This page contains the NCERT Business Studies class 11 chapter 11 International Business from Part 2 Corporate Organisation, Finance and Trade. You can find the solutions for the chapter 11 of NCERT class 11 Business Studies, for the Short Answer Questions, Long Answer Questions and Projects/Assignments Questions in this page. So is the case if you are looking for NCERT class 11 Business Studies related topic International Business question and answers.
Short Answer Questions
1. Differentiate between international trade and international business.
International business refers to business activities that take place across national frontiers. It encompasses 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. On the other hand, many people often mistake international business for international trade.
However, international trade, which comprises exports and imports of goods, is just a component of international business. In recent times, the scope of international business has expanded significantly, including international trade in services, foreign investments, and overseas production of goods and services. In essence, international business is a much broader term that includes both the trade and production of goods and services across borders.
2. Discuss any three advantages of international business.
Earning of foreign exchange: International business allows a country to earn foreign exchange, which can later be used for meeting imports of capital goods, technology, petroleum products, fertilisers, pharmaceutical products, and other consumer products that might not be available domestically.
More efficient use of resources: International business operates on the principle of producing what a country can produce more efficiently and trading the surplus production with other countries. This leads to a more efficient use of resources and benefits all trading nations.
Improving growth prospects and employment potentials: Producing solely for domestic consumption can limit a country’s growth and employment opportunities. Engaging in international business, by seeing markets for products in foreign countries, can enhance a country’s growth prospects and create more employment opportunities.
3. What is the major reason underlying trade between nations?
The fundamental reason behind international business is that countries cannot produce equally well or cheaply all that they need. This is due to the unequal distribution of natural resources among them and differences in their productivity levels. Availability of various factors of production such as labour, capital, and raw materials differ among nations. Moreover, some countries are in an advantageous position to produce certain goods and services more effectively and efficiently. As a result, each country finds it beneficial to produce those select goods and services it can produce more efficiently and trade the surplus with other countries that can produce other items at lower costs. This principle of producing what a country can produce more efficiently and trading the surplus is the primary reason for trade between nations.
4. Differentiate between contract manufacturing and setting up wholly owned production subsidiary abroad
The following are the differences between contract manufacturing and setting up wholly owned production subsidiary abroad.
Wholly Owned Production Subsidiary Abroad
A firm enters into a contract with local manufacturers in foreign countries to produce certain components or goods as per its specifications.
The parent firm sets up its own production facility in a foreign country, owning 100% equity.
No or little investment in the foreign country. The international firm uses existing production facilities.
The parent company has to make 100% equity investments in the foreign subsidiary.
The international firm provides technology and management guidance but does not have full control over operations.
The parent firm exercises full control over its operations in foreign countries.
Minimal investment risk in the foreign country.
The parent company bears the entire losses resulting from the failure of its foreign operations.
Disclosure of Technology/Secrets
Possible sharing of technology or trade secrets with the local manufacturer.
No need to disclose technology or trade secrets to others since the parent company manages the entire operations.
5. Why is it necessary for an export firm to go in for pre-shipment inspection?
The Government of India has initiated many steps to ensure that only good quality products are exported from the country. One such step is the compulsory inspection of certain products by a competent agency as designated by the government. The government has passed the Export Quality Control and Inspection Act, 1963 for this purpose. If the product to be exported falls under such a category, the exporter needs to obtain an inspection certificate from the designated agency. This pre-shipment inspection report is required to be submitted along with other export documents at the time of exports, ensuring that the exported goods meet the quality standards.
6. What is bill of lading? How does it differ from bill of entry?
Bill of lading is a document prepared and signed by the master of the ship acknowledging the receipt of goods on board. It contains terms and conditions on which the goods are to be taken to the port of destination. On the other hand, the bill of entry is a form supplied by the customs office to the importer. It is to be filled in by the importer at the time of receiving the goods and contains information such as name and address of the importer, name of the ship, number of packages, marks on the package, description of goods, quantity and value of goods, name and address of the exporter, port of destination, and customs duty payable.
Bill of Lading
Bill of Entry
A document acknowledging the receipt of goods on board a ship.
A form supplied by the customs office to the importer at the time of receiving the goods.
Master of the ship
Terms and conditions for transporting goods to the port of destination.
Information about the importer, ship, packages, goods, exporter, port of destination, and customs duty payable.
Acts as a receipt for the goods and an agreement to deliver them at the specified destination.
Used to clear goods through customs and indicates the customs duty payable.
7. What is a letter of credit? Why does an exporter need this document?
A letter of credit is a guarantee issued by the importer’s bank that it will honour up to a certain amount the payment of export bills to the bank of the exporter.
This document is crucial for the exporter as it ensures that there is no risk of non-payment from the importer. The letter of credit acts as the most appropriate and secure method of payment adopted to settle international transactions, providing the exporter with confidence that they will receive payment for the goods or services they provide.
8. Discuss the process involved in securing payment for exports.
Teh following is the process involved in securing payment for exports.
Shipping the Goods: The exporter ships the goods as per the agreement with the importer.
Preparing Necessary Documents: After the shipment, the exporter prepares all the necessary documents. This typically includes documents like the bill of exchange, which is a commitment to pay, and other related shipping and transaction documents.
Submission to the Bank: The exporter submits these documents to their bank. This process is known as ‘negotiation of the documents’.
Instructions for Delivery: Along with the documents, the exporter provides instructions to their bank that these documents should only be handed over to the importer once the bill of exchange is accepted.
Bank’s Role: The bank then ensures that the payment is made based on the terms and conditions agreed upon between the exporter and importer.
Securing Payment: Once the importer accepts the bill of exchange and fulfills any other conditions set, the bank facilitates the transfer of payment to the exporter, ensuring a secure transaction.
Long Answer Questions
1. “International business is more than international trade”. Comment.
Indeed, international business encompasses a broader spectrum than just international trade. International business refers to business activities that occur across national borders. It involves not only the international movement of goods and services but also includes the movement of capital, personnel, technology, and intellectual property such as patents, trademarks, know-how, and copyrights. While many people often equate international business with international trade, the latter, which comprises exports and imports of goods, is just one component of international business. In recent times, the scope of international business has expanded significantly. It now includes international trade in services, foreign investments, and overseas production of goods and services. Companies are increasingly making investments in foreign countries and producing goods and services abroad to be closer to foreign customers and serve them more effectively at lower costs. In essence, international business is a comprehensive term that encompasses both the trade and production of goods and services across borders.
2. What benefits do firms derive by entering into international business?
Here are the benefits that firms derive by entering into international business:
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 higher.
Increased Capacity Utilization: Many firms set up production capacities that exceed the demand in the domestic market. By exploring overseas expansion and procuring orders from foreign customers, they can utilize their surplus production capacities. This not only improves profitability but also leads to economies of scale, which can lower production costs and enhance the profit margin per unit.
Prospects for Growth: Firms often find their growth prospects limited when the domestic market becomes saturated. By venturing into international markets, they can significantly enhance their growth opportunities.
Earning of Foreign Exchange: Engaging in international business allows a country to earn foreign exchange. This can be used later for importing essential items like capital goods, technology, and other vital products.
Increased Standard of Living: International business enables countries to consume goods and services produced in other nations. This allows people in these countries to enjoy a higher standard of living by consuming a variety of products.
Optimal Use of Resources: International business operates on the principle of producing what a country can produce more efficiently and trading the surplus. This leads to a more efficient use of resources and benefits all trading nations.
Improving Growth Prospects and Employment Potentials: Producing solely for domestic consumption can limit a country’s growth and employment opportunities. Engaging in international business can enhance a country’s growth prospects and create more employment opportunities.
3. In what ways is exporting a better way of entering international markets than setting up wholly owned subsidiaries abroad.
Exporting is a better way of entering international markets than setting up wholly owned subsidiaries abroad due to the following reasons.
Advantages of Exporting:
Easier Entry: Exporting is the easiest way of gaining entry into international markets. It is less complex than setting up and managing joint ventures or wholly owned subsidiaries abroad.
Less Involvement: Exporting requires less time and money investment than setting up manufacturing plants or facilities in host countries.
Lower Risk: Since exporting doesn’t require significant investment in foreign countries, the exposure to foreign investment risks is minimal or much lower.
Limitations of Wholly Owned Subsidiaries:
Full Control: While a wholly owned subsidiary allows the parent firm to exercise full control over its operations in foreign countries, it also means the parent company bears all the risks.
Investment Requirement: The parent company has to make 100% equity investments in the foreign subsidiaries. This mode is not suitable for small and medium-sized firms that might not have sufficient funds for such investments.
Bearing Losses: Since the parent company owns 100% equity in the foreign company, it alone has to bear the entire losses resulting from the failure of its foreign operations.
Political Risks: Some countries might be resistant to the idea of wholly owned subsidiaries by foreign entities. This form of international business operation can be subject to higher political risks.
In conclusion, while wholly owned subsidiaries offer more control, they come with higher risks and investment requirements. Exporting, on the other hand, provides an easier and less risky entry into international markets.
4. Rekha Garments has received an order to export 2000 men’s trousers to Swift Imports Ltd., located in Australia. Discuss the procedure that Rekha Garments would need to go through for executing the export order.
The following is the procedure that Rekha Garments would need to go through for executing the export order:
1. Receipt of Enquiry and Sending Quotations: The process begins when the prospective buyer sends an enquiry requesting information regarding the price, quality, and terms and conditions for the export of goods. In response, the exporter sends a quotation, often referred to as a proforma invoice, which provides details about the product, its price, and other relevant terms.
2. Obtaining Export Licence: Before proceeding with the export, the exporting firm must obtain an export licence. To get this licence, the firm must:
Open a bank account in a bank authorized by the Reserve Bank of India (RBI).
Obtain an Import Export Code (IEC) number from the Directorate General Foreign Trade (DGFT) or Regional Import Export Licensing Authority.
Register with the appropriate export promotion council.
Register with the Export Credit and Guarantee Corporation (ECGC) to safeguard against risks of non-payments.
3. Obtaining Foreign Exchange: Since international transactions involve different currencies, the exporter needs to obtain foreign exchange. This involves exchanging the domestic currency for the currency of the importing country, a process regulated by the RBI.
4. Preparation of Goods for Shipment: Once the order is confirmed, the goods (in this case, trousers) are manufactured or procured and prepared for shipment. This includes quality checks, packaging, and labeling.
5. Documentation: After shipping the goods, the exporter prepares a set of necessary documents, which typically includes:
Bill of lading
Certificate of origin, and other relevant documents.
6. Submission to the Bank: The exporter submits these documents to their bank with instructions to deliver them to the importer upon acceptance of the bill of exchange. This process is known as ‘negotiation of the documents’.
7. Receiving Payment: Once the importer accepts the bill of exchange and other conditions, the bank facilitates the transfer of payment to the exporter.
8. Obtaining Bank Certificate of Payment: After receiving the payment for exports, the exporter obtains a bank certificate of payment. This certificate confirms that the necessary documents related to the export consignment have been negotiated and the payment has been received in accordance with the exchange control regulations.
5. Your firm is planning to import textile machinery from Canada. Describe the procedure involved in importing.
The following is the procedure involved in importing textile machinery from Canada:
Trade Enquiry: The importing firm, in this case, your firm, starts by gathering information about countries and firms that export the desired product, i.e., textile machinery. A trade enquiry is a written request sent to potential exporters to gather information about their export prices and terms.
Receipt of Proforma Invoice: After receiving the trade enquiry, the exporter sends a proforma invoice. This document provides details about the product’s quality, grade, design, size, weight, price, and the terms and conditions of the export.
Placing the Import Order: Once the proforma invoice is accepted, the importer places an order for the goods to be imported. This order, known as the import order or indent, specifies the price, quantity, grade, and other terms and conditions.
Obtaining Letter of Credit: If the payment terms agreed upon require it, the importer may need to obtain a letter of credit from their bank. This document serves as a guarantee that the importer’s bank will honor the payment up to a specified amount.
Receipt of Shipment Advice: Once the goods are shipped, the exporter sends a shipment advice to the importer. This document contains details about the shipment, such as the invoice number, bill of lading, and the date and port of shipment.
Arrival of Goods: Upon the arrival of goods at the port, the importer or their agent completes the customs formalities to clear the goods. This involves submitting a ‘bill of entry’ form for the assessment of customs import duty.
Payment of Import Duty: After the assessment, the importer pays the required import duty. Once the duty is paid, the customs department issues a clearance for the goods.
Taking Delivery of Goods: After obtaining the customs clearance, the importer can take delivery of the goods from the port. They may need to pay dock dues and obtain a ‘port trust dues receipt’. Afterward, the goods are handed over to the importer.
6. What is IMF? Discuss its various objectives and functions.
IMF (International Monetary Fund):The International Monetary Fund (IMF) is an international organization established in 1944 to promote international monetary cooperation and exchange rate stability, facilitate balanced growth of international trade, and provide resources to help member countries in need of financial assistance.
Objectives of IMF:
Promote International Monetary Cooperation: The IMF aims to foster global monetary cooperation to ensure financial stability.
Facilitate Balanced Growth of International Trade: By providing policy advice and financial assistance, the IMF helps countries build and maintain strong economies.
Ensure Exchange Rate Stability: The IMF monitors global economic trends and provides advice to prevent crises.
Provide Financial Assistance: To help countries tackle balance of payments problems, the IMF provides short-term financial assistance.
Contribute to Economic Growth and Poverty Reduction: Through its policy advice, financial assistance, and by working hand-in-hand with other international organizations, the IMF aims to boost global economic stability and reduce poverty.
Functions of IMF:
Surveillance: The IMF monitors the economic and financial developments of its member countries and offers policy advice.
Financial Assistance: The IMF lends money to countries facing balance of payments problems to help stabilize their economies.
Capacity Development: The IMF provides training to countries to help them design and implement effective policies.
Technical Assistance: The IMF offers technical expertise and training to help countries improve the management of their economies.
In conclusion, the IMF plays a crucial role in the global economic system by ensuring the stability of the international monetary system, providing financial assistance to countries in need, and offering practical help and advice to member countries.
7. Write a detailed note on features, structure, objectives and functioning of WTO.
WTO (World Trade Organization): The World Trade Organization (WTO) is an intergovernmental organization that regulates international trade. Established in 1995, it replaced the General Agreement on Tariffs and Trade (GATT) and serves as a forum for negotiating trade agreements and settling trade disputes.
Features of WTO:
Global Status: It’s a global international organization dealing with the rules of trade between nations.
Multilateral Structure: The WTO agreements are negotiated and signed by a majority of the world’s trading nations.
Dispute Settlement: It provides a mechanism for settling disputes between member countries.
Structure of WTO:
Ministerial Conference: The topmost decision-making body, which meets at least once every two years.
General Council: It oversees the daily operations and meets several times a year.
Dispute Settlement Body: Handles disputes between member countries.
Trade Policy Review Body: Conducts regular reviews of the trade policies of member countries.
Objectives of WTO:
Promote International Trade: By removing trade barriers and ensuring smooth flow of goods and services.
Settle Disputes: Provide a platform for member countries to resolve trade disputes.
Establish Rules: Formulate rules and regulations for international trade.
Assist Developing Countries: Provide technical assistance and training for developing countries.
Functioning of WTO:
Administering Trade Agreements: Ensures that trade agreements are being followed and implemented by member countries.
Acting as a Forum for Trade Negotiations: Provides a platform for member countries to negotiate and finalize trade agreements.
Monitoring National Trade Policies: Reviews the trade policies of member countries to ensure they align with WTO agreements.
Technical Assistance and Training: Provides technical assistance and training to developing countries to enhance their trade capacities.
Cooperation with Other International Organizations: Collaborates with other international organizations like the IMF and World Bank to ensure coherence in global economic policymaking.
In conclusion, the WTO plays a pivotal role in facilitating international trade, ensuring that trade flows smoothly, predictably, and freely, and providing countries with a constructive and fair platform to resolve trade disputes.
I Project/Assignment — India In the World Trade
1. Carefully read the given data. This pertains to India’s performance in world trade. The recent initiatives of the Government of India, such as ‘Make in India’, ‘Digital India’, and ‘Skill India’, etc., have impacted the Indian economy in terms of exports and imports and trade balance.
Table 1 shows India’s position in the world’s largest economies. Prepare a trend report on the position of India in the global scenario of international trade from the year 2005-2017.
% share in global trade
Source: International Monetary Fund World Economic Outlook, 2018
Based on the provided data from the document, the detailing of India’s position in the global scenario of international trade is given below:
United States: The United States holds the top position with a significant 24.40% share in global trade.
China: China follows closely with a 16.10% share, making it the second-largest economy in terms of global trade.
India: India holds the 5th position with a 3.36% share in global trade. This indicates that while India has a notable presence in the global market, there’s potential for growth, especially given the recent initiatives like ‘Make in India’, ‘Digital India’, and ‘Skill India’.
From the year 2005 to 2017, India has seen various changes in its economic landscape. The recent initiatives by the Government of India have aimed to boost India’s manufacturing sector, promote digitalization, and enhance skills among the youth. These initiatives are expected to have a positive impact on India’s exports and imports, thereby influencing its position in global trade. While the exact year-wise data from 2005 to 2017 isn’t provided in the snippet, it’s evident that India has been making strides in establishing itself as a significant player in the global market.
2. Discuss how business and trade activities help in promoting peace and harmony among nations.
Business and Trade Activities Promoting Peace and Harmony:
Economic Interdependence: International trade creates economic interdependence among nations. When countries rely on each other for essential goods and services, they are less likely to engage in conflicts.
Cultural Exchange: Business interactions often lead to cultural exchanges, fostering mutual respect and understanding. This cultural appreciation can reduce prejudices and biases, promoting peace.
Diplomatic Relations: Trade often paves the way for diplomatic ties. Countries engaged in trade are more likely to have open channels of communication, which can be crucial in resolving disputes peacefully.
Global Community: International business fosters a sense of a global community. When nations trade, they become part of a larger network, emphasizing collaboration over confrontation.
Economic Growth and Stability: Trade stimulates economic growth, leading to job creation and improved living standards. A stable economy is less likely to engage in conflicts, ensuring peace in the region.
Reduction of Inequalities: International trade can help reduce inequalities among nations by providing developing countries with opportunities to grow and prosper. Prosperous nations are less likely to engage in wars.
Shared Goals and Objectives: International trade organizations, like the WTO, provide platforms where nations come together to discuss and negotiate trade policies. Such platforms foster cooperation and shared objectives, promoting peace.
In conclusion, international business and trade activities play a pivotal role in bringing nations closer, fostering mutual respect, and creating an environment conducive to peace and harmony.
3. Recall Section I of Chapter 1. Discuss in the class the position of exports and imports in ancient times and compare the status of international trade in today’s scenario.
Position of Exports and Imports in Ancient Times:
Geographical Advantage: India’s strategic location, bordered by the Himalayas and surrounded by seas, facilitated trade routes both over land and sea.
Prominent Trade Routes: The Silk Route and Spice Route connected India to various parts of Asia and the world. Maritime routes, known as the ‘spice route’, linked the east and west.
Major Trade Centers: Cities like Harappa, Mohenjodaro, Pataliputra, Peshawar, and Taxila were significant hubs for trade and commerce.
Exports: India was known for exporting spices, wheat, sugar, indigo, opium, cotton, pearls, and various precious stones.
Imports: Major imports included horses, Chinese silk, wine, gold, silver, and precious metals.
Indigenous Banking System: Instruments like Hundi and Chitti were used for transactions. Indigenous banks played a crucial role in financing domestic and foreign trade.
Intermediaries: They played a significant role in promoting trade by providing financial security to manufacturers and assuming responsibility for risks, especially in foreign trade.
Position of Exports and Imports in Today’s Scenario:
Globalization: With the advent of globalization, India has established trade relations with almost every country in the world.
Diverse Trade Basket: Today, India exports software services, petroleum products, textiles, chemicals, leather goods, and more. Imports include crude oil, machinery, gems, fertilizers, and chemicals.
Trade Agreements: India is a part of various bilateral and multilateral trade agreements, facilitating smoother trade relations.
Digital Revolution: The ‘Digital India’ initiative has boosted e-commerce, enabling businesses to reach global markets more easily.
Government Initiatives: Programs like ‘Make in India’ aim to make India a global manufacturing hub, promoting exports.
Modern Banking and Finance: Today’s banking system is more advanced, with electronic transfers, Letters of Credit, and various financial instruments facilitating international trade.
Challenges: While ancient India enjoyed a favorable trade balance, modern India faces challenges like trade deficits, fluctuating global economies, and geopolitical tensions.
The following is the comparison of the position of exports and imports in ancient times versus today’s scenario:
India’s strategic location facilitated trade routes both over land and sea.
While geography still plays a role, technological advancements allow for easier global trade regardless of location.
Prominent Trade Routes
Silk Route and Spice Route connected India globally.
Modern shipping routes, air cargo, and digital platforms facilitate global trade.
Major Trade Centers
Cities like Harappa, Mohenjodaro, Pataliputra.
Major cities like Mumbai, Bangalore, and Delhi are global trade hubs due to industries and IT sectors.
Spices, wheat, sugar, indigo, opium, cotton, pearls.
Software services, petroleum products, textiles, chemicals, pharmaceuticals.
Horses, Chinese silk, wine, gold, silver.
Crude oil, machinery, electronics, gems, fertilizers.
Indigenous banking with instruments like Hundi for transactions.
Advanced banking with electronic transfers, credit systems, and global financial instruments.
Played a significant role in promoting trade, providing financial security.
Modern intermediaries include e-commerce platforms, global supply chain firms, and international trade consultants.
Kings and rulers regulated trade, levied taxes.
Government initiatives like ‘Make in India’, ‘Digital India’ promote trade. Bilateral and multilateral trade agreements.
Geographical barriers, piracy, limited technology.
Trade deficits, geopolitical tensions, global economic fluctuations, stringent international regulations.
Trade was facilitated by physical routes and manual systems.
Digital platforms, online marketplaces, and advanced logistics companies facilitate seamless trade.
Currency & Payment Systems
Use of metals as money, diverse types of coins, and weighing practices.
Digital payments, online banking, cryptocurrencies, and unified payment systems.
Limited to treaties and understandings with neighboring kingdoms and empires.
India is part of various global trade agreements, WTO, and has bilateral agreements with numerous countries.
Influence on World Economy
India controlled a significant portion of the world’s wealth, known for its prosperity.
India is one of the fastest-growing economies, a major player in IT, services, and manufacturing on the global stage.
In conclusion, while ancient India laid the foundation for trade and commerce, leveraging its geographical and cultural advantages, modern India is building on that legacy by integrating technology and innovation. The spirit of trade remains consistent, but the methods, scale, and dynamics have evolved significantly.
4. Discuss the benefits of “Make in India” scheme of Government of India in the promotion of internal and external trade of India.
Benefits of “Make in India” Scheme in the Promotion of Internal and External Trade of India:
Boost to Manufacturing Sector: The primary aim of the “Make in India” initiative was to transform India into a global manufacturing hub. This would lead to an increase in the production of goods domestically, thereby promoting internal trade.
Attraction of Foreign Direct Investment (FDI): The scheme aimed to attract foreign companies to set up their manufacturing units in India, leading to an influx of FDI. This not only boosts external trade but also brings in advanced technologies and practices.
Employment Generation: With the increase in manufacturing activities, there’s a direct impact on employment opportunities. More jobs lead to increased purchasing power, further promoting internal trade.
Infrastructure Development: The initiative also focused on improving infrastructure, which is crucial for the smooth movement of goods both within the country (internal trade) and for exports (external trade).
Export Promotion: With the production of high-quality goods, India aimed to increase its exports, thus enhancing its position in global trade.
Diversification of Industries: The scheme targeted various sectors, from aviation to textiles, leading to the diversification of industries and products available for trade.
Reduction in Import Dependency: By promoting domestic manufacturing, India aimed to reduce its dependency on imports, thus balancing its trade deficit.
Enhanced Global Presence: As more companies manufacture in India, the country’s brand presence in global markets increases, leading to better trade relations and partnerships.
Skill Development: Alongside manufacturing, there was an emphasis on skill development, ensuring that the workforce is equipped to meet global standards, further promoting the quality of goods for trade.
Streamlined Processes: The initiative also aimed to simplify the business processes, making it easier for businesses to operate, thereby promoting both internal and external trade.
It’s important to note that while the “Make in India” initiative had these objectives and potential benefits, the actual outcomes might vary based on various factors, including global economic conditions, domestic policies, and industry responses.