In this chapter, we deal with two companies – Eat India Company owned by Pujit and Sidharth and American Bikenerwala owned by Williams. Eat India Company produces ice-creams of various sizes and flavors. The company exports its ice-creams to America.
- Manufacturing and trade take place beyond the boundaries of one’s own country.
- People or organizations of different countries participate.
- Various other stakeholders such as suppliers, employees, middlemen, shareholders and partners are from different nations.
- There is very little movement of factors of production such as labor and capital.
- International markets lack homogeneity (due to difference in language, preferences, customers)
- Business system and practices vary considerably across different countries.
- Countries have different forms of political systems (democracy, dictatorship, communism, capitalism, etc.) and degree of risk which often become a barrier to international business.
- International business transactions are subject to rules, laws and policies, tariffs and quotas, etc. of different countries.
- Multiple currencies are used for international business transactions (You can use dollar, pound, Dirhams, etc.)
- Payments are made through banks or through financial documents.
Benefits of International Trade
Benefits to Nations
- Earning of foreign Exchange (money)
- More efficient use of resources –
- Accelerate Economic Growth
- Increase in Standard of Living
- Stability in Prices
- Promotes Global Understanding
Benefits to Business Firms
- Prospects for higher profits – Big business, big money.
- Increased capacity utilization – Make more, sell more, at a lower cost.
- Way-out of intense competition in domestic market – Say goodbye to Chandni Chowk Market; let’s sell out of the country!
- Prospects for growth – Let’s move out and grow big!
- Improved business vision – Become a BRAND!
- Technological upgradation – Let Papu go home; let the machine come in!
Problems of International Business
- Peter and John are planning to export their Biteries ice-cream to America. His company is registered as Eat India Company. What are the problems Peter is going to face in his business?
Peter will have to face a number of problems in his business as international business involves complicated legal procedures, restrictions, high risks, language problems and currency related problems. For exporting his ice creams, he will have to procure export licence for his firm. It is not very easy to get government approval for export licence. He will have to fill a number of documents and submit them before he starts waiting for their approval. Once licences are sanctioned, Peter will have to be ready to overcome a set of restrictions imposed by the government. Another hurdle that Peter will have to jump is language related problems. His sales will affect in a foreign country if he cannot provide a staff that can explain the quality and features of his ice-cream and the various ways of preserving it in a foreign country. Finally, Peter will have to
- What are the reasons for international business?
Steps Involved in Export
- What are the three kinds of certificates that Peter and John should procure before they could get any pre-shipment finance from banks or similar financiers? (3 marks)
Hints – IEC number (Import Export Code; RCMC (Registration cum Membership Certificate); Registration ECGC (Export Credit Guarantee Corporation)
- What is IEC number? How to procure an IEC number? (2 marks)
Hints – Required to fill in formalities of export procedure;
- What should Peter and John do before starting the production of goods for shipment to America? (4 marks)
- Why is quality checking important before shipment of goods? What are the kinds of quality checking? (4 marks)
Hints – Avoid risk of losing reputation in the international market – 1. consignment-wise checking; 2. in-process quality checking; 3. self quality checking.
- What are the contributions of the WTO to international trade?
Hints – Nature – Sale between nations; trade within agreed limits; settle disputes; smooth and free flow of trade Benefits – Promotes international peace; settles disputes among member nations; smooth trade; preferential treatment; provides quality products; Agreements – GATT, GATS, ATC, TRIPS