NCERT Textbook - International Business - I Commerce Notes | EduRev

Business Studies (BST) Class 11

Commerce : NCERT Textbook - International Business - I Commerce Notes | EduRev

 Page 1


CHAPTER 11
INTERNATIONAL BUSINESS-I
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
• explain the meaning of international business;
? state as to why international business takes place and how does
it differ from domestic business;
? describe the scope of international business and its benefits to
the nation and business firms;
? identify and evaluate various modes of entry into international
business; and
? analyse trends in India’s involvement in international business.
© NCERT
not to be republished
Page 2


CHAPTER 11
INTERNATIONAL BUSINESS-I
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
• explain the meaning of international business;
? state as to why international business takes place and how does
it differ from domestic business;
? describe the scope of international business and its benefits to
the nation and business firms;
? identify and evaluate various modes of entry into international
business; and
? analyse trends in India’s involvement in international business.
© NCERT
not to be republished
252 BUSINESS STUDIES
11.1 INTRODUCTION
Countries all over the world are
undergoing a fundamental shift in the
way they produce and market various
products and services. The national
economies which so far were pursuing
the goal of self-reliance are now
becoming increasingly dependent upon
others for procuring as well as
supplying various kinds of goods and
services. Due to increased cross border
trade and investments, countries are
no more isolated.
The prime reason behind this
radical change is the development
of communication, technology,
infrastructure etc. Emergence of newer
modes of communication and
development of faster and more efficient
means of transportation have brought
nations closer to one another.
Countries that were cut-off from one
another due to geographical distances
and socio-economic differences have
now started increasingly interacting
with others. W orld Trade Organisation
(WTO) and reforms carried out by the
Mr. Sudhir Manchanda is a small manufacturer of automobile components. His
factory is located in Gurgaon and employs about 55 workers with an investment
of Rs. 9.2 million in plant and machinery. Due to recession in the domestic
market, he foresees prospects of his sales going up in the next few years in the
domestic market. He is exploring the possibility of going international. Some of
his competitors are already in export business. A casual talk with one of his
close friends in the tyre business reveals that there is a substantial market for
automobile components and accessories in South-East Asia and Middle East.
But his friend also tells him, “Doing business internationally is not the same as
carrying out business within the home country. International business is more
complex as one has to operate under market conditions that are different from
those that one faces in domestic business”. Mr. Manchanda is, moreover, not
sure as to how he should go about setting up international business. Should he
himself identify and contact some overseas customers and start exporting directly
to them or else route his products through export houses which specialise in
exporting products made by others?
Mr. Manchanda’s son who has just returned after an MBA in USA suggests that
they should set up a fully owned factory in Bangkok for supplying to customers
in South-East Asia and Middle East. Setting up a manufacturing plant there
will help them save costs of transporting goods from India. This would also help
them coming closer to the overseas customers. Mr. Manchanda is in a fix as to
what to do. In the face of difficulties involved in overseas ventures as pointed out
by his friend, he is wondering about the desirability of entering into global
business. He is also not sure as to what the different ways of entering into
international market are and which one will best suit his purpose.
© NCERT
not to be republished
Page 3


CHAPTER 11
INTERNATIONAL BUSINESS-I
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
• explain the meaning of international business;
? state as to why international business takes place and how does
it differ from domestic business;
? describe the scope of international business and its benefits to
the nation and business firms;
? identify and evaluate various modes of entry into international
business; and
? analyse trends in India’s involvement in international business.
© NCERT
not to be republished
252 BUSINESS STUDIES
11.1 INTRODUCTION
Countries all over the world are
undergoing a fundamental shift in the
way they produce and market various
products and services. The national
economies which so far were pursuing
the goal of self-reliance are now
becoming increasingly dependent upon
others for procuring as well as
supplying various kinds of goods and
services. Due to increased cross border
trade and investments, countries are
no more isolated.
The prime reason behind this
radical change is the development
of communication, technology,
infrastructure etc. Emergence of newer
modes of communication and
development of faster and more efficient
means of transportation have brought
nations closer to one another.
Countries that were cut-off from one
another due to geographical distances
and socio-economic differences have
now started increasingly interacting
with others. W orld Trade Organisation
(WTO) and reforms carried out by the
Mr. Sudhir Manchanda is a small manufacturer of automobile components. His
factory is located in Gurgaon and employs about 55 workers with an investment
of Rs. 9.2 million in plant and machinery. Due to recession in the domestic
market, he foresees prospects of his sales going up in the next few years in the
domestic market. He is exploring the possibility of going international. Some of
his competitors are already in export business. A casual talk with one of his
close friends in the tyre business reveals that there is a substantial market for
automobile components and accessories in South-East Asia and Middle East.
But his friend also tells him, “Doing business internationally is not the same as
carrying out business within the home country. International business is more
complex as one has to operate under market conditions that are different from
those that one faces in domestic business”. Mr. Manchanda is, moreover, not
sure as to how he should go about setting up international business. Should he
himself identify and contact some overseas customers and start exporting directly
to them or else route his products through export houses which specialise in
exporting products made by others?
Mr. Manchanda’s son who has just returned after an MBA in USA suggests that
they should set up a fully owned factory in Bangkok for supplying to customers
in South-East Asia and Middle East. Setting up a manufacturing plant there
will help them save costs of transporting goods from India. This would also help
them coming closer to the overseas customers. Mr. Manchanda is in a fix as to
what to do. In the face of difficulties involved in overseas ventures as pointed out
by his friend, he is wondering about the desirability of entering into global
business. He is also not sure as to what the different ways of entering into
international market are and which one will best suit his purpose.
© NCERT
not to be republished
253 INTERNATIONAL BUSINESS- I
governments of different countries
have also been a major contributory
factor to the increased interactions and
business relations amongst the
nations.
We are today living in a world
where the obstacles to cross-border
movement of goods and persons have
substantially come down. The national
economies are increasingly becoming
borderless and getting integrated into
the world economy.  Little wonder that
the world has today come to be known
as a ‘global village’. Business in the
present day is no longer restricted to
the boundaries of the domestic
country. More and more firms are
making forays into international
business which presents them with
numerous opportunities for growth
and increased profits.
India has been trading with other
countries for a long time. But it has of
late considerably speeded up its
process of integrating with the world
economy and increasing its foreign
trade and investments (see Box A:
India Embarks on the Path to
Globalisation).
11.1.1 Meaning of International
Business
Business transaction taking place
within the geographical boundaries of
a nation is known as domestic or
national business. It is also referred to
as internal business or home trade.
Manufacturing and trade beyond the
boundaries of one’s own country is
known as international business.
International or external business can,
therefore, be defined as those business
activities that take place across the
Box A
India Embarks on the Path to Globalisation
International business has entered into a new era of reforms. India too did not
remain cut-off from these developments. India was under a severe debt trap and
was facing crippling balance of payment crisis. In 1991, it approached the
International Monetary Fund (IMF) for raising funds to tide over its balance of
payment deficits. IMF agreed to lend money to India subject to the condition that
India would undergo structural changes to be able to ensure repayment of
borrowed funds.
India had no alternative but to agree to the proposal. It was the very conditions
imposed by IMF which more or less forced India to liberalise its economic policies.
Since then a fairly large amount of liberalisation at the economic front has
taken place.
Though the process of reforms has somewhat slowed down, India is very much
on the path to globalisation and integrating with the world economy. While, on
the one hand, many multinational corporations (MNCs) have ventured into Indian
market for selling their products and services; many Indian companies too have
stepped out of the country to market their products and services to consumers
in foreign countries.
© NCERT
not to be republished
Page 4


CHAPTER 11
INTERNATIONAL BUSINESS-I
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
• explain the meaning of international business;
? state as to why international business takes place and how does
it differ from domestic business;
? describe the scope of international business and its benefits to
the nation and business firms;
? identify and evaluate various modes of entry into international
business; and
? analyse trends in India’s involvement in international business.
© NCERT
not to be republished
252 BUSINESS STUDIES
11.1 INTRODUCTION
Countries all over the world are
undergoing a fundamental shift in the
way they produce and market various
products and services. The national
economies which so far were pursuing
the goal of self-reliance are now
becoming increasingly dependent upon
others for procuring as well as
supplying various kinds of goods and
services. Due to increased cross border
trade and investments, countries are
no more isolated.
The prime reason behind this
radical change is the development
of communication, technology,
infrastructure etc. Emergence of newer
modes of communication and
development of faster and more efficient
means of transportation have brought
nations closer to one another.
Countries that were cut-off from one
another due to geographical distances
and socio-economic differences have
now started increasingly interacting
with others. W orld Trade Organisation
(WTO) and reforms carried out by the
Mr. Sudhir Manchanda is a small manufacturer of automobile components. His
factory is located in Gurgaon and employs about 55 workers with an investment
of Rs. 9.2 million in plant and machinery. Due to recession in the domestic
market, he foresees prospects of his sales going up in the next few years in the
domestic market. He is exploring the possibility of going international. Some of
his competitors are already in export business. A casual talk with one of his
close friends in the tyre business reveals that there is a substantial market for
automobile components and accessories in South-East Asia and Middle East.
But his friend also tells him, “Doing business internationally is not the same as
carrying out business within the home country. International business is more
complex as one has to operate under market conditions that are different from
those that one faces in domestic business”. Mr. Manchanda is, moreover, not
sure as to how he should go about setting up international business. Should he
himself identify and contact some overseas customers and start exporting directly
to them or else route his products through export houses which specialise in
exporting products made by others?
Mr. Manchanda’s son who has just returned after an MBA in USA suggests that
they should set up a fully owned factory in Bangkok for supplying to customers
in South-East Asia and Middle East. Setting up a manufacturing plant there
will help them save costs of transporting goods from India. This would also help
them coming closer to the overseas customers. Mr. Manchanda is in a fix as to
what to do. In the face of difficulties involved in overseas ventures as pointed out
by his friend, he is wondering about the desirability of entering into global
business. He is also not sure as to what the different ways of entering into
international market are and which one will best suit his purpose.
© NCERT
not to be republished
253 INTERNATIONAL BUSINESS- I
governments of different countries
have also been a major contributory
factor to the increased interactions and
business relations amongst the
nations.
We are today living in a world
where the obstacles to cross-border
movement of goods and persons have
substantially come down. The national
economies are increasingly becoming
borderless and getting integrated into
the world economy.  Little wonder that
the world has today come to be known
as a ‘global village’. Business in the
present day is no longer restricted to
the boundaries of the domestic
country. More and more firms are
making forays into international
business which presents them with
numerous opportunities for growth
and increased profits.
India has been trading with other
countries for a long time. But it has of
late considerably speeded up its
process of integrating with the world
economy and increasing its foreign
trade and investments (see Box A:
India Embarks on the Path to
Globalisation).
11.1.1 Meaning of International
Business
Business transaction taking place
within the geographical boundaries of
a nation is known as domestic or
national business. It is also referred to
as internal business or home trade.
Manufacturing and trade beyond the
boundaries of one’s own country is
known as international business.
International or external business can,
therefore, be defined as those business
activities that take place across the
Box A
India Embarks on the Path to Globalisation
International business has entered into a new era of reforms. India too did not
remain cut-off from these developments. India was under a severe debt trap and
was facing crippling balance of payment crisis. In 1991, it approached the
International Monetary Fund (IMF) for raising funds to tide over its balance of
payment deficits. IMF agreed to lend money to India subject to the condition that
India would undergo structural changes to be able to ensure repayment of
borrowed funds.
India had no alternative but to agree to the proposal. It was the very conditions
imposed by IMF which more or less forced India to liberalise its economic policies.
Since then a fairly large amount of liberalisation at the economic front has
taken place.
Though the process of reforms has somewhat slowed down, India is very much
on the path to globalisation and integrating with the world economy. While, on
the one hand, many multinational corporations (MNCs) have ventured into Indian
market for selling their products and services; many Indian companies too have
stepped out of the country to market their products and services to consumers
in foreign countries.
© NCERT
not to be republished
254 BUSINESS STUDIES
national frontiers. It involves not only
the international movements of goods
and services, but also of capital,
personnel, technology and intellectual
property like patents, trademarks,
know-how and copyrights.
It may be mentioned here that
mostly people think of international
business as international trade. But
this is not true. No doubt international
trade, comprising exports and imports
of goods, has historically been an
important component of international
business. But of late, the scope
of international business has
substantially expanded. International
trade in services such as international
travel and tourism, transportation,
communication, banking, ware-
housing, distribution and advertising
has considerably grown. The other
equally important developments are
increased foreign investments and
overseas production of goods and
services. Companies have started
increasingly making investments into
foreign countries and undertaking
production of goods and services in
foreign countries to come closer to
foreign customers and serve them
more effectively at lower costs. All these
activities form part of international
business. To conclude, we can say that
international business is a much
broader term and is comprised of both
the trade and production of goods and
services across frontiers.
11.1.2 Reason for International
Business
The fundamental reason behind
international business is that the
countries cannot produce equally well
or cheaply all that they need. This is
because of the unequal distribution of
natural resources among them or
differences in their productivity levels.
Availability of various factors of
production such as labour, capital and
raw materials that are required for
producing different goods and services
differ among nations. Moreover, labour
productivity and production costs
differ among nations due to various
socio-economic, geographical and
political reasons.
International business involves commercial activities that cross national frontiers.
Roger Bennett
International business consists of transactions that are devised and carried
out across national borders to satisfy the objectives of the individuals, companies
and organisations. These transactions take on various forms which are often
interrelated.
Michael R. Czinkota
International business is all business transactions—private and
governmental — that involve two or more countries. Private companies undertake
such transactions for profits; governments may or may not do the same in their
transactions.
John D. Daniels and Lee H. Radebaugh
© NCERT
not to be republished
Page 5


CHAPTER 11
INTERNATIONAL BUSINESS-I
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
• explain the meaning of international business;
? state as to why international business takes place and how does
it differ from domestic business;
? describe the scope of international business and its benefits to
the nation and business firms;
? identify and evaluate various modes of entry into international
business; and
? analyse trends in India’s involvement in international business.
© NCERT
not to be republished
252 BUSINESS STUDIES
11.1 INTRODUCTION
Countries all over the world are
undergoing a fundamental shift in the
way they produce and market various
products and services. The national
economies which so far were pursuing
the goal of self-reliance are now
becoming increasingly dependent upon
others for procuring as well as
supplying various kinds of goods and
services. Due to increased cross border
trade and investments, countries are
no more isolated.
The prime reason behind this
radical change is the development
of communication, technology,
infrastructure etc. Emergence of newer
modes of communication and
development of faster and more efficient
means of transportation have brought
nations closer to one another.
Countries that were cut-off from one
another due to geographical distances
and socio-economic differences have
now started increasingly interacting
with others. W orld Trade Organisation
(WTO) and reforms carried out by the
Mr. Sudhir Manchanda is a small manufacturer of automobile components. His
factory is located in Gurgaon and employs about 55 workers with an investment
of Rs. 9.2 million in plant and machinery. Due to recession in the domestic
market, he foresees prospects of his sales going up in the next few years in the
domestic market. He is exploring the possibility of going international. Some of
his competitors are already in export business. A casual talk with one of his
close friends in the tyre business reveals that there is a substantial market for
automobile components and accessories in South-East Asia and Middle East.
But his friend also tells him, “Doing business internationally is not the same as
carrying out business within the home country. International business is more
complex as one has to operate under market conditions that are different from
those that one faces in domestic business”. Mr. Manchanda is, moreover, not
sure as to how he should go about setting up international business. Should he
himself identify and contact some overseas customers and start exporting directly
to them or else route his products through export houses which specialise in
exporting products made by others?
Mr. Manchanda’s son who has just returned after an MBA in USA suggests that
they should set up a fully owned factory in Bangkok for supplying to customers
in South-East Asia and Middle East. Setting up a manufacturing plant there
will help them save costs of transporting goods from India. This would also help
them coming closer to the overseas customers. Mr. Manchanda is in a fix as to
what to do. In the face of difficulties involved in overseas ventures as pointed out
by his friend, he is wondering about the desirability of entering into global
business. He is also not sure as to what the different ways of entering into
international market are and which one will best suit his purpose.
© NCERT
not to be republished
253 INTERNATIONAL BUSINESS- I
governments of different countries
have also been a major contributory
factor to the increased interactions and
business relations amongst the
nations.
We are today living in a world
where the obstacles to cross-border
movement of goods and persons have
substantially come down. The national
economies are increasingly becoming
borderless and getting integrated into
the world economy.  Little wonder that
the world has today come to be known
as a ‘global village’. Business in the
present day is no longer restricted to
the boundaries of the domestic
country. More and more firms are
making forays into international
business which presents them with
numerous opportunities for growth
and increased profits.
India has been trading with other
countries for a long time. But it has of
late considerably speeded up its
process of integrating with the world
economy and increasing its foreign
trade and investments (see Box A:
India Embarks on the Path to
Globalisation).
11.1.1 Meaning of International
Business
Business transaction taking place
within the geographical boundaries of
a nation is known as domestic or
national business. It is also referred to
as internal business or home trade.
Manufacturing and trade beyond the
boundaries of one’s own country is
known as international business.
International or external business can,
therefore, be defined as those business
activities that take place across the
Box A
India Embarks on the Path to Globalisation
International business has entered into a new era of reforms. India too did not
remain cut-off from these developments. India was under a severe debt trap and
was facing crippling balance of payment crisis. In 1991, it approached the
International Monetary Fund (IMF) for raising funds to tide over its balance of
payment deficits. IMF agreed to lend money to India subject to the condition that
India would undergo structural changes to be able to ensure repayment of
borrowed funds.
India had no alternative but to agree to the proposal. It was the very conditions
imposed by IMF which more or less forced India to liberalise its economic policies.
Since then a fairly large amount of liberalisation at the economic front has
taken place.
Though the process of reforms has somewhat slowed down, India is very much
on the path to globalisation and integrating with the world economy. While, on
the one hand, many multinational corporations (MNCs) have ventured into Indian
market for selling their products and services; many Indian companies too have
stepped out of the country to market their products and services to consumers
in foreign countries.
© NCERT
not to be republished
254 BUSINESS STUDIES
national frontiers. It involves not only
the international movements of goods
and services, but also of capital,
personnel, technology and intellectual
property like patents, trademarks,
know-how and copyrights.
It may be mentioned here that
mostly people think of international
business as international trade. But
this is not true. No doubt international
trade, comprising exports and imports
of goods, has historically been an
important component of international
business. But of late, the scope
of international business has
substantially expanded. International
trade in services such as international
travel and tourism, transportation,
communication, banking, ware-
housing, distribution and advertising
has considerably grown. The other
equally important developments are
increased foreign investments and
overseas production of goods and
services. Companies have started
increasingly making investments into
foreign countries and undertaking
production of goods and services in
foreign countries to come closer to
foreign customers and serve them
more effectively at lower costs. All these
activities form part of international
business. To conclude, we can say that
international business is a much
broader term and is comprised of both
the trade and production of goods and
services across frontiers.
11.1.2 Reason for International
Business
The fundamental reason behind
international business is that the
countries cannot produce equally well
or cheaply all that they need. This is
because of the unequal distribution of
natural resources among them or
differences in their productivity levels.
Availability of various factors of
production such as labour, capital and
raw materials that are required for
producing different goods and services
differ among nations. Moreover, labour
productivity and production costs
differ among nations due to various
socio-economic, geographical and
political reasons.
International business involves commercial activities that cross national frontiers.
Roger Bennett
International business consists of transactions that are devised and carried
out across national borders to satisfy the objectives of the individuals, companies
and organisations. These transactions take on various forms which are often
interrelated.
Michael R. Czinkota
International business is all business transactions—private and
governmental — that involve two or more countries. Private companies undertake
such transactions for profits; governments may or may not do the same in their
transactions.
John D. Daniels and Lee H. Radebaugh
© NCERT
not to be republished
255 INTERNATIONAL BUSINESS- I
Due to these differences, it is not
uncommon to find one particular
country being in a better position to
produce better quality products and/
or at lower costs than what other
nations can do.  In other words, we can
say that some countries are in an
advantageous position in producing
select goods and services which other
countries cannot produce that
effectively and efficiently, and vice-
versa. As a result, each country finds it
advantageous to produce those select
goods and services that it can produce
more effectively and efficiently at home,
and procuring the rest through trade
with other countries which the other
countries can produce at lower costs.
This is precisely the reason as to why
countries trade with others and engage
in what is known as international
business.
The international business as it
exists today is to a great extent the
result of geographical specialisation as
pointed out above. Fundamentally, it
is for the same reason that domestic
trade between two states or regions
within a country takes place. Most
states or regions within a country tend
to specialise in the production of goods
and services for which they are best
suited. In India, for example, while
West Bengal specialises in jute
products; Mumbai and neighbouring
areas in Maharashtra are more involved
with the production of cotton textiles.
The same principle of territorial division
of labour is applicable at the
international level too. Most developing
countries which are labour abundant,
for instance, specialise in producing and
exporting garments. Since they lack
capital and technology, they import
textile machinery from the developed
nations which the latter are in a position
to produce more efficiently.
What is true for the nation is more
or less true for firms. Firms too engage
in international business to import what
is available at lower prices in other
countries, and export goods to other
countries where they can fetch better
prices for their products. Besides price
considerations, there are several other
benefits which nations and firms derive
from international business. In a way,
these other benefits too provide an
impetus to nations and firms to engage
in international business. We shall turn
our attention to some of these benefits
accruing to nations and firms from
engaging in international business in a
later section.
11.1.3 International Business vs.
Domestic Business
Conducting and managing international
business operations is more complex
than undertaking domestic business.
Because of variations in political, social,
cultural and economic environments
across countries, business firms find it
difficult to extend their domestic
business strategy to foreign markets. To
be successful in the overseas markets,
they need to adapt their product,
pricing, promotion and distribution
strategies and overall business plans to
suit the specific requirements of the
target foreign markets (see Box B on
Firms need to be Cognisant of
© NCERT
not to be republished
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