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International Business

Q. Define international business.

Ans.  The international movement of goods, services, capital, personnel, technology and intellectual property in different countries is called international business.

 Q. What is a joint venture?

Ans.  A joint venture means any form of association that is jointly owned by two or more independent firms.

 Q. What is the need for international business?

Ans.  Due to unequal distribution of natural resources among countries, they cannot produce equally and cheaply all that they need.

 Q. Briefly state the scope of international business.

Ans.  The scope of international business is quite wide. It includes not only merchandise exports, but also trade in services, licensing and franchising as well as foreign investments.

 Q. What are the limitations of exporting and importing?

Ans.  The limitations of exporting and importing are as follows:

                     i.         Involves huge cost of packaging, insurance and transportation;

                   ii.         Custom clearance of goods is cumbersome;

                  iii.         The government policy of some countries may not be favorable to export and import.

 Q. What is the major difference between international trade and international business?

Ans.  International trade refers to the exchange of goods and services between two or more countries. However, international business involves international movement of goods, services, capital, personnel, technology and intellectual property like patents, trademarks, etc. across different nations.

 Q. What are the features of international business?

Ans.  The important features of international business are as follows:

                     i.         Facilitates import and export of goods.

                   ii.         Involvement of two or more countries.

                  iii.         Dealing in foreign currency.

                 iv.         Subject to restrictions as per the policies of a country.

                   v.         Due to the distance involved, it is a lengthy procedure.

 Q. How is international business beneficial for firms?

Ans.  International business is beneficial for firms in the following ways:

i.    Prospects of higher profits

ii.   Increased capacity utilisation

iii.  Prospects for growth

iv.  Facing less competition in domestic market by exporting.

v.   Improved business vision.

 Q. State the factors responsible for the choice of mode of entry into international business.

Ans. Following are the factors responsible for the choice of mode of entry into international business:

i.      Government policies: The government policy of both countries entering into international business affects the mode of entry. It is important to note whether the country has an open economy or a closed one. In a closed economy, joint ventures and wholly owned subsidiaries are ruled out.

ii.    Resources: To manage overseas operations, availability of resources is an important factor.

iii.   Competitiveness: A firm may have competitive advantage in the form of low costs, product quality, technological superiority, marketing strength, etc.

 Q. What are the products that India exports to other countries?

Ans The products that India exports to other countries are:

1.    Primary Products: Agricultural and allied, Ores and Minerals

2.    Manufactured goods :Textiles including garments, Gems and jewellery, Engineering goods
Chemicals and related products
Leather and manufactures

3. Petroleum, crude and related products

4. Others

 Q. Differentiate between domestic business and international business.

Ans.  

DIFFERENCE

DOMESTIC BUSINESS

INTERNATIONAL BUSINESS

NATIONALITY

Employees, suppliers, middleman, shareholders and partners are usually citizens of the same country.

Employees, suppliers, middleman, shareholders and partners are from different nations.

MOBILITY

Mobility of factors of production is more within a country.

Mobility of factors of production is relatively less.

RISKS

It is subject to political system and risks of a single country.

It is subject to political system and risks of different countries.

BUSINESS POLICIES

Business practices, taxation system and policies of a single country are applicable.

Business practices, taxation system and policies vary considerably across countries.

 

 Q. Explain the different modes of entering into international business.

Ans.  The different modes by which a business enterprise can enter into international business are as follows:

i.     Exporting and Importing: Export means producing goods in one’s own country and selling them to another country whereas import involves bringing goods into the home country from abroad.

ii.   Contract Manufacturing or Outsourcing: In this mode, a company may enter into a contract with another company in a foreign country to manufacture goods or components as per former’s specifications. It is also called outsourcing. Many international companies get the products or components produced in developing countries under contract manufacturing.

iii. Licensing and Franchising: Licensing is a process by which a firm transfers its intangible property such as expertise, know-how, blueprints, technology and manufacturing design to a firm located abroad. It is also known as technical collaboration. On the other hand, where a firm allows another firm in a foreign market to use its technical know-how and trade mark, it is known as franchising. Under this arrangement, the franchiser grants the franchisee, the use of a trademark or other assets that are essential. The franchiser charges a fee for the same from the franchisee.

iv.  Joint Ventures: A joint venture is an arrangement between two or more partners sharing in a new project or venture through participation in its equity capital.

v.    Wholly-Owned Subsidiaries: The companies with long term and substantial interest in the foreign market, when acquire full control over the foreign company by making 100% investment in its equity capital are called wholly- owned subsidiaries.

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