1st PUC Business Studies Question Bank Chapter 11 International Business – I

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Karnataka 1st PUC Business Studies Question Bank Chapter 11 International Business – I

1st PUC Business Studies International Business – I Text Book Questions and Answers

Multiple Choice Questions

Question 1.
In which of the following modes of entry, does the domestic manufacturer give the right to use intellectual property such as patent and trademark to a manufacturer in a foreign country for a fee
(a) Licensing
(b) Contract manufacturing
(c) Joint venture
(d) None of these
Answer:
(a) Licensing

1st PUC Business Studies Question Bank Chapter 11 International Business - I

Question 2.
Outsourcing a part of or entire production and concentrating on marketing operations in international business is known as
(a) Licensing
(b) Franchising
(c) Contract manufacturing
(d) Joint venture
Answer:
(c) Contract manufacturing

Question 3.
When two or more firms come together to create a new business entity that is legally separate and distinct from its parents it is known as
(a) Contract manufacturing
(b) Franchising
(c) Joint ventures
(d) Licensing
Answer:
(c) Joint ventures

Question 4.
Which of the following is not an advantage of exporting?
(a) Easier way to enter into international markets
(b) Comparatively lower risks
(c) Limited presence in foreign markets
(d) Less investment requirements
Answer:
(c) Limited presence in foreign markets

Question 5.
Which one of the following modes of entry require higher level of risks?
(a) Licensing
(b) Franchising
(c) Contract manufacturing
(d) Joint venture
Answer:
(d) Joint venture

Question 6.
Which one of the following modes of entry permits greatest degree of control over overseas operations?
(a) Licensing/franchising
(b) Wholly owned subsidiary
(c) Contract manufacturing
(d) Joint venture
Answer:
(b) Wholly owned subsidiary

Question 7.
Which one of the following modes of entry brings the firm closer to international markets?
(a) Licensing
(b) Franchising
(c) Contract manufacturing
(d) Joint venture
Answer:
(d) Joint venture

Question 8.
Which one of the following is not amongst India’s major export items?
(a) Textiles and garments
(b) Gems and jewellery
(c) Oil and petroleum products
(d) Basmati rice
Answer:
(c) Oil and petroleum products

1st PUC Business Studies Question Bank Chapter 11 International Business - I

Question 9.
Which one of the following is not amongst India’s major import items?
(a) Ayurvedic medicines
(b) Oil and petroleum products
(c) Pearls and precious stones
(d) Machinery
Answer:
(a) Ayurvedic medicines

Question 10.
Which one of the following is not amongst India’s major trading partners?
(a) USA
(b) UK
(c) Germany
(d) New Zealand
Answer:
(d) New Zealand

Short Answer Questions

Question 1.
Differentiate between international trade and international business.
Answer:
International Trade:

  1. International trade means movements of goods only.
  2. It involves only the movements of goods and international currency is used for dealing.
  3. International trade is a narrow term.

International Business:

  1. Business transaction that takes place between two or more countries is known as international business. It involves not only the international movements of goods and services but also capital, personnel, technology and intellectual property like trademarks, patents.
  2. International business is much broader than international trade.

Question 2.
Discuss any three advantages of international business.
Answer:
For Nations: Three advantages of international business to the nations are:

  1. International business helps a country to earn foreign exchange which it Can later use for meeting its imports of capital goods, technology, petroleum products, etc.
  2. International trade allows a country to produce what a country can produce more efficiently, and trade the surplus production so generated with other countries to procure wht they can produce more efficiently.
  3. International business helps the countries in improving their growth prospects and creates employment opportunities.

For Firms: Three advantages of international business to the firms are:

  1. International business can be more profitable than the domestic business, as business firms can earn more profits by selling their products in countries where prices are high.
  2. International business leads to fuller utilization ofproduction capacity as aresult these firms get benefits of large economies of scale and reduction int he cost ofproduction.
  3. Companies get strategic and technical advantages by going international.

Question 3.
What is the major reason underlying trade between nations?
Answer:
The major reason behind international business is that the countries have unequal distribution of natural resources among them or have differences in their productivity levels because of which they cannot produce all that they need equally well or at equal costs.

Trade between nations allows a country to produce what a country can produce more efficiently, and trade the surplus production so generated with other countries to procure what they can produce more efficiently.

Question 4.
Discuss as to why nations trade.
Answer:
The countries have unequal distribution of natural resources among them or have differences or at equal costs. Availability of various factors of production such as labour, capital and raw materials that are required for producing different goods and services differ among nations.

Moreover, labour productivity and production costs differ among nations due to various socio-economic, geographical and political reasons. Due to these differences each country finds it advantageous to produce those select goods and services that it can produce more efficiently at home, and procuring the rest through trade with other countries which the other. countries can produce at lower costs. This is precisely the reason as to why countries trade with others.

1st PUC Business Studies Question Bank Chapter 11 International Business - I

Question 5.
Enumerate limitations of contract manufacturing.
Answer:
Limitations:
The major disadvantages of contract manufacturing to international firm and local producer in foreign countries are as follows:

  1. Local firms might not adhere to production design and quality standards, thus causing serious product quality problems to the international firm
  2. Local manufacturer in the foreign country loses his control over the manufacturing process because goods are produced strictly as per the terms and specifications of the contract.
  3. The local firm producing under contract manufacturing is not free to sell the contracted output as per its will. It has to sell the goods to the international company at predetermined prices. This results in lower profits for the local firm if the open market prices for such goods happen to be higher than the prices agreed upon under the contract.

Question 6.
Why is it said that licensing is an easier way to expand globally?
Answer:
Licensing is considered to be the easier way of expanding globally due to following advantages:
As compared to joint ventures and wholly owned subsidiaries, licensing/ franchising is relatively a much easier mode of entering into foreign markets with proven product/technology without much business risks and investments. Some of the specific advantages of licensing are as follows: .

1. Under the licensing/franchising system, it is the licensor/ franchiser who sets up the business unit and invests his/her own money in the business. As such, the licensor/franchiser has to virtually make no investments abroad. Licensing/franchising is, therefore, considered a less expensive mode of entering into international business.

2. Since no or very little foreign investment is involved, licensor/ franchiser is not a party to the losses, if any, that occur to foreign business. Licensor/franchiser is paid by the licensee/ franchisee by way of fees fixed in advance as a percentage of production or sales turnover. This royalty or fee keeps accruing to the licensor/franchiser so long as the production and sales keep on taking place in the licensee’s/franchisee’s business unit.

3. Since the business in the foreign country is managed by the licensee/franchisee who is a local person, there are lower risks of business takeovers or government interventions.

4. Licensee/franchisee being a local person has greater market knowledge and contacts which can prove quite helpful to the licensor/franchiser in successfully conducting its marketing operations.

5. As per the terms of the licensing/ franchising agreement, only the parties to the licensing/ franchising agreement are legally entitled to make use of the licensor’s/franchiser’s copyrights, patents and brand names in foreign countries. As a result, other firms in the foreign market cannot make use of such trademarks and patents.

Question 7.
Differentiate between contract manufacturing and setting up wholly owned production subsidiary abroad.
Answer:
Contract manufacturing refers to a type of international business where a firm enters into a contract with one or a few local manufacturers in foreign countries to get certain components or goods produced as per its specifications while in a wholly owned subsidiary the parent company acquires full control over the foreign company by making 100% investment in its equity capital.

Question 8.
Distinguish between licensing and franchising.
Answer:

  1. Licensing is an agreement between Licensor and licensee whereas franchising is an agreement between franchisee and franchiser.
  2. Licensing means permitting other party in a foreign country to produce and sell goods under trademark, patents whereas franchising means sell or distribute the branded products in a specific geographical area, e.g., through its franchising system Mc Donald’s operates fast food restaurants in the whole world.

1st PUC Business Studies Question Bank Chapter 11 International Business - I

Question 9.
List major items of India’s exports.
Answer:
Major items of India’s exports are :

  1. Primary Products
    • Agriculture and allied products
    • Ores and minerals
  2. Manufactured Goods
    • Textiles including garments
    • Gems and jewellery
    • Engineering goods
    • Chemicals and related products
    • Leather

Question 10.
What are the major items that are exported from India?
Answer:
The major items that are exported from India include:

  1. Primary products
    • Agriculture products
    • Ores and Minerals
  2. Manufactured Goods
    • Textiles including garments
    • Gems and jewellery
    • Engineering goods
    • Chemicals and related products
    • Leather and manufactures

Question 11.
List the major countries with whom India trades.
Answer:
Following are the major countries with whom India trades:

  • USA
  • UK
  • Belgium
  • Germany
  • Japan
  • Switzerland
  • HongKong
  • UAE
  • China
  • Singapore
  • Malaysia

Long Answer Questions

Question 1.
What is international business? How is it different from domestic business?
Answer:
Manufacturing and trade beyond the boundaries of one’s own country is known as international business. International business is defined as those business activities that take place across the national frontiers. It involves not only the international movements of goods and services, but also of capital, personnel, technology and intellectual property like patents, trademarks, know-how and copyrights.

(i) Nationality of buyers and sellers:
Nationality of the key participants (i.e., buyers and sellers) to the business deals differs between domestic and international businesses. In the case of domestic business, both the buyers and sellers are from the same country. This makes it easier for both the parties to understand each other and enter into business deals.

But this is not the case with international business where buyers and sellers come from different countries. Because of differences in their languages, attitudes, social customs and business goals and practices, it becomes relatively more difficult for them to interact with one another and finalise business transactions.

(ii) Nationality of other stakeholders:
Domestic and international businesses also differ in respect of the nationalities of the other stakeholders such as employees, suppliers, shareholders/partners and general public who interact with business firms.

While in the case of domestic business all such factors belong to one country, and therefore relative speaking depict more consistency in their value systems and behaviors; decision making in international business becomes much more complex as the concerned business firms have to take into account a wider set of values and aspirations of the stakeholders belonging to different nations.

(iii) Mobility of factors of production:
The degree of mobility of factors like labour and capital is generally less between countries than within a country. While these factors of movement can move freely within the country, there exist various restrictions to their movement across nations.

Apart from legal restrictions, even the variations in socio-cultural environments, geographic influences and economic conditions come in a big way in their movement across countries. This is especially true of the labour which finds it difficult to adjust to the climatic, economic and socio-cultural conditions that differ from country to country.

(iv) Customer heterogeneity across markets:
Since buyers in international markets hail from different countries, they differ in their socio-cultural background. Differences in their tastes, fashions, languages, beliefs and customs, attitudes and product preferences cause variations in not only their demand for different products and services, but also in variations in their communication patterns and purchase behaviors.

It is precisely because of the socio-cultural differences that while people in China prefer bicycles, the Japanese in contrast like to ride bikes. Similarly, while people in India use right-hand driven cars, Americans drive cars fitted with steering, brakes, etc., on the left side. Moreover, while people in the United States change their TV, bike and other consumer durables very frequently within two to three years of their purchase, Indians mostly do not go in for such replacements until the products currently with them have totally worn out.

Such variations greatly complicate the task of designing products and evolving strategies appropriate for customers in different countries. Though to some extent customers within a country too differ in their tastes and preferences. These differences become more striking when we compare customers across nations.

(v) Differences in business systems and practices:
The differences in business systems and practices are considerably much more among countries than within a country. Countries differ from one another in terms of their socio-economic development, availability, cost and efficiency of economic infrastructure and market support services, and business customs and practices due to their socio-economic milieu and historical coincidences.

All such differences make it necessary for firms interested in entering into international markets to adapt their production, finance, human resource and marketing plans as per the conditions prevailing in the international markets.

(vi) Political system and risks:
Political factors such as the type of government, political party system, political ideology, political risks, etc., have a profound inpact on business operations. Since a business person is familiar with the political environment of his/her country, he/she can well understand it and predict its impact on business operations.

But this is not the case with international business. Political environment differs from one country to another. One needs to make special efforts to understand the differing political environments and their business implications. Since political environment keeps on changing, one needs to monitor political changes on an ongoing basis in the concerned countries and devise strategies to deal with diverse political risks.

Amajor problem with a foreign country’s political environment is a tendency among nations to favour products and services originating in their own countries to those coming from other countries. While this is not a problem for business firms operating domestically, it quite often becomes a severe problem for the firms interested in exporting their goods and services to other nations or setting up their plants in the overseas markets.

(vii) Business regulations and policies:
Coupled with its socio-economic environment and political philosophy, each country evolves its own set of business laws and regulations. Though these laws, regulations and economic policies are more or less uniformly applicable within a country, they differ widely among nations.

Tariff and taxation policies, import quota system, subsidies and other controls adopted by a nation are not the same as in other countries and often discriminate against foreign products, services and capital.

(viii) Currency used in business transactions:
Another important difference between domestic and international business is that the latter involves the use of different currencies. Since the exchange rate, i.e., the price of one currency expressed in relation to that of another country’s currency, keeps on fluctuating, it adds to the problems of international business firms in fixing prices of their products and hedging against foreign exchange risks.

1st PUC Business Studies Question Bank Chapter 11 International Business - I

Question 2.
“International business is more than international trade”. Comment.
Answer:
International trade comprises of exports and imports of goods and forms an important component of international business. But the scope of international business is substantially wider than that of international trade. International business includes international exchange of services such as international travel and tourism, transportation, communication, banking, warehousing, distribution and advertising.

It also covers foreign investments and overseas production of goods and services. Multinational companies have started making investments into foreign countries and undertaking production of goods and services in foreign countries to explore foreign markets and produce at lower costs.

All these activities form part of international business. To conclude, we can say that international business is a much broader term and is comprised of both the trade and production of goods and services across frontiers. International trade is done through exporting of goods while international business modes include licensing, franchising, contract manufacturing, joint-ventures and establishment of wholly owned subsidiaries apart from exporting.

Question 3.
What benefits do firms derive by entering into international business?
Answer:
Firms derive the following benefits by entering into international business:
(i) Prospects for higher profits:
International business can be more profitable than the domestic business. When the domestic prices are lower, business firms can earn more profits by selling their products in countries where prices are high.

(ii) Increased capacity utilization:
Many firms set up production capacities for their products which are in excess of demand in the domestic market. By planning overseas expansion and procuring orders from foreign customers, they can think of making use of their surplus production capacities and also improving the profitability of their operations. Production on a larger scale often leads to economies of scale, which in turn lowers production cost and improves per-unit profit margin.

(iii) Prospects for growth:
Business firms find it quite frustrating when demand for their products starts getting saturated in the domestic market. Such firms can considerably improve prospects of their growth by plunging into overseas markets. This is precisely what has prompted many of the multinationals from the developed countries to enter into markets of developing countries. While demand in their home countries has got almost saturated, they realised their products were in demand in the developing countries and demand was picking up quite fast.

(iv) Way out to intense competition in domestic market:
When competition in the domestic market is very intense, internationalization seems to be the only way to achieve significant growth. Highly competitive domestic market drives many companies to go international in search of markets for their products. International business thus acts as a catalyst of growth for firms feeing tough market conditions on the domestic turf.

(v) Improved business vision:
The growth of international business of many companies is essentially a part of their business policies or strategic management. The vision to become international comes from the urge to grow, the need to become more competitive, the need to diversify and to gain strategic advantages of internationalization.

Question 4.
In what ways is exporting a better way of entering into international markets than setting up wholly owned subsidiaries abroad.
Answer:
Exporting is a better way of entering into international markets than setting up wholly owned subsidiaries abroad in the following ways:

  1. Exporting is the easiest way of gaining entry into international markets. It is less complex than setting up and managing joint ventures or wholly owned subsidiaries abroad.
  2. Exporting involves lesser time and effort as business firms are not required to invest that much time and money as it is needed when they set up manufacturing plants and facilities as wholly owned subsidiary in host countries.
  3. Since exporting does not require much of investment in foreign countries, exposure to foreign investment risks is nil or much lower than that in establishing wholly owned subsidiary.

Question 5.
Discuss briefly the factors that govern the choice of mode of entry into international business.
Answer:
The following factors govern the choice of mode of entry into international business:
1. Ease of Entry:
Some modes of entry into international business like exporting involve lesser formalities than others such as going for joint ventures, franchising or wholly owned subsidiaries. Thus, initially exporting is the mode generally adopted for the entry in to international markets.

2. Associated Risk:
‘ Risk of international exposure is higher in joint ventures and wholly owned subsidiaries more investment is involved and socio-economic conditions of the host country along with political and regulatory concerns become more important. Therefore, some other mode like licensing or contract manufacturing might be chosen to reduce risk.

3. Efforts Involved:
Time and effort one needs to put in is another factor which determines the mode of international business. Mode like exporting, licensing and franchising involve lesser effort than joint venture or wholly owned subsidiary.

4. Degree of Control:
If a firm wants to exercise full control Over the operations in foreign countries; it goes for wholly owned subsidiary. Similarly, degree of control is higher in franchising as compared to licensing and so on.

5. Nature of Business:
If the business requires the firm to be in close contact with the customers in the foreign markets, wholly owned subsidiary or joint venture is more suitable while if the products can, be supplied from a distance, mods like exporting can suffice. The nature of products being manufactured and availability of raw material also determines the mode of entry into international business.

1st PUC Business Studies Question Bank Chapter 11 International Business - I

Question 6.
Discuss the major trends in India’s foreign trade. Also list the major products that India trades with other countries.
Answer:
India’s share in world trade in 2003 was very low i.e., just 0.8% as compared to those of other developing countries such as China (5.9%), Hong Kong (3.0%), South Korea (2.6%), Malaysia (1.3%), Singapore (1.9%), and Thailand (1.1%). India’s share in world merchandise exports started rising fast since 2004, reached 1.3% in 2009 and 1.5% in 2010.

It incresed to 1.9% in the first half of 2011, mainly due to the relatively higher Indian export growth of 55% compared to the 23.1% export growth of the world. Trends in India’s Foreign Trade in Goods Volume of Trade Share of foreign trade in the country’s Gross Domestic Product (DGP) has considerably increased from 14.6% in 1990-91 to 24.1% in 2003-04.

India’s total merchandise exports were Rs.606 crore in 1950-51 which increased to Rs.293367 crores in 2003-04. representing an increase of over 480 times over the last five decades. During the last decade, India’s exports and imports registered a five to seven fold increase from US $251.1 billion and US $ 369.8billion in 2010-11 respectively.

While the Compound Annual Growth Rates (CAGR) of India’s exports and imports (in US dollar terms) were 8.2% and 8.4% respectively in the 1990s, they increased to 19.5% and 25.1% during 2000-01 to 2008-09. Total imports which stood at Rs.608 crore in 1950-51 increased to Rs.359108 corers in 2003-04, thus registering a growth of about 590 times during the same period.

Composition of Trade Composition wise, textiles and garments,.gems and jewellery, engineering products and chemicals and related products and agricultural and allied products are India’s major items of India’s exports. Great changes in the sectoral composition of India’s export basket were seen in the 2000s decade.

The share of petroleum crude and products increased by 11.8 percentage points during the 10-year period from 200-1 to 2009-10, and further increased by 4.8 percentage points from 2009-10 to the first half of 2011-12. The share of the other two sectors, i.e., manufacturers and primary products fell almost proportionately by 11.6 and 1.1 percentage points respectively during 2000-1 to 2009-10.

Although in overall terms India accounts for just above 1% of world exports, in many individual product items such as tea, pearls, preciuos and seam precious stones, medicinal and pharmaceutical products, rice, spices, iron ore and concentrates, leather and leather manufactures, textile yams fabrics, garmetns and tobacco, its share is much higher and ranges betwen 3% to 13%.

India even holds the distinct position of being the largest exporter in the world in select commodities such as basmati rice, tea, and ayurvedic products. As far as imports are concerned, products like crude oil and petroleum products, capital goods (i.e., machinery), electronic goods, pearl, precious and semi – precious stones, gold, silver and chemicals constitute major items of India’s imports. India’s trade in services has also grown manifold over the years.

Question 7.
What is invisible trade? Discuss salient aspects of India’s trade in services.
Answer:
Invisible trade refers to trade in services. Service exports and imports involve trade in intangibles because of which trade in services is also known as invisible trade. Trade in services includes trade in tourism and travel, boarding and lodging, entertainment and recreation, transportation, professional services, communication, construction and engineering, marketing, educational and financial services.

India’s trade in services has increased substantially over the years. Both the exports and imports of services relating to foreign travel, transportation and insurance have increased at a high rate during the last four decades. Software and other miscellaneous services (including professional technical and busines services) have emerged as the main categories of India’s exports of services.

While the relative share of travel and transportation has declined from 64.3% in 1995-96 to 29.6%. In2003-2004, the share of software exports has gone up from 10.2% to around49% in the corresponding period.

1st PUC Business Studies International Business – I Additional Questions and Answers

One Mark Questions

Question 1.
What is International Business?
Answer:
International Business is a business activities take place across the geographical boundaries.

Question 2.
State any one type of in ternational business.
Answer:
Direct Investment.

Question 3.
State any one mode of entry into international business.
Answer:
Franchising.

Question 4.
State any one reason for international business.
Answer:
Change in fashion and technology.

1st PUC Business Studies Question Bank Chapter 11 International Business - I

Question 5.
What is Export business?
Answer:
An export is a function of international trade whereby goods produced in one country are shipped to another country for future sale or trade.

Two Marks Questions

Question 1.
How is international business differ from international trade?
Answer:
International trade means only export and import of goods where as international business includes international trade in services such as international travel and tourism, transportation, communication, warehousing, distribution and advertising.

Question 2.
What is Joint venture?
Answer:
A joint venture (JV) is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task.

Question 3.
What is contract manufacturing?
Answer:
It refers to a type of international business where a firm enters into a contract with one or a few local manufacturers in foreign countries to get certain components or goods produced as per specifications.

Question 4.
What is meant by licensing?
Answer:
Licensing is a contractual arrangement in which one firm grants permission to use its patents, trade secrets or technology to another firm in a foreign country.

Question 5.
Give the meaning of Franchising.
Answer:
Franchising means agreement to grant rights by one party to another party for use of technology, trademarks and patents in return of the agreed payment for a certain period of time.

Question 6.
How is licensing differ from franchising?
Answer:
The main difference between licensing and franchising is licensing system is used in production and distribution of goods, where as franchising system is used in service industries which has developed a unique technique for creating marketing of service.

Question 7.
State any two benefits of international business to nations.
Answer:

  1. Earning of foreign exchange
  2. Widens markets.

Question 8.
State any two benefits of international business to business firms.
Answer:

  1. Prospects for higher profits.
  2. Improves efficiency

1st PUC Business Studies Question Bank Chapter 11 International Business - I

Question 9.
State any two problems of international business.
Answer:

  1. Leads to Competition
  2. It is not suitable for perishable goods

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