International Business

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Summary

Chapter 11: International Business

Learning Objectives

State the meaning of International Business.
Distinguish between Internal and International Business.
Discuss the scope of International Business.
Enumerate the benefits of International Business.
Discuss the documents required for import and export transactions.
Identify the incentives and schemes available for international firms.
Discuss the role of different organisations for the promotion of International Business.
List the major international institutions and agreements at the global level for the promotion of international trade and development.

Summary

International Business: Refers to business activities across national frontiers, including trade in goods and services, production, and marketing in foreign countries.
International vs Domestic Business: International business is more complex due to factors like different nationalities, less mobility of production factors, customer heterogeneity, varying business practices, political systems, regulations, and currencies.

Major Differences between Domestic and International Business

Basis	Domestic Business	International Business
Nationality of Participants	People from one nation	People from different countries
Mobility of Factors	More mobility within a country	Less mobility across nations
Customer Heterogeneity	More homogeneous markets	Lack of homogeneity across markets
Business Systems	More homogeneous practices	Varying practices across countries
Political Risks	Subject to one country's risks	Subject to multiple countries' risks
Regulations	Subject to one country's rules	Subject to multiple countries' regulations
Currency	Single currency used	Multiple currencies involved

Common Documents in Export Transactions

Export Invoice: Contains details about goods, quantity, value, etc.
Packing List: Statement of the number of cases and details of goods.
Certificate of Origin: Specifies the country of production for tariff concessions.
Certificate of Inspection: Ensures quality of certain products before export.

Common Documents in Import Transactions

Bill of Entry: Form filled by the importer at customs.
Letter of Credit: Guarantee from the importer's bank to the exporter.
Shipping Bill: Main document for customs permission to export.
Bill of Lading: Receipt from the shipping company acknowledging goods on board.

Advantages and Limitations of Wholly Owned Subsidiaries

Advantages

Full control over operations in foreign countries.
No need to disclose technology or trade secrets.

Limitations

Requires 100% equity investment, unsuitable for small firms.
Parent company bears all losses from foreign operations.
Higher political risks in some countries.

Key Terms

International Business
International Trade
Foreign Investment
Bill of Exchange
Letter of Credit
Export Promotion Capital Goods Scheme (EPCG)
Export Processing Zone (EPZ)
100% Export Oriented Unit (100% EOU)

Important Notes

The complexity of international business requires understanding various formalities and documentation for export and import transactions.

Learning Objectives

State the meaning of International Business
Distinguish between Internal and International Business
Discuss the scope of International Business
Enumerate the benefits of International Business
Discuss the documents required for import and export transactions
Identify the incentives and schemes available for international firms
Discuss the role of different organisations for the promotion of International Business
List the major international institutions and agreements at the global level for the promotion of international trade and development.

Detailed Notes

Chapter 11: International Business

Learning Objectives

State the meaning of International Business.
Distinguish between Internal and International Business.
Discuss the scope of International Business.
Enumerate the benefits of International Business.
Discuss the documents required for import and export transactions.
Identify the incentives and schemes available for international firms.
Discuss the role of different organisations for the promotion of International Business.
List the major international institutions and agreements at the global level for the promotion of international trade and development.

Summary

International Business: Refers to business activities that take place across national frontiers, involving trade in goods and services, production, and marketing in foreign countries.
International vs Domestic Business: International business is more complex due to differences in nationality, mobility of factors, customer heterogeneity, business practices, political systems, regulations, and currencies.

Key Terms

International Business: Business transactions that occur across national borders.
International Trade: Exchange of goods and services between countries.
Bill of Entry: A customs document for importers to declare goods.
Bill of Exchange: A written order for payment in international transactions.
Letter of Credit: A bank guarantee for payment in international trade.

Major Documents Needed in Connection with Export Transaction

Export Invoice: Contains details about goods, including quantity and value.
Packing List: Statement of the number of cases and details of goods.
Certificate of Origin: Specifies the country of production for tariff purposes.
Certificate of Inspection: Ensures quality of goods before export.
Bill of Lading: Receipt from shipping company acknowledging goods on board.
Airway Bill: Receipt from airline for goods transported by air.
Letter of Credit: Guarantee from the importer's bank for payment.

Export-Import Procedures

Export Procedure

Receipt of Enquiry and Sending Quotations: Exporters respond to buyer inquiries with proforma invoices.
Procurement of Import Licence: Necessary for certain goods as per EXIM policy.
Obtaining Pre-shipment Finance: Financing for production and packing of goods.
Production or Procurement of Goods: Preparing goods as per specifications.
Pre-shipment Inspection: Ensuring quality through designated agencies.
Excise Clearance: Obtaining clearance for excise duty on goods.

Import Procedure

Trade Enquiry: Request for information from importer to exporter.
Proforma Invoice: Document detailing quality, price, and terms of goods.
Import Order or Indent: Document ordering goods from exporter.
Bill of Entry: Customs document for assessment of import duty.
Payment Documentation: Includes letter of credit and bill of exchange.

Advantages and Limitations of Wholly Owned Subsidiaries

Advantages

Full control over foreign operations.
Protection of technology and trade secrets.

Limitations

Requires 100% equity investment.
Higher political risks in foreign countries.
Full responsibility for losses from foreign operations.

Exam Tips & Common Mistakes

Common Mistakes and Exam Tips in International Business

Common Pitfalls

Misunderstanding Key Documents: Students often confuse the roles of documents such as the bill of entry, bill of exchange, and letter of credit. It's crucial to understand that:
- Bill of Entry is for customs clearance.
- Bill of Exchange is a payment instrument.
- Letter of Credit guarantees payment from the importer’s bank.
Ignoring the Complexity of International Business: Many underestimate the complexities involved in international business compared to domestic business, such as differing regulations, political risks, and customer heterogeneity.
Overlooking Pre-shipment Inspection: Failing to recognize the importance of pre-shipment inspection can lead to issues with quality control and compliance with export regulations.
Neglecting to Obtain Necessary Licenses: Not checking whether an import license is required can delay transactions and lead to penalties.

Exam Tips

Familiarize with Key Terms: Make sure to understand and memorize key terms such as 'proforma invoice', 'import general manifest', and 'dock challan'.
Practice Document Flow: Be able to outline the flow of documents in an export-import transaction, including the sequence of obtaining licenses, invoices, and customs clearance.
Understand Differences: Be prepared to discuss the differences between domestic and international business, focusing on aspects like stakeholder nationality, mobility of production factors, and political risks.
Review Case Studies: Look at examples of international business transactions to better understand practical applications of the concepts.
Stay Updated on Regulations: Keep abreast of current regulations and policies that affect international trade, as these can change and impact exam questions.

Practice & Assessment

Multiple Choice Questions

To provide insurance for goods

To ensure payment upon delivery of documents

To declare goods for export

To certify the quality of goods

Correct Answer: B

Solution:

A sight draft ensures that the bank hands over documents to the importer only against payment.

Direct exporting to overseas customers

Setting up a fully owned factory abroad

Licensing his technology to foreign firms

Routing products through export houses

Correct Answer: C

Solution:

The text mentions direct exporting, setting up a factory, and using export houses as potential strategies, but not licensing technology.

A document that ensures the quality of goods being exported.

A written instrument directing a party to pay a specified amount to another party.

A certificate of insurance for goods transported by sea.

A receipt issued by the shipping company for goods loaded on a ship.

Correct Answer: B

Solution:

A bill of exchange is a written instrument whereby the person issuing it directs another party to pay a specified amount to a certain person or the bearer.

Bill of Entry

Bill of Lading

Letter of Credit

Shipping Bill

Correct Answer: A

Solution:

The Bill of Entry is a document supplied by the customs office to the importer and must be filled out to receive goods. It contains essential information about the shipment and is required for customs clearance.

To serve as a title to goods

To provide a guarantee of payment

To list the details of imported goods

To certify the quality of exported goods

Correct Answer: B

Solution:

A letter of credit is a guarantee issued by the importer's bank to ensure payment to the exporter's bank, making it a secure method of payment in international transactions.

Use of a single currency in both

Use of multiple currencies in international business

Currency is not a factor in international business

Domestic business uses multiple currencies

Correct Answer: B

Solution:

International business transactions involve the use of currencies of more than one country, unlike domestic business which uses a single currency.

Bill of lading

Import general manifest

Dock challan

Certificate of origin

Correct Answer: B

Solution:

The import general manifest contains details of the imported goods and is the document on the basis of which unloading of cargo takes place.

To provide pre-shipment inspection certificates

To issue bills of lading

To negotiate letters of credit

To handle customs clearance

Correct Answer: A

Solution:

The Export Inspection Agency (EIA) provides pre-shipment inspection certificates to ensure quality standards.

Domestic business involves parties from the same country, while international business involves parties from different countries.

Domestic business does not require any legal documentation, while international business does.

Domestic business is more profitable than international business.

Domestic business only involves the exchange of goods, while international business involves services.

Correct Answer: A

Solution:

The primary difference is the nationality of the parties involved; domestic business involves parties from the same country, whereas international business involves parties from different countries.

Understanding and adapting to the local political environment

Finding local suppliers for raw materials

Hiring employees from the home country

Setting up a local marketing team

Correct Answer: A

Solution:

The political environment in a foreign country can be significantly different from the home country, posing challenges in understanding and adapting to local laws and regulations.

Use of a single currency

Homogeneity of customer preferences

Involvement of parties from different countries

Uniform business regulations

Correct Answer: C

Solution:

International business involves parties from different countries, unlike domestic business.

Uniform customer preferences worldwide

Differences in tastes, languages, and customs

Standardized business practices

Single political system

Correct Answer: B

Solution:

Customer heterogeneity across markets refers to differences in tastes, languages, and customs among international buyers.

Letter of credit

Bill of lading

Bill of exchange

Airway bill

Correct Answer: B

Solution:

A bill of lading serves as an official receipt of goods put on board a vessel and is also a document of title to the goods, making it transferable by endorsement and delivery.

Bill of lading

Shipping bill

Mate's receipt

Letter of credit

Correct Answer: B

Solution:

The shipping bill is the main document on the basis of which customs office grants permission for the export.

Use of different currencies

Homogeneity of customers

Availability of resources

Similar business practices

Correct Answer: A

Solution:

International business is more complex due to the use of different currencies, among other factors.

Bill of entry

Bill of lading

Letter of credit

Shipping bill

Correct Answer: A

Solution:

The bill of entry is a form supplied by the customs office to the importer, which must be filled out at the time of receiving goods.

Bill of lading

Registration cum Membership Certificate (RCMC)

Airway bill

Cart ticket

Correct Answer: B

Solution:

Registration with the appropriate export promotion council and obtaining an RCMC is necessary for availing benefits and financial assistance.

Access to new markets

Increased competition

Cultural exchange

Limited resource availability

Correct Answer: D

Solution:

Limited resource availability is not a benefit of international business; it is a challenge.

Differences in political systems and risks

Uniform customer preferences across markets

Varied business regulations and policies

Less mobility of factors of production

Correct Answer: B

Solution:

International business is complex due to differences in political systems, varied business regulations, and less mobility of factors of production. Uniform customer preferences would simplify international business, but such uniformity does not exist.

Bill of lading

Import general manifest

Letter of credit

Bill of exchange

Correct Answer: B

Solution:

The import general manifest is the document that contains the details of the imported goods and is essential for unloading cargo.

To ensure the exporter receives payment before shipment.

To verify the quality of goods before they are exported.

To calculate the customs duty payable on goods.

To confirm the receipt of goods by the importer.

Correct Answer: B

Solution:

Pre-shipment inspection is conducted to ensure that only good quality products are exported, as mandated by certain government regulations.

Bill of Entry

Import General Manifest

Bill of Lading

Dock Challan

Correct Answer: B

Solution:

The Import General Manifest is the document that contains the details of the imported goods and is the basis for unloading cargo.

Uniform product design

Standardized pricing

Cultural adaptation of marketing strategies

Centralized production

Correct Answer: C

Solution:

Customer heterogeneity across markets requires cultural adaptation of marketing strategies due to differences in tastes, languages, and customs.

Exporting directly from India

Setting up a fully owned factory in Bangkok

Using export houses in India

Licensing his technology to a foreign company

Correct Answer: B

Solution:

Setting up a fully owned factory in Bangkok would help Mr. Manchanda save on transportation costs and be closer to his customers in South-East Asia.

International business includes trade in goods and services as well as other operations like production and marketing.

International trade only involves the exchange of goods.

International business is limited to trade within a single country.

International trade involves setting up production facilities abroad.

Correct Answer: A

Solution:

International business is a broader term that includes not only trade in goods and services but also other operations such as production and marketing in foreign countries.

Increased isolation from other economies

Access to a larger market for its products

Simplified regulatory compliance

Reduced complexity in operations

Correct Answer: B

Solution:

Engaging in international business provides firms access to a larger market, allowing them to sell their products to a wider audience.

Bill of Exchange

Letter of Credit

Bank Certificate of Payment

Airway Bill

Correct Answer: B

Solution:

A Letter of Credit is a guarantee issued by the importer's bank to the exporter's bank for payment of export bills.

A bill of exchange payable on demand

A document for customs clearance

A type of marine insurance policy

A receipt for dock dues

Correct Answer: A

Solution:

A sight draft is a type of bill of exchange that is payable on demand when the importer receives the documents.

Reduced competition

Access to larger markets

Simplified business operations

Uniform business regulations

Correct Answer: B

Solution:

International business provides access to larger markets, allowing firms to expand their customer base beyond domestic borders.

Bill of entry

Bill of lading

Letter of credit

Bank certificate of payment

Correct Answer: B

Solution:

A bill of lading serves as a document of title to the goods and is freely transferable by endorsement and delivery.

To guarantee payment to the exporter

To indemnify the insured against loss due to sea perils

To certify the origin of goods

To provide a receipt for goods loaded on a ship

Correct Answer: B

Solution:

A marine insurance policy indemnifies the insured against loss incurred due to perils of the sea.

To provide insurance for goods

To guarantee payment to the exporter

To act as a shipping document

To certify the origin of goods

Correct Answer: B

Solution:

A letter of credit is a guarantee issued by the importer's bank to ensure payment to the exporter.

Homogeneous customer preferences

Consistent political environments

Complexity due to diverse regulations and cultures

Limited product offerings

Correct Answer: C

Solution:

International business is complex due to variations in regulations, cultures, and political environments across countries.

It is a document of title to the goods and a receipt from the shipping company.

It is a guarantee of payment issued by the importer's bank.

It is a certificate of inspection for the goods.

It is a document detailing the exporter's bank transactions.

Correct Answer: A

Solution:

A bill of lading is a document wherein a shipping company gives its official receipt of the goods put on board its vessel and acts as a document of title to the goods.

To avoid all forms of international trade regulations

To save on transportation costs and be closer to customers

To ensure complete avoidance of political risks

To eliminate the need for any local partnerships

Correct Answer: B

Solution:

Setting up a wholly owned subsidiary can help a firm save on transportation costs and bring them closer to their overseas customers.

To provide shipping services

To negotiate trade agreements

To promote exports of specific products

To issue import licenses

Correct Answer: C

Solution:

Export promotion councils are responsible for promoting exports of specific products.

Bill of lading

Shipping bill

Mate's receipt

Airway bill

Correct Answer: B

Solution:

The shipping bill is the main document on the basis of which customs office grants permission for the export.

Bill of Lading

Shipping Bill

Airway Bill

Mate's Receipt

Correct Answer: B

Solution:

The shipping bill is the main document on the basis of which the customs office grants permission for the export.

To serve as a receipt for goods loaded onto a ship

To provide a detailed list of imported goods for customs clearance

To guarantee payment for exported goods

To insure goods against perils of the sea

Correct Answer: B

Solution:

A bill of entry is a form supplied by the customs office to the importer, filled at the time of receiving goods, and submitted to customs for clearance.

To serve as a document of title for goods

To provide a guarantee of payment to the exporter

To specify the shipping details of the consignment

To act as a receipt for goods loaded onto a vessel

Correct Answer: B

Solution:

A letter of credit is a guarantee issued by the importer's bank that it will honor up to a certain amount the payment of export bills to the bank of the exporter.

Bill of exchange

Letter of credit

Bill of lading

Airway bill

Correct Answer: B

Solution:

A letter of credit is a guarantee issued by the importer's bank to honor the payment of export bills.

Bill of entry

Mate's receipt

Airway bill

Letter of credit

Correct Answer: A

Solution:

A bill of entry is a form supplied by the customs office to the importer and is required for the import of goods.

Bill of Exchange

Bill of Entry

Letter of Credit

Mate's Receipt

Correct Answer: B

Solution:

The bill of entry is a form supplied by the customs office to the importer, which must be filled and submitted to the customs office.

Bill of entry

Bill of lading

Shipping bill

Cart ticket

Correct Answer: B

Solution:

A bill of lading acts as a title to goods and is freely transferable by endorsement.

Bill of entry

Bill of exchange

Letter of credit

Shipping bill

Correct Answer: A

Solution:

The bill of entry is a form supplied by the customs office to the importer. It is filled in by the importer at the time of receiving the goods and is essential for customs clearance.

Identical political systems

Uniform customer preferences

Varied socio-cultural environments

Consistent economic policies

Correct Answer: C

Solution:

International markets have varied socio-cultural environments, which require businesses to adapt their strategies to meet different customer preferences and behaviors.

To declare goods for export

To declare goods for import

To insure goods during shipment

To certify the origin of goods

Correct Answer: B

Solution:

A bill of entry is used by the importer to declare goods for import to the customs office.

To guarantee payment to the exporter

To protect goods against perils of the sea

To ensure timely delivery of goods

To provide financial assistance to importers

Correct Answer: B

Solution:

A marine insurance policy is a contract that indemnifies the insured against loss incurred in respect of goods exposed to perils of the sea.

Confirmed order and letter of credit

Bill of entry

Dock challan

Import general manifest

Correct Answer: A

Solution:

A confirmed order and a letter of credit are required for an exporter to approach a bank for pre-shipment finance.

To authorize the shipment of goods.

To serve as a contract between exporter and importer.

To provide customs with necessary details for goods clearance.

To act as a receipt for goods loaded onto a vessel.

Correct Answer: C

Solution:

A bill of entry is a document submitted by the importer to the customs office, providing details necessary for the clearance of goods.

Duty drawback scheme

Export Promotion Capital Goods Scheme (EPCG)

Advance licence scheme

100% Export Oriented Unit (100% EOU)

Correct Answer: D

Solution:

The 100% Export Oriented Unit (100% EOU) scheme is designed to promote the establishment of manufacturing facilities dedicated to exports.

Bill of lading

Bill of entry

Shipping bill

Airway bill

Correct Answer: B

Solution:

The bill of entry is a form supplied by the customs office to the importer and must be filled out at the time of receiving the goods.

It provides financial loans to exporters.

It facilitates the registration of exporters to avail government benefits.

It inspects goods for quality before export.

It negotiates international trade agreements on behalf of exporters.

Correct Answer: B

Solution:

Export Promotion Councils are responsible for promoting and developing exports of different categories of products. They facilitate the registration of exporters to avail various government benefits.

To provide insurance for exported goods

To offer tax exemptions for export-oriented units

To facilitate import of capital goods for production of export items

To manage the logistics of exporting goods

Correct Answer: C

Solution:

The EPCG scheme allows import of capital goods for pre-production, production, and post-production at zero customs duty, to enhance export competitiveness.

Domestic business involves multiple currencies.

International business is subject to political systems of multiple countries.

Domestic business requires a bill of entry for transactions.

International business involves only trade in goods, not services.

Correct Answer: B

Solution:

International business is subject to the political systems and risks of multiple countries, unlike domestic business which is subject to the political system of a single country.

Use of different currencies

Homogeneous customer preferences

Political system differences

Varied business regulations

Correct Answer: B

Solution:

International business is complicated by heterogeneous customer preferences, not homogeneous ones, due to cultural and socio-economic differences.

Letter of credit

Marine insurance policy

Registration with the ECGC

Bill of lading

Correct Answer: C

Solution:

Registration with the ECGC protects overseas payments from political and commercial risks.

Avoiding all forms of political risk

Reducing transportation costs

Eliminating the need for local market research

Ensuring complete control over operations

Correct Answer: D

Solution:

Setting up a wholly owned subsidiary allows a firm to have complete control over its operations in the foreign country.

To provide pre-shipment finance

To facilitate duty-free import of capital goods

To offer marine insurance for exports

To issue certificates of origin

Correct Answer: B

Solution:

The EPCG scheme facilitates the duty-free import of capital goods for the production of export goods.

Use of a single currency

Homogeneous customer preferences

Differences in political systems and risks

Uniform business regulations

Correct Answer: C

Solution:

International business is complicated by differences in political systems and risks, which vary from one country to another.

True or False

Correct Answer: True

Solution:

International business transactions involve multiple countries and are subject to their respective rules, laws, and policies.

Correct Answer: True

Solution:

International business involves navigating various complexities such as differing political systems, business practices, and customer preferences across countries, making it more complex than domestic business.

Correct Answer: False

Solution:

International business is a broader term that includes not only the trade of goods and services but also other operations such as production and marketing in foreign countries.

Correct Answer: False

Solution:

Political systems and risks vary considerably across different countries, making international business more complex than domestic business.

Correct Answer: True

Solution:

Establishing a manufacturing facility in a foreign country can save on transportation costs and improve proximity to customers, enhancing service and responsiveness.

Correct Answer: True

Solution:

The bill of entry is indeed a form that must be filled out in triplicate by the importer and submitted to the customs office as part of the import process.

Correct Answer: False

Solution:

The political environment significantly impacts international business operations, requiring firms to adapt to different political systems and risks.

Correct Answer: False

Solution:

A bill of entry is a form supplied by the customs office to the importer, not the exporter, and is to be filled in by the importer at the time of receiving the goods.

Correct Answer: True

Solution:

The bill of entry is indeed a form supplied by the customs office to the importer, which needs to be filled in triplicate at the time of receiving goods.

Correct Answer: True

Solution:

Customer heterogeneity across markets, due to differences in tastes, languages, and customs, complicates the task of designing products and evolving strategies appropriate for customers in different countries.

Correct Answer: False

Solution:

International business is a broader term than international trade. It includes not only trade in goods and services but also production and marketing operations in foreign countries.

Correct Answer: False

Solution:

Political factors such as government type, political risks, and political ideology have a profound impact on international business operations.

Correct Answer: False

Solution:

Pre-shipment finance is necessary for exporters to procure raw materials, process, pack, and transport goods to the port of shipment.

Correct Answer: True

Solution:

Countries have varied business customs and practices, making international business systems more diverse.

Correct Answer: False

Solution:

International business involves not only trade in goods and services but also other operations, such as production and marketing of goods and services in foreign countries.

Correct Answer: True

Solution:

Customers in international markets differ in their socio-cultural backgrounds, leading to variations in demand, communication patterns, and purchase behaviors, which complicates international business.

Correct Answer: False

Solution:

International business is a broader concept that includes not only trade in goods and services but also other operations such as production and marketing in foreign countries.

Correct Answer: False

Solution:

Conducting and managing international business operations is more complex than undertaking domestic business due to differences in nationality, mobility of factors of production, and business practices.

Correct Answer: True

Solution:

Pre-shipment finance is obtained by exporters to cover the costs of procuring raw materials, processing, packing, and transporting goods to the port of shipment.

Correct Answer: True

Solution:

International business requires adaptation to diverse environments, making it more complex than domestic business.

Correct Answer: True

Solution:

The bill of entry is a form supplied by the customs office to the importer and must be filled in triplicate. It contains details such as the name and address of the importer, description of goods, and customs duty payable.

Correct Answer: False

Solution:

A sight draft requires the bank to hand over the documents to the importer only against payment, not acceptance.

Correct Answer: False

Solution:

International business transactions are subject to the rules, laws, and policies of multiple countries, making them more complex than domestic business transactions.

Correct Answer: True

Solution:

The bill of entry is a form supplied by the customs office to the importer and must be submitted in triplicate to the customs office.

Correct Answer: True

Solution:

The bill of entry is a form supplied by the customs office to the importer and must be filled in at the time of receiving goods.

Correct Answer: False

Solution:

In an export-import transaction, a bill of exchange is drawn by the exporter on the importer, asking the latter to pay a certain amount to a certain person or the bearer of the bill.

Correct Answer: True

Solution:

Political factors such as the type of government, political risks, and political ideology have a profound impact on international business operations.

Correct Answer: False

Solution:

A bill of exchange is a written instrument directing a party to pay a specified amount, but it does not guarantee payment like a letter of credit does.

Correct Answer: True

Solution:

The political environment, including the type of government and political risks, varies from one country to another, making international business operations more complex than domestic ones.

Correct Answer: True

Solution:

A bill of lading is a document of title, allowing the transfer of ownership through endorsement and delivery.

Correct Answer: False

Solution:

The political environment differs from one country to another, and international businesspersons need to make special efforts to understand these differences and their business implications.

Correct Answer: False

Solution:

Pre-shipment inspection is not compulsory for all goods; it is mandatory only for certain products as designated by the government, and exemptions exist for certain types of export firms.

Correct Answer: True

Solution:

A marine insurance policy is a contract where the insurance company agrees to indemnify the insured against losses incurred due to sea perils, in exchange for a premium.

Correct Answer: True

Solution:

A letter of credit is issued by the importer's bank to guarantee payment of export bills to the exporter's bank, making it a secure method of payment in international transactions.

Correct Answer: False

Solution:

Setting up a wholly owned subsidiary involves establishing a new company in a foreign country, whereas contract manufacturing involves outsourcing production to a foreign company without setting up a new entity.

Correct Answer: False

Solution:

A bill of entry is a form supplied by the customs office to the importer, not the exporter. It is filled in by the importer at the time of receiving the goods.

Correct Answer: True

Solution:

Different countries have distinct political systems and risks, which can significantly impact international business operations.

Correct Answer: True

Solution:

Pre-shipment finance is the finance that the exporter needs for procuring raw materials, processing, packing, and transporting goods to the port of shipment.

Correct Answer: False

Solution:

International business is a broader term than international trade. While international trade refers to the exchange of goods and services across borders, international business includes not only trade but also other operations such as production and marketing in foreign countries.

Correct Answer: True

Solution:

The EPCG scheme allows import of capital goods at zero customs duty for pre-production, production, and post-production, with an obligation to export goods worth a certain multiple of the duty saved.

Correct Answer: True

Solution:

Setting up a wholly owned subsidiary in a foreign country is a way for firms to engage in international business.

Correct Answer: False

Solution:

Pre-shipment inspection is not compulsory for goods exported by star trading houses, trading houses, export houses, industrial units set up in export processing zones, and 100% export-oriented units.

Correct Answer: True

Solution:

Due to differences in socio-cultural backgrounds, tastes, and preferences, designing products and strategies for international markets is more complex.

Correct Answer: True

Solution:

The degree of mobility of factors of production such as labor and capital is relatively more within a country compared to across different nations.

Correct Answer: True

Solution:

The shipping bill contains particulars of the goods being exported and is the primary document for customs to grant export permission.

Correct Answer: True

Solution:

A letter of credit is a guarantee issued by the importer's bank that it will honor payment of export bills to the exporter's bank up to a certain amount, making it a secure method of payment for international transactions.

Correct Answer: True

Solution:

International business operations are more complex than domestic business because they involve dealing with different political, social, cultural, and economic environments across countries, which require adaptation of business strategies.

Correct Answer: True

Solution:

A bill of lading is a document issued by a shipping company as an official receipt of the goods put on board its vessel and serves as a document of title to the goods.

Correct Answer: True

Solution:

International business is a broader term than international trade, as it includes not only the exchange of goods and services but also other operations like production and marketing in foreign countries.

International Business

AI Learning Assistant

Summary

Chapter 11: International Business

Learning Objectives

Summary

Major Differences between Domestic and International Business

Common Documents in Export Transactions

Common Documents in Import Transactions

Advantages and Limitations of Wholly Owned Subsidiaries

Advantages

Limitations

Key Terms

Important Notes

Learning Objectives

Learning Objectives

Detailed Notes

Chapter 11: International Business

Learning Objectives

Summary

Key Terms

Major Documents Needed in Connection with Export Transaction

Export-Import Procedures

Export Procedure

Import Procedure

Advantages and Limitations of Wholly Owned Subsidiaries

Advantages

Limitations

Exam Tips & Common Mistakes

Common Mistakes and Exam Tips in International Business

Common Pitfalls

Exam Tips

Practice & Assessment

Multiple Choice Questions

Q1.What is the purpose of a 'sight draft' in international trade?

Correct Answer: B

Q2.Mr. Manchanda is considering entering international business. Which of the following strategies is NOT mentioned as a potential approach for him?

Correct Answer: C

Q3.What is a bill of exchange in the context of international trade?

Correct Answer: B

Q4.In the context of international business, which of the following documents is essential for an importer to legally receive goods from customs upon arrival?

Correct Answer: A

Q5.What is the primary function of a letter of credit in international trade?

Correct Answer: B

Q6.In the context of international business, what is a key difference between domestic and international business regarding currency?

Correct Answer: B

Q7.Which document is essential for unloading cargo at the destination port?

Correct Answer: B

Q8.What is the role of the Export Inspection Agency (EIA) in international trade?

Correct Answer: A

Q9.What is the primary difference between domestic and international business?

Correct Answer: A

Q10.In the context of international business, which of the following is a major challenge when setting up a wholly owned subsidiary in a foreign country?

Correct Answer: A

Q11.Which of the following is a key difference between domestic and international business?

Correct Answer: C

Q12.Which of the following best describes 'customer heterogeneity across markets' in international business?

Correct Answer: B

Q13.Which document serves as an official receipt and a document of title to goods in international shipping?

Correct Answer: B

Q14.Which document is essential for an exporter to receive permission from customs to ship goods internationally?

Correct Answer: B

Q15.What is the primary reason for international business being more complex than domestic business?

Correct Answer: A

Q16.Which of the following is a document issued by the customs office to the importer that must be filled out at the time of receiving goods?

Correct Answer: A

Q17.Which document is necessary for the exporter to obtain financial assistance from banks?

Correct Answer: B

Q18.Which of the following is NOT a benefit of international business?

Correct Answer: D

Q19.Which of the following is NOT a reason why international business is more complex than domestic business?

Correct Answer: B

Q20.Which document is essential for unloading cargo in an import transaction?

Correct Answer: B

Q21.Why is pre-shipment inspection important in international trade?

Correct Answer: B

Q22.In the context of international business, which document is essential for the unloading of cargo at the port of destination?

Correct Answer: B

Q23.In the context of international business, which of the following is a challenge due to customer heterogeneity?

Correct Answer: C