NAME OF SUBJECT: INTERNATIONAL BUSINESS PAPER CODE: BBA, LL.B- 411 MAXIMUM MARKS: 30+70=100 TIME ALLOWED: 3 HRS.

INTERNAL ASSESSMENT: 30 MARKS TERM-END EXAMINATION: 70 MARKS Objective: This paper familiarizes the students with the operational processes of business between two or more nations. MODULE-I: Overview. Framework of International Business, Types of International Business, International Business Approaches, Global Marketing Theory of Competitive Advantages, Neo-Classical, Modern Approach to International Business, Problems of Trade and Aid to Developing Countries. MODULE-II: International Business Decision. Mode of Entry, Marketing Mix, Factors Affecting Decisions for International Business, Role of International Institutions like GATT, WTO, IMF, IBRD, IDA, IFC, UNCTAD in International Business; Recent Trends in World Trade; Multi National Corporations and the Trade. MODULE-III: Recent Trends. Recent Trends in Indias Foreign Trade; Export and Import Policy; Trade Policy; Balance of Payment; Custom and Tariff Rationalization . Identifying Foreign Markets and Overseas markets; International Marketing Mix; Product Development, Transfer Logistics and Distribution Channels; Role of Documentation in International Trade; Export Pricing; Methods of International Payments. MODULE-IV: International Capital. International Capital Movement; Risk in International Operations; International Investment; Financing of Foreign Trade; Factor Mobility and Direct Foreign Investment. Export Finance; Pre- and Post- shipment credit. Introduction to FEMA, Insurance. Role of ECGC and Export Promotion Councils. Eurocurrency Market. MODULE-V: Regional Cooperation. Regional Economic Groupings; Major Trading Blocks. Globalization with Social Responsibility. Introduction to International Monetary and Financial System. SUGGESTED READINGS. 1. International Business Governance Structure--- Ramu S. Shiva. 2. International Business Strategy and Administration--- F. John. 3. Multinationals, Technology and Export--- Sanjay Lal. 4. International Business Management--- Robinson D. Richard. 5. International Economics--- P.T. Ellishorth. 6. International Marketing Management--- Varshney and

NAME OF SUBJECT: INTERNATIONAL BUSINESS

PAPER CODE: BBA, LL.B- 411 MODULE-I: Overview. Framework of International Business, Types of International Business, International Business Approaches, Global Marketing Theory of Competitive Advantages, Neo-Classical, Modern Approach to International Business, Problems of Trade and Aid to Developing Countries.

What is International Business? Meaning

International Business conducts business transactions all over the world. These transactions include the transfer of goods, services, technology, managerial knowledge, and capital to other countries. International business involves exports and imports. International Business is also known, called or referred as a Global Business or an International Marketing.

1. Large scale operations : In international business, all the operations are conducted on a very huge scale. Production and marketing activities are conducted on a large scale. It first sells its goods in the local market. Then the surplus goods are exported. 2. Intergration of economies : International business integrates (combines) the economies of many countries. This is because it uses finance from one country, labour from another country, and infrastructure from another country. It designs the product in one country, produces its parts in many different countries and assembles the product in another country. It sells the product in many countries, i.e. in the international market. 3. Dominated by developed countries and MNCs : International business is dominated by developed countries and their multinational corporations (MNCs). At present, MNCs from USA, Europe and Japan dominate (fully control) foreign trade. This is because they
2

4.

5.

6.

7.

8.

have large financial and other resources. They also have the best technology and research and development (R & D). They have highly skilled employees and managers because they give very high salaries and other benefits. Therefore, they produce good quality goods and services at low prices. This helps them to capture and dominate the world market. Benefits to participating countries : International business gives benefits to all participating countries. However, the developed (rich) countries get the maximum benefits. The developing (poor) countries also get benefits. They get foreign capital and technology. They get rapid industrial development. They get more employment opportunities. All this results in economic development of the developing countries. Therefore, developing countries open up their economies through liberal economic policies. Keen competition: International business has to face keen (too much) competition in the world market. The competition is between unequal partners i.e. developed and developing countries. In this keen competition, developed countries and their MNCs are in a favorable position because they produce superior quality goods and services at very low prices. Developed countries also have many contacts in the world market. So, developing countries find it very difficult to face competition from developed countries. Special role of science and technology : International business gives a lot of importance to science and technology. Science and Technology (S & T) help the business to have large-scale production. Developed countries use high technologies. Therefore, they dominate global business. International business helps them to transfer such top high-end technologies to the developing countries. International restrictions : International business faces many restrictions on the inflow and outflow of capital, technology and goods. Many governments do not allow international businesses to enter their countries. They have many trade blocks, tariff barriers, foreign exchange restrictions, etc. All this is harmful to international business. Sensitive nature : The international business is very sensitive in nature. Any changes in the economic policies, technology, political environment, etc. has a huge impact on it. Therefore, international business must conduct marketing research to find out and study these changes. They must adjust their business activities and adapt accordingly to survive changes.

Types of International Business: The commercial transactions basically include sales,

investments, logistics, transportations, and other related activities. It is generally made up of transactions and collaborations that are concocted and carried out across the national borders to gratify the strategic content and aims of business companies, organizations, and investors. There are two major types of international business. These are the trade and investments. Trade which is also referred to as commerce is the exchange of products and goods that are carried from one nation to another. In the old days, transporting these goods was very difficult which restricted this certain type of international process. However, with the improvement of transportation networks, todays trading process takes place even with the neighboring continents. One fundamental advantage of foreign trade is described in the principle of the comparative advantage. This principle states that a country can still gain from trading certain
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products even if its trading partner can create those products more cheaply. The comparative advantage occurs when each trading partner has a product that will make a better price in another state than it will at home. The other major type of international business is the investment. Investment is normally defined as that act of spending or saving money for future financial profit. It includes the importing of durable goods such as cars from another country. There is also the direct foreign investment which is carried out in different forms. This includes the wholly owned auxiliary and joint ventures. Other minor types of international business are management contracts, licensing, and franchising. Purposes for international business also vary from the entity whose managing it. Normally, most private companies commence such transactions in the international business for profit gain. On the other hand, government typically carries out these transactions for political reasons.

Different approaches of international business are given below:

Ethnocentric is a staffing policy that is used in companies that has primarily international strategic orientation. This policy is generally adopted by headquarters by sending employees from the home or parent countries to the host country. This approach is used best in some situations such as, a team is sent from the home country to help setting up a new plant as well as train subsidiary personnel to use new system. The benefit of having staffs from home country abroad is that employees may gain experiences worldwide in order to become higher level in management of their headquarters because international managers require broad perspective and international exposure. Polycentric is the policy involved hiring and promoting employees who are citizens of the host countries that the subsidiary is operated. This policy is best used when companies want to keep hiring cost low. Moreover, employees who are hired at subsidiary level would not have any problem adapting to the culture. Communication is smooth within the operation. Regiocentric staffing policy involves hiring and promoting employees based on specific regional context where subsidiary is located. This approach is used when regional employees are needed for important positions. However, both employees from host countries and a third country are employed. The disadvantage of using this type of policy is that sometimes employees from home or host countries are not unselected. Instead, employees from a third are selected to subsidiary in which they may face cultural differences. Geocentric staffing approach is used when companies adopt a transnational orientation. It is best used when companies need the best personnel to work at subsidiary. Employees are selected regardless where they come from. This staffing strategy is reliable for all subsidiaries because best employees are selected and sent from the companys worldwide network.

Business

Environment

has
Internal

two

components

(Types)
Environment

1. 2. External Environment

Internal Environment: It includes 5 Ms i.e. man, material, money, machinery and management, usually within the control of business. Business can make changes in these factors according to the change in the functioning of enterprise. External Environment: Those factors which are beyond the control of business enterprise are included in external environment. These factors are: Government and Legal factors, GeoPhysical Factors, Political Factors, Socio-Cultural Factors, Demo-Graphical factors etc. It is of two Types: 1. Micro/Operating Environment 2. Macro/General Environment Micro/Operating Environment: The environment which is close to business and affects its capacity to work is known as Micro or Operating Environment. It consists of Suppliers, Customers, Market Intermediaries, Competitors and Public. (1) Suppliers: They are the persons who supply raw material and required components to the company. They must be reliable and business must have multiple suppliers i.e. they should not depend upon only one supplier. (2) Customers: - Customers are regarded as the king of the market. Success of every business depends upon the level of their customers satisfaction. Types of Customers: (i) Wholesalers (ii) Retailers (iii) Industries (iv) Government and Other Institutions (v) Foreigners (3) Market Intermediaries: - They work as a link between business and final consumers. Types:(i) Middleman (ii) Marketing Agencies (iii) Financial Intermediaries (iv) Physical Intermediaries (4) Competitors: - Every move of the competitors affects the business. Business has to adjust itself according to the strategies of the Competitors. (5) Public: - Any group who has actual interest in business enterprise is termed as public e.g. media and local public. They may be the users or non-users of the product.

Macro/General Environment: It includes factors that create opportunities and threats to business units. Following are the elements of Macro Environment: (1) Economic Environment: - It is very complex and dynamic in nature that keeps on changing with the change in policies or political situations. It has three elements: (i) Economic Conditions of Public (ii) Economic Policies of the country (iii)Economic System (iv) Other Economic Factors: Infrastructural Facilities, Banking, Insurance companies, money markets, capital markets etc. (2) Non-Economic Environment: - Following are included in non-economic environment:(i) Political Environment: - It affects different business units extensively. Components: (a) Political Belief of Government (b) Political Strength of the Country (c) Relation with other countries (d) Defense and Military Policies (e) Centre State Relationship in the Country (f) Thinking Opposition Parties towards Business Unit (ii) Socio-Cultural Environment: - Influence exercised by social and cultural factors, not within the control of business, is known as Socio-Cultural Environment. These factors include: attitude of people to work, family system, caste system, religion, education, marriage etc. (iii) Technological Environment: - A systematic application of scientific knowledge to practical task is known as technology. Everyday there has been vast changes in products, services, lifestyles and living conditions, these changes must be analysed by every business unit and should adapt these changes. (iv) Natural Environment: - It includes natural resources, weather, climatic conditions, port facilities, topographical factors such as soil, sea, rivers, rainfall etc. Every business unit must look for these factors before choosing the location for their business. (v) Demographic Environment :- It is a study of perspective of population i.e. its size, standard of living, growth rate, age-sex composition, family size, income level (upper level, middle level and lower level), education level etc. Every business unit must see these features of population and recongnise their various need and produce accordingly. (vi) International Environment: - It is particularly important for industries directly depending on import or exports. The factors that affect the business are: Globalisation, Liberalisation, foreign business policies, cultural exchange.

Characteristics:1. Business environment is compound in nature. 2. Business environment is constantly changing process. 3. Business environment is different for different business units. 4. It has both long term and short term impact. 5. Unlimited influence of external environment factors. 6. It is very uncertain. 7. Inter-related components. 8. It includes both internal and external environment.

Theories of International Trade: Mercantilism

According to Wild, 2000, the trade theory that states that nations should accumulate financial wealth, usually in the form of gold, by encouraging exports and discouraging imports is called mercantilism. According to this theory other measures of countries' well being, such as living standards or human development, are irrelevant. Mainly Great Britain, France, the Netherlands, Portugal and Spain used mercantilism during the 1500s to the late 1700s. Mercantilist countries practiced the so-called zero-sum game, which meant that world wealth was limited and that countries only could increase their share at expense of their neighbors. The economic development was prevented when the mercantilist countries paid the colonies little for export and charged them high price for import. The main problem with mercantilism is that all countries engaged in export but was restricted from import, prevention from development of international trade.

Absolute Advantage
The Scottish economist Adam Smith developed the trade theory of absolute advantage in 1776. A country that has an absolute advantage produces greater output of a good or service than other countries using the same amount of resources. Smith stated that tariffs and quotas should not restrict international trade; it should be allowed to flow according to market forces. Contrary to mercantilism Smith argued that a country should concentrate on production of goods in which
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it holds an absolute advantage. No country would then need to produce all the goods it consumed. The theory of absolute advantage destroys the mercantilistic idea that international trade is a zero-sum game. According to the absolute advantage theory, international trade is a positive-sum game, because there are gains for both countries to an exchange. Unlike mercantilism this theory measures the nation's wealth by the living standards of its people and not by gold and silver. There is a potential problem with absolute advantage. If there is one country that does not have an absolute advantage in the production of any product, will there still be benefit to trade, and will trade even occur? The answer may be found in the extension of absolute advantage, the theory of comparative advantage.

Comparative Advantage
The most basic concept in the whole of international trade theory is the principle of comparative advantage, first introduced by David Ricardo in 1817. It remains a major influence on much international trade policy and is therefore important in understanding the modern global economy. The principle of comparative advantage states that a country should specialise in producing and exporting those products in which is has a comparative, or relative cost, advantage compared with other countries and should import those goods in which it has a comparative disadvantage. Out of such specialization, it is argued, will accrue greater benefit for all. In this theory there are several assumptions that limit the real-world application. The assumption that countries are driven only by the maximization of production and consumption, and not by issues out of concern for workers or consumers is a mistake.

Heckscher-Ohlin Theory
In the early 1900s an international trade theory called factor proportions theory emerged by two Swedish economists, Eli Heckscher and Bertil Ohlin. This theory is also called the Heckscher-Ohlin theory. The Heckscher-Ohlin theory stresses that countries should produce and export goods that require resources (factors) that are abundant and import goods that require resources in short supply. This theory differs from the theories of comparative advantage and absolute advantage since these theory focuses on the productivity of the production process for a particular good. On the contrary, the Heckscher-Ohlin theory states that a country should specialise production and export using the factors that are most abundant, and thus the cheapest. Not produce, as earlier theories stated, the goods it produces most efficiently. The Heckscher-Ohlin theory is preferred to the Ricardo theory by many economists, because it makes fewer simplifying assumptions. In 1953, Wassily Leontief published a study, where he tested the validity of the Heckscher-Ohlin theory. The study showed that the U.S was more abundant in capital compared to other countries, therefore the U.S would export capitalintensive goods and import labour-intensive goods. Leontief found out that the U.S's export was less capital intensive than import.
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Product Life Cycle Theory

Raymond Vernon developed the international product life cycle theory in the 1960s. The international product life cycle theory stresses that a company will begin to export its product and later take on foreign direct investment as the product moves through its life cycle. Eventually a country's export becomes its import. Although the model is developed around the U.S, it can be generalised and applied to any of the developed and innovative markets of the world. The product life cycle theory was developed during the 1960s and focused on the U.S since most innovations came from that market. This was an applicable theory at that time since the U.S dominated the world trade. Today, the U.S is no longer the only innovator of products in the world. Today companies design new products and modify them much quicker than before. Companies are forced to introduce the products in many different markets at the same time to gain cost benefits before its sales declines. The theory does not explain trade patterns of today.

Summary
Mercantilism proposed that a country should try to export more than it imports, in order to receive gold. The main criticism of mercantilism is that countries are restricted from import, a prevention of international trade. Adam Smith developed the theory of absolute advantage that stressed that a country should produce goods or services if it uses a lesser amount of resources than other countries. David Ricardo stated in his theory of comparative advantage that a country should specialize in producing and exporting products in which it has a comparative advantage and it should import goods in which it has a comparative disadvantage. Hecksher-Ohlin's theory of factor endowments stressed that a country should produce and export goods that require resources (factors) that are abundant in the home country. Leontief tested the Hecksher-Ohlin theory in the U.S. and found that it was not applicable in the U.S. Raymond Vernon's product life cycle theory stresses that a company will begin to export its product and later take on foreign direct investment as the product moves through its life cycle. Eventually a country's export becomes its import. *Why countries engage in trade Is trade advantageous? What are the reasons that move private individuals and firms to voluntarily engage in trade, governments to favour it and economists to defend it? Trends in World and Agricultural Trade, long-term international trade flows in a wide range of commodities have steadily increased over hundreds of years and they have accelerated spectacularly since the Second World War. This is surely not just because transport and communications facilities have dramatically improved, but it must also be because benefits are derived from trade. Economists have put forward a number of arguments in favour of trade; some are rather obvious and common sense, others are less evident. These arguments can be classified into three groups according to whether they emphasize (i) the increase that trade can bring to the total amount of goods and services available to the national population (increased consumption argument), (ii)
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the diversity of goods and services made available through trade to this population (diversification argument), or (iii) the stability in the supply and prices of goods and services brought about by trade (stability argument).

Developing countries and trade

Introduction: International trade is an important source of foreign income in almost all developing economies, these countries are referred to as developing due to their low GDP level and they are faced with high levels of poverty and unemployment, according to David Ricardo and Adam smith international trade plays a crucial role in the development of an economy, the Mercantile theory of development states that trade led to the wealth of nation. Some of these problems are external while others are internal problem. Some external problems include competition in the global market, tariffs and other trade barriers, required quality standards. Some internal problems include high cost of production, tariffs of inputs.

Trade Problems for Developing Countries

Developing countries believe they get a raw deal when it comes to international trade. These problems include:

Relying on only one or two primary goods as their main exports They cannot control the price they get for these goods The price they pay for manufactured goods increases all the time As the value of their exports changes so much long term planning is impossible Increasing the amount of the primary good they produce would cause the world price to fall.

Developing countries that try to export manufactured goods find that trade barriers are put in their way. There are two types of trade barrier - quotas and tariffs. 1. A quota is a limit on the amount of goods a country can export to another country 2. A tariff is a tax on imports

Other problems that developing countries face are they are short of the money that is needed to set up new businesses and industries. Also, developing countries have fewer people who have the wealth to buy the goods made in local industries.

Other

Problems

of

Developing

Countries

in

International

Trade

There are various problems that developing countries face in international trade which will be discussed; this paper also provides possible solutions to these problems of trade. Some of the problems include trade barriers, unfavorable terms of trade, high quality standards.
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Agricultural sector: A large portion of GDP in developing countries depend on agriculture, agriculture helps in providing food to the population, providing employment and surplus is exported to other countries. Foreign income highly depends on agricultural products exported and also tourism, however agriculture plays an important role in these countries in providing employment and food, there are various problems that these developing countries face in this sector and they include: Trade barriers: High tariffs are imposed on imports in international trade; tariffs are a source of revenue to the government but at the same time they restrict the level of imports in a country Infant Industry Argument:

If developing countries wish to develop new manufacturing industries they may struggle to compete on an international scale. Therefore, in the short run at least, they may need tariff protection to enable their industries to develop. After a few years they may be able to reduce these tariffs. Many developed countries used tariff protection in the past, especially the Asian "Tiger Economies" In this regard, it is said free trade usually benefits developed countries more than developing countries. May Prevent Diversification:

The lewis model of development suggests that development needs economies to switch from agricultural sector to industrial sector. This is because the marginal cost of production in agriculture is nearly zero. Therefore, moving to industrial production will be relatively costless. However, to diversify an economy protection may be needed. Otherwise developing economies will be stuck with the production of primary products. This makes the economy vulnerable to fluctuations in prices; there is also a low income elasticity of demand for products Environmental Free trade and the force of globalization may lead to exploitation of natural resources. Damage:

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MODULE-II: International Business Decision. Mode of Entry, Marketing Mix, Factors Affecting Decisions for International Business, Role of International Institutions like GATT, WTO, IMF, IBRD, IDA, IFC, UNCTAD in International Business; Recent Trends in World Trade; Multi National Corporations and the Trade.

Modes of entry into an International Business:There are some basic decisions that the firm must take before foreign expansion like: which markets to enter, when to enter those markets, and on what scale. Which foreign markets? -The choice based on nations long run profit potential.-Look in detail at economic and political factors which influence foreign markets.-Long run benefits of doing business in a country depends on following factors:- Size of market (in terms of demographics)- The present wealth of consumer markets (purchasing power)- Nature of competition By considering such factors firm can rank countries in terms of their attractiveness and long-run profit. Timing of entry:It is important to consider the timing of entry. Entry is early when an international business enters a foreign market before other foreign firms. And late when it enters after other international businesses. The advantage is when firms enters early in the foreign market commonly known as first-mover advantages First mover advantage;1. its the ability to prevent rivals and capture demand by establishing a strong brandname.2. Ability to build sales volume in that country.so that they can drive them out of market.3. Ability to create customer relationship .Disadvantage:1.firm has to devote effort, time and expense to learning the rules of the country.2.risk is high for business failure(probability increases if business enters a national market after several other firms they can learn from other early firms mistakes).

Modes of entry:-1. Exporting 2. Licensing 3. Franchising 4. Turnkey Project 5. Mergers & Acquisitions 6. Joint Venture 7. Wholly Owned Subsidiary 1.Exporting :It means the sale abroad of an item produced ,stored or processed in thesupplying firms home country. It is a convenient method to increase thesales. Passive exporting occurs when a firm receives canvassedthem. Active exporting conversely results from a strategic decision toestablish proper systems for organizing the export fuctions and for procuring foreign sales. Advantages Of Exporting: :a.Need for limited finance

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;If the company selects a company in the host country to distribute thecompany can enter international market with no or less financialresources but this amount would be quite less compared to that would be necessary under other modes. b.Less Risks ;Exporting involves less risk as the company understand the culture ,customer and the market of the host country gradually. Later after understanding the host country the company can enter on a full scale. c.Motivation for exporting :Motivation for exporting are proactive and reactive. Proactivemotivations are opportunities available in the host country. Reactivemotivators are those efforts taken by the company to export the product to a foreign country due to the decline in demand for its product in the home country. 2.Licensing : In this mode of entry ,the domestic manufacturer leases the right to use its intellectual property (ie) technology , copy rights ,brand name etc toa manufacturer in a foreign country for a fee. Here the manufacturer in thedomestic country is called licensor and the manufacturer in the foreign iscalled licensee. The cost of entering market through this mode is lesscostly. The domestic company can choose any international location andenjoy the advantages without incurring any obligations and responsibilitiesof ownership ,managerial ,investment etc. Advantages ;1. Low investment on the part of licensor.2. Low financial risk to the licensor 3. Licensor can investigate the foreign market without much efforts onhis part.4. Licensee gets the benefits with less investment on research anddevelopment5. Licensee escapes himself from the risk of product failure. Disadvantages :1. It reduces market opportunities for both2. Both parties have to maintain the product quality and promote the product . Therefore one party can affect the other through their improper acts.3. Chance for misunderstanding between the parties. 4. Chance for leakages of the trade secrets of the licensor.5. Licensee may develop his reputation6. Licensee may sell the product outside the agreed territory and after theexpiry of the contract. 3. Franchising Under franchising an independent organization called the franchisee operates the business under the name of another company called the franchisor under this agreement the franchisee pays a fee to the franchisor. The franchisor provides the following services to the franchisee. 1. Trade marks 2. Operating System 3. Product reputation 4. Continuous support system like advertising , employee training ,reservation services quality assurances program etc. Advantages: 1. Low investment and low risk 2. Franchisor can get the information regarding the market culture,customs and environment of the host country.3. Franchisor learns more from the experience of the franchisees.4. Franchisee get the benefits of R& D with low cost.5. Franchisee escapes from the risk of product failure.
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Disadvantages: 1. It may be more complicating than domestic franchising.2. It is difficult to control the international franchisee.3. It reduce the market opportunities for both4. Both the parties have the responsibilities to maintain product qualityand product promotion.5. There is a problem of leakage of trade secrets. 4.Turnkey Project A turnkey project is a contract under which a firm agrees to fullydesign , construct and equip a manufacturing/ business/services facilityand turn the project over to the purchase when it is ready for operation for a remuneration like a fixed price , payment on cost plus basis. This form of pricing allows the company to shift the risk of inflation enhanced coststo the purchaser. Eg nuclear power plants , airports,oil refinery , nationalhighways , railway line etc. Hence they are multiyear project. 5.Acquisitions & Mergers :A mergers is a voluntary and permanent combination of business whereby one or more firms integrate their operations and identities with those of another and henceforth work under a common name andin the interests of the newly formed amalgamations. Motives for acquisitions: 1. Removal of competitor 2. Reduction of the Co failure through spreading risk over a wider range of activities.3. The desire to acquire business already trading in certainmarkets & possessing certain specialist employees &equipments.4. Obtaining patents, license & intellectual property.5. Economies of scale possibly made through more extensiveoperations.6. Acquisition of land, building & other fixed asset that can be profitably sold off.7. The ability to control supplies of raw materials.8. Expert use of resources.9. Tax consideration.10. Desire to become involved with new technologies &management method particularly in high risk industries. Disadvantages: 1. Acquiring a firm in a foreign country is a complex task involving bankers, lawyers regulation, mergers and acquisition specialists fromthe two countries.2. This strategy adds no capacity to the industry.3. Sometimes host countries imposed restrictions on acquisition of localcompanies by the foreign companies.4. Labour problem of the host countrys companies are also transferred tothe acquired company. 6.Joint Venture Two or more firm join together to create a new business entity that islegally separate and distinct from its parents. It involves shared ownership.Various environmental factors like social , technological economic and political encourage the formation of joint ventures. It provides strength in terms of required capital. Latest technology required human talent etc. andenable the

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companies to share the risk in the foreign markets. This act improves the local image in the host country and also satisfies the governmental joint venture. Advantages :1. Joint venture provide large capital funds suitable for major projects.2. It spread the risk between or among partners.3. It provide skills like technical skills, technology, human skills ,expertise , marketing skills.4. It make large projects and turn key projects feasible and possible.5. It synergy due to combined efforts of varied parties. Disadvantages: 1. Conflict may arise2. Partner delay the decision making once the dispute arises. Then theoperations become unresponsive and inefficient.3. Life cycle of a joint venture is hindered by many causes of collapse.4. Scope for collapse of a joint venture is more due to entry of competitors changes in the partners strength.5. The decision making is slowed down in joint ventures due to theinvolvement of a number of parties. 8.Wholly Owned Subsidiary Subsidiary means individual body under parent body. This Subsidiary or individual body as per their own generates revenue. They give their own rent, salary to employees, etc. But policies and trademark will be implemented from the Parent body. There are no branches here. Only the certain percentage of the profit will be given to the parent body. A subsidiary, in business matters, is an entity that is controlled by a bigger and more powerful entity. The controlled entity is called a company, corporation, or limited liability company, and the controlling entity is called its parent (or the parent company). The reason for this distinction is that alone company cannot be a subsidiary of any organization; only an entity representing a fictions a separate entity can be a subsidiary. While individuals have the capacity to act on their own initiative, a business entity can only act through its directors, officers and employees. The most common way that control of a subsidiary is achieved is through the ownership of shares in the subsidiary by the parent. These shares give the parent the necessary votes to determine the composition of the board of the subsidiary and so exercise control. This gives rise to the common presumption that 50% plus one share is enough to create a subsidiary. There are, however, other ways that control can come about and the exact rules both as to what control is needed and how it is achieved can be complex (see below). A subsidiary may itself have subsidiaries, and these, in turn, mayhave subsidiaries of their own. A parent and all its subsidiaries together arecalled a group, although this term can also apply to cooperating companiesand their subsidiaries with varying degrees of shared ownership.Subsidiaries are separate, distinctlegalentities for the purposes of taxation andregulation. For this reason, they differ from divisions, which are businesses fully integrated within the main company, and not legally or otherwise distinct from it.Subsidiaries are a common feature of business life and most if not all major businesses organize their operations in this way. Examples includeholdingcompaniessuch asBerkshire Hathaway,Time Warner ,
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or Citigroupas well as more focused companies such asIBM, or Xerox Corporation. These, and others, organize their businesses into national or functional subsidiaries,sometimes with multiple levels of subsidiaries.

THE INTERNATIONAL MARKETING MIX

When launching a product into foreign markets firms can use a standard marketing mix or adapt the marketing mix, to suit the country they are carrying out their business activities in. This article talks you through each element of the marketing mix and the arguments for and against adapting it suit each foreign market.

International Marketing Mix: Product Basic marketing concepts tell us that we will sell more of a product if we aim to meet the needs of our target market. In international markets this will involve taking into consideration a number of different factors including consumer's cultural backgrounds, religion, buying habits and levels of personal disposable income. In many circumstances a company will have to adapt their product and marketing mix strategy to meet local "needs and wants" that cannot be changed. Mcdonald is a global player however, their burgers are adapted to local needs. In India where a cow is a sacred animal their burgers contain chicken or fish instead of beef. In Mexico McDonalds burgers come with chilli sauce. Coca-cola is some parts of the world taste sweeter than in other places.

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The arguments for standardization state that the process of adapting the product to local markets does little more than add to the overall cost of producing the product and weakens the brand on the global scale. In todays global world, where consumers travel more, watch satellite television, communicate and shop internationally over the internet, the world is a smaller than it used to be. Because of this there is no need to adapt products to local markets. Brands such as MTV, Nike, Levis are all successful global brands where they have a standardized approach to their marketing mix, all these products are targeted at similar groups globally. As you can see both strategies; using a standard product and an customized product can work just as well. The right approach for each organisation will depend on their product, strength of the brand and the foreign market that the marketing is aimed at. International Marketing Mix: Promotion As with international product decisions an organisation can either adapt or standardize their promotional strategy and message. Advertising messages in countries may have to be adapted because of language, political climate, cultural attitudes and religious practices. For example a promotional strategy in one country could cause offence in another. Every aspect of promotional detail will require research and planning one example is the use of colour; red is lucky in China and worm by brides in India, whilst white is worn by mourners in india and China and brides in the United Kingdom. Many organisations adapt promotion strategies to suit local markets as cultural backgrounds and practices affect what appeals to consumers. The level of media development and availability will also need to be taken into account. Is commercial television well established in your host country? What is the level of television penetration? How much control does the government have over advertising on TV, radio and Internet? Is print media more popular than TV? International Marketing Mix: Pricing Pricing on an international scale is a complex task. As well as taking into account traditional price considerations such as fixed and variable costs, competition and target groups an organisation needs to consider additional factor such as -the cost of transport -tariffs or import duties -exchange rate fluctuations -personal disposal incomes of the target market -the currency they want to be paid in and -the general economic situation of the country and how this will influence pricing. The internet has created further challenges as customers can view global prices and purchase items from around the world. This has increased the level of competition and with it pricing pressures, as global competitors may have lower operating costs.

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International Marketing Mix: Place The Place element of the marketing mix is about distributing a product or service to the customer, at the right place and at the right time. Distribution in national markets such as the United Kingdom will probably involve goods being moved in a chain from the manufacturer to wholesalers and onto retailers for consumers to buy from. In an overseas market there will be more parties involved because the goods need to be moved around a foreign market where business practices will be different to national markets. For example in Japan there are approximately five different types of wholesaler involved in the distribution chain. Businesses will need to investigate distribution chains for each country they would like to operate in. They will also need to investigate who they would like to sell their products and services to businesses, retailers, wholesaler or directly to consumers. The distribution strategy for each country a business operates in could be different due to profit margins and transportation costs.

Factors Affecting Decisions for International Business

1.Technological factor Advances in technology can help improve productivity of labour,also as reduce transportation costs,distribution costs,communication costs and production costs.Examples of it include changes that affect the production and distribution of a product or services. 2. economic factor Economic factor affects the overall consumption and investment in a business. A stable economy attracts firms that wish to do business.An unstable economy however increases business rioisks and even deters investment. Examples of it include national income, taxation policy, foreign exchange policy,inflation rate,etc. 3. physical factor It refers to the physical location and natural environment which directly affects the economic devbelopment of the countries or a region.A favourable physical environment with well-planned infrastructures likes the airport and transport facilities can attract firms. 4. Social and cultural factor Social factor affects the productivity and labour supply.Examples of it includes the population structure,language ability,education level,etc.Cultural factor affects trhe taste and preferences of costumers.Examples of it include whether a country encourage women to go out and work and enphasis on virtue of hard work. 5. Political factor This is related to the political system,laws and regulations of a country.Political systems can be classified as aurhoritarian and democratic. Laws and regulations' examples include licensing laws,customes laws,and labour laws,sorry it should be licensing regulations. A country with sound legal system and stable politial condition can attract investments as it enhances investors' confidence.

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6.Environmental factors: -Competitors: A business makes many decisions about the direction to go based on the the
success, or lack thereof, of its competitors. From the customers' standpoint, competition provides choice. Businesses must analyze competitors to find and exploit weaknesses to gain increased market share. Businesses often conduct analyses to help identify strengths and weaknesses of current competitors and threats which can come from future competitors in the marketplace.

-Customers: Customers provide the backbone of success for any business, whether businessto-consumer or business-to-business. According to James Neblett--a presenter at the 2004 International Association for Management of Technology conference--businesses must conduct research in their industries to determine levels of product demand by customers, which provides foundations for company sales and profits. For a company to be successful, it must also keep up with changing customer views, attitudes and demand for products and services. -Suppliers: The role of suppliers for a business is critical, as the business is reliant on a third party which can exert considerable influence. This environmental factor, according to James Neblett, involves the number of suppliers in the industry and the suppliers'--as well as the company's--bargaining power. For example, a few large suppliers that dominate the market and supply material for which there is no good substitute often means that companies needing those supplies pay higher prices.

-Economics and Geography

Economic and geographic environmental factors impact businesses that are beginning, expanding or currently competing. Businesses often take into consideration the overall economic conditions in a country, such as whether a recession or boom is underway. Businesses also consider geographic and climactic factors. For example, a company that relies on vegetable or fruit crops must consider seasonal temperatures, rainfall and other conditions.

**Role of International Institutions like GATT, WTO, IMF, IBRD, IDA, IFC, UNCTAD in International Business, Recent Trends in World Trade: NOTE: (SEE THE BOOK ON INTERNATIONAL TRADE, INTERNATIONAL
BUSINESS, INDIAN ECONOMY) GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT) The General Agreement on Tariffs and Trade (GATT) is an organization based in Geneva, Switzerland. It was founded in 1947. Most developed countries are members. Increasingly, less
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developed countries are joining, for example several Central American countries became members in the early 1990s. Although membership is considered prestigious, it requires eliminating, usually over a number of years, protectionist trade policies, often to the detriment of long protected domestic industries. As was the case in Mexico, this can be a painful process and can lead, at least initially, to balance of payment deficits where none occurred before. GATT's purpose is to promote international free trade. It does this mainly through trade negotiations conducted in "rounds" which usually last several years. The most recent was the "Uruguay Round", named for the country where the opening negotiating session was held. The Uruguay Round focused on liberalizing trade in services and agricultural products. The round almost collapsed due to differences between the United States and France over agricultural subsidies and French efforts to protect its domestic film industry. After a last minute compromise, the round was concluded in December 1993. NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA) The North American Free Trade Agreement (NAFTA) is a free trade accord among the United States, Canada, and Mexico. It took effect January 1, 1994. Essentially, NAFTA extends the United States-Canada Free Trade Agreement to include Mexico. NAFTA, originally proposed by Mexican President Carlos Salinas de Gortari in 1990, is a lengthy, complex, and comprehensive agreement negotiated over a three year period. The chief negotiators were U.S. Trade Representative Carla Hills, Canadian Foreign Trade Minister Michael Wilson, and Mexican Commerce and Industrial Development Secretary Jaime Jose Serra Puche. NAFTA's key points are: * opening Mexico's financial and insurance sector to foreign banks, brokerage houses and insurance companies, *establishing rules of origin for the automobile industry that effectively bars non-North American automobile makers that did not have operations in Mexico at the time NAFTA went into effect (i.e., Toyota, Honda, Volvo, etc.) from opening plants in Mexico to manufacture vehicles for duty-free export to the United States and Canada. Rules of origin also protect textile and apparel industries in member countries, * liberalizing trade in agricultural products over a fifteen year period. This is a boon for U.S. grain producers, but will hurt sugar, vegetable, and fruit growers, * phasing out restrictions against U.S. and Canadian transportation companies operating in Mexico and vice versa, * establishing intellectual property protection for U.S. and Canadian companies and individuals in Mexico, * creating innovative trade dispute settlement mechanisms. From an American perspective, NAFTA is important because it institutionalizes Mexican President Carlos Salinas de Gortari's free market economic and trade liberalization policies that will eventually create economic stability in a strategic neighboring country of more than 85 million people. Although NAFTA does not address immigration, the hope is that economic growth and more employment opportunities in Mexico will make Mexicans less likely to emigrate to the United States in search for jobs and a better life.
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MULTINATIONAL CORPORATIONS If international business is the process of conducting business across national boundaries, then multinational corporations are the principal participants in this activity. They are, so to speak, the actors or players in the international business "game". Most multinational corporations are based in developed countries. MULTINATIONAL CORPORATIONS: DEFINITION Multinational corporations are companies that operate in more than one country. The name "multinational corporation" is distinct from "international corporations". The latter name was used in the 1960s to designate a company with a strong national identification. The home market was the company's primary focus. Foreign operations were usually wholly owned subsidiaries controlled by home country nationals. By the 1980s, international corporations had evolved into more globally oriented companies. While still maintaining a domestic identity and a central office in a particular country, multinational corporations now aim to maximize profits on a worldwide basis. The corporation is so large and extended that it may be outside the control of a single government. Besides subsidiaries, a multinational corporation may have joint ventures with individual companies, either in its home country or foreign countries.

Multi National Corporations and the Trade.

MNC: A corporation that has its facilities and other assets in at least one country other than its home country. Such companies have offices and/or factories in different countries and usually have a centralized head office where they co-ordinate global management. Very large multinationals have budgets that exceed those of many small countries.

NOTE: For role of MNAs in International trade: SEE THE BOOK: International trade: by Francis
MODULE-III: Recent Trends. Recent Trends in Indias Foreign Trade; Export and Import Policy; Trade Policy; Balance of Payment; Custom and Tariff Rationalization . Identifying Foreign Markets and Overseas markets; International Marketing Mix; Product Development, Transfer Logistics and Distribution Channels; Role of Documentation in International Trade; Export Pricing; Methods of International Payments.

*Recent Trends in Indias Foreign Trade: *Export and Import Policy: For * topics: see the current topics and current EXIM policy of India

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Balance of payment: (BOP): A record of all transactions made between one particular
country and all other countries during a specified period of time. BOP compares the dollar difference of the amount of exports and imports, including all financial exports and imports. A negative balance of payments means that more money is flowing out of the country than coming in, and vice versa.

Meaning of Disequilibrium in Balance of Payment

Though the credit and debit are written balanced in the balance of payment account, it may not remain balanced always. Very often, debit exceeds credit or the credit exceeds debit causing an imbalance in the balance of payment account. Such an imbalance is called the disequilibrium. Disequilibrium may take place either in the form of deficit or in the form of surplus. Disequilibrium of Deficit arises when our receipts from the foreigners fall below our payment to foreigners. It arises when the effective demand for foreign exchange of the country exceeds its supply at a given rate of exchange. This is called an 'unfavorable balance'. Disequilibrium of Surplus arises when the receipts of the country exceed its payments. Such a situation arises when the effective demand for foreign exchange is less than its supply. Such a surplus disequilibrium is termed as 'favorable balance'.

Causes of Disequilibrium in Balance of Payment

1. Population Growth: Most countries experience an increase in the population and in some like India and China the population is not only large but increases at a faster rate. To meet their needs, imports become essential and the quantity of imports may increase as population increases.

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2. Development Programmes: Developing countries which have embarked upon planned development programmes require to import capital goods, some raw materials which are not available at home and highly skilled and specialized manpower. Since development is a continuous process, imports of these items continue for the long time landing these countries in a balance of payment deficit. 3. Demonstration Effect: When the people in the less developed countries imitate the consumption pattern of the people in the developed countries, their import will increase. Their export may remain constant or decline causing disequilibrium in the balance of payments. 4. Natural Factors: Natural calamities such as the failure of rains or the coming floods may easily cause disequilibrium in the balance of payments by adversely affecting agriculture and industrial production in the country. The exports may decline while the imports may go up causing a discrepancy in the country's balance of payments. 5. Cyclical Fluctuations: Business fluctuations introduced by the operations of the trade cycles may also cause disequilibrium in the country's balance of payments. For example, if there occurs a business recession in foreign countries, it may easily cause a fall in the exports and exchange earning of the country concerned, resulting in a disequilibrium in the balance of payments. 6. Inflation: An increase in income and price level owing to rapid economic development in developing countries, will increase imports and reduce exports causing a deficit in balance of payments. 7. Poor Marketing Strategies: The superior marketing of the developed countries have increased their surplus. The poor marketing facilities of the developing countries have pushed them into huge deficits. 8. Flight Of Capital: Due to speculative reasons, countries may lose foreign exchange or gold stocks People in developing countries may also shift their capital to developed countries to safeguard against political uncertainties. These capital movements adversely affect the balance of payments position. 9. Globalization: Due to globalization there has been more liberal and open atmosphere for international movement of goods, services and capital. Competition has been increased due to the globalization of international economic relations. The emerging new global economic order has brought in certain problems for some countries which have resulted in the balance of payments disequilibrium. 10. Price-Cost Structure: Changes in price-cost structure of export industries affect the volume of exports and create disequilibrium in the balance of payments. Increase in prices due to higher wages, higher cost of raw materials, etc. reduces exports and makes the balance of payments unfavorable.
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11. Changes in Foreign Exchange Rates: Changes in the rate of exchange is another cause of disequilibrium in the balance of payments. An increase in the external value of money makes imports cheaper and exports dearer; thus, imports increase and exports fall and balance of payments become unfavorable. Similarly, a reduction in the external value of money leads to a reduction in imports and an increase in exports. 12. Fall in Export Demand: There has been a considerable decline in (he export demand for the primary goods of the underdeveloped countries as a result of the large increase in the domestic production of foodstuffs raw materials and substitutes in the rich countries. Similarly, the advanced countries also find a fall in their export demand because of loss of colonial markets. However, the deficit in the balance of payment due to the fall in export demand is more persistent in the underdeveloped countries than in the advanced countries. 13. Demonstration Effect: According to Nurkse, the people in the less developed countries tend to follow the consumption patterns of the developed countries. As a result of this demonstration effect, the imports of the less developed countries will increase and create disequilibrium in the balance of payments. 14. International Borrowing and Lending: International borrowing and lending is another reason for the disequilibrium in the balance of payments. The borrowing country tends to have unfavorable balance of payments, while the lending country tends to have favorable balance of payments. 15. Newly Independent Countries: The newly independent countries, in order to develop international relations, incur huge amounts of expenditure on the establishment of embassies, missions, etc. in other countries. This adversely affects the balance of payments position. How to correct the Balance of Payment? Solution to correct balance of payment disequilibrium lies in earning more foreign exchange through additional exports or reducing imports. Quantitative changes in exports and imports require policy changes. Such policy measures are in the form of monetary, fiscal and nonmonetary measures.

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Monetary Measures for Correcting the B0P The monetary methods for correcting disequilibrium in the balance of payment are as follows :1. Deflation Deflation means falling prices. Deflation has been used as a measure to correct deficit disequilibrium. A country faces deficit when its imports exceeds exports. Deflation is brought through monetary measures like bank rate policy, open market operations, etc or through fiscal measures like higher taxation, reduction in public expenditure, etc. Deflation would make our items cheaper in foreign market resulting a rise in our exports. At the same time the demands for imports fall due to higher taxation and reduced income. This would built a favourable atmosphere in the balance of payment position. However Deflation can be successful when the exchange rate remains fixed. 2. Exchange Depreciation Exchange depreciation means decline in the rate of exchange of domestic currency in terms of foreign currency. This device implies that a country has adopted a flexible exchange rate policy. Suppose the rate of exchange between Indian rupee and US dollar is $1 = Rs. 40. If India experiences an adverse balance of payments with regard to U.S.A, the Indian demand for US dollar will rise. The price of dollar in terms of rupee will rise. Hence, dollar will appreciate in external value and rupee will depreciate in external value. The new rate of exchange may be say $1 = Rs. 50. This means 25% exchange depreciation of the Indian currency. Exchange depreciation will stimulate exports and reduce imports because exports will become cheaper and imports costlier. Hence, a favorable balance of payments would emerge to pay off the deficit. Limitations of Exchange Depreciation:1. Exchange depreciation will be successful only if there is no retaliatory exchange depreciation by other countries. 2. It is not suitable to a country desiring a fixed exchange rate system. 3. Exchange depreciation raises the prices of imports and reduces the prices of exports. So the terms of trade will become unfavorable for the country adopting it. 4. It increases uncertainty & risks involved in foreign trade. 5. It may result in hyper-inflation causing further deficit in balance of payments. 3. Devaluation Devaluation refers to deliberate attempt made by monetary authorities to bring down the value of home currency against foreign currency. While depreciation is a spontaneous fall due to interactions of market forces, devaluation is official act enforced by the monetary authority. Generally the international monetary fund advocates the policy of devaluation as a corrective
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measure of disequilibrium for the countries facing adverse balance of payment position. When India's balance of payment worsened in 1991, IMF suggested devaluation. Accordingly, the value of Indian currency has been reduced by 18 to 20% in terms of various currencies. The 1991 devaluation brought the desired effect. The very next year the import declined while exports picked up. When devaluation is effected, the value of home currency goes down against foreign currency, Let us suppose the exchange rate remains $1 = Rs. 10 before devaluation. Let us suppose, devaluation takes place which reduces the value of home currency and now the exchange rate becomes $1 = Rs. 20. After such a change our goods becomes cheap in foreign market. This is because, after devaluation, dollar is exchanged for more Indian currencies which push up the demand for exports. At the same time, imports become costlier as Indians have to pay more currencies to obtain one dollar. Thus demand for imports is reduced. Generally devaluation is resorted to where there is serious adverse balance of payment problem. Limitations of Devaluation :1. Devaluation is successful only when other country does not retaliate the same. If both the countries go for the same, the effect is nil. 2. Devaluation is successful only when the demand for exports and imports is elastic. In case it is inelastic, it may turn the situation worse. 3. Devaluation, though helps correcting disequilibrium, is considered to be a weakness for the country. 4. Devaluation may bring inflation in the following conditions :i. Devaluation brings the imports down, When imports are reduced, the domestic supply of such goods must be increased to the same extent. If not, scarcity of such goods unleash inflationary trends. ii. A growing country like India is capital thirsty. Due to non availability of capital goods in India, we have no option but to continue imports at higher costs. This will force the industries depending upon capital goods to push up their prices. iii. When demand for our export rises, more and more goods produced in a country would go for exports and thus creating shortage of such goods at the domestic level. This results in rising prices and inflation. iv. Devaluation may not be effective if the deficit arises due to cyclical or structural changes. 4. Exchange Control It is an extreme step taken by the monetary authority to enjoy complete control over the exchange dealings. Under such a measure, the central bank directs all exporters to surrender their foreign exchange to the central authority. Thus it leads to concentration of exchange reserves in the hands of central authority. At the same time, the supply of foreign exchange is restricted only for essential goods. It can only help controlling situation from turning worse. In short it is only a temporary measure and not permanent remedy.

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Non-Monetary Measures for Correcting the BOP A deficit country along with Monetary measures may adopt the following non-monetary measures too which will either restrict imports or promote exports. 1. Tariffs Tariffs are duties (taxes) imposed on imports. When tariffs are imposed, the prices of imports would increase to the extent of tariff. The increased prices will reduced the demand for imported goods and at the same time induce domestic producers to produce more of import substitutes. Non-essential imports can be drastically reduced by imposing a very high rate of tariff. Drawbacks of Tariffs :1. Tariffs bring equilibrium by reducing the volume of trade. 2. Tariffs obstruct the expansion of world trade and prosperity. 3. Tariffs need not necessarily reduce imports. Hence the effects of tariff on the balance of payment position are uncertain. 4. Tariffs seek to establish equilibrium without removing the root causes of disequilibrium. 5. A new or a higher tariff may aggravate the disequilibrium in the balance of payments of a country already having a surplus. 6. Tariffs to be successful require an efficient & honest administration which unfortunately is difficult to have in most of the countries. Corruption among the administrative staff will render tariffs ineffective. 2. Quotas Under the quota system, the government may fix and permit the maximum quantity or value of a commodity to be imported during a given period. By restricting imports through the quota system, the deficit is reduced and the balance of payments position is improved. Types of Quotas :1. 2. 3. 4. 5. the tariff or custom quota, the unilateral quota, the bilateral quota, the mixing quota, and import licensing.

Merits of Quotas :1. Quotas are more effective than tariffs as they are certain. 2. They are easy to implement. 3. They are more effective even when demand is inelastic, as no imports are possible above the quotas.

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4. More flexible than tariffs as they are subject to administrative decision. Tariffs on the other hand are subject to legislative sanction. Demerits of Quotas :1. They are not long-run solution as they do not tackle the real cause for disequilibrium. 2. Under the WTO quotas are discouraged. 3. Implements of quotas is open invitation to corruption. 3. Export Promotion The government can adopt export promotion measures to correct disequilibrium in the balance of payments. This includes substitutes, tax concessions to exporters, marketing facilities, credit and incentives to exporters, etc.The government may also help to promote export through exhibition, trade fairs; conducting marketing research & by providing the required administrative and diplomatic help to tap the potential markets. 4. Import Substitution A country may resort to import substitution to reduce the volume of imports and make it selfreliant. Fiscal and monetary measures may be adopted to encourage industries producing import substitutes. Industries which produce import substitutes require special attention in the form of various concessions, which include tax concession, technical assistance, subsidies, providing scarce inputs, etc. Non-monetary methods are more effective than monetary methods and are normally applicable in correcting an adverse balance of payments. Drawbacks of Import Substitution:1. Such industries may lose the spirit of competitiveness. 2. Domestic industries enjoying various incentives will develop vested interests and ask for such concessions all the time. 3. Deliberate promotion of import substitute industries go against the principle of comparative advantage.

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Customs tariff
INTRODUCTION: Indias customs tariff rates have been declining since 1991. The peak rate has come down from 150% in 1991-2 to 35% in 2001-2 reducing along with it the entire set of rates that once exceeded 35%. The average tariff rate has therefore declined over the 1990s. Our customs duty collection rate (import duty revenue divided by value of imports) has consequently declined from about 47% in 1990-91 to about 24%in 1999-2000 (Economic Survey 2000-1). Yet India still has one of the highest customs tariff rates in the world. In the Budget 2010-11, to be presented towards the end of this month, Finance Minister Pranab Mukherjee should aim for rationalization of the Customs tariff, unification of the central excise and service tax rates and simplification of the indirect tax laws. The Customs tariff is much too complicated with basic Customs duty, two types of additional Customs duty and two types of cess. The least that the finance minister can do is to abolish the education cess and higher education cess. Whether these actually contribute enough to the cause of education is far from well established. There is no dispute that more needs to be in the education field. But resources can be raised in simpler ways also, say by factoring in the needs for funds of the education sector in the tax rate itself.

Need for Tariff Rationalization

Tariffs tend to be inequitable in their incentive impact Distort business incentives more than any other form of tax direct (e.g. income or corporate tax) - or indirect (e.g. VAT).

Identifying Foreign Markets

Selection of markets is the first stage in International marketing. No matter how much attempt is made, the firm will not succeed unless it is marketing the right product in the right export market. It costs lot of time and money to find out a suitable market for a product. No firm has unlimited resources. Proper selection of markets would avoid waste in time and effort. The time and care taken to select the product and the market for initial export venture can minimize the risks and make ultimate success quicker and more certain. One product may be more acceptable in some countries than in others. It would, therefore, be better to concentrate on a few fruitful markets than to spread too thinly. Market concentration can lead to better debt collection and cash flow and savings in administration. Criteria for classifying world Markets: The basic problem that a firm has to solve in the initial stage of planning its international marketing strategy is to identify global marketing opportunities. To identify and shortlist markets which offer or might offer in future opportunities that can be exploited by it, a classification scheme for segmenting the world markets is required. There are several bases of classification, principal among them are:

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Classification on the basis of stages of demand: Keegan has produced a threefold classification of world marketers: 1. Exiting markets 2. Latent markets 3. Incipient marketsIn the existing markets, consumer needs are known and are already being serviced by some products. The market opportunities can be assessed by estimating the consumption rate and the share of imports in current consumption. Latent markets have potential customers but because no one has offered a product to fill the latent need there is no existing market. Incipient markets do not exist in the present, however conditions and trends can be identified that point towards the emergence of future needs and preferences for product and services that will create a potent market, which if supplied will become an existing market. Classification on the basis of Stages of Development: The world markets can be divided into four distinct segments, viz., industrial economies, more developed developing countries, raw material exporting economies and subsistence economies. Industrial Economies: These countries lay more emphasis on research and development and devote their resources to production of more sophisticated products and will therefore like to import goods of simpler technology and simpler manufactures. These countries also have an acute shortage of labor and would, therefore tend to import intensive products like electronics and light engineering goods. They also tend to import spares and components and raw materials to feed their industries and many decorative articles because of their affluence. They are very particular about preventing further pollution and, therefore they would like to import not only anti-pollution equipment but also articles whose production has been banned for risks of pollution. They are willing to provide technology to set up production and processing facilities in developing countries. They provide a large market as they have no import restriction. In fact, the five major importing countries viz., United States, the United Kingdom, France, Japan and Germany, account for 40 per cent of world imports.------------------

**International Marketing Mix: (This topic is for assignment)

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Product Development: The creation of products with new or different characteristics that
offer new or additional benefits to the customer. Product development may involve modification of an existing product or its presentation, or formulation of an entirely new product that satisfies a newly defined customer want or market niche.

Product life cycle: is the stages through which a product or its category bypass. From its
introduction to the marketing, growth, maturity to its decline or reduce in demand in the market. Not all products reach this final stage, some continue to grow and some rise and fall.

Stages of product life cycle

Introduction: This is the stage of low growth rate of sales as the product is newly launched in
the market. Monopoly can be created, depending upon the efficiency and need of the product to the customers. A firm usually incurs losses rather than profit. If the product is in the new product class, the users may not be aware of its true potential. In order to achieve that place in the market, extra information about the product should be transferred to consumers through various media. The stage has the following characteristics: 1. Low competition 2. Firm mostly incurs losses and not profit.

Growth
Growth comes with the acceptance of the innovation in the market and profit starts to flow. As the monopoly still exists companies can experiment with new ideas and innovation in order to maintain the sales growth. This stage is the best time to introduce new effective products in the market thus creating an image in the product class in the presence of its competitors who try to copy or improve the product and present it as a substitute.

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Maturity
In this, the end stage of the growth rate, sales slowdown as the product has already achieved acceptance in the market. New firms start experimenting in order to compete by innovating new models of the product. With many companies in the market, competition for customers becomes fierce, despite the increase in growth rate of sales at the initial part of this stage. Aggressive competition in the market results in profits decreasing at the end of the growth stage thus beginning the maturity stage. In addition to this, the maturity stage of the development process is the most vital.

Decline
This is the stage where most of the product class usually dies due to low growth rate in sales. A number of companies share the same market, making it difficult for all entrants to maintain sustainable sales levels. Not only is the efficiency of the company an important factor in the decline, but also the product category itself becomes a factor, as the market may perceive the product as "old" and may not be in demand. It is not always necessary that a product should go through these stages. it depends on the type of product, its competitors, scope of the product etc

Channels of Distribution, Logistics, and Wholesaling

The Importance of Distribution: Most producers use intermediaries to bring their products to market. They try to develop a distribution channel (marketing channel) to do this. A distribution channel is a set of interdependent organizations that help make a product available for use or consumption by the consumer or business user. Channel intermediaries are firms or individuals such as wholesalers, agents, brokers, or retailers who help move a product from the producer to the consumer or business user. Functions of Distribution Channels Distribution channels perform a number of functions that make possible the flow of goods from the producer to the customer. These functions must be handled by someone in the channel. Though the type of organization that performs the different functions can vary from channel to channel, the functions themselves cannot be eliminated. Channels provide time, place, and ownership utility. They make products available when, where, and in the sizes and quantities that customers want. Distribution channels provide a number of logistics or physical distribution functions that increase the efficiency of the flow of goods from producer to customer. Distribution channels create efficiencies by reducing the number of transactions necessary for goods to flow from many different manufacturers to large numbers of customers. This occurs in
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two ways. The first is called breaking bulk. Wholesalers and retailers purchase large quantities of goods from manufacturers but sell only one or a few at a time to many different customers. Second, channel intermediaries reduce the number of transactions by creating assortments providing a variety of products in one locationso that customers can conveniently buy many different items from one seller at one time. Channels are efficient. The transportation and storage of goods is another type of physical distribution function. Retailers and other channel members move the goods from the production site to other locations where they are held until they are wanted by customers. Channel intermediaries also perform a number of facilitating functions, functions that make the purchase process easier for customers and manufacturers. Intermediaries often provide customer services such as offering credit to buyers and accepting customer returns. Customer services are oftentimes more important in B2B markets in which customers purchase larger quantities of higher-priced products. The Internet in the Distribution Channel By using the Internet, even small firms with limited resources can enjoy some of the same competitive advantages as their largest competitors in making their products available to customers internationally at low cost. E-commerce can result in radical changes in distribution strategies. Today most goods are mass-produced, and in most cases end users do not obtain products directly from manufacturers. With the Internet, however, the need for intermediaries and much of what has been assumed about the need and benefits of channels will change. In the future, channel intermediaries that physically handle the product may become largely obsolete. Many traditional intermediaries are already being eliminated as companies question the value added by layers in the distribution channel. This removal of intermediaries is termed disintermediation, the elimination of some layers of the distribution channel in order to cut costs and improve the efficiency of the channel. Wholesaling: Wholesaling is all activities involved in selling products to those buying for resale or business use. Wholesaling intermediaries are firms that handle the flow of products from the manufacturer to the retailer or business user. Wholesaling intermediaries add value by performing one or more of the following channel functions:

Selling and Promoting Buying and Assortment Building Bulk-Breaking Warehousing Transportation Financing Risk Bearing Market Information giving information to suppliers and customers about competitors, new products, and price developments Management Services and Advice helping retailers train their sales clerks, improving store layouts and displays, and setting up accounting and inventory control systems.

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Independent Intermediaries: Independent intermediaries do business with many different manufacturers and many different customers. Because they are not owned or controlled by any manufacturer, they make it possible for many manufacturers to serve customers throughout the world while keeping prices low. Merchant Wholesalers: Merchant wholesalers are independent intermediaries that buy goods from manufacturers and sell to retailers and other B2B customers. Because merchant wholesalers take title to the goods, they assume certain risks and can suffer losses if products get damaged, become out-of-date or obsolete, are stolen, or just dont sell. At the same time, because they own the products, they are free to develop their own marketing strategies including setting prices. Merchant wholesalers include full-service merchant wholesalers and limited-service wholesalers. Limited-service wholesalers are comprised of cash-and-carry wholesalers, truck jobbers, drop shippers, mail-order wholesalers, and rack jobbers.

Merchandise Agents or Brokers: Merchandise agents or brokers are a second major type of independent intermediary. Agents and brokers provide services in exchange for commissions. They may or may not take possession of the product, but they never take title; that is, they do not accept legal ownership of the product. Agents normally represent buyers or sellers on an ongoing basis, whereas brokers are employed by clients for a short period of time. Merchandise agents or brokers include manufacturers agents (manufacturers reps), selling agents, commission merchants, and merchandise brokers. Manufacturer-Owned Intermediaries Manufacturer-owned intermediaries are set up by manufacturers in order to have separate business units that perform all of the functions of independent intermediaries, while at the same time maintaining complete control over the channel. Manufacturer-owned intermediaries include sales branches, sales offices, and manufacturers showrooms. Sales branches carry inventory and provide sales and service to customers in a specific geographic area. Sales offices do not carry inventory but provide selling functions for the manufacturer in a specific geographic area. Because they allow members of the sales force to be located close to customers, they reduce selling costs and provide better customer service. Manufacturers showrooms permanently display products for customers to visit. They are often located in or near large merchandise marts, such as the furniture market in High Point, North Carolina.

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EXPORT

DOCUMENTS

Documents required for an international sale can vary significantly from transaction to transaction, depending on the destination and the product being shipped. At a minimum, there will be two documents: the invoice and the transport document. The buyer will usually provide the seller with a list of documents needed to get the goods into his country as expeditiously and inexpensively as possible. Some documentary requirements are not open to negotiation, as they are needed by the importer to clear customs at the port of destination. 1. Which documents are required for exports, what are the elements of a standard export process? International trade documents are generally divided into:

Official documents Commercial documents Transport documents Insurance documents

Official Documents Official documents are documents required for the purpose of official (regulatory) authorization to export. Official documents are either submitted to the appropriate authority for legalization or are issued by an appropriate authority. Without local authorization (from competent Jordanian authorities), you will not be permitted to ship your goods out the country.

Customs or Export Declaration An export License or Authorization A wharfage order (for seafreight) A pre-shipment inspection certificate A certificate of origin A health certificate

Commercial Documents These are documents, which support the sales contract between the exporter and importer. They are issued by the exporter confirming that he/she has met all the terms and conditions of the sales contract. Examples of commercial documents are:

Commercial invoice Packing list Beneficiary certificate Verification documents

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Transport Documents Transport documents are distinguished from the commercial documents in that they represent a contract of carriage with a third party. Transport documents are fundamental to the payment and delivery process in an import transaction. There are three main types of transport documents that can be used in international transport. They are:

Bill of lading Waybill Consignment note

The purpose of all transport documents is to:

Provide proof that the carrier has received the goods, Show evidence of a contract of carriage, and Produce a freight bill (information on transport details and costs)

Insurance Documents Insurance documents also constitute evidence of a contract with a third party, namely the insurance company and therefore must be distinguished from the commercial documents. The two main insurance documents are:

Insurance certificate Insurance policy

2. What is the certificate of origin? Where do I obtain a certificate of origin? A certificate of origin is a formal / official statement issued by either a chamber of commerce or industry in Jordan indicating where the goods were manufactured. The Ministry of Industry and Trade must certify the certificate of origin before an exporter attaches the certificate to the export declaration upon submitting the latter to the Customs. A certificate of origin is an export document that is necessary to obtain from the Jordanian chamber of commerce or industry to confirm the origin of the products. 3. What is a commercial invoice? What is a typical format of a commercial invoice? What are the typical problems faced with a commercial invoice? What are the local requirements of a commercial invoice? A commercial invoice is a statement by the seller on the details of the products to be sold. In general, a commercial invoice must contain the eller's name, method of payment and transport,
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invoice number, date, unit price, total price, and total weight of the goods. In the case of Jordan, the Ministry of Industry and Trade should certify a commercial invoice on exports and the chamber of commerce or industry should certify a commercial invoice on re-exports. In either case the chamber of commerce or industry will not issue a certificate of origin unless the exporter submits a commercial invoice to be also certified and stamped by the chamber, the commercial invoice must be attested by the Ministry of Foreign Affairs of Jordan and the relevant embassy of the importing country. 4. What is a bill of lading? What documentation is needed for it? The bill of lading (B/L) is the traditional transport document for shipping goods by ocean transport. It serves as a contract between the exporter and the shipping line and covers the carriage of goods from the port of loading to the port of discharge. It also serves as a receipt for the goods and confers title to the goods to its holder. Also called a negotiable bill of lading, it is sent to the importer to enable him / her to claim the goods to which it refers. Other documents are usually attached to the carrier's copy of the bill of lading, some of these documents are:

Copy of the commercial Invoice Copy of the certificate of origin Packing list Weight list Certifications from the exporting - Prior entry authorizations in the importing country if any.

country

if

any

Export Pricing
Introduction In the process of determining a final export price, there are a number of pricing strategies that you could follow, but obviously only one strategy that you will follow at any time. These strategies are briefly discussed below: 1. Approach to pricing: Competitor-orientated: Commodity-based pricing In the case of commodity markets, e.g. wheat, tea, coffee, grain, prices are established through the interaction of a large number of buyers and sellers. There are usually publicised world prices that set the pricing levels in these types of markets. As an exporter competing in such markets, you will need to keep to these prices - this is known as commodity-based pricing. Any exporter quoting prices in excess of the price prevailing in the marketplace would effectively cut themselves out of the market - they would, of course, be equally foolish to quote below the prevailing rate. If you operate in commodity-type markets your primary function would be to
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keep production costs and overheads as low as possible in order to increase profits. Competition-based pricing Of course, commodity markets are not the only markets in which this type of competitororientated pricing takes place. There may be industries in which many participants compete with one another, and, although there is no publicised world price for the products in question, there is an accepted narrow range of prices within which you will need to compete. Follow-the-leader pricing Another form of competitor-orientated pricing occurs in markets where there is an extremely dominant supplier (or perhaps two) that has the largest market share and that essentially sets the price levels for that particular market. The other, usually smaller, producers play a follow-theleader approach to pricing and keep to the pricing set by the market leader (although they may offer a small discount compared with the market leader's price to entice buyers to purchase their goods). 2. Approach to pricing: Cost-orientated: Cost-plus pricing In this instance, you would calculate your firm's costs very carefully and then you would add a fixed percentage as a profit margin to the total cost. In this instance, you would probably quote the same price for different markets. What is more, you are likely to use the same base price (or Ex Works price) for the domestic market as for export markets. The problem with this approach is that it does not take into consideration market and country differences, or the role of foreign competition. Early cash recovery If your company regards its position in the export market as being somewhat precarious (e.g. impending import restrictions could exclude it from the market altogether, or where liquidity is a problem), it might adopt a strategy aimed at rapid cash generation. The objective here is to pay back your investment as quickly as possible and thereafter to make as much profit as possible, as quickly as possible. Satisfactory rate of return on investment The cost-oriented producer of industrial goods who wants to achieve a uniform rate-of-return on investment often adopts this strategy. Near standardized prices are set at a level that will realize a certain percentage of profit for a given amount of investment and level of risk.

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3. Approach to pricing: Demand (market)-orientated: Market penetration The intention behind a market penetration strategy is to stimulate market growth and/or to capture a substantial share of the market. This strategy is often used when the product has a lot of competition or is very ordinary. This usually requires the establishment of a relatively low price within a price sensitive market. This strategy, which is dependent on production economies of scale and other cost reduction factors, obviously carries a high degree of risk. Careful consideration would need to given beforehand to the possibility of adverse movements in exchange rates, the imposition of import restrictions, etc., that could result in unexpected financial losses. Market skimming With market skimming, you would enter the foreign market initially with a high price. You can really only do this if your products are in demand or are very unique. The intention with this approach is to take advantage of the perceived uniqueness of the product or demand for the product while it is new or while there is little other competition. In such instances, it is usually not long before the price has to be reduced to attract more price-conscious buyers, or to defend against competitors as they come onto the market or as the demand drops. This approach is often used in the marketing of computer products and other technology items, clothing, as well as books where relatively expensive hard-cover editions precede the cheaper paperback editions. (Think about the introduction of a new technology such as DVD and the high prices that are initially charged for this technology.) What the market will bear With this strategy, you set a price that you believe the customer will be prepared to pay. This is an approach to take if you have done quite a bit of research on what customers are prepared to pay or can afford to pay. Differential pricing In adopting this approach, the demand-oriented exporter - usually of consumer products - takes advantage of different price levels in various countries by establishing a different price, based on what the market will bear, for each export market. The success of differential pricing depends to a large degree on the extent to which markets can be kept separate. Where markets are integrated, such as in the EU, for example, problems could arise where the product is purchased at a low price in one country and resold at a higher price (but one that undercuts the original supplier) in another country. With the advent of the Internet, it is becoming more difficult to introduce differential pricing. In most cases, where a company uses its web site to sell its products (e.g. Amazon.com), buyers visiting this web site would surely query why different prices exist for different markets. They would inevitably demand that they also enjoy the benefit of the lower prices available to other
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markets and for this reason it is becoming less feasible to have differential pricing when selling over the Web. Moving on to setting an actual export price The next step in the export pricing process is to decide on a specific export price that covers your costs and meets the objectives of your pricing strategy.

Methods of Payment in International Trade

To succeed in todays global marketplace and win sales against foreign competitors, exporters must offer their customers attractive sales terms supported by the appropriate payment methods. Because getting paid in full and on time is the ultimate goal for each export sale, an appropriate payment method must be chosen carefully to minimize the payment risk while also accommodating the needs of the buyer. Cash-in-Advance With cash-in-advance payment terms, an exporter can avoid credit risk because payment is received before the ownership of the goods is transferred. For international sales, wire transfers and credit cards are the most commonly used cash-in-advance options available to exporters. With the advancement of the Internet, escrow services are becoming another cash-in-advance option for small export transactions. However, requiring payment in advance is the least attractive option for the buyer, because it creates unfavorable cash flow. Foreign buyers are also concerned that the goods may not be sent if payment is made in advance. Thus, exporters who insist on this payment method as their sole manner of doing business may lose to competitors who offer more attractive payment terms. Letters of Credit Letters of credit (LCs) are one of the most secure instruments available to international traders. An LC is a commitment by a bank on behalf of the buyer that payment will be made to the exporter, provided that the terms and conditions stated in the LC have been met, as verified through the presentation of all required documents. The buyer establishes credit and pays his or her bank to render this service. An LC is useful when reliable credit information about a foreign buyer is difficult to obtain, but the exporter is satisfied with the creditworthiness of the buyers foreign bank. An LC also protects the buyer since no payment obligation arises until the goods have been shipped as promised. Documentary Collections A documentary collection (D/C) is a transaction whereby the exporter entrusts the collection of the payment for a sale to its bank (remitting bank), which sends the documents that its buyer needs to the importers bank (collecting bank), with instructions to release the documents to the
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buyer for payment. Funds are received from the importer and remitted to the exporter through the banks involved in the collection in exchange for those documents. D/Cs involve using a draft that requires the importer to pay the face amount either at sight (document against payment) or on a specified date (document against acceptance). The collection letter gives instructions that specify the documents required for the transfer of title to the goods. Although banks do act as facilitators for their clients, D/Cs offer no verification process and limited recourse in the event of nonpayment. D/Cs are generally less expensive than LCs. Open Account An open account transaction is a sale where the goods are shipped and delivered before payment is due, which in international sales is typically in 30, 60 or 90 days. Obviously, this is one of the most advantageous options to the importer in terms of cash flow and cost, but it is consequently one of the highest risk options for an exporter. Because of intense competition in export markets, foreign buyers often press exporters for open account terms since the extension of credit by the seller to the buyer is more common abroad. Therefore, exporters who are reluctant to extend credit may lose a sale to their competitors. Exporters can offer competitive open account terms while substantially mitigating the risk of non-payment by using one or more of the appropriate trade finance techniques covered later in this Guide. When offering open account terms, the exporter can seek extra protection using export credit insurance. Consignment Consignment in international trade is a variation of open account in which payment is sent to the exporter only after the goods have been sold by the foreign distributor to the end customer. An international consignment transaction is based on a contractual arrangement in which the foreign distributor receives, manages, and sells the goods for the exporter who retains title to the goods until they are sold. Clearly, exporting on consignment is very risky as the exporter is not guaranteed any payment and its goods are in a foreign country in the hands of an independent distributor or agent. Consignment helps exporters become more competitive on the basis of better availability and faster delivery of goods. Selling on consignment can also help exporters reduce the direct costs of storing and managing inventory. The key to success in exporting on consignment is to partner with a reputable and trustworthy foreign distributor or a third-party logistics provider. Appropriate insurance should be in place to cover consigned goods in transit or in possession of a foreign distributor as well as to mitigate the risk of non-payment.

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MODULE-IV: International Capital. International Capital Movement; Risk in International Operations; International Investment; Financing of Foreign Trade; Factor Mobility and Direct Foreign Investment. Export Finance; Pre- and Post- shipment credit. Introduction to FEMA, Insurance. Role of ECGC and Export Promotion Councils. Eurocurrency Market.

Risk in International Operations

Just as there are reasons to get into global markets, and benefits from global markets, there are also risks involved in locating companies in certain countries. Each country may have its potentials; it also has its woes that are associated with doing business with major companies. Some of the rogue countries may have all the natural minerals but the risks involved in doing business in those countries exceed the benefits. Some of the risks in international business are: (1) (2) (3) (4) (5) (6) (7) (8) (9) Terrorism Risk Strategic Operational Political Country Technological Environmental Economic Financial Risk Risk Risk Risk Risk Risk Risk Risk

Strategic Risk: The ability of a firm to make a strategic decision in order to respond to the forces that are a source of risk. These forces also impact the competitiveness of a firm. Porter defines them as: threat of new entrants in the industry, threat of substitute goods and services, intensity of competition within the industry, bargaining power of suppliers, and bargaining power of consumers. Operational Risk: This is caused by the assets and financial capital that aid in the day-to-day business operations. The breakdown of machineries, supply and demand of the resources and products, shortfall of the goods and services, lack of perfect logistic and inventory will lead to inefficiency of production. By controlling costs, unnecessary waste will be reduced, and the process improvement may enhance the lead-time, reduce variance and contribute to efficiency in globalization. Political Risk: The political actions and instability may make it difficult for companies to operate efficiently in these countries due to negative publicity and impact created by individuals in the top government. A firm cannot effectively operate to its full capacity in order to maximize profit in such an unstable country's political turbulence. A new and hostile government may replace the friendly one, and hence expropriate foreign assets. Country Risk: The culture or the instability of a country may create risks that may make it difficult for multinational companies to operate safely, effectively, and efficiently. Some of the country risks come from the governments' policies, economic conditions, security factors, and
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political conditions. Solving one of these problems without all of the problems (aggregate) together will not be enough in mitigating the country risk. Technological Risk: Lack of security in electronic transactions, the cost of developing new technology, and the fact that these new technology may fail, and when all of these are coupled with the outdated existing technology, the result may create a dangerous effect in doing business in the international arena. Environmental Risk: Air, water, and environmental pollution may affect the health of the citizens, and lead to public outcry of the citizens. These problems may also lead to damaging the reputation of the companies that do business in that area. Economic Risk: This comes from the inability of a country to meet its financial obligations. The changing of foreign-investment or/and domestic fiscal or monetary policies. The effect of exchange-rate and interest rate make it difficult to conduct international business. Financial Risk: This area is affected by the currency exchange rate, government flexibility in allowing the firms to repatriate profits or funds outside the country. The devaluation and inflation will also impact the firm's ability to operate at an efficient capacity and still be stable. Most countries make it difficult for foreign firms to repatriate funds thus forcing these firms to invest its funds at a less optimal level. Sometimes, firms' assets are confiscated and that contributes to financial losses. Terrorism Risk: These are attacks that may stem from lack of hope; confidence; differences in culture and religious philosophy, and/or merely hate of companies by citizens of host countries. It leads to potential hostile attitudes, sabotage of foreign companies and/or kidnapping of the employers and employees. Such frustrating situations make it difficult to operate in these countries. Although the benefits in international business exceed the risks, firms should take a risk assessment of each country and to also include intellectual property, red tape and corruption, human resource restrictions, and ownership restrictions in the analysis, in order to consider all risks involved before venturing into any of the countries.

International Investment: When people think about globalization, they often first think of
the increasing volume of trade in goods and services. Trade flows are indeed one of the most visible aspects of globalization. But many analysts argue that international investment is a much more powerful force in propelling the world toward closer economic integration. Investment can alter entire methods of production through transfers of knowledge, technology, and management techniques, and thereby can initiate much more change than the simple trading of goods.

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Factors Influencing Foreign Investment Decisions

The policy frameworks relating to FDI and FPI are relatively similar, although there are a few differences.

What are the special risks in international investing?

Although you take risks when you invest in any stock, international investing has some

special risks: Changes in currency exchange rates. When the exchange rate between the foreign currency of an international investment and the U.S. dollar changes, it can increase or reduce your investment return. How does this work? Foreign companies trade and pay dividends in the currency of their local market. When you receive dividends or sell your international investment, you will need to convert the cash you receive into U.S. dollars. During a period when the foreign currency is strong compared to the U.S. dollar, this strength increases your investment return because your foreign earnings translate into more dollars. If the foreign currency weakens compared to the U.S. dollar, this weakness reduces your investment return because your earnings translate into fewer dollars. In addition to exchange rates, you should be aware that some countries may impose foreign currency controls that restrict or delay you from moving currency out of a country.

Investor Tidbit: What is an index? An index is a group of stocks representing a particular segment of a market, or in some cases the entire market. For example, the Standard & Poor's 500 index represents a specific segment of the U.S. capital markets. Foreign stock markets also may be represented by an index, such as the MSCI EAFE index, a well-known index in more developed foreign markets, the Nikkei index of large Japanese companies, or the CAC 40 index of large French companies. The components of an index can change over time, as new stocks are added and old ones are dropped.

Dramatic changes in market value. Foreign markets, like all markets, can experience dramatic changes in market value. One way to reduce the impact of these price changes is to invest for the long term and try to ride out sharp upswings and downturns in the market. Individual investors frequently lose money when they try to "time" the market in the United States and are even less likely to succeed in a foreign market. When you time the market you have to make two astute decisions -- deciding when to get out before prices fall and when to get back in before prices rise again.

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Political, economic and social events. It is difficult for investors to understand all the political, economic, and social factors that influence foreign markets. These factors provide diversification, but they also contribute to the risk of international investing.

Lack of liquidity. Foreign markets may have lower trading volumes and fewer listed companies. They may only be open a few hours a day. Some countries restrict the amount or type of stocks that foreign investors may purchase. You may have to pay premium prices to buy a foreign security and have difficulty finding a buyer when you want to sell.

Less information. Many foreign companies do not provide investors with the same type of information as U.S. public companies. It may be difficult to locate up-to-date information, and the information the company publishes my not be in English.

Reliance on foreign legal remedies. If you have a problem with your investment, you may not be able to sue the company in the United States. Even if you sue successfully in a U.S. court, you may not be able to collect on a U.S. judgment against a foreign company. You may have to rely on whatever legal remedies are available in the company's home country.

Different market operations. Foreign markets often operate differently from the major U.S. trading markets. For example, there may be different periods for clearance and settlement of securities transactions. Some foreign markets may not report stock trades as quickly as U.S. markets. Rules providing for the safekeeping of shares held by custodian banks or depositories may not be as well developed in some foreign markets, with the risk that your shares may not be protected if the custodian has credit problems or fails.

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Export Finance: PreShipment and PostShipment finance

Pre Shipment Finance: is issued by a financial institution when the seller want the payment of the goods before shipment. The main objectives behind preshipment finance or pre export finance is to enable exporter to:

Procure raw materials. Carry out manufacturing process. Provide a secure warehouse for goods and raw materials. Process and pack the goods. Ship the goods to the buyers. Meet other financial cost of the business.

Types of Pre Shipment Finance

Packing Credit Advance against Cheques/Draft etc. representing Advance Payments.

Preshipment finance is extended in the following forms:

Packing Credit in Indian Rupee Packing Credit in Foreign Currency (PCFC)

Post Shipment Finance: is a kind of loan provided by a financial institution to an exporter or seller against a shipment that has already been made. This type of export finance is granted from the date of extending the credit after shipment of the goods to the realization date of the exporter proceeds. Exporters dont wait for the importer to deposit the funds. Basic Features The features of postshipment finance are:

Purpose of Finance Postshipment finance is meant to finance export sales receivable after the date of shipment of goods to the date of realization of exports proceeds. In cases of deemed exports, it is extended to finance receivable against supplies made to designated agencies. Basis of Finance Postshipment finances is provided against evidence of shipment of goods or supplies made to the importer or seller or any other designated agency. Types of Finance Postshipment finance can be secured or unsecured. Since the finance is extended against evidence of export shipment and bank obtains the documents of title of goods, the finance is normally self liquidating. In that case it involves advance against undrawn balance, and is usually unsecured in nature.
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Further, the finance is mostly a funded advance. In few cases, such as financing of project exports, the issue of guarantee (retention money guarantees) is involved and the financing is not funded in nature.

Quantum of Finance As a quantum of finance, postshipment finance can be extended up to 100% of the invoice value of goods. In special cases, where the domestic value of the goods increases the value of the exporter order, finance for a price difference can also be extended and the price difference is covered by the government. This type of finance is not extended in case of preshipment stage. Banks can also finance undrawn balance. In such cases banks are free to stipulate margin requirements as per their usual lending norm. Period of Finance Postshipment finance can be off short terms or long term, depending on the payment terms offered by the exporter to the overseas importer. In case of cash exports, the maximum period allowed for realization of exports proceeds is six months from the date of shipment. Concessive rate of interest is available for a highest period of 180 days, opening from the date of surrender of documents. Usually, the documents need to be submitted within 21days from the date of shipment.

Financing For Various Types of Export Buyer's Credit Postshipment finance can be provided for three types of export :

Physical exports: Finance is provided to the actual exporter or to the exporter in whose name the trade documents are transferred. Deemed export: Finance is provided to the supplier of the goods which are supplied to the designated agencies. Capital goods and project exports: Finance is sometimes extended in the name of overseas buyer. The disbursal of money is directly made to the domestic exporter.

Supplier's Credit Buyer's Credit is a special type of loan that a bank offers to the buyers for large scale purchasing under a contract. Once the bank approved loans to the buyer, the seller shoulders all or part of the interests incurred. Types of Post Shipment Finance The post shipment finance can be classified as : 1. 2. 3. 4. 5. Export Bills purchased/discounted. Export Bills negotiated Advance against export bills sent on collection basis. Advance against export on consignment basis Advance against undrawn balance on exports
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6. Advance against claims of Duty Drawback. 1. Export Bills Purchased/ Discounted.(DP & DA Bills) Export bills (Non L/C Bills) is used in terms of sale contract/ order may be discounted or purchased by the banks. It is used in indisputable international trade transactions and the proper limit has to be sanctioned to the exporter for purchase of export bill facility.

2. Export Bills Negotiated (Bill under L/C) The risk of payment is less under the LC, as the issuing bank makes sure the payment. The risk is further reduced, if a bank guarantees the payments by confirming the LC. Because of the inborn security available in this method, banks often become ready to extend the finance against bills under LC. However, this arises two major risk factors for the banks: 1. The risk of nonperformance by the exporter, when he is unable to meet his terms and conditions. In this case, the issuing banks do not honor the letter of credit. 2. The bank also faces the documentary risk where the issuing bank refuses to honour its commitment. So, it is important for the for the negotiating bank, and the lending bank to properly check all the necessary documents before submission. 3. Advance Against Export Bills Sent on Collection Basis Bills can only be sent on collection basis, if the bills drawn under LC have some discrepancies. Sometimes exporter requests the bill to be sent on the collection basis, anticipating the strengthening of foreign currency. Banks may allow advance against these collection bills to an exporter with a concessional rates of interest depending upon the transit period in case of DP Bills and transit period plus usance period in case of usance bill. The transit period is from the date of acceptance of the export documents at the banks branch for collection and not from the date of advance. 4. Advance Against Export on Consignments Basis Bank may choose to finance when the goods are exported on consignment basis at the risk of the exporter for sale and eventual payment of sale proceeds to him by the consignee. However, in this case bank instructs the overseas bank to deliver the document only against trust receipt /undertaking to deliver the sale proceeds by specified date, which should be within the prescribed date even if according to the practice in certain trades a bill for part of the estimated value is drawn in advance against the exports. In case of export through approved Indian owned warehouses abroad the times limit for realization is 15 months.

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5. Advance against Undrawn Balance It is a very common practice in export to leave small part undrawn for payment after adjustment due to difference in rates, weight, quality etc. Banks do finance against the undrawn balance, if undrawn balance is in conformity with the normal level of balance left undrawn in the particular line of export, subject to a maximum of 10 percent of the export value. An undertaking is also obtained from the exporter that he will, within 6 months from due date of payment or the date of shipment of the goods, whichever is earlier surrender balance proceeds of the shipment. 6. Advance Against Claims of Duty Drawback Duty Drawback is a type of discount given to the exporter in his own country. This discount is given only, if the inhouse cost of production is higher in relation to international price. This type of financial support helps the exporter to fight successfully in the international markets. In such a situation, banks grants advances to exporters at lower rate of interest for a maximum period of 90 days. These are granted only if other types of export finance are also extended to the exporter by the same bank. After the shipment, the exporters lodge their claims, supported by the relevant documents to the relevant government authorities. These claims are processed and eligible amount is disbursed after making sure that the bank is authorized to receive the claim amount directly from the concerned government authorities. FOR Introduction to FEMA, Insurance. Role of ECGC and Export Promotion Councils. Eurocurrency Market; (SEE THE BOOK ON INTERNAL TRADE, INTERNATIONAL BUSINESS ENVIRONMENT) MODULE-V: Regional Cooperation. Regional Economic Groupings; Major Trading Blocks. Globalization with Social Responsibility. Introduction to International Monetary and Financial System. (Note: for Module V: SEE THE Books as well as Notes given in the class+ TOPIC FOR PROJECT)

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