International Business - Solutions
CBSE Class 11 Business Studies
Chapter-10
International Business-I
SHORT ANSWER TYPE QUESTIONS
1. Differentiate between international trade and international business.
Ans. International business includes all commercial transactions, private and governmental, between two or more countries. These transactions include sales, investment and transportation.
International trade refers to the exchange of goods and services between two or more countries or their nationals.
2. Discuss any three advantages of international business.
Ans. The advantages of international business are discussed below:
1. Employment: International business helps in increasing employment opportunities in the export oriented industries.
2. Growth of economy: Underdeveloped and developing countries can exploit their unutilized natural resources with the import of technical knowhow, machinery and equipments from the developed countries.
3. Optimum utilization of resources: International business leads to international division of labour and specialization. It reduces wastage of resources resulting from the production of uneconomic goods. The resources are also used efficiently.
3. What is the major reason underlying trade between nations?
Ans. The major reason underlying trade between nations are as follows:
1. Payment for imported goods is made in foreign currency. Similarly, payment for export of goods is received in foreign currency. In India, conversion of foreign currency into rupee or vice versa is regulated by the Reserve Bank of India.
2. International trade is carried on mostly in large quantities both on government to government account and on private account involving individuals and business houses.
4. Discuss as to why nations trade.
Ans. Nations trade because of following reasons:
(a) Unequal distribution of natural resources: Resources are unequally distributed in natural resources. Some countries are abundant in one commodity and scarce in other while opposite is true for some other country. It makes a case for international trade and exchanging abundant commodity with scarce commodity by nations.
(b) Unequal availability of factors of production: Different nations are endowed with different factors of production which includes land, labour, capital and entrepreneurship. For example, India is a labour abundant country. Therefore, it is advisable for India to produce such commodities which use labour intensive methods and exchange it for those which use capital intensive methods. USA is a capital abundant country. Therefore, nations need to trade.
(c) Theory of Comparative Cost Advantage: Due to these factors, some countries are in an advantageous position in producing selected goods and services which other countries cannot produce that effectively and efficiently and vice-versa. Consequently, each country finds it advantageous to produce those selected goods and services that it can produce more effectively at home and importing those goods in which other nations have a comparative cost advantage.
(d) Geographical Specialisation: The international business as it exists today is the result of geographical specialization. Even within a country each state specialises in those goods for which it is geographically more suitable. Similarly, each nation specialises in those goods in which it is specialized as per availability of resources and exchanges it for other goods and services in foreign market.
(e) Cost minimization principle of firms: Firms get involved in international business to minimize their costs and maximize their profits.
5. Enumerate limitations of contract manufacturing.
Ans. Major limitations of contract manufacturing are discussed below:
(a) Non-adherence to quality standards: Local firms may not adhere to quality standards or product design. It may cause serious quality problems for international firm.
(b) No control on production by local producer: Local producer has no control on manufacturing as goods are manufactured strictly as per the terms and specifications by international firm.
(c) Zero control over sales: Local producer can't sell the output to customers directly. He needs to sell to the international firm at a pre-determined price. It reduces profits of local firm.
6. Why is it said that licensing is an easier way to expand globally?
Ans. It is said that licensing is an easier way to expand globally because of the following reasons:
1. Licensing is the cheapest mode of entering into international business.
2. The licensor gets the royalty so long as the agreement is in operation.
3. The business in the foreign country is managed by the licensee who is aware of the local environment. He can popularize the trademark and brand name of the licensor and push up the sales
7. Differentiate between contract manufacturing and setting up wholly owned production subsidiary abroad.
Ans. The difference between contract manufacturing and wholly owned subsidiary is discussed below:
Basis | Contract Manufacturing | Wholly Owned Subsidiary |
Meaning | It refers to the type of international business where a firm enters into contract with some local manufactures in foreign countries to get certain components of goods produced as per their specifications. | In this the parent company acquires the full control over the foreign company by purchasing its 100% equity capital. |
Forms | It can take three forms: | It can be established in two ways: |
8. Distinguish between licensing and franchising.
Ans.
Basis | Licensing | Franchising |
Meaning | Licensing is a contractual agreement in which one firm grants access to its patents, trade secrets, technology to another firm in a foreign country for a fee. This fee is called royalty. | Franchising is basically a specialized form of licensing in which franchisor sells intangible property to the franchisee but also imposes strict rules on franchisee as to how business is to be done. |
Connected with | Licensing is used in connection with production and marketing of goods. | The term franchising is used in connection with production of services. |
Stringency | Licensing is relatively less stringent than franchising. Strict rules and regulations are not set by licensors as to how licensees should operate while running their business. | Franchising is relatively more stringent than licensing. Strict rules and regulations are set by franchisers as to how franchisees should operate while running their business. |
9. List major items of India's import.
Ans. India's major items of imports include crude oil and petroleum products, capital goods, electronic goods, pearls, precious and semi-precious stones, gold, silver and chemicals.
10. What are the major items that are exported from India?
Ans. India's major items of exports include textiles, garments, gems and jewellery, engineering products and chemicals, agriculture and allied products.
11. List the major countries with whom India trades.
Ans. India's major- trading partners are USA, UK, Germany, Japan, Belgium, Hong Kong, UAE, China, Switzerland, Singapore and Malaysia.
