1

.e I Finance & Trade )

part.

INTERNATIONAL
BUSINESS
• 0
•
•
• •
• • • • • • •••
~ontents as per Latest CBSE Sytlabus • • • • • s

1 International Trade :
Conc ept and Benefits
• • • •
1 Export Trad e-Me aning and Proce dure
1 Import Trad e-Me aning and Proce dure
1 Documents
. . . involved in Intern ation al Trade·, indent, letter of ered'1t shipp
• ing
• order
shipping bills, mate 's recei pt (DND P) ' '
• World Trade Orga nisat ion (WTO )-me aning and objectives

1.MEANING
Int~rnational busin ess refers to buying and selling of goods or servic
es beyo nd the
~graphical limits of a coun try. It is also called trade between two countries.
International/External trade is of three types:
1. Export: It refers to sellin g good s or services to foreign countries.
2· Import: It refers to buyin g good
s or services from foreign countries.
3· Entrepot (Re-e xpor t): It refers to impo
rt of goods not for consu mption in home coun try
but for expo rting them to anoth er country.
2•NATURE OF
EXTERNAL TRADE/INTERNATIONAL BUSINESS
International b . .
lllain £ us1ness or 1nt e rnational trade or foreign trade involves two countries The
.
eatures of exter nal trade are:
l. Involvement of Two Coun tries: In international business,
minim um two coun tries
are involv d B . d n· across the borders of the country can also be terme d as
e
external t d. uying. an se mg . far off cities of the same country
. ra e. Trad ing betw een two canno t be terme d as
intern t'10
2, l? a nal business.
ayine t . . E h ountr y has its own currency. p ayment fior impo rted
&oods .n m Forei gn Curre ncy: ac c d paym · also receiv
ent for export 1s · ed m • foreign
cu 18 made in foreign curre ncy an
rrency.
282 Part: B Finance & Trade

3. PROBLEMS OF INTERNATIONAL BUSINESS

I . Legal Procedures : Import or export of goods involves a lengthy and complicated procedure.
Prior permission of the government has to be obtained before exporting or importing goods
or services. One has to fill many documents, get custom clearance, conversion of rupee into
foreign currency, booking of ship etc. All these are time-consum ing activities.
2. Restriction s: The internationa l business is not as free as internal trade. In case of severa]
items export or import licence has to be obtained. Many restrictions are imposed by the
governmen t on export or import of certain items.
3. High Risk: The risk involved in international business is much higher than in internal trade.
Due to long distances there is risk of damage of goods in transit. There is also the risk of
fluctuation in currency conversion rate. The exporter must take marine insurance policy
before sending the goods through ships.
4 . Different Languages: Different languages are spoken and written in different countries.
Traders must appoint someone who can read and understand the foreign language to read
the price list, terms and conditions of trade, etc.
5. Arrangeme nt of Foreign Currency: For making payment of import, importer has to
arrange foreign currency which involves lengthy procedure.
Difference between Internal Trade and External Trade/ International Business

Point of Difference Internal Trade· External Trade

1. Meaning Internal trade refers to buying and selling External trade refers to buying and selling
of goods within the geographical limits of I of goods beyond the geographical limits
a country. I of a country.

Countries Only one country is involved. Minimum two countries are involved.
2.
involved

Risk Less degree of risk is involved. High degree of risk is involved.

3.
- Payments are made and received in Payments are made and received in
4. Currency used
home currency only. foreign currency only.

No long procedures or formalities have to Long procedures and many formalities

5. Procedure
involved be completed before starting. f have to be completed before starting.
Mode of payment Payments are made by cash or cheque. Payments are made through bill of
6.
exchange or through banks.

r Legal rules and National laws, rules and regulations are International rules and regulations are
7
· I regulations applicable. I app~cable.

I Mode of transport It used road, railway mode of transport. I It uses sea transport and air transport.
- :-:- -co~ n~ ~ -I Operating cos~ f internal trade is lo~ Operating cost of external trade is hi;er
/- _ _ ~ ue to inv_olvement of long distance.

Effect on foreign Internal trade has no effect on foreign External trade has direct impact on the
10.
reserves I reserves of a country. ____ l foreign reserves of a country.
 Chapter: 10 Intern
ational Busin ess (283
L.:-----
ERNATIO NAL BUSINESS
4,REASONS FO~ INT · rn at io na l busm ess are:
..,ain reasons for m te
'[he J"
t pr od uc e equall Ywell or cheaply all th th ey need.
The countries ca n no at
J. ua l di st ri bu tio n f re so ur ce di tries.
There is un eq 0 na tu ra l s among fferent coun .
2. er en t £ 1 . w m at er ia l
A ailabi lity of di ff tio n su h tal an d ra
ac to rs of produc c as and, labour, capi
3. v t nations.
differ am on g differen
al
bo ur , pr od uc tiv ity an d producti coSt d ue to socio-economic, geographic
erence in la _ on
4. Diffpo
and litical reasons.
ality
ng le co un try; w h · h • m .
a be tte r po si tio n to produce better qu
a si • Ic 1s
5. There is no t even
.
products at l ow er cost cted goods or services
d pr od uc e th os e se le ·
un tr y finds it a vantageous to
6· As a result, each co d ffi · 1 d pr oc ur • g rest through trade with
in
or e effectivelY an e c1ent y an cost. This is th e m ai n
that it can pr.od uc e .m es can pr od uc e at the lo w er
eh th e ot he r countri international business
.
other countries, wh1 ot he r an d en gage in
s tr ad e with each
reason w hy co un tr ie
INESS vs . DO M E STIC BUSINESS
BUS
5. fNTERNATIONAL complex than the dom
estic business becaus
e
e of
io na l business is mor be successful, the have
to
Conducting in te rn at economic en vi ro nm en ts . To
social, cultural an d of target foreign marke
t.
variations in political, r th e re qu ire m en t
m ar ke ti ng etc. as pe siness differ from ea
ch
plan their pr od uc tio n, estic an d in te rn at io na l bu
sp ec t of which dom
The key areas, in re
sellers
other are: of do m es tic bu sin ess, both buyers an d
In ca se
I. Nationality of
B uy er s an d Sellers: rn at io na l bu sine ss both are of differen
t
se of in te
na lit y whereas in ca
are of th e sa m e na tio
nations an d nationalit
y.
ar e em pl oy ee s, su pp liers, shareholders/
er Stakeholders: St
akeholders ness,
2. N at io na lit ie s of O th
bu sine ss fir m s. In case of domestic busi
with
ic etc. w ho interact , values, behavioura
l
parties, general pu bl d shar e co m m on la ng ua ge
ng to on e co un tr y an is more complex as
th ey have
all stakeholders be lo io na l bu si ne ss , it
in case of internat
pattern etc. w he re as
different values, as pi
ra tio ns etc.
fa cto ~s of pr od uc tio n is generally m or e
m ob il i~ of
ob ili ty of Fa ct or s o f Pr od uc ti on : The
3. M
as co m pa re d to in te rnat10nal busrness. ba ck gr ou nd
in case of do m es tic fi
rm
ke ts : D ue to so ci o- cultural di.fferences,
. s M ar . . ttern .
4 c og en ei ty ac ro s ere is lo t of va na t1 0n m the de m an d pa
· us to m er H.et er h. guage etc. Th .
m en ca n people driv
e left
:a : . 10 n, 1an iv en ca r w he re as A
duiers m th ei r tastes, fas . ht ha nd dr
le us ge ri
For example, In di an pe op In di a
ee ri ng , br ak es etc. ra bl e in tw o to th ree years whereas in
hand fitted st . ns um er du
th ei r co
In America, pe op le ch an ge
to ta lly w or n out.
people use it till it is
____2_8{) Part: B Finance & Trade
Such variatio ns make it complicated to design the product s for international b .
compar ed to designin g of product for d omest IC. t d u81ne
ra e. ss ~\
S. Differe nces in Busines s Systems and Practices: These differences are more in int
busines s as compar ed to domestic business. D 1•ffierence in • .
econom ic develop ernati 0na1
. . rnent, c
econom ic infrastr ucture, market support serVIces makes it necessa ry for the firrns 0s~
in internat ional trade to adapt their product ion, finance, human resources and mark!ealling
as per the conditio ns prevailing in the internat ional market. Pans
6. Politica l System and Risk: Political factors such as type of governm ent, political its ide
. d 1· . .
etc. have great impact on business operations. Firms ea 1ng with intern, trade need to olo111,
Ill 0 '
special efforts to underst and the political environ ment of importe r or exporter country~e
7. Busine ss Regulat ions and Policies: Each country has its own set of laws and regulatio ·
Tariff and taxation policies differ from nation to nation. Most of the time, there is some~
of discrim ination against foreign products, services and capital.
8. Curren cy Used in Busines s Transactions: Anothe r difference between domestic and
internat ional business is that international business involves use of different currencies and
exchang e rate of currencies keeps on fluctuating. Due to this fluctuation, it becomes difficult
for firms to fix prices of their products and services.

6. BENEFITS OF INTERNATIONAL BUSINESS

(NEED FO.R INTERNATIONAL BUSINESS)
6.1 Benefits to Nations
I. Earnin g of Foreign Exchange: International business helps a country to earn foreign
exchang e which can be used to import capital goods, technology, petroleum products.
fertilizers etc.
2. More Efficien t Use of Resources: Every country has some or the other natural resources.
For example, a country may possess mineral resources, labour resources, technological
capabilities, water resources etc. Every country tries to use these resources in the best
possible manner and gradually they become more efficient and specialised in using tbese
resourc es than other countries. For example, Japan may produce electronic goods more
efficiently than India and India may produce agricultural goods more efficiently than Japan•
Thus India can buy electronic goods from Japan and can sell agricultural goods to Japan• ~
with external trade resources can be used efficiently and all the countries can get benefit o
specialization.
3 . Improv ing Growth Prospec ts and Employ ment Potenti al· External trade boost5 up .the
. . . roducuo11
econom ic growth of a country as the firms of developing countrie s increase their P ,v·
· to supp1y good s m
capacity · fiore1gn
· countrie· s. Compan ies can also import bnical kn°
tee ·ng10
how to utilise their resources. Increased product ion results in increase in GDP lea~ eetlY
econom ic growt h of t h e country. External trade creates employ ment opportun1•ties dir
 Chapter: 10 International Business uM.fi■-ii.j•11_ ___.
indi rectly. Ext ern al trad e resuJ ts In . · d
as well as in . to incr ease
. crease In production and due
roduction the dem and for lab our Incr ease s wh. h ..
es.
P Ic creates emp loym ent opp ortu niti
n the oth er han d, exp ort- ori ted Ind .
O en ustri ·d
nts, clea ring age nts, etc. es prov i e employment opportunities such as
forWarding age
enc e of1· t . al d uld h b
4, Increase s Sta nda rd of Liv ing : In the abs not ave een
le for the wor ld cor n . n ernation tra e, it wo .
ssib mun1ty to use th d d es.
po e goo s an serv ices pro duc ed in oth er cou ntn
'Ihe peo ple livi ng in dev elop in and
ts and
• ·t d d of Iiving. g und erdeveloped countries can use these produc
increase the1r s an ar

s
6.2Benefits to Firm
. .
1 Prospects for Higher Profit·· GeneraIIY mternat10nal business is more profitable htha ·
n
h
· · d omestic · market are low then firms can sell at 1g
domestic business. Wh en the price s m
where prices are high.
price in inte rna tion al mar ket in the countries
d Cap aci ty Uti lisa tion : Com pan ies involved in external trade increase the ir
2. Incr ease
tion capacity these firms can get benefits of
production capacity. Wit h increase in produc
ce the cost of production .
large pro duc tion or economies of scale and redu
Pros pec ts for Gro wth : Wh en the dem and for the products starts becoming saturated in
3.
e their business by approaching international
domestic cou ntri es the ~-su ch firms can enhanc
ket. This is the ma in mo tiva tion for man y MNCs at developed countries to enter in the
mar
markets of developing countries.
out frm n Inte nse Com pet itio n in the Dom estic Ma rke t: High competitive domestic
4. Way
ional in search of markets for their products.
market drives ma ny companies to go internat
This help s the m to gro w and expand.
Imp rove d Bus ine ss Vis ion : The vision to become international comes from the urge to
5.
l advantages by going international. Many
grow. Companies get strategic and technica
e and strategy.
companies are inc lud ing it as their main objectiv
ATIONAL BUSINESS