Revision Notes for Class 11 Business Studies

Chapter 11 – International Business

International Business: Overview

• International business involves the manufacturing and trading of goods, services,

capital, personnel, technology, and intellectual property (patents, trademarks, know-
how) across national borders. This encompasses all business activities that occur
beyond a country’s geographical boundaries.

• The rise of advanced communication and faster, more efficient transportation has
significantly facilitated international business, enabling countries to engage in global
trade more effectively.

Reasons for International Business

1. Unequal Distribution of Resources: Natural resources are not evenly distributed

across countries, leading to differences in production costs and quality. This drives
countries to trade to access resources they lack.

2. Varied Differences: Differences in labor productivity, socioeconomic conditions, and

political factors create variations in production costs and capabilities among countries,
encouraging international trade.

3. Specialization Advantage: Countries tend to specialize in producing goods where

they have a comparative advantage, such as labor-intensive products in developing
countries. This specialization leads to more efficient production and international
trade.

4. Price Differences: Firms engage in international trade to capitalize on price

differences between countries, importing cheaper goods and exporting products to
markets where they can command higher prices.

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Scope of International Business

1. Merchandise Exports and Imports: This refers to the trade of tangible goods across
borders. Merchandise exports and imports are often called trade in goods, excluding
services.

2. Service Exports and Imports: Also known as invisible trade, this includes the
international exchange of services such as transportation, communication, banking,
and tourism.

3. Licensing and Franchising: Licensing involves granting rights to use a firm's

intellectual property, like patents or trademarks, in a foreign country for a fee.
Franchising is similar but typically relates to services, where a franchisor allows a
franchisee to operate a business using its brand and business model.

4. Foreign Investments:

o Foreign Direct Investment (FDI): Involves investing in physical assets like

plants and machinery in foreign countries to produce and distribute goods and
services.

o Portfolio Investment: Refers to the acquisition of shares or loans in foreign

companies, earning income through dividends or interest.

Benefits of International Business

To Nations:

1. Foreign Exchange: Facilitates the flow of foreign currency into a country,

helping pay for imports and boosting economic stability.

2. Efficient Resource Use: Countries specialize in producing goods where they

have a comparative advantage, leading to more efficient resource utilization.

3. Economic Growth: International trade drives economic growth by opening up

new markets, increasing production, and creating employment opportunities.

4. Price Stability: Helps stabilize prices of domestic products by balancing

supply and demand through imports and exports.

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 5. Improved Living Standards: Access to a wide variety of goods and services
from other countries enhances the standard of living.

To Firms:

6. Profitability: Firms can increase profits by accessing global markets where

prices may be higher.

7. Growth Opportunities: When domestic markets are saturated, international

markets offer new growth avenues.

8. Competition Handling: Competing globally helps firms enhance their

competitiveness and innovation.

9. Self-Improvement: Expanding internationally drives firms to improve their

strategic capabilities and operational efficiency.

Modes of Entry Into International Business

1. Exporting and Importing:

o Direct: The firm handles all export/import activities directly, giving it more
control.

o Indirect: Middlemen handle most tasks, reducing the firm’s involvement.

o Merits: Provides an easy entry into international markets with lower

investment.

o Limitations: High costs from duties, transportation, and potential import

restrictions can make products less competitive.

2. Contract Manufacturing:

o Meaning: Firms contract local manufacturers in foreign countries to produce

goods. Also known as outsourcing.

o Merits: Leverages existing facilities in foreign countries, reducing investment

risk and costs.

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 o Limitations: Quality control issues and loss of manufacturing control can
arise.

3. Licensing and Franchising:

o Meaning: Firms provide rights to use their technology or business model in

foreign markets for royalties.

o Merits: Requires little investment, reducing risk while expanding market

reach.

o Limitations: Risks include potential loss of intellectual property and conflicts

over operational standards.

4. Joint Ventures:

o Meaning: Establishing a business owned jointly by two or more independent

firms.

o Merits: Shares costs, risks, and local market knowledge, facilitating large-
scale projects.

o Limitations: Potential for conflicts between partners, especially over control

and sharing of trade secrets.

5. Wholly Owned Subsidiaries:

o Meaning: Firms establish or acquire complete ownership of foreign

operations.

o Merits: Offers full control over operations and does not require sharing of
technology or trade secrets.

o Limitations: High investment and risk, especially if the foreign operations fail.

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Export-Import Procedures and Documentation

1. Export Procedure:

a. Involves steps like receiving inquiries, securing orders, checking creditworthiness,

obtaining export licenses, and arranging pre-shipment finance.

b. Includes production or procurement of goods, pre-shipment inspection, excise

clearance, and reserving shipping space.

c. Requires proper packing, forwarding, insuring goods, and obtaining customs

clearance, followed by payment and document negotiation.

2. Import Procedure:

a. Starts with a trade inquiry and securing an import license.

b. Involves obtaining foreign exchange, placing orders, arranging finance, and receiving
shipment advice.

c. Concludes with retiring documents, customs clearance, and releasing goods.

Foreign Trade Promotion: Incentives and Organisational Support

1. Promotion Measures:

a. Duty Drawback Scheme: Refunds duties on exported goods.

b. Advance License Scheme: Allows duty-free import of inputs for export production.

c. EPCG Scheme: Permits the import of capital goods with reduced customs duty for
export production.

d. Export Finance: Includes pre-shipment and post-shipment financing options.

e. Export Processing Zones (EPZs): Provide duty-free environments for export

production.

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 2. Organisational Support:

a. Department of Commerce: Manages foreign trade policies.

b. Export Promotion Councils (EPCs): Promote exports of specific products.

c. Commodity Boards: Support the development and export of traditional commodities.

d. Export Inspection Council (EIC): Ensures quality control and pre-shipment

inspection.

e. Indian Trade Promotion Organisation (ITPO): Organizes trade fairs and

exhibitions to promote trade.

f. Indian Institute of Foreign Trade (IIFT): Provides training and research in

international trade.

International Trade Institutions and Agreements

1. World Bank: Provides financial assistance for development projects, particularly in

developing countries.

2. International Monetary Fund (IMF): Facilitates international monetary cooperation

and exchange rate stability.

3. World Trade Organization (WTO): Promotes free and fair trade, resolves disputes,
and creates a global framework for trade agreements.

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