus fruit that is allowed. Subsidies to Local Goods Governments may directly or indirectly subsidize local production in an effort to make it more competitive in the domestic and foreign markets. For example, tax benefits may be

extended to a firm producing in a certain part of the country to reduce regional imbalances, or duty drawbacks may be allowed for exported goods, or, as an extreme case, local firms may be given direct subsidies to enable them to sell their goods at a lower price than foreign firms. Local Content Requirement A foreign company may find it more cost effective or otherwise attractive to assemble its goods in the market in which it expects to sell its product, rather than exporting the assembled product itself. In such a case, the company may be forced to produce a minimum percentage of the value added locally. This benefits the importing country in two ways it reduces its imports and increases the employment opportunities in the local market. Balance of Payments (BOP) Definition: Balance of payments is systematic record of all economic transactions completed between the residence of a country and the residence of the rest of the world. Most of exports and imports involve finance i.e. receipts and payments in money. An account of all receipts and payments is termed as Balance of Payments (BOP). According to Kindle Berger, "The balance of payments of a country is a systematic record of all economic transactions between the residents of the reporting country and residents of foreign countries during a given period of time". The balance of payment record is maintained in a standard double-entry book-keeping method. International transactions enter in to the record as credit or debit. The payments received from foreign countries enter as credit and payments made to other countries as debit. Balance of Payment is a record pertaining to a period of time; usually it is all annual statement. All the transactions entering the balance of payments can be grouped under three broad accounts; (1) Current Account, (2) Capital Account, and (3) Official International Reserve Account. However, it can be vertically divided into many categories as per the requirement Surplus in (BOP): If the receipts of a country are greater than its payments the result is Surplus. Receipts > Payments Balance in (BOP): If the receipts of a country and its payments are equal the result is Balance. Receipts = Payments Deficit in (BOP): If the receipts of a country are less than its payments the result is Deficit. Receipts < Payments Simply whenever, the foreign payments of a country are more than the foreign receipts of the country, the deficit in BOP rises. In other words, whenever the demand for foreign exchange is more than the supply of foreign exchange the deficit in BOP occurs. Structure of Balance of Payment (BOP)

1. Trade Account Balance It is the difference between exports and imports of goods, usually referred as visible or tangible items. Till recently goods dominated international trade. Trade account balance tells as whether a country enjoys a surplus or deficit on that account. An industrial country with its industrial products comprising consumer and capital goods always had an advantageous position. Developing countries with its export of primary goods had most of the time suffered from a deficit in their balance of payments. Most of the OPEC countries are in better position on trade account balance. The Balance of Trade is also referred as the 'Balance of Visible Trade' or 'Balance of Merchandise Trade'. 2. Current Account Balance It is difference between the receipts and payments on account of current account which includes trade balance. The current account includes export of services, interests, profits, dividends and unilateral receipts from abroad, and the import of services, interests, profits, dividends and unilateral Payments to abroad. There can be either surplus or deficit in current account. The deficit will take place when the debits are more than credits or when payments are more than receipts and the current account surplus will take place when the credits are more than debits. 3. Capital Account Balance It is difference between the receipts and payments on account of capital account. The capital account involves inflows and outflows relating to investments, short term borrowings/lending, and medium term to long term borrowing/lending. There can be surplus or deficit in capital account. The surplus will take place when the credits are more than debits and the deficit will take place when the debits are more than credits. 4. Foreign Exchange Reserves Foreign exchange reserves (Check item No.9 in above figure) shows the reserves which are held in the form of foreign currencies usually in hard currencies like dollar, pound etc., gold and Special Drawing Rights (SDRs). Foreign exchange reserves are analogous to an individual's holding of cash. They increase when the individual has a surplus in his transactions and decrease when he has a deficit. When a country enjoys a net surplus both in current account & capital account, it increases foreign exchange reserves. Whenever current account deficit exceeds the inflow in capital account, foreign exchange from the reserve accounts is used to meet the deficit If a country's foreign exchange reserves rise, that transaction is shown as minus in that country's balance of payments accounts because money is been transferred to the foreign exchange reserves. Foreign exchange reserves (forex) are used to meet the deficit in the balance of payments. The entry is in the receipt side as we receive the forex for the particular year by reducing the balance from the reserves. When surplus is transferred to the foreign exchange reserve, it is shown as minus in that particular year's balance of payment account. The minus sign (-) indicates an increase in forex and plus sign (+) shows the borrowing of foreign exchange from the forex account to meet the deficit. 5. Errors and Omission The errors may be due to statistical discrepancies & omission may be due to certain transactions may not be recorded. For eg: A remittance by an Indian working abroad to India may not yet recorded, or a payment of dividend abroad by an MNC operating in India may

not yet recorded or so on. The errors and omissions amount equals to the amount necessary to balance both the sides Causes of Deficit in (BOP) I. Income Type of Disequilibrium: The deficit may arise because of changes in income level of a country. If in a country the incomes are rising more than the rest of the world, because of rise in incomes the consumption in the country will increase and the exports will decrease. In this way foreign receipts will come down and deficit in BOP occurs. II.Price Type of Disequilibrium: The changes in price level are also responsible for BOP deficit. If in a country due to demand-pull inflation or cost-push inflation, the price level rises, the domestic products will become expensive. In this way, the exports of a country may fall and the imports of a country may increase. In this way, receipts will come down and payments will increase and caused for deficit in BOP. III.Capital Movement: The capital movement is also responsible for deficit in BOP. As due to political instability the domestic capital is flowing out then the foreign payments of a country may increase. If the foreign capital is not coming to the country, the receipts of a country may also go down. Thus the changes in capital movement at capital accounts of BOP are also responsible for deficit in BOP. IV.Structural Changes: The structural changes which occur in an economy are also responsible for deficit in BOP. They are as: If in a country, the population increases, the exports will decrease and imports will increase. If in a country, the natural resources are depleted the exports may come down. If in the world, the substitutes are developed, they may have the effect of reducing the exports of a country. If a country is engaged in the process of economic development, it has to import machinery, raw material and a variety of goods. In this way the country will have to spend foreign exchange on their importation. Measures to Remove Deficit in BOP Simply to remove deficit in BOP, a country should increase its exports and decrease its imports. They are discussed below: I. To Give Subsidies to Exporters: Any country which faces deficit in BOP should give subsidies to the exporters. They may also consist of granting of loans at reduced rates to the exporters as well as providing insurance facilities and shipment services etc. Moreover, if countries follow the policy of

subsidizing the other countries may also follow it. In this way the benefits of subsidies will not are availed. II.Restrictions on Imports: Any country which faces deficit in BOP may also impose restrictions on imports by increasing the import duties, imposition of exchange control etc. In this way the imports will decrease. III.Deflation: The country which is facing deficit in BOP should follow the policy of deflation. This policy can be adopted with the help of tight fiscal policy by decreasing Govt. expenditures and increasing taxes. This will have the effect of decreasing the incomes and expenditures of the people. In this way, there will be a deflation in the economy. As a result the imports will decrease and exports will increase IV.Devaluation: In 1994, the World Monetary Conference was held at Bretton woods. In this conference it was decided that Pound Sterling (), Dollar ($) and gold will be used for international transaction. The rate of exchange so determined would remain fixed. However, a country which faces deficit in BOP was allowed to devaluate its currency up to 10% without permission of International Monetary Fund (I.M.F) and more than this with the permission of IMF. In this way the exports will increase and imports will decrease. Accordingly, the deficit will be cured. V.International Monetary Fund (I.M.F): As the international level, the institution named as IMF has been set up. This institution has been assigned to perform the following functions: To serve as a pool of international reserves. To keep an eye on exchange rates of currencies. To provide assistance to those countries who face persistent deficit in their BOP. In this respect IMF has initiated a lot of and with the help of these farcicalities the member of IMF who faces deficit in BOP, can get loan from IMF and use it to remove its deficit. VI. Depreciation: Under Bretton wood System it was decided that the rate of exchange between currencies will remain fixed. But in 1971, American President Nixon suspended the convertibility of Dollar into gold. Thus, since 1973, the world is having the managed Flexible Exchange Rate of System. Under Flexible System, the deficit in the BOP is automatically washed through the policy of Depression. VII.Appreciation: The policy of appreciation is opposite to that of depreciation. It comes into being when the country faces surplus in BOP under the flexible exchange rate system.

Balance of Trade The record of only visible goods transaction completed between the residence of a country and the residence of the rest of the world, is known as Balance of Trade. Measures to Improve Terms of Trade The country should export manufactured goods, rather agri. goods and primary goods. In order to industrialize their economies the under developing countries should depend upon their own resources. They should reduce their dependence on imports. The population of the country should be controlled so that the demand for imports could decreases.