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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
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
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:
Meaning of International Business – Business transaction taking place within the geographical boundaries of a nation is known as domestic or internal business. It is also referred to as Domestic business or home trade. Manufacturing and trade beyond the boundaries of one’s own country is known as international business.
International or external business can, therefore, be defined as those business activities that take place across the national boundaries. It involves not only the international purchase & Sales of goods and services, but also movement of capital. Personnel, technology and intellectual property like patents, trademarks, know-how and copyrights.
It may be worth mentioning that mostly people think of international business as international trade. But this is not true. No doubt international trade, comprising exports and imports of goods, has historically been an important component of international business. But in the modern world the scope of international business has substantially expanded.
International trade in services such as international travel and tourism, transportation, communication, banking, warehousing, distribution and advertising has considerably grown. The other equally important developments are increased foreign investments and overseas production of goods and services.
Companies have started increasingly making investments into foreign countries and undertaking production of goods and services in foreign countries to come closer to foreign customers and serve them more effectively 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 business cover International trade also.international business is an activity of international connectivity in the field of distribution of goods and services globally to attract foreign investment.
Question 2.
Discuss any three advantages of international business.
Answer:
For Nations: Three advantages of international business to the nations are:
- 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.
- 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.
- 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:
- 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.
- International business leads to fuller utilization of production capacity as a result these firms get benefits of large economies of scale and reduction in the cost of production.
- Companies get strategic and technical advantages by going international.
Question 3.
What is the major reason underlying trade between nations?
Answer:
Reason for International Business-The fundamental reason behind the international business is that the countries cannot produce equally ail the goods and services or cheaply all that they need. This is because of the unequal allocation of natural resources among the different nations or the differences in their productivity levels.
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 the above-named differences, it is not uncommon to find one particular country being in a better position to produce better quality products and/or at lower costs than what other nations can do. In other words, one can say that some countries are in an advantageous position in producing selected goods and services which other countries cannot produce effectively and efficiently.
As a result, each country finds it advantageous to produce those select goods and services that it can produce more effectively and efficiently at home and obtaining the rest through trade with other countries which the other countries can produce at lower costs. This is precisely the reason why countries trade with others and engage in what is known as international business.
The international business as it exists today is to a great extent the result of geographical specialisation of various states. Fundamentally, it is for the same reason that domestic trade between two states or regions with in a country take place. Most states or regions within a country tend to specialise in the production of goods and services for which they are best suited.
In India, for example, while West Bengal specialises in jute products; Mumbai and neighboring areas in Maharashtra are more involved with the production of cotton textiles. The same principle of territorial division of labour is applicable at the international level too.
Most developing countries which are labour abundant, for instance, specialise in producing arid exporting garments. Since they lack capital and technology, they import textile machinery from the developed nations which are in a position to produce more efficiently.
What is applicable for the nation is more or less applicable for firms. Firms too engage in international business to import what is available at lower prices in other countries, and export goods to other countries where they can fetch better prices for their products.
Question 4.
Discuss as to why nations trade.
Answer:
International business as it exists today is to a great extent the result of geographical specialisation. Fundamentally, it is for the same reason that domestic trade between two states or regions within a country tends to specialise in the production of goods and services for which they are best suited.
In India, for example, while West Bengal specialises in jute products; Mumbai and neighboring areas in Maharashtra are more involved with the production of cotton textiles. The-same principle of territorial division of labour is applicable at the international level too. Most developing countries which are labour abundant, for instance, specialise in producing and exporting garments. Since they lack capital and technology, they import textile machinery’ from the developed nations which are in a position to produce more efficiently.
Some countries cannot produce that effectively and efficiently,, and vice-versa. As a result, each country finds it advantageous to produce those select goods and services that it can produce more effectively and 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 why countries trade with others and engage in what is known as international business.
Question 5.
Enumerate limitations of contract manufacturing.
Answer:
Limitations:
The major disadvantages of contract manufacturing to an international firm and local producer in foreign countries are as follows:
- Local firms might not adhere to production design and quality standards, thus causing serious product quality problems to the international firm
- A local manufacturer in a foreign country loses control over the manufacturing process because goods are produced strictly as per the terms and specifications of the contract.
- 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 the 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, the 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 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 subsidiaries abroad.
Answer:
Contract manufacturing refers to a type of international business where a firm enters into a contract with one ora few local manufactures in foreign countries to get certain components or goods produced as per its specifications. Contract manufacturing, also known as outsourcing, can take three major forms :
- Productionofcertaincomponentssuchasautomobilecomponents or shoe uppers to be used later for producing final products such as cars and shoes;
- Assembly of components into final products such as assembly of hard disk, motherboard, floppy disk drive and modem chip into the computer; and
- Complete manufacture of the products such as garments. The goods are produced or assembled by the local manufacturers as per the technology and management guidance provided to them by the foreign company.
The goods so manufactured or assembled by the local producers are delivered to the international firm for use in its final products or outrightly sold as finished products by the international firm under its brand names in various countries including the home, host, and other countries.
All the major international companies such as Nike, Reebok, Levis, and Wrangler today get their products or components produced in the developing countries under contract manufacturing.
Wholly Owned Subsidiaries – This entry mode of international business is preferred by companies which want to exercise full control over their overseas operations. The parent company acquires full control over the foreign company by making 100 percent investment in its equity capital, A wholly owned subsidiary in a foreign market can be established in either of the two ways :
- Setting up a new firm altogether to start operations in a foreign country also referred to as a greenfield venture, or
- Acquiring an established firm in a foreign country and using that firm to manufacture and/or promote its products in the host nation.
Question 8.
Distinguish between licensing and franchising.
Answer:
- Licensing is an agreement between Licensor and licensee whereas franchising is an agreement between franchisee and franchiser.
- Licensing means permitting other parties in a foreign country to produce and sell goods under trademark, patents whereas franchising means to 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.
Question 9.
List major items of India’s exports.
Answer:
Major items of India’s exports are :
- Primary Products
- Agriculture and allied products
- Ores and minerals
- 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:
- Primary products
- Agriculture products
- Ores and Minerals
- 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 the 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:
The nationality of the key participants (i.e., buyers and sellers) to the business deals differ 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 parties to understand each other and enter into business deals.
But this is not the case with an 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 backgrounds. 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 precise 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.
Question 2.
“International business is more than international trade”. Comment.
Answer:
Scope of International Business – International business includes international trade also. It covers the import and export of goods internationally along with various services provided through outsourcing. Major forms of business operations that constitute international business are as follows.
(i) Merchandise exports and imports – Merchandise means goods that are tangible, i.e. those that can be seen and touched. When viewed from this perceptive, it is clear that while merchandise exports mean sending tangible goods abroad, merchandise imports mean bringing tangible goods from a foreign country to one’s own country. Merchandise exports and imports, also known as trade in goods, include only tangible goods and exclude trade in services.
(ii) Service exports and imports – Invisible trade is also known as imports and exports of services today gaining importance, various services include: tourism and travel, boarding and lodging (hotel and restaurants), entertainment and recreation, transportation, professional services
(such as training, recruitment, consultancy and research), communication (postal, telephone, fax, courier and other audio-visual services), construction and engineering, marketing (e.g. wholesaling, retailing, advertising, marketing research, and warehousing), educational and financial services (such as banking and insurance). Of these, tourism, transportation, and business services are major constituents of world trade in services.
(iii) Licensing and Franchising – Permitting another party in a foreign country to produce and sell goods under your trademarks, patents, or copyrights in lieu of some fee is another way of entering into international business. It is under the licensing system that Pepsi and Coca-Cola are produced and sold all over the world by local bottlers in foreign countries.
Franchising is similar to licensing, but it is a term used in connection with the provision of services. McDonald’s, for instance, operates fast-food restaurants the world over through its franchising system.
(iv) Foreign Investments- Foreign investment is another important form of international business. Foreign investment involves investments of funds abroad in exchange for financial return. Foreign investment can be of two types: direct and portfolio investments.
Direct investment takes place when a company directly invests in properties such as plant and machinery in foreign countries with a view to undertaking production and marketing of goods and services in those countries. Direct investment provides the investor an controlling interest in a foreign company.
This is otherwise known as Foreign Direct Investment, i.e., FD1, Joint ventures or wholly-owned subsidiaries by making full control over movement in foreign ventures and marketing operations are the option before the countries for international business.
A portfolio investment, on the other hand, is an investment that a company makes into another company by the way of acquiring shares or providing loans to the latter, and earns income by way of dividends or interest on loans. Unlike foreign direct investments, the investor under portfolio investment does not get directly involved into production and marketing operations. It simply earns an income by investing in shares, bonds, bills, or notes in a foreign country or providing loans to foreign business firms.
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 domestic business. When 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:
Modes of Entry into International Business – Simply speaking, the term mode means the manner or way. The phrase ‘modes of entry into international business, therefore, means various ways in which a company can enter into international business. While discussing the meaning and scope of international business, we have already familiarised you with some of the modes of entry into international business.
In the following sections, we shall discuss in detail important ways of entering into the international business along with their advantages and limitations. Such a discussion will enable you to know which model is more suitable under what conditions.
Exporting and Importing – Exporting refers to sending of goods and services from the home country to a foreign country. In a similar vein, importing is the purchase of foreign products and bringing them into one’s home country. There are two important ways in which a firm can export or import products: direct and indirect exporting/importing.
In the case of direct exporting/importing, a firm itself approaches the overseas buyers/ suppliers and looks after all the formalities related to exporting/importing activities including those related to shipment and financing of goods and services.
Indirect exporting/importing, on the other hand, is one where the firm’s participation in the export/import operations is minimum, and most of the tasks relating to export/import of the goods are carried out by some middlemen such as export houses or buying offices of overseas customers located in the home country or wholesale importers in the case of import operations. Such firms do not directly deal with overseas customers in the case of exports mid suppliers in the case of imports.
Advantages – Major advantages of exporting include:
(i) As compared to other modes of entry, exporting/importing is the easiest way of gaining entry into international markets. It is less complex an activity than setting up and managing joint-ventures or wholly owned subsidiaries abroad.
(ii) Exporting/importing is less involved in the senseth at business firms are not required to invest that much time and money as is needed when they desire to enter into joint ventures or set up manufacturing plants and facilities in host countries.
(iii) Since exporting/importing does not require much investment in foreign countries, exposure to foreign investment risks is nil or much lower than that is present when firms opt for other modes of entry into international business.
Limitations – Major limitations of exporting/importing as an entry mode of international business are as follows:
(iv) Since the goods physically move from one country to another, exporting/importing involves additional packaging, transportation, and insurance costs. Especially in the case of heavy items, transportation costs alone become an inhibiting factor to their exports and imports.
(v) On reaching the shores of foreign countries, such products are subject to customs duty and a variety of other levies and charges. Taken together, all these expenses and payments substantially increase production costs and make them less competitive.
(vi) Exporting is not a feasible option when import restrictions exist in a foreign country. In such a situation, firms have no alternative but to opt for other entry modes such as licensing/franchising or joint venture which makes it feasible to make the product available by way of producing and marketing it locally in foreign countries.
(vii) Export firms basically operate from their home country. They produce in the home country and then ship the goods to foreign countries. Except for a few visits made by the executives of export firms to foreign countries to promote their products, the export firms, in general, do not have much contact with the foreign markets.
This puts the export firms in a disadvantageous position vis-a-vis the local firms which are very near the customers and are able to better understand and serve them.
Despite the above-mentioned limitations, exporting/importing is the most preferred way.for.business firms when they are getting initially involved with international business.
As usually is the case, firms start their overseas operations with exports and imports and later having gained familiarity with the foreign market operations switch over to other forms of international business operations.
Wholly Owned Subsidiaries – This entry mode of international business is preferred by companies which want to exercise full control over their overseas operations. The parent company acquires full control over the foreign company by making 100 percent investment in its equity capital.
A wholly-owned subsidiary in a foreign market can be established in either of the two ways :
- Setting up a new firm altogether to start operations in a foreign country — also referred to as a greenfield venture, or
- Acquiring an established firm in a foreign country and using that firm to manufacture and/or promote its products in the host nation.
Advantages – Major advantages of a wholly-owned subsidiary in a foreign country are as follows :
- The parent firm is able to exercise full control over its operations in foreign countries.
- Since the parent company on its own looks after the entire operations of a foreign subsidiary, it is not required to disclose its technology or trade secrets to others.
Conclusion – The wholly-owned subsidiaries are the better way of exporting into the international market as it gives way to 100% control Over the parent firm in oversee operations.
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 an 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 entry into 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 modes like licensing or contract manufacturing might be chosen to reduce risk.
3. Efforts Involved:
The time and effort one needs to put in is another factor which determines the mode of international business. A mode like exporting, licensing, and franchising involves lesser effort than a 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 the wholly-owned subsidiary. Similarly, the 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, a 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 the availability of raw material also determines the mode of entry into international business.
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 increased 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 sevenfold increase from the US $251.1 billion and the 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, precious and seam precious stones, medicinal and pharmaceutical products, rice, spices, iron ore and concentrates, leather and leather manufactures, textile yams fabrics, garments, and tobacco, its share is much higher and ranges between 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 include 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 business 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 business activities that take place across geographical boundaries.
Question 2.
State any one type of international 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.
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 whereas international business includes international trade in services such as international travel and tourism, transportation, communication, warehousing, distribution, and advertising.
Question 2.
What is a 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 grant 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 an agreement to grant rights by one party to another party for use of technology, trademarks, and patents in return for 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 the production and distribution of goods, whereas the franchising system is used in service industries which have developed a unique technique for creating marketing of service.
Question 7.
State any two benefits of international business to nations.
Answer:
- Earning of foreign exchange
- Widens markets.
Question 8.
State any two benefits of international business to business firms.
Answer:
- Prospects for higher profits.
- Improves efficiency
Question 9.
State any two problems of international business.
Answer:
- Leads to Competition
- It is not suitable for perishable goods