Question

NCERT Solutions Class 11, Business Studies, Chapter- 11, International Business

International Business is a critical chapter in Class 11 Business Studies, offering students a comprehensive overview of global trade and economic interactions. This chapter introduces key concepts that shape how businesses operate across borders, influencing economic dynamics and strategies worldwide. This article offers an in-depth summary of the International Business chapter and features meticulously crafted solutions to the exercises. Aligned with the most recent CBSE guidelines, these solutions are designed to simplify complex topics and bolster your exam preparation.

In these NCERT Solutions for Class 11 Business Studies, we have discussed all types of NCERT intext questions and exercise questions.

Concepts covered in Class 11 Business Studies chapter- 11 International Business, are :

• Meaning of International Business
• Reason for International Business
• International Business vs. Domestic Business
• Benefits of International Business
• Scope of International Business
• Benefits to Countries
• Exporting and Importing
• Licensing and Franchising
• Export-Import Procedures and Documentation

Our NCERT Solutions for Class 11 Business Studies provide a comprehensive resource for students, featuring in-depth explanations, practice questions, and real-life examples to deepen understanding and aid in effective preparation. Utilizing these solutions helps students develop a solid grasp of business concepts and achieve success in their academic endeavors.

You now have easy access to all the solutions and practice questions you need to kickstart your studies!

Answer 1

NCERT Solutions Class 11, Business Studies, Chapter- 11, International Business

Short Answer Questions

1. Differentiate between international trade and international business.

Solution:

Basis	International trade	International business
Definition	International trade refers to the exchange of goods and services across the international boundaries of countries.	International business includes movement of capital, personnel, technology and intellectual property such as trademarks, know-how and copyrights, besides international trade.
Scope	Narrower	Wider (as it includes much more than international trade)
Implications	International trade involves the movement of finished goods and raw material as exports and imports across countries.	International business involves the movement of goods and services, emigration and immigration of human capital, and exchange of technology, technical know-how, copyrights and trademarks.

2. Discuss any three advantages of international business.

Solution:

1. International business assists in the development of both exporting and importing countries.

2. It gives a platform to the countries and producers to sell their goods to international buyers. In this way, it improves employment opportunities for the people of those countries.

3. International business also helps in earning foreign exchange, which can be utilised in importing petroleum, technology, and capital goods.

3. What is the major reason underlying trade between nations?

Solution:

1. Having an abundance of a resource, a country becomes an expert in that specific resource which can be produced in the vicinity of the available resources.

2. Every country has different natural resources, which are scarce and limited. Trading aids in making such resources available to all countries.

3. The labour productivity and production cost will vary among nations, so it is easier to export items produced in surplus and import items that a country won't be able to generate.

4. Differentiate between contract manufacturing and setting up wholly owned production subsidiary abroad.

Solution:

Basis	Contract manufacturing	Wholly owned production subsidiary
Meaning	A firm hires a local manufacturer in another country on a contractual basis to produce goods as per its requirements.	The parent company buys equity in a firm in another country and acquires full control over it.
Control	The firm has limited control over the local manufacturer.	The parent company has full control over its operations in another country through the subsidiary.
Investment	Negligible investment is made abroad.	The parent company buys up the entire equity of the firm abroad and makes this firm it's subsidiary.

5. Why is it necessary for an export firm to go in for pre-shipment inspection?

Solution:

Export is one of the main components of International business and involves the movement of goods and services across nations and the exchange of foreign currencies between the dealing parties. This makes export a complex process and the exporter is bound to follow the legal, and compulsory formalities imposed by the exporting country. One of the steps of the export procedure includes pre-shipment inspection.

It is necessary for an export firm to go in for pre-shipment inspection because the government of India wants an assurance that only A-one quality goods are being exported from India. For this, various Inspection Agencies have been set up under the Export Quality Control and Inspection Act of 1963. After producing or procuring the goods, an exporter requires to obtain a pre-shipment inspection certificate from the concerned authorized Inspection Agency. The inspection certificate ensures the quality of the goods and is one of the important documents required at the time of export.

If the goods to be exported falls into the A-quality category, the exporter has to contact the Export Inspection Agency (EIA) or another recognised agency to get an inspection certificate. Also, at the time of export, the pre-shipment inspection report must be presented along with other export documentation. 

However, such inspection is not required if the products are exported by star trading houses, trading houses, export houses, industrial units established in export processing zones/special economic zones (EPZs/SEZs), and 100% export-focused units (EOUs).

6. What is bill of lading? How does it differ from bill of entry?

Solution:

Bill of Lading and Bill of Entry are two different documents required in import transaction.

Bill of Lading: It is a document prepared and signed by the ship’s master acknowledging the arrival of goods on board. It specifies the terms and conditions under which the goods will be transported to the port of destination.

Bill of Entry: A bill of entry is a form provided by the customs office to the importer. It must be completed by the importer upon receipt of the goods. It must be submitted in triplicate to the customs office. The bill of entry includes information such as the importer’s name and address, the name of the ship, the number of packages, the marks on the packages, the description of goods, the quantity and value of goods, the exporter’s name and address, the port of destination, and the customs duty payable.

A bill of lading differs from a bill of entry in function; i.e., a bill of entry is a document provided by customs that must be completed by the importer as soon as the goods are received. Meanwhile, the shipping company provides a bill of lading, which is required throughout the export transaction. A bill of entry comprises details about the products as well as the destination; whereas, a bill of lading includes the terms and conditions under which the goods will be transported to the port of destination.

7. What is a letter of credit? Why does an exporter need this document?

Solution:

 A letter of credit is issued by the bank of the importer. It is a guarantee to make payment of export bills to the bank of the exporter up to a particular amount. The exporter needs this document to ensure that the payment is protected and is a safe way to settle international transactions.

8. Discuss the process involved in securing payment for exports.

Solution:

1. After the shipment is made, the exporter tells the importer about the shipment.

2. The exporter sends essential documents like an insurance policy, bill of lading, letter of credit, and invoice copies. The importer requires these documents to claim the goods and for customs clearance.

3. These documents are sent through the bank of the exporter, along with an instruction that documents should be delivered only when the importer accepts the bill of exchange.

4. The exporter can get immediate payment from his/her bank on the submission of documents by signing a letter of indemnity

5. Once the money is received, the exporter gets a certificate of payment from the bank. It includes all necessary documents.

Answer 2

Long Answer Questions

1. “International business is more than international trade”. Comment.

Solution:

International business refers to the business transactions that take place across national boundaries. It encompasses all international activities including manufacturing and movement of goods, services, capital, personnel, and intellectual property. On the other hand, international trade is an activity that is confined to just import and export of goods. It is itself a small part of international business. Therefore, we can say that international business is much bigger than international trade.

The following are some of the major operations that are a part of international business and help in distinguishing it from international trade.

(a) Import and export of services: Trading of services is an important constituent of international business. Services that are a part of international business include travel and tourism, entertainment, communication, transportation, construction, advertising, R&D, and banking.

(b) Licensing and franchising: International business includes activities related to licensing and franchising. Under licensing, a foreign firm is granted intellectual property rights by a home company so that the firm abroad can produce and sell goods under the home company’s trademarks, patents, or copyrights in exchange for a fee. Similarly, under franchising, a home country grants a foreign firm the right to produce and sell goods under a common brand name using the same operations support system in exchange for a fee.

(c)Foreign investment: It refers to the funds that are invested abroad for some returns. It is an important part of international business and involves two components, as follows.

(i) Direct investment: It refers to an investment made directly in the plants and machinery of a foreign company so as to undertake production by acquiring controlling rights.

(ii). Portfolio investment: It refers to an investment made in securities or by providing loans to a foreign company with an objective of earning profits in the form of dividends or interests on loans.

2. What benefits do firms derive by entering into international business?

Solution:

The following are some of the benefits that firms enjoy by entering into international business.

(a) Higher profits: International business allows firms to earn higher profits by taking advantage of the price differences prevailing between countries. For instance, if the price of a commodity in the domestic market is lower than that prevailing in international markets, a firm can benefit by selling the commodity in international markets.

(b) Growth prospects: Often, firms face a saturated domestic demand. In such cases, international trade provides a platform for them to increase their consumer base by opening up the route to overseas markets. This increases their growth prospects.

(c) Higher capacity utilisation: Sometimes, the production capacity of a firm may exceed the demand for its product in the domestic market. Therefore, in such cases, trading in international markets helps in utilising its capacity fully (by serving a larger consumer base). This in turn helps the firm to improve the profitability of its operations and benefit from the economies of scale by lowering production costs and increasing the per-unit profit margin.

(d) Method to escape high domestic competition: International trading allows firms to escape stiff competition in domestic markets. If domestic traders face high competition in domestic markets, they can turn towards international markets to sell their products and earn higher profits.

(e) Enhanced business perceptions: Every business firm strives to achieve long-term growth and expansion. This objective is aligned with the objective of stepping into international markets. Hence, companies aim at diversifying their products to enter into foreign markets to reap the benefits of overseas trading, and also to achieve growth.

3. In what ways is exporting a better way of entering international markets than setting up wholly owned subsidiaries abroad.

Solution:

Exporting refers to the process of selling goods and services to companies in other countries as per their requirements. It involves the movement of goods by air or sea from the home country (where the goods are produced) to other countries (which import these goods). On the other hand, a wholly-owned subsidiary is a firm in which a parent company makes an equity investment to acquire full control over it. Despite the fact that a parent company has full control over a wholly-owned subsidiary abroad, the exporting model is a better way of entering into international markets. This is because of the following factors.

(a) Lesser complexities involved: Compared with setting up a wholly-owned subsidiary, exporting is a much easier way of entering into international markets. This is because export management is a much simpler and easier process without complexities. On the other hand, the management of a wholly-owned subsidiary is a complex and rigorous task.

(b) Less investment required: The amount of time and money required to be invested in the export business is less than that in a wholly-owned subsidiary. This is because subsidiaries involve setting up manufacturing plants and starting operations in other countries, which require large amounts of money and effort. Thus, export is a favourable mode of entering into international markets.

(c) Less exposure to risks and losses: As exporting requires a smaller investment, the risk involved is negligible. On the other hand, in the case of a wholly-owned subsidiary in another country, the parent company owns 100 percent share, and thus, it bears the entire risk in case of failure of the subsidiary. Hence, exporting is said to be a better mode of entering into international markets.

4. Rekha Garments has received an order to export 2000 men’s trousers to Swift Imports Ltd., located in Australia. Discuss the procedure that Rekha Garments would need to go through for executing the export order.

Solution:

The steps in the procedure of export are:

1. Rekha must make inquiries about the creditworthiness of the importer. In this case, Swift Imports Limited is an importer. She should also ask for a letter of credit from the bank of the importer.

2. After the check, she needs to obtain an IEC number to get an export license.

3. After that, she needs pre-shipment finance from the bank of the importer to obtain raw materials for packaging and production.

4. After receiving the pre-shipment finance, she should start manufacturing garments as per the demands of an importer.

5. She also needs to obtain a certificate of inspection from an export inspection agency.

6. Also, obtain excise clearance from the Excise commissioner and a certificate of origin.

7. Now, she will apply to a shipping company to get space on the ship. All essential information such as destination, types of goods, shipment date, number of boxes, and port name are mentioned.

8. Products get correctly packed and labelled with all the necessary information.

9. Obtain customs clearance, and goods are loaded into the vessel and issued a mate's receipt.

10. On receipt of freight, issuing of the bill of lading.

11. After shipping items, the exporter makes an invoice which contains the goods sent and the payment paid by the importer.

12. The exporter sends essential documents to the banker that must be given to the importer after accepting the bill of exchange.

13. On receiving it, the importer will ask his bank to make a payment to the exporter's bank account.

14. The exporter receives a certificate of payment, producing the essential documents and bill of exchange.

Answer 3

5. Your firm is planning to import textile machinery from Canada. Describe the procedure involved in importing.

Solution:

In order to import textile machinery from Canada, the firm will have to take the following steps.

(a) The firm (the importer) should first make an enquiry about the price of the machinery, terms and conditions on which the selected Canadian exporter is willing to supply the goods and such related information. It should then send the trade enquiry to the exporter. On receipt of the trade enquiry, the exporter will prepare a quotation and send it to the importer.

(b) The importer must find out whether the goods to be imported are subject to import licensing. If needed, it must secure an import license.

(c) The firm must then convert domestic currency into foreign currency to make payment to the exporter. This is done by submitting an application to a bank in the prescribed form along with documents.

(d) Once the import licence is obtained, the importer can place an order with the exporter specifying the price, quantity and quality of the goods required.

(e) The importer will be required to send a letter of credit to the Canadian exporter. This letter is obtained from the importer’s bank and acts as a bank guarantee that a draft of a specified amount drawn on it by the exporter will be honoured.

(f) The next step is for the importer to arrange for finance in order to make payment to the exporter on the arrival of the goods. This is necessary to avoid penalties on account of any delay in payment.

(g) Once the goods are shipped, the exporter will send shipment advice to the importer. This document is proof of dispatch of the goods and contains information about the bill of lading, name of the vessel with date, the port of export, description of goods, etc.

(h) The importer must then prepare a bill of exchange that is to be handed over to the exporter’s banker in exchange for the export documents. After this is done, the importer is required to instruct its bank to transfer money to the exporter’s bank account.

(i) An import general manifest will be issued by the person in charge of the carrier (ship or airliner) in which the goods are being imported. This is done in order to inform the officer in charge at the dock or the airport about the arrival of the goods. This document contains information about the goods being imported, and it is on the basis of this document that unloading of the cargo will take place.

(j) Once the goods arrive at the port, the importer must get customs clearance, which in turn requires a delivery order, a port duty dues receipt and a bill of entry.

6. What is IMF? Discuss its various objectives and functions.

Solution:

The IMF, or the International Monetary Fund, came into existence in 1945 with the objective of establishing a healthy and orderly monetary system. It aimed at facilitating a system of international payments and taking care of the adjustments in exchange rates among national currencies. It is one of the three international institutions—the other two being the World Bank and the International Trade Organization—that were created for facilitating and monitoring the economic development of the world.

Objectives of the IMF

(a) To aid the balanced growth of international trade and market, thereby promoting the growth of employment and income

(b) To promote international monetary cooperation among the member countries

(c) To facilitate the orderly exchange of goods between the member countries

(d) To facilitate international payments with respect to the exchange transactions between the member countries

Functions of the IMF

(a) Providing short-term credit to member countries

(b) Maintaining stability in the exchange rate of the member countries

(c) Fixing and altering the value of a country’s currency whenever required, to facilitate the adjustment of the exchange rate of member countries

(d) Collecting the currencies of member countries so as to allow them to borrow the currency of other nations

(e) Lending foreign currency to member nations and facilitating international payments with respect to the exchange transactions between member countries.

7. Write a detailed note on features, structure, objectives and functioning of WTO.

Solution:

Features of the WTO (World Trade Organisation)

(a) It governs trade in goods, services and intellectual property rights among the member countries.

(b) It is a body created by an international treaty with the approval of the governments and legislatures of the member states.

(c) The decisions of the WTO are made by the governments of the member nations on the basis of consensus.

Structure of the WTO

On January 1, 1995, the General Agreement on Tariffs and Trade (GATT) was transformed into the WTO to facilitate international trade among the member countries. The WTO was made much more powerful than GATT, by removing tariff and non-tariff barriers between the member nations. It is a permanent body created by an international treaty and represents the implementation of the original proposal of the ITO.

Objectives of the WTO

(a) Reducing tariff and other non-trade barriers imposed by different nations

(b) Ensuring sustainable development by optimally using the world resources

(c) Developing a more integrated, feasible and stable trading system

Functions of the WTO

(a) Providing an environment to the member countries such that they can put forward their grievances before the WTO without any hesitation

(b) Resolving trade disputes among member nations

(c) Eliminating discriminations in trade relations by laying down a commonly accepted code of conduct

(d) Creating better understanding between member countries by consulting with the IMF, the World Bank, and various other World Bank affiliates.