MEANING OF INTERNATIONAL BUSINESS:

The exchange of goods, services, knowledge and skills among

individuals and businesses in two or more countries is known as
International Business. It is also known as a Global Business or an
International Marketing.

All commercial transactions that take place between different

countries such as sales, investments, logistics and transportation etc.

DEFINITION by Daniels

It is defined as, “An International Business conducts business

transactions all over the world or All the business transactions that
involves two or more countries. Hence International business involves
exports and imports.

WHICH INCLUDES TWO TRANSACTIONS SUCH AS,

1. Domestic Transactions &

2. International Transactions.

Domestic Transaction: It is the selling of items that is produced in

same country.

International Transaction: It is the selling of items that is produced

in other countries

NATURE / CHARACTERISTICS / FEATURES OF IB

• International Restrictions

• Integration Of Economies

• Benefits To Participating Countries

 • Large Scale Operations

• Market Segmentation

• Sensitive Nature

• Earns Foreign Exchange

• Large Number Of Middlemen

• High Risk

• Competition

• Heterogeneous Markets

• Dominated By Developed Countries

• Multiplicity Of Documents

• International Restrictions

In international business, there is a fear of the restrictions which are

imposed by the government of the different countries. Many country’s
governments don’t allow international businesses in their country.
They have trade blocks, tariff barriers, foreign exchange restrictions,
etc. These things are harmful to international business.

• Benefits To Participating Countries

It gives benefits to the countries which are participating in the

international business. The richer or developed countries grow their
business to the global level and they get maximum benefits. The
developing countries get the latest technology, foreign capital,
employment opportunities, rapid industrial development, etc. This
helps developing countries in developing their economy. Therefore,
developing countries open up their economy for foreign investments.

• Large Scale Operations

International business contains a large number of operations at a time

because it is conducted on a large scale globally. Production of the
goods at a large scale, they have to fulfill the demand at a global level.
Marketing of the product is also conducted at a large scale to make
them aware of the product. First, they fulfill the domestic demand and
then they export the surplus in the foreign markets.

• Integration Of Economies

International Business combines the economies of many countries.

The companies use the finance, labor, resources, and infrastructure of
the other countries in which they are working. They produce the parts
in different countries, assembles the product in other countries and
sell their product in other countries.

• Dominated By Developed Countries

International business is dominated by developed countries and their

MNC’s. Countries like U.S.A, Europe, and Japan all are the countries
that are producing high-quality products, they have people working
for them on high salaries. They have large financial and other
resources like the best technology and Research and Development
centers. Therefore, they produce good quality products and services at
low prices. They help them to capture the world market.

• Market Segmentation

International business is based on market segmentation on the basis of

the geographic segmentation of the consumers. The market is divided
into different groups according to the demand of the consumers in
different countries. It produces goods according to the demand of the
consumers of the different market segmentations.

• Earns Foreign Exchange

International businesses are served as an important source for earning

foreign exchange. Foreign Currencies of different countries are
involved in transactions in these businesses. This helps in getting
enough foreign exchange reserves for the country.

• Large Number Of Middlemen

International businesses are very large in size. Their scale of

operations is not limited to one country but performs in different
countries globally. There is a large number of middlemen involved in
international businesses. These all person renders their services
properly for the efficiency of the business. Their services help the
business in easy expansion & growth.

• High Risk
The degree of risk associated with international business is very high.
These businesses require a large amount of resources both in terms of
money & manpower for carrying out its operations. These need to
carry out trade in different countries at large distances. It requires a
huge cost & time to carry these goods & services. Also, sometimes
different economies face unfavorable conditions which affect the
business conditions.

• Competition

International business faces a large number of risks internationally.

These businesses invest large amounts in advertising their products.
There are a large number of competitors in the international market.
There is tough competition in terms of price, quality, design, packing,
etc. Business needs to focus on these things to face the tough
competition going on.

• Heterogeneous Markets

International markets are homogeneous in nature and differ from each

other. These markets lack homogeneity due to difference in culture,
tradition, climate, habits, preferences, weigh and measures etc. These
markets are different from those which are in a single country.
Behaviour of buyers in international business differs from country to
country due to difference in the socio-economic environment of
different nations.

• Multiplicity Of Documents
International business requires large no. of documents from importing
and exporting goods among different countries. These documents are
like commercial invoice, shipping bill, Certificate of origin,
inspection and insurance certificate, mate receipt etc. There is a series
of documentation followed right from the point when an order for
goods is received by exporter till the time when they are finally
delivered at their destination.

NEED & IMPORTANCE OF INTERNATIONAL BUSINESS:

1. Increase Revenue

2. Global Image

3. Utilize the External Resource

4. Innovation & Creation

5. Market Expansion

6. Employment Opportunities

7. Collaborate with Skilled Individuals

1. Increase Revenue: Your company will be able to explore new

markets and draw in new clients due to your international expansion,
which will increase your sales and revenue but also the visibility of
your brand internationally. Your business can grow sales by entering
a new market and extending the shelf life of your goods and services.
2. Global Image: To become a global image and brand, most
companies reason to enter into international commerce. It helps them
to become a global brand but depends upon them how they have
served the foreign nations. Microsoft, Coca-Cola, Sony, Apple, etc.
are examples of the global image.

3. Utilize the External Resource: The ability to utilize the other

country’s resources, such as technology, skill, and understanding in a
certain industry, is another significant benefit of expanding your firm
internationally. It enables you to employ better technologies and
discover better work practices, ultimately enhancing your company’s
operations and revenue.

4. Innovation & Creation: The international business has given

another dimension to the countries of the world in the form of new
inventions and creations. Everyday new products are launched to suit
the demand of international customers. The liking and disliking of
local customers are always given priority. This became reality only
through international business.

5. Market Expansion: Just look at multinational companies such as

Coca-Cola, Apple, Microsoft, etc. how they had expanded their
market all over the world? The answer is through international
business. International business opens the border for the companies to
go internationally. Companies get a chance to explore and expand
their stake in the new market and place. And, when the company
meets a new market’s expectations the market shares of the company
increase.

6. Employment Opportunities: Last but not least, the importance of

international business is that it also provides various employment
opportunities. Just, when FDI enters a nation, the nation’s public
enjoys job opportunities. When a business wants to expand at a global
level, it requires different talents, and job opportunity generates. In
addition, it avails the quality talents. When a company does not find
domestic quality talent it can also easily outsource quality talents
from a foreign country and vice versa.

7. Collaborate with Skilled Individuals

Additionally, you will collaborate with skilled individuals who are

experts in your field. You can benefit from their knowledge and
experience by working together to comprehend how a new country
you have recently expanded to operates.
 • Domestic Marketing

• International Marketing

• Export Marketing

• Multinational Marketing

• Global Marketing

Domestic marketing: This involves the company manipulating a

series of controllable variables, such as price, advertising,
distribution, and the product, in a largely uncontrollable external
environment that is made up of different economic structures,
competitors, cultural values, and legal infrastructure within specific
political or geographic country boundaries.
International marketing: This involves the company operating
across several markets in which not only do the uncontrollable
variables differ significantly between one market and another, but the
controllable factor in the form of cost and price structures,
opportunities for advertising, and distributive infrastructure are also
likely to differ significantly.

Export marketing: In this case the firm markets its goods and/or
services across national/political boundaries. In general, exporting is a
simple and low risk-approach to entering foreign markets. Firms may
choose to export products for several reasons. First, products in the
maturity stage of their domestic life cycle may find new growth
opportunities overseas, as Perrier chose to do in the US. Second, some
firms find it less risky and more profitable to expand by exporting
current products instead of developing new products. Third, firms
who face seasonal domestic demand may choose to sell their products
to foreign markets when those products are “in season” there. Finally,
some firms may elect to export products because there is less
competition overseas.

Multinational marketing: Here the marketing activities of an

organization include activities, interests, or operations in more than
one country, and where there is some kind of influence or control of
marketing activities from outside the country in which the goods or
services will actually be sold. Each of these markets is typically
perceived to be independent and a profit center in its own right.
Global marketing: The entire organization focuses on the selection
and exploration of global marketing opportunities and marshals
resources around the globe with the objective of achieving a global
competitive advantage. The primary objective of the company is to
achieve synergy in the overall operation, so that by taking advantage
of different exchange rates, tax rates, labor rates, skill levels, and
market opportunities, the organization as a whole will be greater than
the sum of its parts.

TYPES OF BARRIERS TO INTERNATIONAL TRADE

There are three main types of barriers to international trade that you
should know:

• Tariffs,

• Quotas, and

• Other non-tariff barriers.

Non-tariff obstacles includes:

• Regulations,

• Licenses, &

• Sanctions.

• Tariffs: taxes that a government adds on imported goods. The

higher the tariff, the less international trade between countries.
 • Quotas: quantity limits are fixed on how many certain products
can be imported from another country.

• Non-tariff barriers: other limitations to international trade that

aren't tariffs, such as regulations that make it hard for foreign
imports to enter the domestic market.

• Barriers to Trade: Tariffs

Tariffs are taxes imposed on imported goods. These are a common

tool governments use to protect their local suppliers from foreign
competition. Tariffs work by increasing the price of other countries'
goods making the imported goods less competitive. In other words,
local goods become more attractive to domestic consumers. Tariffs
impact the exporting country by cutting down the demand for their
products.

• Tariffs also provide a source of revenue for the government. The

governments in some countries implement tariffs to increase
their revenues because it may be difficult for them to collect
taxes otherwise.

• Barriers to Trade: Quotas

Import quotas are a tool the government uses to target the quantity
imported of a particular good. In other words, when import quotas are
applied, there is only a certain amount of quantity of a good allowed
to enter the domestic market.

• Other Non-Tariff Barriers to Trade

Other than import tariffs and quotas, governments also use other trade
barriers to limit trade between countries.

• Barriers to Trade: Licenses

Granting licenses to specific individuals and/or businesses is one non-

tariff barrier to trade. This allows only certain people or companies to
import goods from other countries. It contributes to significantly
reducing the number of goods coming from other countries.

• Barriers to Trade: Sanctions

Sanctions are government acts that ban individuals and companies

from doing business with a country or certain entities in a country.
Sanctions can make it hard for individuals or countries to conduct
trade. They are politically motivated, and the most recent examples
include the sanctioning of Russian banks by the US government in
response to the Ukrainian crisis.

• Embargoes are one form of sanctions. These are severe

sanctions that completely ban the trade in certain goods or all
goods from another country.

EFFECTS OF TRADE BARRIERS

• High rates & Reduced competition

• Harm to consumers
• Harm to other domestic producers

• Potential trade wars

• High rates & Reduced competition. Barriers to trade aim to

protect local producers from international suppliers. This, in
turn, reduces the competition in the market, which may cause
local producers to be less efficient and less innovative. Tariffs,
quotas, and other trade barriers are great at protecting the local
producers of the protected goods. These domestic producers can
supply a higher quantity of goods at a higher price. But there are
negative effects associated with trade barriers.

• Harm to consumers. Consumers may be harmed as the price of

goods that tariffs are applied on increases. This will cause a
decrease in consumers’ purchasing power.

• Harm to other domestic producers. Barriers to trade can hurt

domestic producers who rely on imported inputs for their
productions.

• Potential trade wars. The country to which tariffs are imposed

may respond by doing the same thing. This is known as trade
wars and harms consumers and producers in both countries as
there is less competition and prices of goods increase.

TRADE BARRIERS:

• Trade barriers are restrictions imposed on the movement of

goods and services between countries.
There are 2 barriers:

1.Tariff barriers:

A] Specific duty

B] Ad Valorem Tariffs

C] Combined duty

D] Sliding scale duty

2.Non Tariff barriers:

A] Licenses

B] quotas

• Tariff Barriers: the term tariff means tax or duty. It’s a tax
barriers or the monetary barriers imposed on internationally
traded goods when they cross the national borders.

Specific duty: it is based on the physical characteristics of the

good. A fixed amount of money can be levied on each unit of
imported goods regardless of its price.

Ad valorem tariffs: according to its value or flexible tax and

depends upon the value or price of the commodity.

Combined duty: combination of the above two duty.

Sliding scale duty: again varies along with price of the commodity
of imported goods. These duties confined to agriculture products,
as their prices frequently vary because of natural and other factors.

THEORIES OF INTERNATIONAL BUSINESS:

 Theory of Mercantilism: 18TH Century- only goods.

 Theory of Absolute Cost Advantage: Adam Smith (1776) –

Argument from Countries gain from trading.

 Multilateral Trading: more than two commodities

 Theory of Comparative Cost Advantage: Ricardo (1817)-

least and good indicator

 Heckscher-Ohlin Trade Model: Heckscher (1919) and Bertin

Ohlin (1933) – labour – capital

 The Leontief Paradox - 1950's- Rich – poor

 Product Life-Cycle Approach: Raymond Vernon - Published

in 1966 – stages of product development

 Transaction Cost Approach : 1970s by McManus et. al.

 Theory of Mercantilism

During the sixteenth to the three-fourths of the eighteenth

centuries, the world trade was being conducted according to the
doctrine of mercantilism. It comprised many modern features
 like belief in nationalism and the welfare of the nation alone,
planning and regulation of economic activities for achieving the
national goals, curbing imports and promoting exports.

 Theory of Absolute Cost Advantage

The theory of absolute cost advantage was propounded by Adam

Smith (1776), arguing that the countries gain from trading, if they
specialize according to their production advantages.

 Multilateral Trading

Trade patterns in more than two countries involving two or more than
two commodities:

 Theory of Comparative Cost Advantage

Ricardo (1817), though adhering to the absolute cost advantage

doctrine of Adam Smith, pointed out that cost advantage to both the
trade partners was not a necessary condition for trade to occur. It
would still be beneficial to both the trading countries even if one
country can produce all the goods with less labour cost than the other
country. According to Ricardo, so long as the other country is not
equally less productive in all lines of production, measurable in terms
of opportunity cost of each commodity in the two countries, it will
still be mutually gainful for them if they enter into trade.

 Heckseher-Ohlin Trade Model

Adam Smith and Ricardo's trade models considered labour as the only
factor input and the differences in the labour productivity determining
the trade. Eli Heckscher (1919) and Bertin Ohlin (1933) developed
the international trade theory (H.O. Trade Model) with two factor
inputs, labour and capital, pointing out that different countries have
been bestowed with different factor endowments, and the differences
in factor endowments cause trade between the trading partners.

 The Leontief Paradox

There was a setback to the proponents of the H.O. trade theory in the
early 1950's, when Leontief tested his hypothesis that capital rich
countries export capital intensive goods and import labour intensive
goods and vice versa with the help of the input output data of the
United State's economy.

 Product Life-Cycle Approach

The product life-cycle approach is associated with the work of

Raymond Vernon. Published in 1966, it deals with the evolution of
the U.S. multinationals and foreign direct investment patterns. In
Vernon's model, three stages are followed in the introduction and
establishment of new products in the domestic and foreign markets,
with emphasis on innovation and oligopoly power as being the first
basis for export and later for the FDI.

 Transaction Cost Approach

The transaction cost or internalization approach was brought into
prominence in the 1970s by McManus et. al. by emphasizing the
effects of the MNE on the internalization of the external markets. The
imperfections in the foreign markets are assumed of natural types
rather than of structural type, i.e., imperfections of monopolistic
nature. The analysis of the proponents of the Transaction Cost
Approach is based on the criticism of neoclassical economics which
arises from the non-realization of the assumptions of perfect
competition.

ADVANTAGES OF INTERNATIONAL BUSINESS

1. Obtaining Valuable Forex

2. Division of labor

3. Optimal use of available resources

4. Improving the standard of living of people

5. Consumer Benefits

6. Promotion of industrialization

7. Cultural Development

8. Economics of large-scale production

9. Expanding the product market

10. Benefits in an emergency

11. Create employment opportunities

12. Prospects for Higher Profit

13. Transportation improvements

14. Increasing public/govt income

1. Obtaining Valuable Forex: A country can earn valuable Forex by

exporting its goods to other countries.

2. Division of labor: International business leads to the specialization

of product production. Therefore, high-quality products that you have
the greatest advantage.

3. Optimal use of available resources: International businesses

reduce the waste of domestic resources. It helps countries make the
best use of their natural resources. Each country produces those
products that have the greatest advantage.

4. Improving the standard of living of people: The sale of surplus

products from one country to another leads to increased income and
savings for people in the first country. This will improve the standard
of living of the population of the exporting country.

5. Consumer Benefits: Consumers also benefit from international

business. They are free to use a variety of better quality products at a
reasonable price. Therefore, consumers in the importing country have
a variety of products, which is an advantage.

6. Promotion of industrialization: The exchange of technical

knowledge allows developing and developing countries to establish
new industries with the help of foreign aid. Therefore, the
international business helps the industry develop.

7. Cultural Development: International business encourages the

exchange of cultures and ideas between more diverse countries. You
can adopt a better way of life, clothing, food, and more from another
country.

8. Economics of large-scale production: International business leads

to large-scale production due to high demand. Every country in the
world can benefit from large-scale production.

9. Expanding the product market: International business expands

the product market around the world. As the scale of the business
expands, the profits of the business will increase.

10. Benefits in an emergency: International business allows you to

face emergencies. In the event of a natural disaster, we can import
goods according to your needs.

11. Creating Employment Opportunities: International companies

promote employment opportunities in export-oriented markets. It
raises the standard of living of countries dealing with international
business.

12. Increasing public income: The government imposes import and

export taxes on this transaction. Therefore, the government can make
a lot of money from international business.
13. Prospects for Higher Profit: International business helps the
firms which produce goods in excess to sell them at relatively higher
price to various countries in the international market. This enables
them to earn higher profit.

14. Transportation improvements: The advancement of global trade

has improved the world's transportation infrastructure.

THE DISADVANTAGES OF INTERNATIONAL BUSINESS

ARE AS FOLLOWS.

1. Negative economic impact

2. Competition between nations

3. Legal Issues

4. Language Issues

5. Complex technical & documentation

6. Negative impact on the domestic industry

THE DISADVANTAGES OF INTERNATIONAL BUSINESS

ARE AS FOLLOWS.

1. Negative economic impact: One country affects the economy of

another through international business. In addition, large-scale exports
hinder the industrial development of importing countries. As a result,
the economies of importing countries are suffering.
2. Competition between nations: Fierce competition and the desire
to export more products can create competition between nations. As a
result, international peace can be hampered.

3. Legal Issues: The different laws, regulations, and customs

procedures that different countries follow to have a direct impact on
import and export trade.

4. Language Issues: Different languages in different countries create

barriers to establishing business relationships between different
countries.

5. Complex technical & documentation: International business is

very technical and has complicated procedures. It contains various
uses for important documents. Expert service is required to handle
complex procedures at various stages.

6. Negative impact on the domestic industry: International business

represents a threat to the survival of early and early industries.
Foreign competition and unlimited imports can disrupt our country’s
future industry.
DIFFERENT MODES OF ENTERING INTO
INTERNATIONAL BUSINESS:

 Exporting

 Licensing

 Franchising

 Contract manufacturing

 Turnkey projects

 Management contracts

 Wholly owned manufacturing facility

 Assembly operations
 Joint ventures

 Third country location

 Mergers & Acquisition

 Strategic Alliance

 Counter trade

 Foreign Investment
ADVANTAGES OF EXPORTING:

1 Increased Sales and Profits

2 Market Diversification

3 Spreading Business Risk

4 Increased Lifecycle & durability of Products

5 Economies of Scale

6 Acquire knowledge

1 Increased Sales and Profits

Who doesn't like the sound of 'increased sales and profits', right?
It's like music to any business owner's ears.
When you decide to export, you're essentially expanding your
storefront to the entire world. It's like going from a local farmers
market to a global online store. Suddenly, you're not just selling to
your neighbors but catering to customers around the globe. This
wider customer base directly translates into increased sales. It's
simple math — more customers equal more sales.

2 Market Diversification

Market diversification is like throwing a wider net into the vast

ocean of opportunities, aiming to catch a diverse range of fish, or
in business terms, customers. It's a strategic move that businesses
make to step out of their comfort zones and tap into new,
unexplored markets.

3 Spreading Business Risk

Running a business can sometimes feel like walking a tightrope.

On one side, you have the exciting prospects of growth and profit,
and on the other, the daunting risks that could potentially topple
your business. It's all about maintaining balance, and exporting is
one of the balancing poles you can use to spread your business risk.

4 Increased Lifecycle & durability of Products

Every market is at a different stage of development and has

different trends and consumer behaviors. This means that while a
product might be reaching the end of its life cycle in one market, it
could just be starting its journey in another. It's like your product
getting a second act on a different stage!

5. Economies of Scale

When a business expands its operations to international markets

through exporting, it often leads to an increase in production. This
increased production allows the business to spread its fixed costs
over a larger number of units produced, thus reducing the average
cost per unit. Hence it increases more profits.

6. Acquire knowledge: by exporting more goods or service to

different countries, it helps to gain knowledge about what type of
goods or prices are preferred at global level.

DISADVANTAGES OF EXPORTING:

1. High Costs of Exporting

2. Risk of Non-Payment

3. Cultural & Language Barriers

4. Political & Legal Risks

5. Supply Chain Disruptions

1. High Costs of Exporting: Exporting can be a key driver of

business growth, opening up new markets and opportunities.
However, it also comes with its own set of challenges, one of the
most significant being the high costs associated with it.

2. Risk of Non-Payment: The risk of non-payment is a significant

concern for companies involved in exporting goods or services.
This risk arises when a business delivers a product or service to an
international customer, but the customer does not fulfill their
payment obligations. Given that the transaction spans across
borders, recovering the owed amount can be challenging, time-
consuming, and expensive.

3 Cultural & Language Barriers:

• Cultural and language barriers can also pose significant

challenges in the world of exporting. These barriers can
manifest themselves in various ways and have far-reaching
impacts.

• Language barriers are not just about different languages. It's also
about understanding the subtleties, idioms, and expressions
unique to a culture.

4 Political & Legal Risks

Political and legal risks are like the wild cards of international
business — unpredictable, hard to quantify, but with a potential to
significantly impact your operations. They encompass a range of
factors, from government actions and policy changes to social
instability and legal constraints.

5 Supply Chain Disruptions

Let’s say you've just received a big order from a client halfway
across the globe. Your team is fired up and ready to deliver. But
then, out of nowhere, a key supplier faces production issues and
can't deliver the raw materials on time. Or perhaps there's a sudden
strike at the local port, and your shipping plans go out the window.

PROCEDURES / STEPS OF EXPORTING:

Step 1. Receipt of an Order: ( IT ACT & RBI ACT)

Step 2. Obtaining License of Quota: (Quantity & price)

Step 3. Letter of Credit: (buyer – payment – seller – time & date )

Step- 4. Fixing the Exchange Rate (fixed & variable)

Step-5. Foreign Exchange Formalities: ( 15days/1 month/specified

period, shipping documents & payment method)

Step 6. Preparation for Executing the Order: ( Packing details,

inspection, marine insurance certificate & agent details)

Step 7. Formalities by a Forwarding Agent: (disclose the nature,

quantity, and weight to the shipping company)

Step 8. Bill of Lading (receipts details)

Step 9. Shipment Advise to the Importer: ( dispatch of goods)

Step 10. Presentation of Documents to the Bank: (sellers, buyer
details)

Step 11. The Realization of Export Proceeds: (exportation begins,

reaches to the dealer/importer)

Step 1. Receipt of an Order The exporter of goods is required to

register with various authorities such as the income tax department
and Reserve Bank of India (RBI). In addition to this, the exporter
has to appoint agents who can collect orders from foreign
customers (importer). The Indian exporter receives orders either
directly from the importer or through indent houses.

Step 2. Obtaining License of Quota After getting the order from

the importer, the Indian exporter is required to secure an export
license from the Government of India, for which the exporter has
to apply to the Export Trade Control Authority and get a valid
license. You can get a license from here too. The quota is referred
to as the permitted total quantity of goods that can be exported.

Step 3. Letter of Credit The exporter of the goods generally ask

the importer for the letter of credit, or sometimes the importer
himself sends the letter of credit along with the order. It’s a letter
from bank guaranteeing that a buyers payment to a seller will be
received on time and for the correct amount.
Step 4. Fixing the Exchange Rate Foreign exchange rate signifies
the rate at which the home currency can be exchanged with the
foreign currency i.e. the rate of the Indian rupee against the
American Dollar. The foreign exchange rate fluctuates from time
to time. Thus, the importer and exporter fix the exchange rate
mutually.

Step 5. Foreign Exchange Formalities: As per the Foreign

Exchange Regulation Act of India (FERA), every exporter of the
goods is required to furnish a declaration in the form prescribed in
a manner. The declaration states:-
I. The foreign exchange earned by the exporter on exports is
required to be disposed of in the manner specified by RBI and
within 15 days or 1 month or specified period.
II. Shipping documents and negotiations are required to be done
through authorized dealers in foreign exchange.
III. The payment against the goods exported will be collected
through only approved methods.

Step 6. Preparation for Executing the Order The exporter

should make required arrangements for executing the order:
I. Marking and packing of the goods to be exported as per the
importer’s specifications.
II. Getting the inspection certificate from the Export Inspection
Agency by arranging the pre-shipment inspection.
III. Obtaining insurance policy from the Export Credit Guarantee
Corporation (ECGC) to get protection against the credit risks.
IV. Obtaining a marine insurance policy as required.
V. Appointing a forwarding agent (also known as custom house
agent) for handling the customs and other related matters.

Step 7. Formalities by a Forwarding Agent The formalities to be

performed by the agent include –
I. He must disclose all the required details of the goods to be
exported such as nature, quantity, and weight to the shipping
company.
II. The forwarding agent has to prepare a shipping bill/order.
III. The forwarding agent is required to make two copies of the
port challans and pays the dues.
V. The master of the ship is responsible for the loading of the
goods on the ship.

Step 8. Bill of Lading The Indian exporter of the goods

approaches the shipping company and presents the receipt copy
issued by the master of the ship and in return gets the Bill of
Lading. Bill of lading is an official receipt which provides the full
description of the goods loaded on the ship and the name of the
port of destination.

Step 9. Shipment Advise to the Importer The Indian exporter

sends shipment advice to the importer of the goods so that the
importer gets informed about the dispatch of the goods. The
exporter sends a copy of the packing list, a non-negotiable copy of
the Bill of Lading, and commercial invoice along with the advice
note.

Step 10. Presentation of Documents to the Bank The Indian

exporter confirms that he possesses all necessary shipping
documents namely; Marine Insurance Policy The Consular Invoice
Certificate of Origin The Commercial Invoice The Bill of Lading
Then the exporter draws a Bill of Exchange on the basis of the
commercial invoice. The Bill of Exchange along with these
documents is called Documentary Bill of Exchange. The exporter
then hands over the same to his bank.

Step 11. The Realization of Export Proceeds In order to realize

the proceeds of the export, the exporter of the goods has to undergo
specific banking formalities. On submission of the bill of
exchange, these formalities are initiated. Generally, the exporter
receives payment in foreign exchange.

2. LICENSING

WHAT IS A LICENSING AGREEMENT?

Licensing is a legal contract in which one company gives another
company permission to manufacture its product.

The party who owns the IP (the licensor) when the other party (the
licensee) uses the IP.

3 CATAGORIES:

A] PATENT

B] TRADEMARK

C] COPYRIGHT

A] Patent Licensing

• Patents cover science and innovation. Patent licensing

agreements are the documents through which a patent
owner allows to invent a new thing with these license.

• In short, It is an legal document that gives the holder exclusive

right to an invention it is known as patent. Time period usually
20 years, you can extend another 5 years also.

B] Trademark Licensing

• Trademarks are signifiers of commercial source, namely,

brand names and logos or slogans. Trademark licensing
agreements allow trademark owners to let others use their
IP.
• Most often, trademark owners license their trademarks for
commercial goods, like clothing, iPhone cases, or food products.

C] Copyright Licensing

• Copyright is the artwork of the IP world. Copyrights exist in,

for example, works of visual art, like paintings, or movies, or
songs. Copyrights also exist in characters, like Mickey Mouse.

• Copyright licensing agreements are often used for consumer

goods, just like trademark licenses. They are also used for
distributorships, such as with musical works or movies.

ADVANTAGES OF LICENSING:

1. It creates an opportunity of income

2. It creates new business opportunities

3. It reduces risks for both parties

4. It creates an easier entry into foreign markets

5. It creates employment opportunities

1. It creates an opportunity of income

If you own intellectual property, licensing can create a passive

income stream for you. You don’t even have to do anything to
generate revenue. Once you develop the IP, you just need to sell
licenses. If the licensees are making money, then you will too, so
you don’t have to worry about losing your ownership rights. These
payments could last for several years without interruption.

2. It creates new business opportunities

Such an arrangement can be beneficial to licensees since it requires

less money from them to start a business. Instead of outright
ownership, they can purchase a business license and start making
money immediately. Licenses cost less than outright ownership.
Licensees who can improve upon a product can make even more
money from their venture. The new business benefits from the
reputation and consumer awareness of the trademark name or
brand name, even if it is a trademark or brand name.

3. It reduces risks for both parties

A business license is designed to reduce the risks involved in doing

business for everyone. A licensee faces fewer risks in product
development, market testing, manufacturing, and distribution.
Selling and servicing what is offered entails fewer risks from the
perspective of the licensor. It is a win-win situation for everyone
involved since neither party has to invest their own money to earn
profits.

4. It creates an easier entry into foreign markets

A licensing agreement allows the licensor to get their product into

new markets much more easily than if they were doing the work on
their own. It is much easier to enter foreign markets this way, as
the license allows the intellectual property to cross borders.
Because a domestic company uses the IP, just as the licensor might
use it domestically, tariff barriers can be avoided.

5. It creates employment opportunities

Getting a business license allows people to start their own

businesses. While they enjoy the advantages of self-employment,
such as setting their own hours, you enjoy the benefits of having
someone invested in your IP. Licensees have the possibility of
gaining a monopoly over a product or service in a specific territory
at a lower investment rate than going it alone. Personal IP also
carries advantages from the licensor’s perspective.

DISADVANTAGES OF LICENSING:

1. It increases opportunities for IP theft

2. It creates a dependency upon the licensor

3. It creates added competition in the marketplace

4. It has restricted time limit

5. It could damage the reputation of both parties

1. It increases opportunities for IP theft

Licensing your intellectual property and products exposes you to

higher levels of exposure. As you don’t control how the licensee
conducts its business, there will be more opportunities for theft,
piracy, and misuse. You can police the use of your IP to some
extent, but you cannot see everything that is being done. It only
takes one slip-up for your items to be distributed illegally, which
means you don’t see the profits on your items.

2. It creates a dependency upon the licensor

Licensing agreements involve the licensee taking on all the risks

involved in the arrangement. To make their own profit, they are
dependent on the quality of the IP. If they are successful and earn a
lot of money, they may be asked for a renewal that is more
expensive than the original license. In addition, there is no
guarantee of exclusivity with many licenses, meaning multiple
businesses could compete in the same marketplace, using the same
tools and products, to generate revenues.

3. It creates added competition in the marketplace

Many licensors find that their licensees eventually become

competitors in their own markets. This creates a difficult situation
since one company or the other stands to lose if IP is sold in
exactly the same way. To protect against a needlessly competitive
market, many licenses include geographic restrictions. The growth
of internet access around the world, however, makes it easy to
become competitive without intending to.

4. It is offered for a limited time

Most licenses are only available for a limited period of time.
Although that time period maybe five to ten years, the licensee
must consider an expiration date. Is it worthwhile to invest time,
effort, and money in marketing goods and services that may not be
available to them at the end of the licensing period? Is there a
guaranteed renewal rate for the license, especially if it expires
within five years? Royalties and revenues must be balanced in a
way that makes sense for everyone involved.

5. It could damage the reputation of both parties

Licensing is one of the elements of a relationship that can be

mismanaged, resulting in a loss of brand reputation. If multiple
licenses are offered, the reputation may suffer globally, affecting
several businesses not involved in the situation. Good quality
management practices are the only way to resolve this potential
management issue. This is why many license agreements include a
series of best practices to follow, creating consistency within the
brand across all license agreements.

3. FRANCHISING

According to the International Franchise Association (IFA),

franchising is defined as an agreement or license between two
legally independent parties which gives:
A person or group of people (the franchisee) the right to market to
provide service using the trademark or trade name of another
business (the franchisor).

Ex: Subway, McDonald's, Pizza Hut, Burger King, and Dunkin'

Donuts

ADVANTAGES OF FRANCHISING:

• Brand Recognition

• Profits

• Lower risk

• Managerial talent

Brand Recognition

Another huge advantage to franchising is brand recognition. When

you start a business from scratch, you have to spend time and
money marketing your new business. With a franchise, your brand
is already well established and people automatically know what
they can expect from your business.

Profits

In general, franchises see higher profits than independently

established businesses. Most franchises have recognizable brands
that bring customers in droves. This popularity results in higher
profits. Even franchises that require a high initial investment for
the franchise fee see high return on investment.

Lower risk

Starting a business is risky. This is true whether a business owner

is opening an independent business or purchasing a franchise. That
being said, the risk is lower when opening a franchise. One of the
reasons franchise owners face lower risk than independent business
owners is the franchise network. Most franchises are owned by
established corporations that have tested and proven the business
model of the franchise in multiple markets.

Managerial talent

Every business owner knows how difficult it can be to onboard

new, qualified team members and managers as your business
grows. Franchising helps solve that problem by shifting hiring
responsibilities to franchisees, who handle the process of hiring
new managers and employees at each franchise location.
Franchisees have an incentive to hire and retain quality staff at
their locations because their income depends on having a consistent
and high-quality team.

Profits

In general, franchises see higher profits than independently

established businesses. Most franchises have recognizable brands
that bring customers in droves. This popularity results in higher
profits. Even franchises that require a high initial investment for
the franchise fee see high return on investment.

Lower risk

Starting a business is risky. This is true whether a business owner

is opening an independent business or purchasing a franchise. That
being said, the risk is lower when opening a franchise. One of the
reasons franchise owners face lower risk than independent business
owners is the franchise network. Most franchises are owned by
established corporations that have tested and proven the business
model of the franchise in multiple markets.

Managerial talent

Every business owner knows how difficult it can be to onboard

new, qualified team members and managers as your business
grows. Franchising helps solve that problem by shifting hiring
responsibilities to franchisees, who handle the process of hiring
new managers and employees at each franchise location.
Franchisees have an incentive to hire and retain quality staff at
their locations because their income depends on having a consistent
and high-quality team.

DISADVANTAGES OF FRACHISING:

• Limited Creative Opportunities

• Initial Cost

• Conflict

• Ongoing capital investment

• Time commitment

1. Limited Creative Opportunities: When you start your own

business, you have the freedom to operate your business any way
you choose. With a franchise, however, you will have to adhere to
existing rules so you won’t have as much creativity when it comes
to marketing or designing a logo for your business.

2. Initial Cost: The initial cost to buy into a franchise is typically

more than you would spend to open an independent business. You
will have to pay an initial fee to cover the cost of licensing the
rights to their brand in addition to training expenses.

3. Conflict: While one of the benefits of owning a franchise is the

support you receive, this can also have the potential for conflict. As
you begin to get more involved in the business, there may be
aspects that you don’t agree with but you will have limited freedom
to make changes. This can set the stage for potential conflict.

4. Ongoing capital investment

Although some companies claim you’ll be able to start making

money right away off your franchise system, that isn’t necessarily
the case. Franchisors should plan a five year success plan when
starting their franchise.

5. Time commitment

Every new business requires a time commitment from its owners,

and franchising is no exception. You should plan to invest time and
energy into franchise development, legal compliance, team
building, marketing, education, and networking with franchise
brokers.

4. CONTRACT MANUFACTURING
It is a kind of international business in which a company gets into
an agreement with one or more local manufacturers in foreign
countries to produce particular components or commodities. It is
commonly known as outsourcing.

Advantages of Contract Manufacturing

• Less Investment

• Less Risk.

• Lower Costs

• Better Utilization of Resources

• Opportunities for Local manufacturers

Advantages of Contract Manufacturing

Less Investment: With the help of Contract Manufacturing,

international firms are able to produce their goods on a large scale
without requiring investment in setting up production facilities.

Less Risk: Because there is minimal investment required, it is less

risky. Furthermore, local producers that have been assigned
particular product design and quality standards comply with them.
Also, there is no or little investment in other countries, and there is
limited investment risk in foreign countries.
Lower Costs: Contract Manufacturing helps international
businesses in getting their product manufactured or assembled at
lower costs, especially when the local producers are situated in
countries which have lower material and labour costs.

Better Utilization of Resources: Local producers in foreign

countries are benefitted from contract manufacturing.
Manufacturing jobs obtained on a contract basis provide a ready
market for their products and ensure greater utilization of their
production capacities if firms have any idle production capacities.

Opportunities for Local manufacturers: The local manufacturer

also has the option to get engaged in international business and
avail incentives if any available to export enterprises if the
international firm wants the goods produced to be sent to its home
country or to other foreign countries.

Disadvantages of Contract Manufacturing

• Issue in adhering to production design and quality standards

• Loss of control

• No Authority to sell products

Disadvantages of Contract Manufacturing

• Issue in adhering to production design and quality
standards: Local firms may fail to follow production design
and quality standards, creating serious product quality issues for
foreign enterprises.

• Loss of control: As goods are manufactured exactly according

to the terms and standards of the contract, the local manufacturer
in the foreign nation loses control over the manufacturing
process.

• No Authority to sell products: The local enterprises engaged

in contract manufacturing are not allowed to sell the contractual
output as per their will. They must sell the goods to the
multinational corporation at fixed rates. If the open market
prices for such commodities are greater than the prices agreed
upon in the contract, it results in lower profits.

5. MANAGEMENT CONTRACTS:

Management contracts in international business are agreements

where a party hires another party to manage certain aspects of their
business operations.

Ex. Education, Hospitals, Office, Restaurant etc.

ADVANTAGES OF MANAGEMENT CONTRACT:

• Saves Time and Resources

• Saves Money

• Provides Business Continuity

Saves Time and Resources

For small businesses in particular, a management contract can save

time and resources. Handing over operational control of the
marketing or the bookkeeping, for example, means you do not have
to worry about these functions. This frees up staff to focus on core
priorities such as product development or establishing your
position in the industry.

Saves Money: If the business function is important (like

accounting) but not yet large or important enough to justify hiring a
full-time employee to handle it, then management contracting
could be the ideal solution. Most contracts are structured so you're
only paying the management company for the services it provides.
This can save you money, especially if you pay the company
according to the profits they generate or the money they save.

Provides Business Continuity

What would happen to your sales function if your star salesperson

left? It's common for small businesses to rely on just one or two
people to provide an entire business function and the disruption can
be devastating if one of them leaves. A management contract
solves this problem by providing continuity.
DISADVANTAGES:

• Loss of Control

• Payment terms

• Duration of the Management Agreement

• Loss of Control

By far the biggest disadvantage is you're surrendering control of an

entire business function to an outside company. While you have the
freedom to negotiate the level of services, generally, the
management company will become responsible for making all of
the operational decisions that are necessary to keep that part of
your business running smoothly.

• Payment terms

Management companies do not work for free, so you will need to

negotiate the payment terms. Some contracts provide for the
payment of a fixed fee per month or per year, which does not
change as long as the service level stays the same.

• Duration of the Management Agreement

How long will the contract last? This could be anywhere from a
few months to several years, depending on your objectives. It's
good practice to insist on a termination clause so you can end the
contract early if the company does not hit its performance targets.

2. Subsidiary company:
• It is a company which is controlled by a holding company.
Conditions of a subsidiary company are as follows:

 It is a company where other company holds more than 50% of

its equity share capital.

 It is a company where the other company controls more than

50% of the total voting rights.

 It is a company wherein the other company controls the

composition of the BOD.

ADVANTAGES OF HOLDING & SUBSIDIARY COMPANY:

• Simplified management

• Risk management

• Recognition of Brand

• Ease of acquisition

Simplified management: By consolidating the ownership of

multiple companies under a single holding company, it can be
easier to manage the overall portfolio and make strategic decisions
about which companies to invest in and which to divest.

Risk management: A holding company can protect itself against

risk by diversifying its portfolio across multiple companies and
industries. That can help mitigate the impact of any company's
financial difficulties on the overall portfolio.

Recognition of Brand

To keep the brand identities separate, the company may establish

subsidiaries. This helps all the brands to maintain their relationship
with the vendors and the goodwill with the customers. By keeping
separate brand entities, it is easy to organize the culture of the
company and differentiate different brand entities.

Ease of acquisition: A holding company can acquire other

companies more quickly than if it were to acquire them
individually. It is because the holding company can use its stock as
currency in the acquisition rather than raising cash or taking on
debt.

DISADVANTAGES:

1. Complexity in rules

2. Limited control

3. competition

4. Taxation

Disadvantages:
1. Complexity in rules: A holding company structure can be
complex and may require additional legal and administrative
efforts to set up and maintain.

2. Limited control: As a holding company, you may not have

direct power over the operations of the companies you own. It can
make it challenging to implement changes or make decisions that
affect those companies.

3. competition: As a holding company, you are exposed to the

risks of your own companies. If one of those companies
experiences financial difficulties or goes bankrupt, it can have a
negative impact on the holding company and its shareholders. And
also create huge competition between different department

4. Taxation: Holding companies may be subject to double

taxation, as the income of the companies they own may be taxed at
the corporate level and again at the holding company level when it
is distributed to shareholders as dividends.
8. TURN KEY PROJECTS:

It is a contract under which a firm agrees to fully design, construct

and equip a manufacturing/ business/ service facility and turn the
project over to the purchaser when it is ready for operation.
ADVANTAGES:

• Reduced Costs

• Reduced Time

• Limited Competition

• Single Point of Responsibility

Reduced Costs: Turnkey projects often result in lower costs for

clients as compared to traditional project delivery methods. This is
because the company responsible for delivering the turnkey project
can negotiate better prices with suppliers, utilize economies of
scale, and reduce the need for multiple contracts.

Reduced Time: Turnkey projects are often faster to complete than

traditional project delivery methods. This is because the company
responsible for delivering the turnkey project can work
concurrently on design and construction, reducing the time
required for design, procurement, and construction.

Limited Competition: Turnkey projects often result in limited

competition as compared to traditional project delivery methods.
This is because clients are working with a single company, rather
than multiple parties, reducing the potential for competitive
bidding.
Single Point of Responsibility: With a turnkey project, there is
only one company responsible for delivering the finished product.
This reduces the risk of finger-pointing and blame-shifting, and
makes it easier for clients to hold the company accountable for any
issues that arise during the project.

DISADVANTAGES:

• Reduced Flexibility

• Time consuming

• Lack of Transparency

• High cost

Reduced Flexibility & time consuming: Another disadvantage of

turnkey projects is the reduced flexibility clients have to make
changes to the project once it is underway. In a traditional project
delivery method, clients can make changes to the design and
construction as needed. However, in a turnkey project, changes can
be difficult and time-consuming, as they must be approved by the
turnkey company.

Lack of Transparency: Turnkey projects can sometimes lack

transparency, making it difficult for clients to understand what is
happening during the design and construction process.

9. ASSEMBLY OPERATION:
Assembly is the process of combining individual spare parts /
components at different countries which converts into a
finished product during manufacturing.

10. JOINT VENTURE (JV)

It is a business arrangement in which two or more parties agree

to pool their resources for the purpose of accomplishing a
specific task.

Or

Joint business ventures involve two parties contributing their own

resources to develop a new project. The enterprise, revenues,
expenses and assets are shared by the involved parties.

Advantages:

• Risk and Rewards can be Shared

• Innovation

• Shared knowledge

• Access to new technology

Risk and Rewards can be Shared: In a typical joint venture

agreement between two or more organization, may be of the same
country or different countries, there are many diversifications in
culture, technology, geographical advantage and disadvantage,
target audience and many more factors to overcome. So the risks
and rewards pertaining to the activity for which the joint venture is
agreed upon can be shared between the parties as decided and
entered into the legal agreement.

Innovation: Joint ventures give an added advantage to upgrading

the products and services with respect to technology. Marketing
can be done with various innovative platforms and technological
up gradation helps in making good products at efficient cost.
International companies can come up with new ideas and
technology to reduce cost and provide better quality products.

Access to Technology

Technology is an attractive reason for organizations to enter into a

joint venture. Advanced technology with one organization to
produce superior quality of products saves a lot of time, energy,
and resources. Without the further investment of huge amount
again to create a technology which is already in existence, the
access to same technology can be done only when companies enter
into joint venture and give a competitive advantage.

DISADVANTAGES

• Decision making
• Unequal commitment

DISADVANTAGES

• Decision making – Trust is vital in any joint venture – which

can make decision-making more difficult if both parties need to
sign off decisions when there is a lack of trust. Poor decision-
making and second-guessing the other party can lead to failure.

• Unequal commitment – Ideally a joint venture should be an all-

for-one and one-for-all proposition. A lack of commitment from
one of the partners can create an unbalanced joint venture.

11. THIRD COUNTRY LOCATION:

When there is no commercial transactions between two countries

due to various reasons, firm which wants to enter into the market of
another nation, will have to operate from a third country base.

EXAMPLE:

“Third–Country Exports” means exports made by an Exporter in

one Country & Arranging Supply from a Third Country to the
Importer (Buyer) in Some other Country.

12. ACQUISITION & MERGER

When one company takes over another and establishes itself as the
new owner, the purchase is called an acquisition. On the other
hand, a merger describes two firms, of approximately the same
size, that join forces to move forward as a single new entity, rather
than remain separately owned and operated.

Acquisitions based on the relationship between buyer and

seller

• Horizontal acquisition

• Vertical acquisition

• Conglomerate acquisition

Horizontal acquisition

A horizontal acquisition is when one company acquires another

company that is in the same business. For example, ABC Inc., a
widget manufacturer, acquires XYZ Corp., another widget
manufacturer.

Some horizontal acquisitions involve competitors. For example, in

the case of ABC Inc. and XYZ Corp., they both sold to the same
customer base.

Vertical acquisition
A vertical acquisition is when one company acquires another
company that is in a different position on the supply chain.

The acquirer may be higher up on the chain. For example, ABC

Inc. (our widget manufacturer) acquires a company that makes a
key component part used by ABC Inc. to make its widgets. Or the
acquirer may be lower on the chain. For example, ABC Inc. buys
the company that has retail stores that sell its widgets.

Conglomerate acquisition

A conglomerate acquisition is when the acquirer and target are in

unrelated industries or engaged in unrelated activities. For
example, a company involved in the real estate business acquires
an insurance company. (Or either company acquires our widget
manufacturer.)

13. STRATEGIC ALLIANCE

Strategic alliances are agreements between two or more

independent companies to cooperate in the manufacturing,
development, or sale of products and services, or other business
objectives.

For example, two auto manufacturers can collaborate to share the

showroom resources and distribution networks to sell each other's
products.

ADVANTAGES
• Increased Sales and Marketing Opportunities:

• Reduces cost:

• Increased Profits and Cash Flow:

• Increased Brand Awareness:

Increased Sales and Marketing Opportunities: A Strategic

Alliance can help a company to reach new customers and generate
more sales. They can also use it to develop new products or
services.

Reduces cost: A Strategic alliance can allows a company to work

with a wider range of partners and expand their reach into new
markets. This can help them reduce costs and improve their
efficiency.

Increased Profits and Cash Flow: A Strategic Alliance can

increase their profits and cash flow. A company can also use it to
develop new products or services that sell well. This will net them
more money in the long run.

Increased Brand Awareness: A Strategic Alliance can help

companies to build brand awareness and increase customer loyalty.
This will make it easier for them to sell products or services in the
future.

DISADVANTAGES
Increased Competition
Higher Costs

Increased Competition: When two companies join forces, the

competition between them becomes even more intense. This means
that both companies will be working harder to stay ahead of the
competition, which can lead to reduced profits.

Higher Costs: In some scenario, the companies often need to

invest in new technology or in other areas that will allow them to
operate as a single entity. This can lead to higher costs for
customers, especially if the alliance is not successful.
FDI & FPI

Foreign Direct Investment (FDI) involves foreign investors directly

investing in another nation's productive assets. Conversely, Foreign
Portfolio Investment (FPI) entails investing in financial assets, like
stocks and bonds, of entities situated in a different country.

TYPES OF FDI

• Horizontal FDI

• Vertical FDI

• Conglomerate FDI
………………………….END……………………………