International Business Overview

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Questions and Answers

What benefit arises from distributing an enhanced pool of goods and services amongst nations?

Higher profits in trading nations (correct)

Lower production capacity utilization

Increased domestic prices

More competition in domestic markets

What is one key advantage of international expansion for firms with excess production capacity?

Reduction in operational costs

Decreased competition in local markets

Increased domestic market dominance

Utilization of surplus production capacities (correct)

How does larger scale production benefit firms that expand internationally?

Insulates from international market risks

Increases demand in domestic markets

Reduces profits due to high competition

Improves per unit profit margin (correct)

What challenge do firms face when domestic demand for their products saturates?

Limited growth prospects Signup and view all the answers

What is the primary driver for firms to establish an international business vision?

Need to grow and diversify Signup and view all the answers

What does the term 'modes of entry into international business' refer to?

Various strategies for entering foreign markets Signup and view all the answers

What might be an outcome of companies planning for overseas expansion?

Increased utilization of production capabilities Signup and view all the answers

Which factor is essential for firms facing tough domestic market conditions to consider?

Seeking international markets for growth Signup and view all the answers

What is required for customs clearance of goods imported into India?

Passing through customs after arrival Signup and view all the answers

What type of documentary bill of exchange allows for the handover of documents only upon payment?

Sight draft Signup and view all the answers

What does the shipping company issue instead of endorsing the bill of lading in some cases?

A delivery order Signup and view all the answers

What must the importer do before taking possession of the goods?

Pay the freight charges Signup and view all the answers

What role do C&F agents play in the customs clearance process?

They help complete customs formalities Signup and view all the answers

What is the retirement of import documents?

The acceptance of the bill of exchange by the importer Signup and view all the answers

Why is customs clearance considered a tedious process?

It requires multiple forms to be filled Signup and view all the answers

What is an endorsement on the back of the bill of lading?

A confirmation for the release of goods Signup and view all the answers

What is a primary disadvantage for international firms compared to local companies?

International firms lack insight into local customer needs. Signup and view all the answers

What complicates decision-making in international business?

Diverse stakeholder aspirations Signup and view all the answers

What is the most common initial step for firms entering international business?

Engaging in exports and imports. Signup and view all the answers

What is one of the forms contract manufacturing can take?

Outsourcing specific production needs. Signup and view all the answers

How does customer heterogeneity affect international markets?

It results in different tastes and purchase behaviors. Signup and view all the answers

Which of the following is NOT a characteristic of contract manufacturing?

Requires investment in local production facilities. Signup and view all the answers

What is one reason for the less mobility of production factors between countries?

Legal restrictions and socio-cultural differences. Signup and view all the answers

Why do international firms prefer to use local producers for contracts?

It allows for better understanding of local markets. Signup and view all the answers

Why is it important for firms to adapt their marketing strategies in international business?

To address socio-cultural differences. Signup and view all the answers

What characteristic do consumers in developing countries often exhibit due to lower per capita income?

Price sensitivity towards less expensive products. Signup and view all the answers

What is a significant advantage of contract manufacturing?

It allows for flexibility without major investments. Signup and view all the answers

What do major international companies, like Nike and Reebok, typically do regarding production?

They engage in contract manufacturing in developing countries. Signup and view all the answers

What factor is often less mobile between countries compared to within a country?

Factors of production Signup and view all the answers

What should businesses be aware of when operating internationally?

Variations in socio-cultural and economic environments. Signup and view all the answers

How does exporting differ from contract manufacturing?

Exporting involves selling goods produced overseas. Signup and view all the answers

What is the function of the 'Landing and Shipping Dues Office' in the import process?

To levy charges for port authority services Signup and view all the answers

In terms of international markets, what is a common misconception about consumer behavior?

Consumers have identical preferences across countries. Signup and view all the answers

Which document must be submitted to obtain the port trust dues receipt?

Application to import Signup and view all the answers

What is the purpose of the bill of entry in the customs process?

To assess customs import duty Signup and view all the answers

After paying dock charges, what document is given to the importer?

Port trust dues receipt Signup and view all the answers

What information is typically included in a proforma invoice?

Quality, grade, design, and mode of payment Signup and view all the answers

What does an import order or indent specify?

The quantity, quality, and nature of packing for goods Signup and view all the answers

What role does the examiner play in the import process?

They examine the goods physically Signup and view all the answers

How does a letter of credit function in international trade?

It guarantees payment from the importer's bank to the exporter Signup and view all the answers

What is often mistakenly equated with international business?

International trade of goods Signup and view all the answers

Which of the following factors does NOT contribute to the differences in productivity levels among countries?

Cultural practices Signup and view all the answers

What recent developments have expanded the scope of international business?

Growth in international trade of services Signup and view all the answers

Why do countries find it advantageous to trade goods and services?

Some countries can produce select goods more efficiently Signup and view all the answers

What has been a significant outcome of companies increasing investments in foreign countries?

Better access to foreign customers Signup and view all the answers

What does the unequal distribution of natural resources among countries lead to?

Variations in production capabilities Signup and view all the answers

Which of the following is NOT a component of international trade?

Labor union agreements Signup and view all the answers

What role does labor productivity play in international business?

It affects production costs and efficiency Signup and view all the answers

Study Notes

Learning Objectives

State the meaning of International Business
Distinguish between Internal and International Business
Discuss the scope of International Business
Enumerate the benefits of International Business
Discuss the documents required for import and export transactions
Identify the incentives and schemes available for international firms
Discuss the role of different organizations for the promotion of International Business
List the major international institutions and agreements at the global level for the promotion of international trade and development.

Introduction

Countries all over the world are undergoing fundamental shifts in how they produce and market goods and services.
National economies, previously focused on self-reliance, are now increasingly dependent on other countries for various goods and services.
Increased cross-border trade and investments are leading to a more interconnected global economy.

International Business Meaning

Domestic or national business is transactions within a country
International or external business is transactions outside a country's boundaries

Reasons for International Business

Countries cannot produce all goods and services equally well or cheaply.
Unequal distribution of natural resources across countries.
Differences in productivity levels.
Differences in factors of production (labor, capital, raw materials) and their costs.
Geographical specialization leads to advantages for certain countries in producing specific goods.

International Business vs Domestic Business

Nationality of buyers and sellers: International businesses involve buyers and sellers in different countries. Difficulty in communication, values, and customs.
Nationality of other stakeholders: International businesses involve more diverse stakeholders with varying values and approaches.
Mobility of factors of production: International movement is restricted compared to domestic movement for labor and capital.
Customer heterogeneity: International markets are more diverse than domestic markets due to differences in tastes, preferences, and cultures.
Business systems and practices: Different countries have distinct business systems, cultures and practices.
Political system and risks: Varying political systems and risks among countries.
Business regulations and policies: International business requires navigating diverse legal, regulatory, and tax frameworks in multiple countries.
Currency used in business transactions: Fluctuating exchange rates add complexity to international transactions.

Scope of International Business

Merchandise exports and imports: Trading tangible goods (exports out of the country, imports into the country).
Service exports and imports: Trading intangible services (tourism, transportation, banking, consultations, etc.).
Licensing and franchising: One company permits another to use intellectual property (patents, trademarks, etc.) in return for a fee.
Foreign investments: Putting funds abroad to make financial returns. Direct investment (acquiring direct ownership) or portfolio investment (purchasing assets like shares).

Benefits of International Business to Countries

Earning foreign exchange: Gaining foreign currency for importing needed resources.
Efficient use of resources: Concentrate on producing items that are most efficient and trade for others.
Growth prospects and employment: Expand production, increase available jobs.
Increased standard of living: Access to greater variety of goods and services.

Benefits of International Business to Firms

Prospects for higher profits: Leveraging opportunities in global markets with higher prices.
Increased capacity utilization: Use excess production capacity through overseas markets.
Growth prospects: Increased sales.
Competition mitigation: International expansion to offset domestic competition.

Modes of Entry for International Business

Exporting/importing (direct/indirect): The simplest form of international business.
Contract manufacturing: Local producers in a new country manufacture goods to the exporting company's specifications.
Licensing and franchising: Licensing allows use of intellectual property; franchising involves broader business model transfer with more controls.
Joint ventures: Two or more independent firms collaboratively operate in a new country.
Wholly-owned subsidiaries: A company acquires or establishes full ownership of a firm in a foreign country.

Export Procedures

Enquiry and Quotations: Receiving and responding to foreign buyer inquiries.
Order/Indent: Buyer places order for a specific amount of goods with specific terms and conditions.
Assessing Importer's Creditworthiness and Guarantee: Checking the reliability of the importer (and securing payment assurance via letter of credit).
Obtaining Export License: Formal approvals and licenses are secured for exports.
Pre-shipment Inspection: Conducting quality checks on exported goods to meet the needs of destination country.
Obtaining Finance (Pre-shipment): Arranging funds for export production/acquisition.
Producing/Procuring Goods: Production or purchase of the requested materials.
Packing and Forwarding: Preparing the shipment for export.
Insurance of Goods: Shipping insurance for potential damage or loss during transit.
Customs Clearance: Formal clearance for the shipment to exit the country.
Obtaining Transport: Arranging shipment arrangements/shipping space with carriers.
Payment of Freight and Issuance of Bill of Lading (or Airway Bill): Payment for transport and receiving cargo shipment documentation.
Securing Payment: Ensuring payment via letter of credit and other appropriate payment methods.
Export Documents: Preparing and transmitting the necessary export documents to the foreign buyer/importer

Import Procedure

Trade Enquiry: Making request for information concerning the export product.
Obtaining Import Licence: Getting formal permission to import depending on customs regulations.
Obtaining Foreign Exchange: Securing foreign currency to pay for the import.
Placing Order/Indent: Providing order and specifics about the goods to required importer.
Letter of Credit: Buyer arranges financial guarantee (letter of credit) with their bank to ensure payment.
Arranging for Finance: Setting up finances to meet potential costs from purchasing goods to importing them.
Shipment Advice: Buyer receives notification of goods shipment.
Arrival of Goods: Imported products are delivered to their designated destination.
Customs Clearance & Release of Goods: Final clearance from customs, receiving release order/documentation for cleared goods.

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Description

Explore the fundamentals of International Business with this quiz. It covers key concepts such as the distinction between internal and international business, the scope and benefits of international trade, and the necessary documentation for import-export transactions. Test your knowledge on the incentives, major organizations, and agreements that facilitate global commerce.