CHAPTER-10

INTERNATIONAL BUSINESS

Meaning of International Business.

International business refers to buying and selling of goods on services
beyond the geographical limits of a country. Herein the business
transactions are done in foreign currency.

According to Roger Bennett, “International business involves

commercial activities that cross national frontiers”.

PROBLEMS OF INTERNATIONAL BUSINESS

1. Legal Restrictions: International business is not as free as domestic

business. Prior permission of Govt. has to be obtained before
importing or exporting of goods or services. In case of several items,
export or import licence has to be obtained.
2. Heavy documentation: Import or Export of goods involves lengthy
and complicated procedure. One has to fill many documents for
custom clearance, booking of ship, arranging foreign currency etc.
3. Lack of information about foreign markets: New traders do not
have adequate information about foreign markets. Hence they fail to
tap the opportunities available for export or import.
4. Different languages: The difference in languages of different
countries acts as a serious barrier of communication between buyer or
seller. Traders have to appoint somebody who understand foreign
languages to read price lists, terms and conditions etc.
5. Time consuming: Since buyer and seller are not known to each other
and located at far off places, the finalization of trade agreement and its
execution becomes a very time consuming process.
6. Heavy transportation & Insurance costs: International trade
involves heavy transportation and insurance costs, hence not suitable
for small traders.
7. Arrangement of foreign currency: Importers are required to make
payments in foreign currency. The arrangement of foreign currency
involves a lengthy process and requires prior sanctioning from RBI
banks.

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 8. High Risks: The risks involved in international business is much
higher than in internal trade. There are risks of damage in transit,
delayed delivery, fluctuation in currency conversion rates etc.

EXPORT PROCEDURE

Export refers to selling of goods and services to a foreign country. The

various steps involved in the export procedure are-

1. Receipt of Enquiry and Sending Quotations: The prospective buyer of

a product sends an enquiry to different exporters regarding price, quality,
terms and conditions etc.The exporter sends a reply to the enquiry by
preparing ‘Proforma Invoice.’ Proforma invoice contains detailed
information about price, quality, type of packing, mode of delivery etc.
2. Receipt of Order: If prospective buyer is satisfied with the information
given in proforma invoice, he may send a confirmed order in writing
known as ‘Indent’.
3. Assessing Importers Credit Worthiness and Securing Guarantees for
Payment – After getting letter of indent, the exporters may enquire about
the credit worthiness of importer and demand ‘letter of credit’. A letter of
credit is a guarantee issued by importers’ bank that it will make payment
upto a specified amount of export bills to the exporters’ bank.
4. Obaining Export Licence: According to customer laws in India, every
firm is required to obtain export licence before it starts with exports.
These include:-
a) Obtaining Import Export Code (IEC) number from Directorate
General Foreign trade.
b) Registering with appropriate Export Promotion Councils.
c) Registering with Export Credit and Guarantee Corporation to
safeguard against risks of non-payment.
5. Obtaining Pre-Shipment Finance: The exporter may then approach his
banker to obtain pre-shipment finance required for procuring raw
materials, processing and packing of goods, transportation of goods to
port of shipment etc.
6. Production andProcurement of Goods: After arranging money,
exporter will start with the production of the goods as per specifications
of the importer. He may also buy goods directly from market.

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7. Pre-Shipment Inspection: In India the exporting goods are required to
undergo a quality inspection check as per Export Quality Control and
Inspection Act of 1963. The exporter may get this done through
designated Govt. agencies and obtain the inspection certificate.
8. Excise Clearance: At the next stage, exporter has to apply to the Excise
Commissioner of the region to get excise clearance. Generally exporting
goods are exempted from excise duty or it is refunded back to them under
Duty Drawback Scheme.
9. Obtaining Certificate of Origin: The exporter must obtain a Certificate
of Origin which is a proof that goods have been manufactured in the
country from where the export is taking place.
10.Reservation of Shipping Space: The exporting firm applies to the
shipping company for the booking of shipping space. On accepting this
applications, the shipping as issues a Shipping Order. A Shipping Order
is an instruction to the captain of the ship to receive the specified goods
on board after custom clearance.
11.Packing and forwarding: The goods are then packed properly and
loaded on the railway wagon. The railway authorities issue a railway
receipt which serves as a title to the goods. The exporter endorses the
railway receipt in favour of his agent to enable him to take delivery of
goods at the port of shipment.
12.Insurance of goods: The exporter then gets the goods insured with an
insurance company to protect against risk of loss or damage due to sea
perils.
13.Custom clearance : To obtain the customs clearance, the exporter
prepares a Shipping Bill which contains details of goods to be exported,
exporter’s name and address, country of final destination etc. Five copies
of shipping bill along with some other necessary documents are
submitted to the customs office.
Next the port superintendant is approached for ‘Carting Order’ which is
required for entry of cargo inside the dock/port area.
14.Obtaining Mates’ Receipt: The goods are then loaded on the board of
the ship and a mates receipt is issued by the captain of the ship to the port
superintendent. The port superintendent hands over the mates receipt to
the C&F agent after getting his port dues.
15.Payment of Freight and issuance of Bill of lading: The C&F agent
surrenders mates receipt to shipping company for the computation of

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 freight. After receiving freight, the shipping company issues a bill of
lading which serves as an evidence that shipping company has accepted
the goods for carrying to designated destination.
16.Preparation of Invoice: After sending goods, exporter prepares the
invoice stating the amount to be paid by importers. This is to be attested
by customs.
17.Securing Payment: Finally the exporter may inform the importer about
shipping of goods and send him documents like invoice, bill of lading,
letter of credit etc. through his bankers. The bankers will hand over the
documents to importer only when he accepts a bills of exchange. The bill
of exchange are of two types.
a) Document against sight: Herein documents are handed over only
against payment.
b) Document against acceptance: In this case documents are handed
over when importer accepts bill of exchange and agrees to make
payment in a specific period of time.
Finally after receiving payment, the export may obtain a bank
certificate that certifies that necessary documents have been negotiated
and payment has been received in accordance with the exchange control
regulations.

IMPORT PROCEDURE

When goods are purchased from a foreign country it is known as

Import trade. The various steps involved in the import procedure are:-

1. Trade Enquiry: The importing firm may gather information about

different exporters who export the given product from Trade
Directories or Trade Associations. After identifying suitable exporter,
it may place trade enquiry to know the price and other terms and
conditions at which exporter is ready to export goods. The exporter
replies to trade enquiry by sending a proforma invoice.
2. Procurement of import licence: Certain goods can be imported
freely while others need licensing. For this Export Import Policy of
Govt. must be consulted. In India, every importer must get itself
registered with DGFT (Directorate General Foreign Trade) and obtain
an IEC number which must be mentioned in all import documents.

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3. Obtain Foreign Exchange: Since payment is to be made in foreign
currency, the importer must obtain the sanction of foreign exchange
from RBI. For this, an application is made to a bank authorized by
RBI to issue foreign exchange.
4. Placing Order or Indent: Next step is to place written import order
or indent to the exporting firm. All information like, price, quality,
delivery schedule, packaging etc. should be clearly mentioned so as to
avoid any ambiguity or conflict later.
5. Obtaining letter of credit: The importer may obtain a letter of credit
from its bank and send it to the exporter. A letter of credit is a
guarantee issued by importers bank that it will honour payment upto a
specified amount of export bills to the exporter bank.
6. Arranging for finance: The importer should make arrangements of
finance well in advance to make payments. This is required so as to
avoid penalties on imported goods lying uncleared at the ports.
7. Receipt of Shipment Advice: After loading goods on vessel, the
overseas supplier despatches the shipment advice to the importer. A
shipment advice includes documents like invoice, bill of lading, name
of vessel through which goods are coming etc.
8. Retirement of Import Documents: After shipment of goods, the
exporter submits set of necessary documents to his banker for their
onward transmission to importer. These include bill of exchange,
invoice, bill of lading, certificate of insurance policy etc. The
important has to give his acceptance on the bill of exchange to get the
delivery of these documents. This is known as retirement of import
documents.
9. Arrival of goods: When goods reach importers country, the captain of
ship informs port authorities about arrival of goods and issues ‘Import
General Manifest.’ Import General Manifest contains details of goods
based on which unloading of cargo takes place.
10.Custom Clearance: Finally the importer has to pay dock dues and
customs duty to get custom clearance of his goods. For this purpose a
bill of entry containing details of imported goods is submitted to
custom authorities.
After payment of customs duty, the bill of entry is presented to the
dock superintendent who gives the release order after the physical
examination of goods.