Introduction to International Business and its Benefits

Different nations all over the world are experiencing an essential

change in the way they deliver and market various items, products and

services. The national economies that were accomplishing the

objective of self-sustainability are currently developing route towards

International Business. The factor for this crucial change is the

development of correspondence, innovation, communication,

infrastructure and so on.

Introduction to International Business

Business activities done across national borders is International

Business. The International business is the purchasing and selling of

the goods, commodities and services outside its national borders. Such

trade modes might be owned by the state or privately owned

organization.

In which, the organization explores trade opportunities outside its

domestic national borders to extend their own particular business

activities, for example, manufacturing, mining, construction,

agriculture, banking, insurance, health, education, transportation,

communication and so on.

(Source: proprofs)

Nations that were away from each other, because of their geological

separations and financial and social contrasts are now connecting with

each other. World Trade Organization established by the

administration of various nations is one of the major contributory

factors to the expanded connections and the business relationship

among the countries.

The national economies are dynamically getting borderless and fused

into the world economy as it is clear that the world has today come to

be known as a ‘global village’. Numerous more organization are

making passage into a worldwide business which presents them with

opportunities for development and tremendous benefits.

India was trading with different nations for quite a while, yet it has

quickened its progress of incorporating with the world economy and

expanding its foreign trade and investment.

Browse more Topics under International Business

● Contract Manufacturing, Licensing and Franchising

● Importing and Exporting

● India’s Involvement in World Business

● Joint Ventures and Wholly Owned Subsidiaries

● Export Procedures and Documentation

● Imports Procedures and Documentation

● Foreign Trade Promotions: Incentives and Organisational

Support

● International Monetary Fund (IMF) and World Trade

Organisation (WTO)

● International Trade Institutions and Trade Agreements

Benefits of International Business

International Business is important to both Nation and Business

organizations. It offers them various benefits.

Benefits to Nation

● It encourages a nation to obtain foreign exchange that can be

utilized to import merchandise from the global market.

● It prompts specialization of a country in the production of

merchandise which it creates in the best and affordable way.

● Also, it helps a country in enhancing its development prospects

and furthermore make opportunity for employment.

● International business makes it comfortable for individuals to

utilise commodities and services produced in other nations

which help in improving their standard of life.

Benefits to Firms

● It helps in improving profits of the organizations by selling

products in the nations where costs are high.

● It helps the organization in utilizing their surplus resources and

increasing profitability of their activities.

● Also, it helps firms in enhancing their development prospects.

● International business also goes as one of the methods for

accomplishing development in the firms confronting extreme

market conditions in the local market.

● And it enhances business vision as it makes firms more

aggressive, and diversified.

Solved Question for You

Question: What is ‘global village’?

Answer: The national economies are dynamically getting to be

borderless and getting fused into the world economy. This scenario

whereas makes it clear that the world has today come together be

known as a ‘global village’.

Franchising, Licensing and Contract Manufacturing

Franchising is a Business Strategy in which franchiser (owner of the

business, product or services), affiliate with franchisees (dealers of

products) for distribution, business expansion, and marketing.

Franchisees use the trademark and strategies of parent company i.e.

franchiser and sell the products on their behalf. Both parties agree on

specific terms like advertising, training, support through Franchising

agreement. Some common examples of franchising are McDonald’s,

Pizza Hut, Starbucks, Burger King, etc. There are very high chances

that the car you drive or the restaurant you go eat in is also a

component of either contract manufacturing, franchising or licensing.

Surprised? Let’s understand more advantages and disadvantages of

Franchising, Licensing, and Contract Manufacturing.

Contract Manufacturing

Contract manufacturing is engaging a deal with a manufacturer to

produce a product of the business. Basically, contract manufacturing is

the outsourcing of part of the manufacturing process of a product to a

third-party. Since numerous businesses are confronted with high

start-up cost and constrained resources, organizations are turning

towards Contract Manufacturing.

For example, Flextronics Corporation makes Microsoft’s Xbox game.

Flextronics corporation is a huge company with factories around the

world and nearly USD $15 billion in sales in 2004. Microsoft has

simply outsourced their manufacturing. There are many fields and

services in which companies outsource, like food chain, design,

productions, etc.

Browse more Topics under International Business

● Introduction to International Business and its Benefits

● Importing and Exporting

● India’s Involvement in World Business

● Joint Ventures and Wholly Owned Subsidiaries

● Export Procedures and Documentation

● Imports Procedures and Documentation

● Foreign Trade Promotions: Incentives and Organisational

Support

● International Monetary Fund (IMF) and World Trade

Organisation (WTO)

● International Trade Institutions and Trade Agreements

Advantages of Contract Manufacturing

● Contract Manufacturing supports international firms to

manufacture commodities on a huge scale without a large

investment in setting up manufacturing plants.

● It includes little investment outside national borders therefore,

the risk is minimum.

● Also, it helps an organization to get the items fabricated or

assembled at a lower cost.

● It is helpful for local producers in foreign nations as they could

use their potential production capabilities and also a ready

market for their own items is provided.

● And it gives chance to local producers to get engaged in global

business and gain profits without additional capital and with

minimum hassles.

Disadvantages of Contract Manufacturing

● In any case, if the local producers do not follow the production

techniques and quality range, it may cause serious product

quality problems for the international firm.

● The local manufacturer needs to produce commodities as

indicated by the terms and details of the agreement and thus, it

loses his control over the producing process.

● A local producer isn’t permitted to sell the outcome according

to his will and has to entirely depend on the firm or their sales.

Licensing and Franchising

Licensing is an agreement between licensor and licensee wherein one

organization gives the other organization access to its patents, trade

secrets, or technology for a fee known as royalty. The organization

that gives the access is licensor. The organization that obtains the

access is the licensee.

Franchising is an agreement between franchisee and franchiser. Here

the franchiser will allow the franchise to use its brand name and logo

to provide services and or goods under such a brand. However, the

franchise will be bound by the quality and the makeup of such goods

as indicated by the franchiser. For example, McDonald’s fast food

restaurants around the world run on this franchise model. And yet

every McDonalds in an area has a standardized menu and the food

will taste the same in all their outlets.

Examples of Franchising

● McDonald’s

● KFC

● Burger King

● Pizza Hut

● Dunkin Donuts

● Subway

● Taco Bell

● Dominos Pizza

● Baskin-Robbins

Advantages and Disadvantages of Franchising and Licensing

Advantages

● It is a more affordable method of stepping into international

business as the licensors or franchisers don’t need to pour too

many funds abroad.

● The level of risk of the licensor is low because there is zero or

next to zero investment is involved.

● Licensee/Franchisee is the individual who is the resident of the

same country which limits Government intervention. Thus,

business runs without any hurdles.

● The licensee has more market understanding and contacts as he

is a local individual which guarantee achievement of marketing

goals.

● Excluding Licensee/Franchise, no other foreign organization

can utilize such trademarks and licenses.

Disadvantages

● There is a slight threat that the licensee may begin advertising

his own products which are indistinguishable from the

licensors.

● Business formulas and secrets can get revealed to others in the

market if not secured properly.

● Clashes may emerge amongst licensor and licensee with

respect to the maintenance of records, payment of loyalty,

non-adherence of the standards and so forth.

Solved Examples for You

Q: What is brand licensing?

Ans: Licensing is the leasing of intangible assets. Brand licensing is

basically a license agreement related to a particular brand name. So

say for example you want to use one of Disney’s cartoon characters

(let’s say Mickey Mouse) for promoting your goods. Here you would

enter into a brand licensing with Disney to use their proprietary asset,

which is the character of Mickey Mouse.

Importing and Exporting

It is a good bet to claim that you have a decent idea of what Import

and Export are about. Importing and Exporting supports the

development of national economies and extends the global market.

But are you aware of its advantages and disadvantages? Let’s have a

look at them.

Importing and Exporting

Importing and Exporting are means of Foreign Trade. Foreign trade is

carried out in goods and services – which includes imports, exports,

and the balance of foreign trade – is presented separately for goods

and for services. The total imports, exports, and balance of foreign

trade are presented as summaries of goods and services.

Exporting refers to the selling of goods and services from the home

country to a foreign nation. Whereas, importing refers to the purchase

of foreign products and bringing them into one’s home country.

Further, it is divided in two ways, which are,

i. Direct

ii. Indirect

Every nation is blessed with certain resources, assets, and abilities. For

instance, a few nations are rich in natural reserves, for example,

petroleum products, timber, fertile soil or valuable metals and

minerals, while different nations have deficiencies of these resources.

Browse more Topics under International Business

● Introduction to International Business and its Benefits

● Contract Manufacturing, Licensing and Franchising

● India’s Involvement in World Business

● Joint Ventures and Wholly Owned Subsidiaries

● Export Procedures and Documentation

● Imports Procedures and Documentation

● Foreign Trade Promotions: Incentives and Organisational

Support

● International Monetary Fund (IMF) and World Trade

Organisation (WTO)

● International Trade Institutions and Trade Agreements

Advantages of Import and Export

● It is one of the simplest routes of entering into the global trade

and import and export generate huge employment

opportunities.

● Requires less investment in terms of time and money when

contrasted with other

methods of entering into the global trade.

● Is comparatively less risky when compared with different

routes of entering in international business.

● As no nation can be 100% self-sufficient, import and export are

very crucial for the functioning and growth of that nation.

● Can help Countries to access the best technologies available

and best products and services in the world.

● It gives better control over the trade than setting up a market

and the risk is considerably low.

Limitations of Import and Export

● It includes extra packaging, transportation and protection and

insurance costs which build up the total cost of items.

● Exporting isn’t doable in the event that the foreign nation

prohibits imports.

● Domestic organizations which are closer to the client could

serve them better than firms outside their national borders.

● Merchandises are subject to quality standards any low-grade

merchandise which is exported will result in Country reputation

and remarks on countries.

● Obtaining licenses and documentation for foreign trade is a

difficult and frustrating task.

● If you are not careful, you can lose grip on the domestic market

and existing customers.

Solved Question for You

Q: Why businesses prefer importing and exporting?

Ans: Businesses prefer importing and exporting because it is one of

the simplest routes of entering into the global trade. It requires less

investment in terms of time and money when contrasted with other

methods of entering into the global trade. It is comparatively less risky

when compared with different routes of entering the international

business.

India’s Involvement in World Business

India is the largest democracy in the world. It is also the most

populated nation, second to only China. Having said that, India’s

contribution to the world in education, discovery, and knowledge is

enormous. But what about foreign trade? Let’s understand India’s

contribution to the world in terms of World Business.

India’s Foreign Trade in Goods

India is currently the tenth biggest economy on the planet and the

quickest developing economy next just to China. Be that as it may,

India’s contribution to the global business isn’t that noteworthy.

India’s share in world exchange 2003 was only 0.8% when contrasted

with other developing nations like China (5.9%). Hong-Kong (3.0%),

Thailand (1.1%), Singapore (1.9%). India likewise falls behind in the

sector of foreign investment in world business as well.

Indian export and import showcase there is a major economic

achievement need for the nation. India represents only 0.8% of world

exports. Owing to the faster growth attained at the external front, share

of foreign trade in the country’s Gross Domestic Product (GDP) has

significantly expanded from 14.6% in 1990-1991 to 24.1% in

2003-2004.

In outright condition, India’s export and contribution to world

business have expanded from 606 crores in 1950-51 to 293367 crore

in 2003-2004. Its imports have expanded from 608 crores in 1950-51

to 359108 crore in 2003-2004. Composition wise, textiles and

garments, gems and jewellery, account for major economic activities

for the country.

In many items like tea, pearls, precious and semi-precious stones,

medicinal and pharmaceutical products, rice, spices, iron-ore and

concentrates, leather and leather manufactures, textile yarns, fabrics

garments, and tobacco India’s share is much higher and ranges

between 3% to 13%.

India is the biggest exporter of basmati rice, tea, and ayurvedic items.

Although India needs to import items like crude oil and oil based

goods, capital goods (e.g. hardware) electronic merchandise, pearl,

valuable and semi-valuable stones, gold and silver and chemicals

constitute the majority of items of India’s imports.

Browse more Topics under International Business

● Introduction to International Business and its Benefits

● Contract Manufacturing, Licensing and Franchising

● Importing and Exporting

● Joint Ventures and Wholly Owned Subsidiaries

● Export Procedures and Documentation

● Imports Procedures and Documentation

● Foreign Trade Promotions: Incentives and Organisational

Support

● International Monetary Fund (IMF) and World Trade

Organisation (WTO)

● International Trade Institutions and Trade Agreements

India’s Trade in Services

There is enormous development in India’s foreign trade. The export of

services has ascended from 68 crores in 1960-61 to 35758 crores amid

2004-2005.

Import has likewise raised from 43 crores in 1960-61 to 28,486 crore

in 2004-2005 (comprising of travel, transportation, and insurance).

The astounding factor is the change in the synthesis of service exports.

Software and different administrations (commercial activities, STEM

and business services) have risen as the fundamental classes of India’s

export of services in world business.

India’s Trading Partners

India has eleven trade partners, which are, USA, UK, Belgium

Germany, Japan, Switzerland, Hong-Kong, UAE, China, Singapore,

and Malaysia. the USA holds the first position with 11.6% of an offer

in India’s total trade.

India’s Foreign Investment

It is apparent that there has been an excellent increment in foreign

investment flow into and from India. While the internal foreign

investment has developed in excess of 750 times from just Rs. 201

crores in 1990-91 to Rs.1,51,406 crores in 2003-04, India’s

Investments in foreign nations have expanded considerably more

exponentially – around 4,927 times – from Rs. 19 crores in 1990-91 to

Rs. 8,3,616 crores in 2003-04.

Solved Question for You

Question: India is the biggest exporter of which goods and which

services are most demanded from India in the global market?

Answer: India is the biggest exporter of basmati rice, tea, and

ayurvedic items. Software and different administrations (commercial

activities, STEM and business services) are the services most in

demand from India in the global market.

Joint Ventures and Wholly Owned Subsidiaries

Here we will learn about Joint Ventures and Wholly Owned

Subsidiaries. These are the two important modes of conducting

international business. A joint venture is about shared ownership and

risk, while wholly owned subsidiaries are about the total command of

the parent company. Let’s understand them.

Browse more Topics Under International Business

● Introduction to International Business and its Benefits

● Contract Manufacturing, Licensing and Franchising

● Importing and Exporting

● India’s Involvement in World Business

● Joint Ventures and Wholly Owned Subsidiaries

● Export Procedures and Documentation

● Imports Procedures and Documentation

● Foreign Trade Promotions: Incentives and Organisational

Support

● International Monetary Fund (IMF) and World Trade

Organisation (WTO)

● International Trade Institutions and Trade Agreements

Joint Ventures

Joint venture implies establishing an organization that is mutually

owned by two or more independent firms.

It can be brought into reality in three noteworthy ways:

● A foreign investor buying an interest in a local company.

● Local firm acquiring an interest in an existing foreign firm.

● Both the foreign and local entrepreneurs jointly forming a new

enterprise.

For example, a Joint venture is between Mahindra-Renault, founded

in 2007 brings together India’s largest automobile manufacturer

Mahindra & Mahindra and world-renowned vehicle maker, Renault

SA of France.

(Source: thestoryengine)

Advantages of Joint Ventures

● International organizations discover it is affordable for them to

expand outside national boundaries.

● Joint venture makes it conceivable to support huge ventures

requiring gigantic capital costs and furthermore, labour is

shared.

● Foreign organizations profit from the information of domestic

accomplice as they know the local market conditions, culture,

dialect, political and business frameworks.

● It prompts sharing of expenses and risk with a local accomplice

which help an organisation to enter in the global market

Disadvantages Of Joint Ventures

● It involves sharing of technology and business secret

techniques with a domestic organization in the foreign nation,

thus there is always a risk of revelation of technology &

business secrets to others.

● Joint venture might lead to a clash, between the investing firms

with regard to control of the newly formed venture.

Wholly Owned Subsidiaries

To keep full control over their venture, this method of international

business is incorporated by organizations. The parent organization

makes 100% investment in its equity capital and in this way takes full

control over the foreign organization. There are two ways to set up a

wholly owned subsidiary in the international market:

● Setting up another organization thoroughly to begin activities

abroad – also known as a greenfield venture, or

● Acquiring a ready organization in the foreign nation and

utilizing that organization to deliver or market its services in

the host nation.

Advantages of Wholly Owned Subsidiary

● The parent organization can exert full control over its

operations in a foreign nation.

● The parent organization does not require to reveal its

technology or competitive advantages to others as the parent

organization looks after the whole activities of subsidiary all

alone.

Disadvantages of Wholly Owned Subsidiary

● The parent organization needs to make 100% equity investment

in its subsidiary. Subsequently, this type of international trade

is, not reasonable for little and medium-size organizations

which have limited assets with them to put resources into

foreign nations.

● Additionally, the parent organization needs to tolerate the

whole misfortunes coming about because of losses of its

foreign activities on its own, as it owns 100% equity.

● A few nations are hesitant to set up entirely owned subsidiaries

by outsiders in their nation.

Solved Question for You

Q: A foreign investor cannot invest in a local company to form a joint

venture. True or False?

Ans: The statement is False. A local company can team up with a

foreign investor to create a joint venture. This is one of the easiest

ways for a foreign investor to gain entry into the domestic market.

Export Procedures and Documentations

Import and Export is the most favored mode of entering into

International Business. But are the procedure and documentation

required to suffice this mode are as smooth as it seems? Let’s

understand the Export Procedures and Documentations.

Export Procedures

1. Exporter gets a request from the potential buyer asking for data

with respect to cost, standard and different terms & conditions

for transportation of merchandise. The exporter answers with a

citation known as a proforma invoice.

2. In the event that the purchaser approves of the parts of terms

and conditions, he puts in the request or ‘indent’ for the

merchandise.

3. In the wake of getting the request or indent, the exporter

attempts an inquiry with respect to the financial soundness of

the importer to evaluate the danger of non-payment by the

importer.

4. As indicated by customs laws, the exporter or the export firm

should have a fare permit before continuing with export. The

following steps are taken after for acquiring the export license.

○ opening record in any approved bank

○ To acquire import export code (IEC) number from

Directorate General Foreign Trade (DGFT) or

Regional Import Export Licensing Authority

(RIELA).

○ Register with suitable export promoting committee.

○ To get enrolled with Export Credit and Guarantee

Corporation (ECGC).

5. After getting the export license the exporter meets with his

banker to get pre-dispatch fianance for carrying out production.

6. Exporter, after getting the pre-shipment fund from the bank,

looks at to prepare the merchandise according to the importer.

7. The law of India ensures that very selective and incredible

quality products are exported out of India. The exporter needs

to introduce pre-shipment examination report along with

various papers at the time of dispatch.

Furthermore,

8. As demonstrated by the Central Excise Tariff Act, excise duty on

the material used as a part of creating the merchandise is to be paid.

For a similar cause, exporter applies to the concerned Excise

Commissioner in the area with a receipt.

9. Remembering the ultimate objective to get Tariff concessions or

diverse exclusions the importer may ask for the exporter to send an

authentication of origin.

10. The exporter applies to the logistics organization for the plan of

transportation space. He needs to give full information as for the

merchandise to be dispatched, conceivable date of shipment and port

of destination. The logistics organization issues a transportation course

of action. Which is a guideline to the captain of the ship, after

accepting an application for dispatching.

11. The merchandise is stuffed and set apart with crucial data like

name and address of the importing person, gross and net weight, port

of shipment and destination etc. After this, the exporter makes the

strategy for the transportation of merchandise to the port.

12. To protect the merchandise amid the ocean travel, the exporter

gets great guaranteed with the insurance agency.

13. Before stacking the merchandise on the ship they must be cleared

by the client. For this reason, the exporter makes the bill and submits 5

duplicates of the bill along with:

i. Certificate of origin

ii. Commercial Invoice

iii.Export Order

iv.Letter of credit

v. Certificate of Inspection, where essential.

vi.Marine Insurance Policy.

On presenting the mentioned documents, the director of the concerned

port trust approaches to obtain to be sent order which is the guideline

to the staff at the entryway of the port to allow the cargo within the

dock.

Also,

14. After the merchandise have been stacked on the ship, the captain

issues mate’s receipt to the port administrator which contains data

with respect to the vessel, bill, information about the merchandise,

date of shipment denotes, the state of the merchandise.

15. The clearing and forwarding specialist (C&F operator) hands over

the mate’s receipt to the transportation organization for analyzing the

cargo. On accepting the cargo the transportation organization issues a

bill of lading.

16. The exporter readies a receipt for the outgoing merchandises. The

receipt contains data with respect to the quantity of merchandise sent

and the sum to be paid by the importer. It is properly confirmed by the

customs.

17. After dispatching the merchandise, the importer is given details by

the exporter. Different reports like an attested duplicate of the receipt,

bill of lading packing list, Insurance arrangement, certificate of origin,

and letter of credit are sent by the exporter through his bank. These

records are required by the importing merchant for getting the

products cleared from customs.

Browse more Topics under International Business

● Introduction to International Business and its Benefits

● Contract Manufacturing, Licensing and Franchising

● Importing and Exporting

● India’s Involvement in World Business

● Joint Ventures and Wholly Owned Subsidiaries

● Imports Procedures and Documentation

● Foreign Trade Promotions: Incentives and Organisational

Support

● International Monetary Fund (IMF) and World Trade

Organisation (WTO)

● International Trade Institutions and Trade Agreements

Documents Used in Export Transactions

A. Documents Related to Goods

● Seller Bill:- It is a seller’s bill data about products like amount,

a number of packages, blemishes on packing, the name of the

ship, port of destination, terms of delivery and payment and so

on.

● Certificate of Inspection:- For guaranteeing quality, the

government has made an inspection of specific products

necessary by some approved organization like trade Inspection

board of India (EICI) and so forth. In the wake of reviewing the

merchandise, the organization issues a certificate of inspection

that the merchandise has been reviewed as required under the

export (Quality Control and Inspection) Act, 1963.

● Packing List:- This document is with respect to the number of

cases or packs and the details of products contained in these

packs. It gives finish insights with respect to the products sent

out and the condition in which they are being sent.

● Testament of Origin:- This authentication indicates the nation

in which the merchandise is being produced. This

authentication empowers the importer to claim levy

concessions or different exemption. This declaration is likewise

required in the event that when there is a prohibition on imports

of a few products in specific nations.

B. Documents Related to Shipment

● Transportation Bill: It is the basic document based on which

consent is allowed for the export of merchandise by the

customs office. It contains details of as to whom the

merchandise being sent, the name of the vessel, exporter’s

name and address, a nation of definite goal and so on.

● Mate’s Receipt:- This receipt is issued by the captain or mate

of the ship to the exporter after the merchandise are stacked on

board the ship. It contains the name of the vessel, quantity,

marks, condition of the freight at the time of receipt on board

the ship and so on.

● Bill of lading – It is a record issued by the shipping

organization. It goes about as a proof with respect to the

acknowledgment of the delivery organization to convey the

merchandise to the port of destination. It is additionally

referred to as the title to the merchandise and is openly

transferable by underwriting and delivery.

● Airway Bill: Similar to a shipping bill, it is a record issued by

the airline organization on getting the products on board.

● Cart Ticket:- Also known as cart chit or gate pass, it is

established by the exporter. It contains insights with respect to

sending out payload like a number of items, shipping charge

number, port of destination and so forth.

● Marine Insurance Policy: It is a document containing contract

between the exporter and the Insurance Company to

reimbursement the safeguarded against the misfortune brought

in regard to products presented to the risks of the ocean travel

in light of an installment called premium

C. Document Related to Payment

● Letter of credit:- It is an assurance letter issued by the

importer’s bank expressing that it will respect the export bills

to the bank of the exporter up to a specific sum.

● Bill of Exchange: In export and import exchange, exporter

draws the bill on the importer requesting that he pay a

predefined money to someone in particular or the owner of the

instrument. The records required by the importer for

guaranteeing the title of exported merchandise are passed on to

him just when the importer acknowledges this bill.

● Bank Certificate of Payment:- It is a declaration that the

required documents identifying with the specific export deal

have been arranged and payment has been gotten related with

the exchange control regulation.

Learn import Procedures and their Documentation here.

Solved Question for You

Q: Which of the following documents are not required for obtaining

an export license?

a. lEC number

b. Letter of credit

c. Registration cum membership certificate

d. Bank account number

Answer: (b) Bank account, IEC, registration with export promotion

council and registration with ECGC.

Import Procedures and Documentations

Import is a very important function of our economy. It is one of the

most regulated sectors of our economy. Let us understand the in-depth

import procedures and their important documentation.

Import Procedure

1. The initial step engaged in importing a product is to accumulate

information about the nations and firms which send out the

item required by the exporter. It can be accumulated from trade

directories, trade organizations, and associations. The exporter

readies a quotation otherwise called Performa Invoice and

sends it to the importer.

2. The Importer Consults the export-import (EXIM) Policy in

power, all together to know whether the merchandise that

he/she needs to import are subjected to import licensing or not.

3. In the situation of an import transaction, the provider resides in

a foreign nation and subsequently requests the installment of

foreign cash. This includes the trade of Indian Currency into

foreign money. The Exchange Control Department of the

Reserve Bank of India (RBI) manages foreign trade exchange

in India. According to rules, each merchant needs to secure the

sanction of foreign trade.

4. The importer puts in an import request or indents with the

exporter for the supply of merchandise. The request contains

information with respect to cost, quality, quantity, size and

grade of goods instructions with respect to packaging, delivery

shipping, a method of payment and so on.

5. At the point when the payment terms concur between the

importer and the overseas provider, the importer gets the letter

of credit from its banker and forwards it to the overseas

provider.

6. The importer arranges for money in advance to pay the

exporter on arrival of goods at the port this empowers the

importer to avoid huge penalties on the imported goods lying

uncleared at the port for the need of payment.

7. The overseas supplier after loading the merchandise on the ship

dispatches the “Shipment Advice” to the importer. It gives

information with respect to the shipment of goods like receipt

number, bill of lading/airway bill, the name of the ship with

date description of merchandise and amount and so forth.

Furthermore,

8. After dispatching the merchandise, the abroad exporter hands over

the different documentation like an invoice, bill of lading, insurance

certificate of origin to his banker for their forward transactions to the

importer when he receives the bill of exchange drawn by the provider.

The acknowledgment of a bill of exchange by the importer to get a

confirmation of delivery is known as the retirement of import

documents.

9. At the point when the sent merchandise comes in the importer’s

nation, the individual accountable for the merchandise conveys the

officer in control at the dock or the airport about it. The individual

responsible for the ship or airway gives the report with respect to

import.

10. Imported merchandise are subjected to customs which is an

exceptionally extensive process and includes a considerable time to

complete. The importer more often than not appoints a C&F operator

for completing these customs.

Essentially, the merchant acquires a delivery order which is otherwise

called an endorsement for delivery. This order allows the importer to

take to take the delivery of merchandise subsequent to pay the cargo

charges.

Importer likewise needs to pay dock dues for getting port trust dues

receipts for which he submits two duplicates filled in the form is

known as “application to import” to the Landing and “Delivering

Dues Office”. Subsequent to paying dock dues the importer gets back

one copy of the application as a receipt which is called as ‘port trust

levy receipts’.

At long last, the importer fills in a frame known as ‘bill of entry’ for

appraisal of customs import duty. An inspector inspects the

merchandise and gives his report regarding the bill of entry. This bill

is then introduced to the port administration which on getting the

important charges, issues the discharge arrangements.

Browse more Topics under International Business

● Introduction to International Business and its Benefits

● Contract Manufacturing, Licensing and Franchising

● Importing and Exporting

● India’s Involvement in World Business

● Joint Ventures and Wholly Owned Subsidiaries

● Export Procedures and Documentation

● Foreign Trade Promotions: Incentives and Organisational

Support

● International Monetary Fund (IMF) and World Trade

Organisation (WTO)

● International Trade Institutions and Trade Agreements

Documents Used in an Import Transaction

● Proforma Invoice: It is a record that contains points of interest

with regards to the quality, review, design, mass, weight, and

cost of the exported merchandise and the terms and conditions

on which their transportation will occur.

● Import order or Indent: It is a documentation in which the

importer orders for supply of imperative merchandise to the

supplier. The order containing the data, for example, amount

and nature of merchandise value, a technique for sending the

merchandise, packing process, method of payment and so forth.

● Shipment counsel:– The exporter sends shipment advice to the

importer for telling him that the merchandise has been

dispatched. It contains invoice number, bill of lading/airway

bill number and date, the name of the vessel to date, the port of

export, description of products and amount and the date of

cruising of the vessel.

● Bill of lading:– It is readied and marked by the captain of the

ship recognizing the receipt of merchandise on board. It

contains terms and conditions on which the products are to be

taken to the destination.

● Bill of entry:– It is a form provided by the customs office to the

importer who filled it at the duration of getting the

merchandise. It must be in triplicate and is to be submitted to

the customs office.

● Letter of credit:- It is a document that contains a certification

from the importer bank to the exporter’s bank that it is

attempted to respect the payment up to a specific sum of the

bills issued by the exporter for transportation of the products to

the importer.

● Trade Enquiry: It is a written request made by a logistic firm to

the abroad provider for giving data in regards to the cost and

different terms and conditions for trading merchandise.

Solved Question for You

Q: Which one of the following is not a part of the export documents?

(a) Commercial invoice

(b) Certificate of origin

(c) Bill of entry

(d) Mate’s receipt

Answer: (c) The importer fills ‘bill of entry’ form for the assessment

of customs import duty.

Foreign Trade Promotions Incentives and Organizational Support

Foreign trade leads to division of labour and specialisation at the

global level. There is no shortage of labour in India. That is one of the

reasons Indian government promotes and stimulates policies and

schemes to expand the Foreign Trade. Let’s see what measures does

the government take to support Foreign Trade.

The government of India initiates different incentives and plans to

help business firms enhance the competitiveness of their exports. The

Government has likewise established a number of institutions to give

infrastructural help and also marketing help to organizations doing

International business.

Foreign Trade Promotion Measure and Schemes

1. Duty Drawback Scheme

Merchandise that is to be export is not conditional for payment of

different excise, levy charges and customs duties. On showing

verification of export of these products to the concerning authority

such charge returns. Such refunds are ‘Duty Drawbacks.’

2. Export Manufacturing under the Bond Scheme

Under this freeway, organizations can manufacture merchandise

without giving excise duty and different charges. The organizations

can benefit this facility after giving an endeavour (i.e. bond) that they

are producing commodities for the export goal.

3. Exemption from Payment of Sales Taxes

Merchandise manufactured for the sole reason of exporting is not

conditional upon payment of sales tax. Money received from

exporting operations has been absolved from giving of Income-tax for

a long time now. This exemption is only available to 100% Export

oriented units and units set up in Export Processing Zones / special

economic zones.

4. Advance Licence Scheme

In this government policy which permits the supplier duty-free supply

of local and also in addition imported resources required for the

manufacturing of export merchandise. The firms exporting irregularly

can likewise acquire these licenses against particular export orders.

5. Export Processing Zones

They are industrial domains, which shape enclaves from the Domestic

Tariff Areas. These are generally located close to seaports or air

terminals. They intend to provide an internationally competitive

duty-free environment for export production at low cost. There are

different measures, for example, availability of export fund, export

promotion, capital merchandise scheme is in use for foreign trade

promotion.

Organisational Support

source: mbaglue

The government has set up from time to time various institutions in

order to facilitate the process of foreign trade. Following are few of

them.

Department of Commerce

Department of Commerce in the Ministry of Commerce, Government

of India is the most authoritative body responsible for the country’s

international trade and all jurisdiction linked with it. This might be in

the shape of expanding business relations with other nations, state

trading, export promotional measures and the development, and

regulation of certain export-oriented industries and commodities.

The Department of Commerce formulates policies in the sphere of

foreign trade. It also frames the import and export policy of the

country in general.

Export Promotion Councils

Export Promotion Councils are non-profit institutions register under

the Companies Act or the Societies Registration Act. The fundamental

objective of the export promotion councils is to market and produce

the nation’s exports of particular products falling under their

jurisdiction. Currently, there are 21 EPC’s dealing with different

commodities.

Commodity Boards

Commodity Boards are the boards which are the establishment of

Government of India for the development of manufacturing of

traditional merchandise and their exports. These boards are

supplementary to the EPCs. There are seven commodity boards in

India: Coffee Board, Rubber Board, Tobacco Board, Spice Board,

Central Silk Board, Tea Board, and Coir Board.

Export Inspection Council

Export Inspection Council of India is an establishment by the

Government of India under Section 3 of the Export Quality Control

and Inspection Act 1963. The council aims at the sound development

of export trade through quality control and pre-shipment inspection.

The council is a vital body for managing the operations with standard

control and pre-shipment inspection of merchandise for export.

Exempting a few exceptions, all the merchandise destined for exports

must be passed by EIC.

Indian Trade Promotion Organisation

Indian Trade Promotion Organisation is an establishment under the

Companies Act 1956 by the Ministry of Commerce, Government of

India. Its head office is at New Delhi. ITPO was formed by the merger

of the two government agencies, which are, Trade Development

Authority and Trade Fair Authority of India. It’s objective is to

support export organizations engaged in international trade fairs and

exhibitions, etc.

Also developing exports of new items, providing support and updated

commercial business information. ITPO has 5 domestic offices in

Mumbai, Bangalore, Kolkata, Kanpur and Chennai and 4 international

offices in Germany, Japan, UAE and USA.

Indian Institute of Foreign Trade (IIFT)

Indian Institute of Foreign Trade is an establishment by the

Government of India as an autonomous body in 1963. IIFT is

registered under the Societies Registration Act with the prime

objective of professionalising the country’s foreign trade management.

It gives training in international business, conducts researches in areas

of international business, and analysing and disseminating information

relating to international trade and investments scenario.

State Trading Organisation

State Trading Organisation (STC) was established in May 1956. The

main purpose of STC is to promote trade, primarily export trade

among different trading partners of the globe. A huge number of local

firms in India find it very difficult to compete in the global market.

In the meantime, the present trade routes are not suitable for the

promotion of exports and bringing about diversification of trade with

countries other than European countries.

Indian Institute of Packaging (IIP)

The Indian Institute of Packaging is an establishment as a national

institute mutually run by the Ministry of Commerce, Government of

India, and the Indian Packaging industry and allied interests in 1966.

Its base and prime laboratory are located at Mumbai and three regional

laboratories are situated at Kolkata, Delhi and Chennai. It is a

training-cum-research institute pertaining to packaging and testing.

Solved Question for You

Question: What are duty drawbacks?

Answer: Merchandise that is to be export is not subjected to the

payment of different excise, levy charges and customs duties. Any

such charges paid are returned to the exporter on showing verification

of export of these products to the concerned authority. Such refunds

are called duty drawbacks.

International Monetary Fund (IMF) and World Trade Organisation (WTO)

The International Monetary Fund (IMF) and the World Trade

Organization (WTO) are quite popular institutions. These institutions

stand out as truly newsworthy over the globe. Understanding these

institutions and their missions will give us more prominent knowledge

of how these associations help to shape the worldwide economy and

international trade.

International Monetary Fund (IMF)

source: wdgarch

International Monetary Fund (IMF) is the second global institution

alongside the World Bank. IMF which appeared in 1945 has its home

office situated in Washington DC. In 2005, it had 191 nations as its

members. The real thought behind setting up of the IMF was to

develop an orderly international monetary system, i.e., the

encouraging system of global payment and adjustments in exchange

rates among national currencies.

Functions of IMF

● To look after the development of legal growth of global

businesses and to play a part in the advancement and growth of

a large amount of employment and genuine income.

● To empower trade quality keeping in mind to maintain

systematic trade in the midst of member nations.

● Help in establishing a multilateral arrangement of fund

exchange with respect to show transaction between members.

Objectives of IMF

● Give global cooperation through a permanent organization.

● To encourage the extension of the balanced development of

global trade and to encourage and keep up the large level of

employment and genuine income.

● Encourage trade dependability with a goal to keep up

systematic trade techniques among member nations.

● Aid the foundation of a multilateral system of payment in

regard to present transactions between members.

World Trade Organisation (WTO)

WTO was set up on 1st January 1995. The headquarter of WTO is

located in Geneva, Switzerland. It is a permanent institution made by a

global arrangement redressed by the Governments and legs of

members of states. Its purpose is solving and managing trade issues

among nations and providing a forum for multilateral trade

arrangements.

It has 153 members. All choices are taken consistently yet the major

financial powers, for example, the US, EU and Japan have figured out

how to utilize the WTO to outline guidelines of trade and how to

propel their own benefits. The underdeveloped and developing nations

complain of non-transparent methods and being pushed around by big

powerful nations.

Functions of WTO

● It sets aside hindrances of global exchange.

● To go about as a dispute settlement body.

● Guarantees that all of the guidelines endorsed in the Act are

properly followed by the member nations for the settlement of

their disputes.

● Setting out an acknowledged set of regulations for global trade.

● To counsel different institutions to acquire better understanding

and cooperation of worldwide economic policymaking.

Objectives of WTO

The fundamental targets of WTO are like those of GATT, i.e., raising

the standard of life and earnings, guaranteeing full employment,

growing production and trade, and ideal utilization of the earth’s

resources. The significant distinction between the objectives of GATT

and WTO is that the goals of WTO are more particular and

furthermore stretch out the extent of WTO to cover trade in services.

WTO goals, in addition, discussion of the possibility of ‘practical

improvement’ in connection to the best utilization of the world’s

resources in order to guarantee safety and safeguarding of the

environment. Keeping in view the above discourse, we can state all

the more expressly the real objectives of WTO are as follows:

● Guarantees a discount on tariffs and other trade obstructions

forced by various nations;

● To participate in such operations which enhance the standard of

living, generate employment, the increment in income and

viable demand and encourage higher productivity and trade;

● Encourages the ideal utilization of the world’s resources for

sustainable development; and

● Promotes a coordinated, more feasible and durable exchanging

network

Benefits of WTO

Since its commencement in 1995, WTO has made some amazing

progress in constituting the legitimate and institutional establishment

of the present day multilateral business framework. It has been

instrumental in encouraging trade, as well as in enhancing

expectations for living standards and participation among member

nations. A portion of the real benefits of WTO are as follows:

● WTO advances global peace and encourages global business.

● All disputes between members countries are settled with

mutual meetings.

● Guidelines make a global trade and relations extremely smooth

and predictable. Unhindered trade enhances the expectation for

the standard of living of the general population by expanding

their income level.

● The unhindered trade gives abundant scope for getting a variety

of quality products.

● Trade development has been fastened on account of free trade.

● The framework empowers good governments.

● WTO help to encouraging the development of developing

nations by furnishing them with preferential and special

treatment in trade-related issues.

Solved Questions for You

Q: Explain the International Monetary Fund.

Ans: Worldwide Monetary Fund (IMF) is the second global institution

alongside the World Bank. IMF which appeared in 1945 has its home

office situated in Washington DC. In 2005, it had 191 nations as its

members. The real thought behind setting up of the IMF was to

develop an orderly international monetary system, i.e., the

encouraging system of global payment and adjustments in exchange

rates among national currencies.

Q: IMF has ____ members and WTO has ____ members.

a. 191 and 153

b. 153 and 191

c. 182 and 175

d. 119 and 135

Answer: IMF has 191 members and WTO has 153 members.

International Trade Institutions and Trade Agreements

Business activities are conducted on a global level and even between

nations. There is an emergence of global markets. To keep the trade

fair and manage trade-related issues on a global level, various

International Institutions and Trade Agreements were established.

Let’s understand them to get a better idea of the scenario related to

International Business.

International Trade Associations

The nations were influenced financially because of World War 1 and

World War 2. The reconstruction couldn’t happen as there was an

interruption in the financial system furthermore there was a shortage

of resources. At this crossroads, the prominent economist J. M.

Keynes with Bretton Woods establish an association with 44 countries

to meet this and to reestablish commonship on the planet.

This gathering brought forth the International Monetary Fund (IMF)

International bank Of Reconstruction and Development (IBRD) and

the International Trade Organization (ITO). These three associations

were considered as three columns for the improvement of the global

economy.

source: Glassdoor

World Bank

The International Bank of Reconstruction and Development (IBRD) is

usually known as the World Bank. The fundamental point of IBRD is

to remake the war influenced the economies of Europe and help the

improvement of underdeveloped economies of the world. The World

Bank after 1950 focused more on financially unstable nations and

invested heavily into social segments like health and education of such

immature nations.

Currently, the World Bank includes five universal bodies responsible

for offering fund to various countries. These bodies and its partners

are headquartered in Washington DC taking into account diverse

financial requirements and necessities.

As specified before, the World Bank has been allocated the

undertaking of financial development and expanding the extent of the

international business. Amid its underlying years of foundation, it

gave more significance on creating facilitates like transportation,

health, energy and others.

This has profited the underdeveloped nations too, without doubt,

however, because of poor regulatory structure, the absence of

institutional system and absence of accessibility of skilled labour in

these nations has prompted disappointment. World Bank and its

Affiliates Institutions:

● International Bank for Reconstruction and Development

(IBRD) 1945

● International Financial Corporation (IFC) 1956

● Multilateral Investment Guarantee Agency (MIGA) 1988

● International Development Association (IDA) 1960

● International Centre for Settlement of Investment Disputes

(ICSID) 1966

The World Bank is no longer limited to simply offering money related

help for infrastructure development, agriculture, industry, health and

sanitation. It is somewhat significantly engaged with regions like

reducing rural poverty, increasing income of the rural poor, offering

specialized help, and beginning research schemes.

International Development Association (IDA)

International Development Association (IDA) was set up in 1960 as a

partner of the World Bank. IDA was set up essentially to offer fund to

the less developed countries on a soft loan basis. It is because of its

intention of providing soft loans that it is called the Soft Loan

Window of the IBRD. The objectives of IDA are as follows,

● To help the underdeveloped countries by giving loans in simple

terms.

● Help at the end of poverty in the poorest nations

● Give macroeconomics services such as, for example, those

relating to health, nutrition, education, human resource

advancement and control of the population.

● To offer loans at marked down interests in order to energize

economic development, the increment in manufacturing limit

and good expectations for standard of living in the

underdeveloped nations

International Finance Corporation (IFC)

Established in July 1956, IFC was aimed to assist in terms of finance

to the private sector of developing nations. IFC is also an associate of

the World Bank, but it has its own separate legal entity, functions and

funds. All the members of the World Bank are entitled to become

members of IFC.

Multinational Investment Guarantee Agency (MIGA)

Established in April 1988, The Multinational Investment Guarantee

Agency’s aim was to support the task of the World Bank and IFC.

Some objectives of the MIGA are

● Advance the stream of direct foreign investment into less

developed member countries.

● Give protection cover to fund supplier against political risks.

● Guarantee extension of current investment, privatization and

economic reconstruction.

● Provide assurance against noncommercial perils, for example,

dangers engaged in currency transfer, war and domestic

clashes, and infringement of agreement.

Trade Agreements

Let us take a look at some of the important trade agreements that are a

part of the World Bank.

1. Agreement Forming Part of GATT :

The recent General Agreement on Tariffs and Trade (GATT) after as

significant alteration in 1994 is especially part of the WTO assertions.

GATT likewise incorporates certain particular agreement developed to

manage particular non-tariff hindrances. It is one of the important

trade agreements of the WTO.

2. Agreement on Textile and Clothing (ATC) :

Trade agreements were developed under WTO to phase out the quota

restrictions as imposed by the developed nations on the supply of

textiles and clothing form the developing countries. The developed

countries were imposing different kinds of quota hindrances under the

Multi-Fibre Arrangement (MFA) that itself was a major departure

from the GATT’s basic principle of free trade in goods.

3. Agreement On Agriculture (AOA)

It is an agreement to make sure free and fair trade in agriculture.

Although original GATT rules were applicable to trade in agriculture,

these suffered from certain loopholes such as an exemption to member

countries to use some non-tariff measures such as customs tariffs,

import quotas and subsidies to protect interests of the farmers in the

home country. AOA is a significant step towards a systematic and fair

trade in agricultural products.

4. General Agreement on Trade Services (GATS)

Services mean acts or performances that are essentially intangible and

can not be as such touched or smelt as goods. GATS is regarded as a

landmark achievement of the Uruguay Round as it extends the

multilateral rules and disciplines to services. It is because of GATS

that the basic rules governing ‘trade in goods’ have become applicable

to ‘trade in services’.

5. Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)

The WTO’s agreement on Trade-Related Aspects of Intellectual

Property Rights (TRIPS) was negotiated in 1986-1994. It was the

Uruguay Round of GATT negotiations where for the first time the

rules relating to intellectual property rights were discussed and

introduced as part of the multilateral trading system. Intellectual

property means information with commercial values such as ideas,

inventions, creative expression and others.

Solved Question for You

Question: Which of the following does not belong to the World Bank

group?

(a) IBRD

(b) IDA

(c) MIGA

(d) IMF

Answer: (d) IMF. The International Monetary Fund is an independent

body not associated with the World Bank.