INTERNATIONAL BUSINESS ENVIRONMENT Exports or international business involves dealing with different countries.

The market conditions in these countries may differ due to various factors, which can have effect on marketing strategy for the said market as well as impact on actual value. These markets related factors decide the business environment of the said country. Hence, the markets in different countries have different business environments. An exporter will have to adopt varying-marketing strategies for different business environments of different countries. Thorough understanding of the intricacies of the market in particular country would lead to the formulation of unique marketing strategy and increase in sale. Important environmental factors in context of International Business are as follows (A) Economic Environment (B) Demographic Environment (C) Social Cultural Environment (D) Political and Governmental Environment (E) Technological Environment (F) Legal Environment Following paragraphs give information about each of the environment factors: 1.1.1 Economic Environment Scope for doing business with any country depends upon economic environment of that country. This mainly constitutes two factors viz. Income and level of economic development of the country. i. Income Countries all over the world can be classified into two categories as developing countries and developed countries. This classification is based on per capita income ir the country as follows· a) Low income countries: GNP per capita of $ 765 or less in 1995. b) Middle income countries - GNP per capita of $ 766 to $ 9385 in 1995. c) Higher Income countries - GNP per capita of $ 9386 and above in 1995. United States of America, many European countries and oil exporting countries in Middle East fall under High-income countries. While most of the African, Asian and some of the Latin American countries fall under low-income countries. The demand for various products depends upon average per capita income of the country as well as distribution of income in the country. The demand for luxury or white goods like TV, washing machines etc is less in developing or low income countries. In man) developing countries import policies are strict due to problem of balance of payments. In developed countries per capita income is high and hence consumption and demand for "luxury" goods is more. Import restrictions are also liberal as compared with developing countries. However, many developing countries like China, India etc. have undertaken path of liberalization by reforming their economic policies. These countries are also offering good prospects for business due to steady increase in income as well as demand There exists high level of competition and technological obsolensce in developed countries as compared to developing countries. There can be a good demand for high value or luxury items in countries with high population and low average income. For e.g. in country like India if 5% of the population is in High-income group category, the absolute number (about 50 million is much more than the total population of the developed countries. Hence, In India


green is a favourite colour in Muslim world but in Malaysia it is associated with illness.g. tasks. ' Similarly liking of colours and beliefs varies from culture to culture. business opportunities vary depending upon different demographic factors. growth rate. good scope for education. Countries population. Declining birth rate in any country is a boon as well as curse depending upon the products to be marketed in that country. of non-durable consumer goods (textiles. density of population etc. Each stage offers different marketing opportunities. buying habits. Meaning of brand name of product in one country may cause anger in another country. 1. Large population means high availability of labours at cheaper cost. Each factor has a bearing on market potential for different products. white indicates death and mourning in China and Korea but in Christian community it is the colour of bridal dress and indicates happiness. Hence. Various stages of industrialization can be as under:a) Primary manufacturing (Processing of raw material) b) Manufacturing.2 Demographic Environment Population. traditions. income levels. 2 . decide the demographic environment of the country. The marketing strategies have to be developed keeping into mind these factors.) c) Manufacturing of consumer or industrial durable goods (like appliance and machines). etc. 1.product like Colour TVs. Thus. The acceptance or liking for a product may vary from one culture to another. Developed countries with large population offer good market potential. In developed countries the demand for consumer durable products is mainly through replacement as consumer in these countries have already on utilized these products while in case of developing countries the demand for the items is mainly by way of primary or new demand. customs. has developed large varieties of instant coffee to meet tastes of people in different countries. medical. sex ratio. transportation and water supply sector. rubber etc. _ Level of Economic Development In process of their economic development countries pass through different stages of industrialization. Age composition. The differences in languages also pose serious problem in markets and in different countries.3 Social/ Cultural Environment Languages. stage of industrialization and income distribution pattern decide the market of that country.1. For e. For e.1. Washing machines and cooking ovens are having good market. consumption habits. Nestle. This will decide the demand for related products and services. The success of companies lies in modifying their products according to the varying cultures in different countries. Many multinational companies are producing different varieties of products to suit requirement of different countries. These countries manufacture variety of goods and also export. This may pose difficulty in selling product in these countries.g. decide the social environment of the country. For example. Pepsi cola's slogan" come alive" translates as "come out of grave" in some languages. As countries get industrialized and their per capita increases they become more attractive as a market. ii. beliefs. the choice of colour needs to be varied from country to country.

Industries like forging. In nutshell. in comparison with men’s. In most of the democratic countries the private sector plays an important role while in communist system preference is for state owned or public sector enterprises. Effluents of tanneries cause pollution hence in developed countries tanneries have to set up their own effluent treatment plants or otherwise the leather industry imports finished leather from developing countries. Product promotion for certain products like alcoholic drinks. In some countries there is a restriction on use of media for advertising. However. However. Each nation has its own value system. 1. The use of labour force is very limited. the nature of the constitution of country and its working system encompasses political and government environment. over last decade most of the countries including those where communist rule was there are following the path of economic liberalization and preference for privatization. labour intensive methods of production are used.1. cigarettes etc. Technology levels of developed countries in comparison with developed countries may vary from sector to sector. 1. This restricts the product quality as well as quantum of production. culture and traditions. Religion also has lot of influence on the people in any country. Democratic. For example. many developed countries are utilizing fully automatic machine which ensure accurate machining and better quality. in some countries. For example. Developing countries like India some time find importing second hand machinery from developed countries better than procuring new machines manufactured indigenously. The governmental environment also includes the government system viz.Social Environment also includes number of women engaged in employment or work outside house hold work. The products and services required by families in which women go outside for earning would be different from families where women are engaged in household work. an exporter has to study thoroughly the preferences and restrictions of major/political parties and governments of the countries where he intends to export. However.4 Political and Government Environment Policies of the political parties who run the government. an exporter has to take into consideration culture and business practices in the country where he intends to sell his product or services. Another example is leather industry in India. Hence. Republic of China as well as USSR are adopting market oriented approach rather than protecting the public sector undertakings or state owned units. India has acquired sufficient strength in Textile and software sector as compared with engineering industry. Other aspects to be looked at are packaging and labelling practices adhered to in any country. For example. is prohibited on government controlled TV channel.1.5 Technological Environment The scope for products to be exported also depends upon the technological level or status of technology in different industry sectors. in any country. casting etc. Developed countries are also trying to pass on labour intensive and polluting industries to the developing countries. in India are receiving the orders from developed countries who have put up ban on polluting industries. 3 . Communist or Military control.

in other words globalization can be looked upon as a global dimension of the evolving world economy. An exporter should also avail services of the experienced counselor who can guide in matters of patents and trademark. Growing similarities of countries in terms of available exporting the products. efficiency. However. Besides these other limitations were imposed by poor infrastructure viz. delays in transportation due to poor roads. As globalisation encompasses reforms in industrial.1. availability of raw materials and components. particularly if he is having all branch office or staff or representative. It has offered the opportunities to the local industries like impetus to quality. distribution channels and marketing approaches. technology superiority of foreign companies attractive marketing techniques and impact of world popular brand names. better technology. Globalisation also refers to spread of business activities in different markets world over and it also implies interdependence of world markets. inadequate and poor quality of power. FORCES OF GLOBALISATION The term Globalisation covers all spheres of life viz. Emerging new global competition. Technological restructuring. trading. 1. Globalisation can also refer to global dimension of every aspect be if economical. technological environment necessitates changes in product designs suiting the technological level of the given country. Exporter has to abide to the laws of country where he is exporting. Globalization process has necessitated Indian industries to overcome limitations imposed by the past regulatory environment. He is governed by law of that country and not of India. economical and cultural. cultural or otherwise. unfavourable location. inefficient telecom services and high turn around time at ports. mutual faith and trust also plays an important role in export business. Michael Porter of Harward Business School has identified the following as the forces affecting the globalisation of markets. Various factors of globalisation. political. Fluid global capital markets. be it in economic. Exporters should be careful in drafting sales contract. ii. social. in his book "Competitive Advantage of Nations". which are going to affect Indian industry. i.6 Legal Environment In export trade exporter has to deal with the laws of his own country as well as laws of the countries where he . trade and fiscal monetary policies. Integrating role of technology v. iii. To be globally competitive Indian industries are now working in quality improvement 4 . are competition. iv. Hence. it has definite bearing on industry. Labour laws for the staff employed in foreign countries should be studied.Hence. industrial or financial sphere. limited access to technology and outdated machinery with low output. Fundamental principles of commercial law covering the foreign transactions are more or less similar through out the world. These limitations are as a result of industrial licensing of subcritical capacities. undertaking financial transactions and adhere to the taxes of foreign countries.

The speed is so fast that we cannot have a very stable. not necessarily using their own capital.3 GLOBALISATION AND KENCHI OHMAE'S THEORY KENCHI OHMAE is one of the world's leading management consultants and the famous Asian management guru. The key is to develop equidistant view of all customers. fundamental reason for globalization is the migration corporations. and behaviors. A country has to fulfill its requirements of different products. and at the same time localize the strategy depending on very different consumer needs. In different countries the natural resources differ on account of geographical locations. Japan and the Pacific. THEORIES OF INTERNATIONAL TRADE International trade or domestic trade occurs because the two parties involved in the trade get benefited or profit from the transaction Generally.R & D. United States. it is essential to develop certain strategies almost entirely and simultaneously for the world. location by location. A headquarters mentality often prevents this. According to Mr. structures. Level of technologies differs from country to country and hence some countries can produce products at lower costs as compared to the countries. offering fresh a sometimes unorthodox solutions to old problems. whose views sweep the globe. iv. Indian industries are also concentrating on collaboration and exports besides human resource development. communications. which have low level of technology. You also can not even build a strategy for one country. Ohmae . 5 . Study of the prosperous regions of the world shows that they take advantage either explicitly or implicitly of the migration of these management resources. 1. creativity a competitiveness. ii. Different countries have different entrepreneur capabilities and labour skills. In today's borderless economy managers must see and think globally. particular information and capital. alliances with MNC's. managers want to apply a homecountry solution to a foreign situation or intervene in the management of the foreign market. static strategy for any given country. efficient inventory management a optimum utilization of resources. This is reinforced by entrenched systems. Increasing managers and consumers all over the world speak a common language. and people everywhere can see what choices and preferences are in other countries. In case of multinational companies the speed at which the resources of management such as capital and technology move across national borders. Europe through commitment. without recourse to implications in the rest of neighbouring countries and also the world. creating brand image. These countries or the regions are very good at getting capital coming from the rest of the world. so fast that one can distinguish a strategy for a company in a given country. Hence. by importing some of its requirements in lieu of export of some products which can be produced at lower rates. citizens and capital across national borders. No country can be self-sufficient. international trade takes place due to following factors i. iii. He suggested that the route to global competitiveness was to establish a presence in each area of the Triad.

4. calls this as the principle of Absolute Advantage. ' The principle of comparative cost by Ricardo is based on the principle of different costs of similar goods in different nations.1 The Theory of comparative cost or Absolute advantage According to this theory international trade occurs due to difference in comparative cost of production of two countries. 6 . 1.1. efficiency of labour etc. exports will then exactly balance with imports.2 Bertil Ohlins theory or Modern Theory According to Ohlin "International trade is but a special case of inter local or inter regional trade". which leads to the geographical specialization in production of different products. still there is a scope for trade between the two countries. The factors of production are perfectly mobile within the regions. Conversely.4. 2. In different countries the cost for same products are different because of geographical division of labour and specialization in production. Ricardo asserted that comparative difference in costs is the condition for international trade. Each region possesses a paper currency system which is insulated from external financial influences. Adam Smith. an economist. A country will export that product in which it has comparative advantage and import the product in which its comparative disadvantage is less. 5. 3. His theory is based on following assumptions 1. 5. it should import a commodity that can only be produced at a higher cost than other nations. The present day economists have rejected comparative cost theory on the grounds that it was based upon obsolete labour cost theory of value. He states that. natural resources. There are no transportation costs. According to Smith. a country should export a commodity that can be produced at a lower cost than can other nations. There are two regions only between which trade takes place. There are no qualitative differences in the factors of production in the two regions. there can be a difference in efficiency of producing these commodities. It means international trade is advantageous even when one of the two countries can produce every commodity more cheaply than the other country. Goods transactions alone are to be considered. trade occurs between two countries if one of them has an absolute advantage in producing one commodity or least disadvantage in the other . Even though two countries are producing all commodities. 7. Hence. In nutshell Ricardo states that “Each country will specialize in production of those commodities in which it has greater comparative advantage or least comparative disadvantage" According to Adam Smith international trade occurred because of the absolute advantage by a particular country in a particular product and absolute advantage enjoyed by another country in another product. they follow Bertil Ohlin's theory or modern theory of international trade. a country can definitely produce a particular commodity at lower cost. 6.and the other country having absolute advantage in producing some other commodity. Hence.4. There are no restrictions on the movement of goods between the two regions. Due to differences in climate. but immobile between them.

The theory can also be applied to more than two regions or two countries.Ohlin) theory Though modern theory has improvements over the classical comparative cost theory of international trade. following factors criticize Modern theory: i.4 Criticism of Modern (Heckscher . vi. iv. in reality the relative factor prices are determined not only by the supply of productive factors. vii. iv. x. Land. He discussed the obstacles to interregional mobility of factors and explained how factor movements could act as a substitute for movement of commodities. Modern theory is highly static in nature. It is unrealistic to assume that the two products in the two countries are homogenous or identical. Factors of production are mobile between the countries and hence the basic assumption that these are immobile is wrong. iii. However. According to modern theory trade occurs due to differences in relative commodity prices in two countries.1. full employment of productive resources etc. critics say that commodity prices determine the factor prices and not vice versa.4. Modern theory provides partial explanation of phenomenon of international trade. arising from differences in factor endowments in two countries.4.4. However. Economies of large-scale production constitute additional basis for international trade. 1. This theory fails to explain Leontief Paradox. Trade between two countries may take place even if their factor endowments are identical. If the demand factor is more powerful than the supply factor. ix. v. ii.3 Refinement of Bertil Ohlin's theory Refinements introduced in the original theory by Ohlin are as follows: i. v. There is bound to be qualitative difference in productive factors like labour in two different countries. labour and capital. iii. Qualitative differences in three factors of production does exist viz. 1.5 International Product Life Cycle Theory Figure given below explains international product life cycle concept 7 . but also by the demand for their services. It is unrealistic in character as it is based on simplified and unrealistic assumptions like perfect competition. viii. Transportation costs do exist but not materially affect original theory. Production functions of the same goodcan't be identical in two countries. This is called as "Leontief Paradox". ii. then it is possible that the capital abundant country may specialize in production and export of labour intensive goods. which is due to differences in factor prices. According to modern theory relative factor prices are determined by the supply of productive factors in the two countries.

Later the products are exported to other advanced countries. the initiating country loses some of its export market as other advanced nations initiate their own local production. Taiwan. it cannot fully provide the explanation for transfer of technology and migration of industry. it was a centre for transshipment. however. advanced nations for use in the local market. Singapore is classed as a newly industrializing country because it has had one of the world's most rapidly growing economies in recent years. International product life cycle theory has been found useful in explaining trade between the nations. South Korea and other countries like Japan and China. Major industries include petroleum refining. food and beverages. More than 45% of Singapore's total trade was with the United States. Since gaining independence. Initially. and the manufacture of drilling equipment. Singapore has become a major industrial and financial centre with a well-developed infrastructure and close cooperation between government and business. 1. and 8 . Singapore has experienced a trade deficit. After this stage. Lastly.This concept is based on a cycle in which products are first introduced in high income. but by the early 20th century primary goods--mainly rubber and tin from Malaysia--were being imported for processing. rubber processing. Some of these last products are likely to be imported by the initiating country. Hong Kong (now part of China).5 RISE OF NEW ECONOMIES Last two decades have seen rise of new economies in South East Asia like Singapore. the initiating countries loses additional export markets when less developed nations begin producing and exporting the product. The country can trace its modern economic successes to its strategic position and excellent natural harbour. Singapore Singapore is one of the Asia's so-called four "Little Tigers" viz. and shipbuilding and ship repair constitute an important industry. and South Korea. part of which may be due to direct investment by companies of the originating country. and electronics. Taiwan. Its port is now one of the world's largest in terms of tonnage handled annually. During the last decade or so. Japan.

textiles. iron and steel. Western Europe. and additional revenues are derived from Chineseowned shipping.Malaysia. television and radio receivers. the staple food) must be imported. Exports include a wide range of machinery. which provides more than 16% of all Japanese imports and absorbs about 20% of the exports. are the leading seaports. Japan Japanese economy is focused around trade because of the scarcity of agricultural land and of industrial raw materials and fuel. and Kaohsiung. chemicals. and the nations of Eastern Europe expanded dramatically after the late 1980s. The principal airport is near Taipei. electronic products. The export trade has become so successful in recent years that balance-of-payments problems have arisen with trading partners with competitive industries. and tourism is growing in importance. and toys. This situation is especially true of the United States. South Korea South Korea is another "Little Tiger" which has prospered due to its growing foreign trade. By the early 1980s. electronic components. footwear. silks. and today almost 25% of its total trade is with other ASEAN nations. clothing. Agriculture plays a minor role in the nation's economy. Machinery and transportation equipment are major imports. Taiwan Another nation amongst Asia's "Little Tigers" is Taiwan. plywood. Japan's single largest trading partner. which provides about 18% of the imports and takes 23% of Japan's exports. automobiles. The balance of trade is favourable. The major imports are crude petroleum. and iron and steel. Singapore was a founding member of the Association of Southeast Asian Nations. and communications are limited in an east-west direction. Saudi Arabia. office machines. South Korean trade with China. and the tourist industry. The fishing industry is well developed. Russia. Most industries are labour intensive and benefit from Taiwan's literate and technically competent labour force. calculators. In 1991 the government announced a massive 6-year plan to modernize Taiwan's infrastructure and technology for future growth. and electronic items. and refined petroleum products are leading exports. machine equipment. The major products are textiles. coal. and such traditional handicrafts as ceramics. Canada. Chi-lung (Keelong). textiles. on the southwest coast. plastics. ships. The leading exports are electronics equipment. Manufactured goods comprise about 75% of Singapore's imports and exports. electronics. machinery. which in 1990 imported 184% more by value from Japan than it exported. The United States is Taiwan's major trading partner. industrial trading nation. at the northern tip of the island. Australia. remittances from overseas Chinese. toys. Taiwan's foreign trade increased more than tenfold between 1964 and 1974 and continued to expand rapidly thereafter. Most agricultural commodities (including rice. and food. and bamboo and paper items. Taiwan was a modern. South Korean exports faced increasing competition from other industrializing nations and are threatened by protectionist legislation in the United States and elsewhere. Most railroads and highways run north-south through the populous western lowlands. Other leading trade areas are East Asia. The principal imports are metal ores. petroleum. clothing. optical instruments. Exports have increased dramatically since the 1960s. and Southeast Asia. 9 .

000 of the world's 720. four special economic zones offering tax and trade benefits to foreign companies were established. however.. speculation. The reform policies. Growth slowed markedly in the 1990s largely because of the after effects of over investment during the late 1980s and contractionary domestic policies intended to wring speculative excesses from the stock and real estate markets. Usually self-sufficient in rice. Since the initiation of economic reforms in 1978. In addition. Industry. and a comparatively small defense allocation (1% of GDP) have helped Japan advance with extraordinary rapidity to the rank of second most technologically powerful economy in the world after the US and third largest economy in the world after the US and China. In the coastal areas. with crop yields among the highest in the world.000 "working robots". acted as a disincentive to agriculture. Japan must import about 50% of its requirements of other grain and fodder crops. is heavily dependent on imported raw materials and fuels.Government-industry Co-operation. China In September 1982 the government of China adopted a new program designed to quadruple the gross annual value of the nation's industrial and agricultural output by the year 2000. Second basic feature has been the guarantee of lifetime employment for a substantial portion of the urban labor force. Robotics constitutes a key long-term economic strength. The astounding growth of rural industry has. while increasing industrial and agricultural output substantially. a strong work ethic. efforts have been made to correct the structural imbalance this policy produced. with Japan possessing 410. suppliers. Manufacturing is located in seven main industrial regions. The much smaller agricultural sector is highly subsidized and protected. During the 1980s the government also pursued a series of reform policies to increase productivity in agriculture and industry through decentralisation and to open the door to foreign investment. The share of village industry in the total industrial output value rose f. and distributors is very essential. making China one of the world's foremost producers of these products. 14 coastal cities and Hainan island were opened to foreign investment in 1984. corruption.r. also contributed to inflation. From 1985 to 1988 the output of durable consumer goods showed phenomenal growth.The crowding of habitable land area and the aging of the population are two major long-run problems. mastery of high technology. Japan maintains one of the world's largest fishing fleets and accounts for nearly 15% of the global 7. and income disparities. New investment has been concentrated in the textile and consumer durable goods industries. the most important sector of the economy. Government efforts to revive economic growth have met with little success and were further hampered in 2000-01 by the slowing of the US and Asian economies. a 5% average in the 1970s and a 4% average in the 1980s. Both features are now eroding. The 10 . Beginning in October 1988 new policies were initiated to reimpose government control and slow down growth to achieve economic stability. One notable characteristic of the economy i: the working together of manufacturers. For three decades overall real economic growth had been spectacular: a 10% average in the 1960s.2%in 1976 to as much as 25%by 1989.

manufactured goods. In the early 1990s.tariff barriers. textile yarn. Textiles. Trade agreements 3. Trade Barriers Trade barriers are imposed to protect domestic producers from foreign competition. Between 1990 and 1991. steel. Direction 11 . Tariff barriers and Non . is China's oldest and most industrialised region. exports increased by 16%. Trading Blocks 4. Industrial machinery. Tariff Barriers Tariff is a custom duty or a tax on products that are imported or exported. Trade barriers business. to discriminate against certain countries or to artificially stimulate exports of particular domestic products. chemicals. and petroleum had become the leading exports by 1990. TRADING ENVIRONMENT OF INTERNATIONAL BUSINESS International trade being major chunk of the . international trading environment becomes important factor from point of view of international business. and fertilizers are the chief imports. garments. to develop the indigenous industry. Cartels Following paragraphs discuss above factors in detail.' telecommunications and recording equipment. Tariff barriers can be classified as below i. China's industrial output increased by 14%.Northeastern Region. International trading environment constitutes following factors 1. Recent successes of China have been on account of setting up Special Economic Zones (SEZs) like Shen Zen. the government continued to advocate free-market reforms and court foreign capital in order to avert the kind of economic unrest that contributed to the 1991 breakup of the USSR. These are as shown in figure given below: a. to conserve foreign exchange of country. Trade barriers can be classified into two main categories viz. with a huge iron and steel complex located at ANSHAN.

Single stage Sales Tax. When foreign cars are imported in USA.Generally tariffs are charged on imports rather than exports. including taxes borne by the product at earlier stages. state trading and subsidies. Ad valorem duties and combined duties. VAT is charged on both products sold on the domestic market and imported goods. Purpose These tariffs can be classified as protective tariffs and revenue tariffs depending upon the purpose of levying these. ii. Administrative guidance includes governments trade 12 . charged only at one point in the manufacturing and distribution chain. Advalorem duties are duties linked to the value and are charged as a fixed percentage of invoice value. Cascade and Excise. b. Time length A tariff surcharge related to the time length is charged by the importing industry to protect the domestic industry. which is offered by the exporters government. This is because USA's tax on car is revenue tariff while that of Japan is more ol a protective Tax. Hence there is a direct relationship between duties collected and value of goods imported. The purpose of protective tariffs is to protect the domestic industry by keeping the foreign goods out of the country. Exporters government may provide export subsidy by rebating certain taxes. if goods are exported.00 per kg. An excise tax is a one time charge levied on the sales of specified products. Revenue tariffs are generally low as compared to protective tariffs. The purpose of revenue tariff is to generate tax revenues for the government. Combined duties are combination of specific duties and Advalorem duties. Specific or fixed duties. Production. Distribution and Consumption taxes There are mainly four types viz. Tariff Rates There are three methods of charging tariff rates viz. These duties have no relation to price or cost of the product. Cascade Taxes are collected at each point in manufacturing and distribution chain and are levied on the total value of the product. Non-tariff barriers are as are given below i. Export tariffs are applied only if country is exporting its scarce raw materials or resources. Value Added Tax (VAT). This duty is charged to offset an concession or tax benefit enjoyed by the exporter. Single stage sales tax is. Similarly counter veiling duties are imposed on imports when products are subsidised by foreign governments. 5. plus five percent advalorem. Government participation in Trade Government's participation in trade can be by way of administrative guidance. Value added tax is charged on each stage of production and distribution system based on the value added at that stage. Amongst all taxes this is perhaps the severe most system. v. gauge or other measures of quality. there is 3% revenue tariff whereas if the USA car is sold in Japan it costs almost double as much as its cost in USA. Specific or fixed duties are standard amount of money per unit of weight. This tax is based on the added value at particular stage and not in the product value at that stage. iii. For example Rs. iv.00 per square meter etc. Rs. Non Tariff Barriers Tariff barriers are generally straightforward while non-tariff barrier are elusive or non transparent. 20. For example tariff may be 25 paise per kg.

Classification also categorises the products banned for imports. product characteristics such as size. iii. These subsidies can be by way of cash.g. Checking for health and safety standards. In state trading governments actually get involved in selling or buying on their own or through agencies. freight. recommendations. many products are subjected to health and safety regulations. are also used to create barriers for imported products. iv. For example France and USA requires all imported goods to carry label of origin. or prohibition. license. Besides above. sales tax. value-added tax. goods may not be cleared through custom. These include various products like agriculture and food products. Classification and valuation of product for tariff purposes. License or permit For importing the products license or permit is necessary. import or manufacturing cost). depending upon what value is used (e. inspection. interest rate. export. quality. the product is deliberately classified into the class where import duty is higher. it is not always easy to get import licence. Documentation There are many forms and documents required to be filled in properly to import or export products. Product Requirements Product packaging. health and safety regulation. A custom appraiser is the one who decides the value of the imported product. Verification of product according to its description in documentation and license requirements. valuation. ii. The government's guidance may include exerting the influence through regulation. chemical products as well as electronic products. Hence. Customs and Entry Procedures In this class of non-tariff barriers are classification. in order to put import barriers. The Canadian labelling act requires all imported clothing to have labels in both languages. ii. Inspection serves the following purposes: i. Classification of imported product decides the duty chargeable on that product. colour etc. Valuation of the product is another criteria on which the duty is charged. This process is highly subjective and the valuation of the. This advice also may compel importers to restrict their imports upto certain percentage of local demand. Some countries need documentation in their own language. 13 . Inspection Inspection is the integral part of the product clearance. Subsidies are direct or indirect financial contribution provided by the government for benefit of exporter or investor. Government procurements often tend to hinder free trade. Sometimes inspection can be deliberately used to discourage imports. Health and Safety Regulation In order to protect the public health and environment. foreign. labelling and marking is another important barrier. The Government Procurement Code requires the signatory nations to guarantee that they will provide suppliers from other signatory countries treatment equal to that which they provide their own suppliers. documentation. since many countries will issue license only if the goods to be imported are in scarcity or are absolutely necessary. Without proper documentation.product can be interpreted in different ways. encouragement.consultation to private companies on regular basis. corporate income tax. Such kind of rules serve to slow down clearance of the product. insurance etc. Documentation varies from country to country.

The testing requirements of each country may be different. Exchange Control: . purchasers try to use the relatively cheap foreign exchange to procure products which are either unavailable or are more expensive in the local currency. Multiple Exchange Restrictions. There is no uniform rate for all products or industries. 1. Absolute. iv. Certification of product tests and registration for information technology. Tariff Quotas: These quotas permit the entry of a limited quantity of the quota product at a reduced rate of duty. To market product in European Union (EU) it is necessary that the product has CE marking on it. The manufacturer can certify the product conformance by self declaration of conformity or third party testing or quality assurance audit or approval by a body authorized by an EU member state and recognized by the EU commission. medical devices and certain products can only be carried out in Europe. otherwise would have been exported in large quantity. Tariff and voluntary. thereby forcing him to draw loans at higher rates than private agencies. ii. Absolute Quotas: These restrict in absolute terms the amount imported during the quota period. Multiple exchange rates: The purpose of this barrier is to encourage exports or imports of certain goods and discourage imports or exports of others. v. thereby forcing him to restrict imports. country and volume. iii. These enables exporter to get loans at favourable rates from the government but importer will not get credit. In case of exports government may apply low exchange rates for goods designated for exports and high rates for those goods. which being very costly makes imports from other non EU countries in competitive.This limits the amount of the currency that can be take abroad. Important among these are Exchange Control. Credit Restrictions: These are generally applied on imports. if country wants to preserve scarce resources. 14 . There are three types of quotas viz. Prior import deposits: This barrier requires importer to keep prior import deposits that makes import difficult by tying up of importer capital. Financial Control These are restrictive monetary policies designed to control capital flow so that currencies of the importing country can be defended or imports can be controlled. This agreement usually specifies the limit of supply by product. Through this method it is ensured that what is needed is. 3. Quantities in excess of this limit is allowed for import but at much a higher rate of duty. This in effect makes importer to pay interest on money borrowed or loose interest G own money. Quotas Quotas are quantity controls on imported goods. if available.Product Testing is necessary to determine their safety and suitability before they are marketed. in foreign currencies the government either makes it difficult to get imported products or make such items available only at higher prices.imported but excessive imports are discouraged by imposing higher rate of duty. Local currency is generally overvalued hence. Voluntary Quotas: This is a formal agreement between nations or between nation and an industry. which it desires to retain at home. The quotas may be on exports also. These are basically to protect the domestic industry and to limit imports. further imports are prohibited. 2. By regulating all types of capital outflow. Once this is filled in. i. Exchange control also limits the length of time and amount of money an exporter can hold for the goods exported. iv.

Such contract when entered into more than two exporters. 1. Bilateral contract or Multilateral contract. However.6. If the market price rises above the upper limit specified. Besides.v. ASEAN (Association of Society East Asian Nation) with six countries and South Asian Association for Regional co-operation (SAARC).European Free Trade Association (EFTA) etc.2 Trade Agreements These are inter governmental arrangements concerning the production and trade certain primary products with a view to stabilize their prices. Quota. Bilateral/Multilateral contract Under Bilateral contract. these agreements can be made only for those products which can be stored at a relatively low cost without the danger of deterioration.Some of the well known Free Trade Areas are the Latin American Free Trade Area (LAFTA).6. On the other hand. Participating countries in the trading blocks use tariffs to discriminate against goods produced by the other countries. Some of the major trading blocks are European Union (EU) having fifteen member countries. The 15 . Some countries make long delays in permission for prol expatriation. agreement is reached between the importer and exporter to purchase and sell certain quantities of the product at agreed price. if the market price falls below the lower limit specified.3 . 1. which are not parties to the agreement. Trading Blocks Intra regional trade is growing due to development of trading blocks. Buffer stock. North American Free Trade Agreement (NAFTA). Economic integration can be by way of Free Trade Area. There are four types commodity or trade agreements viz. Trading blocks are formed due to economic integration. Profit Remittance Restrictions: Under this barrier governments restrict the amount of profit earned in local operations which can be remitted to the parent company abroad. it is called as multilateral contract . common market or economic union. large quantity of commodity and financial resources are required to implement these agreements. Buffer stock Agreements These agreements seek to stabilize commodity prices by maintaining the demand supply balance. the exporting country is obliged to sell to the importing country a certain specified quantity of commodity at the upper price fixed by the agreement.. Coffee and sugar already have quota agreements. decided by the central committee. Quota Agreements Under this agreement export quotas are determined and allocated to participating countries according to mutually agreed formula. thereby indirectly controlling the profit remittance. the importer is obliged to buy the contracted quantity at a specified lower price mentioned in contract.4 Cartels International cartels are agreements between producers located in different countries or between governments of different countries to restrict competition. 1.6. Upper price and lower price is prescribed in the agreement. which covers several kinds of arrangements by which two or more countries argue to draw their economies closer together. customs union. by a certain percentage of the basic quota. The participating countries agree restrict the export or production. Under this agreement price is stabilized by increasing the market supply by the sale of commodity when the price tends to rise and by absorbing the excess supply to prevent a fall in the price.

place of payment. hence appropriate expert advice should be sought. 1. Canada. if any. Common law and Statute law. This includes. musical. misappropriation of trade secrets and palming off one person's goods as those of another. either derived from business or investment. An exporter also needs to be aware of the taxation laws in India as well as foreign countries where he is operating in companies. destination of delivery. using similar corporate and professional names. the pattern of which is transferred and fixed in a semiconductor chip during the manufacturing process. However. particularly. Trademark laws are used to prevent others from making a product with a confusingly similar work. who is aware of foreign practices and procedures. used or sold only with the authorization of the patent owner. credit terms. a cartel of major airlines set up to fix up air fares and restrict competition. In these countries laws are tradition oriented.1 Definition of terms related to intellectual property Intellectual property is a general term that describes inventions or other discoveries that have been registered with the government authorities for the sale or use by their owner. drafts or bills of exchange should be interpreted finely and properly. Laws related to the labour and bankruptcy may also vary from country to country. Patented invention can be made. In general. 1. artistic writings besides software. etc. name. A patent is a government grant of certain rights given to the inventor for a limited time in exchange for the disclosure of the invention. i. concurrent taxation by two or more countries on the same income.e. dramatic. should be solved by engaging a foreign lawyer. A copyright protects the writings of an author against copying.main objective of cartels is to control prices by fixing output and investment quotas. if any arising out of financial operations in foreign countries. The contract should clearly indicate price.7.7 LAWS CONNECTED WITH INTERNATIONAL TRADE An exporter needs to study and draft clearly sales contracts. The countries with such a system are USA. inspection details. India and other British colonies. Claims. It provides protection against such things as simulation of trade packagings. Similarly letters of credit. A common law system is a legal system that relies heavily in precedents and conventions. a foreign concern whose business is handled by a local dealer in the dealers name is not considered " doing business" in that country and therefore it is not taxable. 1. Every circumstance is clearly spelled out to indicate what is legal and what is not. for sale of goods in foreign countries. Some of the important cartels are Organization of Petroleum Exporting Countries (OPEC) and International Air Transport Association (IATA). when dealing in foreign country. taxes may be levied when branches are opened and agent is working in the name of the company represented. which is used in trade to distinguish a product from other similar goods. Major objective of a cartel is to raise a price and restrict competition. In statute legal system. the main rules of the law are embodied in legislative codes.7. A trademark relates to any work. Unfair competition defines legal standards of business conduct. A mask work is the design of an electrical circuit. There is 16 . Another aspect which needs attention is international double taxation. literacy. name or symbol. UK.2 Legal Systems There are two major legal system viz.

al. Major distinction between the two systems is the freedom of the judge in interpreting laws.3 International Law The two types of international laws are i) Public international law and ii) Private international law or conflict of laws.» a strict and literal interpretation of the law under this system. The disputes among the sovereign states are solved by diplomacy or by international arbitration. 1. the dispute is settled by private law or by the principles of the "conflict of laws" 17 . the judge's ability to interpret laws in personal way gives the judge a great deal of power to apply the law as it fits the situation. Public international law is concerned with the direct relations among sovereign states. The countries following this system are continental European countries and Japan. Private international law is concerned with the rights of the individuals and private companies..7. When the question like" Does the law of this or that country apply for a jurisdical situation arises. In a common law country.