International Business

• Introduction

  • Meaning: Business activities across national borders
  • Scope: Trade, manufacturing, services, and investments globally
  • Distinction from Domestic Business: Operates in multiple countries with different environments

• Why International Business?

  • Motivations for Nations
    • Uneven distribution of natural resources
    • Differences in labor productivity and wage rates
    • Availability of technology and capital
  • Benefits for Firms
    • Prospects for higher profits
    • Expanding production capacity
    • Facing intense domestic competition
    • Improving business vision and growth

• Scope of International Business

  • Merchandise Exports & Imports
    • Exporting and importing of physical goods (visible trade)
  • Service Exports & Imports
    • Trade in intangibles (invisible trade like tourism, banking)
  • Licensing and Franchising
    • Permitting others to use intellectual property (trademarks, patents)
  • Foreign Investment
    • Direct Investment (FDI) in physical assets
    • Portfolio Investment in shares and securities

• Benefits of International Business

  • To Nations
    • Earning foreign exchange
    • More efficient resource allocation
    • Promotes international peace and prosperity
  • To Firms
    • Utilization of surplus capacity
    • Enhanced growth prospects
    • Improved quality and competitiveness

• Modes of Entry into International Business

  • Exporting and Importing
    • Direct vs. Indirect channels
  • Contract Manufacturing
    • Outsourcing production to foreign countries
  • Licensing and Franchising
    • Low-risk entry using brand name or technology
  • Joint Ventures
    • Equity partnership between two or more firms
  • Wholly Owned Subsidiaries
    • 100% equity ownership by the parent company

• Key International Trade Institutions

  • World Trade Organization (WTO)
    • Successor to GATT
    • Administers multilateral trade agreements
    • Resolves trade disputes
  • International Bank for Reconstruction and Development (IBRD / World Bank)
    • Provides long-term loans for reconstruction and development
  • International Monetary Fund (IMF)
    • Ensures stability of the international monetary system

• Major Documents Used

  • Export Documents
    • Indent (Order)
    • Letter of Credit (Guarantee of payment)
    • Bill of Lading (Receipt of goods & title)
    • Certificate of Origin (Proof of country of manufacturing)
    • Shipping Order (Instruction to ship captain)
  • Import Documents
    • Bill of Entry (Assessment of customs duty)
    • Dock Challan (Payment of port dues)

• World Trade Organization (WTO)

  • Objectives
    • Sustainable development and environment protection
    • Raising living standards and incomes
    • Ensuring full employment
  • Functions
    • Promoting WTO trade agreements
    • Forum for trade negotiations
    • Handling trade disputes
    • Cooperating with other international organizations