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International Business

Q. Describe the advantages and disadvantages of joint venture as a mode of entry into foreign market.

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

                        i.      Joint venture makes it possible to undertake a big project requiring huge capital.

                      ii.      Joint venture permits a firm with limited resources to enter more foreign markets.

                     iii.      The foreign partner is benefited from the local partner’s knowledge of economic, social and political environment of the host country.

                    iv.      By entering into a joint venture agreement, the competitive strength of a smaller firm is increased. It also benefits as its risk is shared by the multinational company.


However, the disadvantages of joint venture are:

                        i.      There is possibility of disclosure of trade secrets.

                      ii.      Dual ownership may lead to conflicts.

                     iii.      The foreign partner may not bring the latest technology because of lack of full trust in the local partners.

                    iv.      It can only succeed when both the partners have something to offer to the advantage of the other.

 Q. What are the benefits of international business to nations?

Ans. The benefits of international business to nations are:

a.       Optimum use of resources

b.      Growth of economy

c.       Economies of large scale

d.      Increased employment opportunities

e.      Stabilisation of prices

f.        Increase in standard of living

g.       Enhancement of competition

h.      Global understanding

i.         Opportunity to import the essential goods.

 Q. What is an IEC number?

Ans. IEC (Import Export Code) number is issued by the Directorate General Foreign Trade (DGFT) or Regional Export Licensing Authority for export/import documents.

 Q. What do you mean by EXIM Policy and who regulates it?

Ans. EXIM Policy means export and import policy and it is regulated by the Central Government.

 Q. What is entrepot trade?

Ans. When goods are imported with a view to re-export them, it is known as entrepot trade.

 Q. How is Bill of Lading different from Bill of Entry?

Ans. Bill of lading differs from Bill of entry in following respects:

a.    Bill of lading is a document related to export transaction while bill of entry is a document related to import transaction.

b.   Bill of lading is a receipt given by the shipping company to the exporter for carrying the goods to the importer. Bill of entry is a form supplied by the customs office to the importer for assessment of customs duties.

 Q. Briefly explain letter of credit. Why does an exporter need this document?

Ans. A letter of credit may be defined as a letter issued by the importer’s bank in favour of the exporter containing an undertaking that the bills drawn by the exporter upon the importer up to the amount specified therein will be honored by banker on presentation.

A letter of credit is a proof of the credit worthiness of the importer. The letter of credit is an assurance that bill will be paid by the bank. This method is favored by the exporter as it ensures a quick and guaranteed payment from the importer.

 Q. What is a green card and why is it issued?

Ans.  A green card is issued to an exporter to reduce his transaction costs. It enables the eligible exporter to avail the following facilities:

a.    Automatic issue of import licenses.

b.   Automatic customs clearance for exports.

c.    Automatic customs clearance for imports related to exports.

d.   Submission of legal undertaking in place of bank guarantee for the issue of duty free licenses.

 Q. What is UNCTAD? Why was it formed?

Ans. UNCTAD stands for United Nations Conference on Trade and Development and was formed in 1964. The widening trade gap between the developed and developing countries, the general dissatisfaction of the developing countries with the GATT and the need for international economic cooperation led to the setting up of UNCTAD.

 Q. What do you mean by Export Processing Zone?

Ans. An Export Processing Zone (EPZ) is an industrial estate usually situated near an international port and/or airport with a view to encourage units meant for production or processing of export items. The entire production of units is exported. The procedure is very simple and speedy. It emphasises on processing and value addition

 Q. What is the significance of Special Import License (SIL)?

Ans. Special Import License enables an exporter to import specified items to be used in the manufacture of items meant for export.Certain specified categories of exporters have been granted this facility.

 Q. Define Special Economic Zones.

Ans.  Special Economic Zones are specifically delineated duty free enclaves and shall be deemed to be foreign territory for the purposes of trade operations, duties and tariffs. They are set up to encourage free trade for the purpose of promotion of exports. It is created by Indian government and goods forwarded to such a zone are considered as "Deemed Exports”. Goods coming from SEZ are treated as import goods.

 Q. What do you mean by certificate of origin?

Ans. Certificate of origin may be defined as a document certifying that the goods under export contract have been produced in the exporting country. The purpose of this certificate is to charge customs at concessional rates if there is a trade agreement between importing and exporting countries to charge customs at lower rate on each other’s goods. It is issued by a Trade Council or some other authorised person.

 Q. Name the organisations that have been set up in the country by the government for promoting country’s foreign trade.

Ans.  Various organisations have been set up in the country by the government for promoting country’s foreign trade. They are:

1) Department of Commerce; 2) Export Promotion Councils; 3) Export Inspection Councils;

4) Indian Trade Promotion Organisation; 5) Indian Institute of Foreign Trade; 6) Indian Institute of Packaging; 7) State Trading Organisation.

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