SCOPE OF INTERNATIONAL BUSINESS
International business is broader than just international trade. It includes various ways in
which firms operate globally. The major forms of international business operations are:
1. Merchandise Exports and Imports
o Involves tangible goods (that can be seen and touched).
o Merchandise exports: Sending goods abroad.
o Merchandise imports: Bringing goods from a foreign country.
o Also known as trade in goods.
2. Service Exports and Imports (Invisible Trade)
o Involves intangibles such as tourism, travel, transportation, banking,
consultancy, communication, and entertainment.
o Key components include business services, financial services, and tourism.
3. Licensing and Franchising
o Licensing: Granting rights to a foreign company to produce and sell goods
under trademarks, patents, or copyrights for a fee (e.g., Pepsi, Coca-Cola).
o Franchising: Used in service businesses where the brand allows foreign
businesses to operate under its name (e.g., McDonald’s).
4. Foreign Investments
o Foreign Direct Investment (FDI): A company directly invests in a foreign
country by setting up production units or subsidiaries. It provides control over
foreign operations and can be done through joint ventures or wholly owned
subsidiaries.
o Portfolio Investment: Involves investing in foreign company shares, bonds,
or loans to earn dividends or interest without participating in business
operations.
These different forms of international business enable companies to expand globally,
generate profits, and build global brand recognition.
MODES OF ENTRY INTO INTERNATIONAL BUSINESS
There are various modes of entry into international business, each with its own advantages and limitations.
The key modes include:
1. Exporting and Importing – The simplest and most common way to enter international business. It can
be done directly (handling all formalities independently) or indirectly (using intermediaries).
o Advantages: Low investment risk, easier entry, and less complexity.
o Limitations: High transportation costs, import restrictions, and lack of direct market presence.
2. Contract Manufacturing – A company contracts local manufacturers in foreign countries to produce
goods as per specifications.
o Advantages: Cost-effective, reduced investment risks, and better utilization of local
production capacities.
o Limitations: Risk of poor quality control, lack of control over production, and fixed pricing
limiting profits.
3. Licensing and Franchising – Licensing involves granting rights to patents, trademarks, or technology
for a royalty. Franchising is similar but mainly applies to service businesses.
o Advantages: Low investment, minimal risks, better local market knowledge.
o Limitations: Risk of trade secret leakage, potential competition from the licensee, and
possible conflicts over business operations.
4. Joint Ventures – A partnership between a foreign and local firm to establish a business together.
o Advantages: Shared financial burden, better knowledge of local markets, and risk-sharing.
o Limitations: Risk of technology leaks, conflicts between partners over control.
5. Wholly Owned Subsidiaries – The parent company fully owns and controls operations in the foreign
country, either by setting up a new business (Greenfield venture) or acquiring an existing one.
o Advantages: Full control, protection of trade secrets.
o Limitations: High financial investment, full liability for losses, and potential political risks.
Each mode of entry into international business has different levels of investment, risks, and operational
complexities. Businesses typically start with exporting/importing and later move to other forms of
international expansion based on market conditions.
EXPORT PROCEDURE
1. Receipt of Enquiry and Sending Quotation – The importer enquires about price, quality, and terms.
The exporter replies with a proforma invoice.
2. Receipt of Order (Indent) – The importer places an order specifying goods, price, delivery, and
payment terms.
3. Assessing Importer’s Creditworthiness – The exporter checks the importer’s financial stability and
may demand a letter of credit.
4. Obtaining Export Licence – The exporter must obtain an IEC code from DGFT, register with an
Export Promotion Council, and ECGC for risk protection.
5. Pre-Shipment Finance – The exporter obtains finance from a bank to procure raw materials and pack
goods.
6. Production or Procurement of Goods – The exporter manufactures or procures the goods as per the
order.
7. Pre-Shipment Inspection – If required, goods must be inspected by an Export Inspection Agency
(EIA).
8. Excise Clearance – The exporter gets an excise clearance certificate or claims an exemption under
the duty drawback scheme.
9. Certificate of Origin – Some countries offer tariff concessions, so a certificate of origin is obtained.
10. Shipping Space Reservation – The exporter books space on a shipping vessel and receives a shipping
order.
11. Packing and Forwarding – Goods are packed, labeled, and transported to the port. A railway receipt
is obtained if transported by train.
12. Insurance of Goods – The exporter insures goods to cover transit risks.
13. Customs Clearance – The exporter submits a shipping bill and necessary documents (invoice, letter
of credit, etc.) to customs.
14. Mate’s Receipt – Once goods are loaded, the ship’s captain issues a mate’s receipt.
15. Payment of Freight and Bill of Lading – The exporter pays the shipping company and gets a bill of
lading (for sea) or airway bill (for air).
16. Preparation of Invoice – The commercial invoice is prepared and attested by customs.
17. Securing Payment – The exporter’s bank negotiates payment with the importer’s bank through a bill
of exchange (sight/usance draft). Once payment is received, the exporter gets a bank certificate of
payment.
