NCERT Solutions for Class 11th: Ch 11 International Business-I Business Studies
Page No: 275
Exercises
Multiple Choice Questions
1. In which of the following modes of entry, does the domestic manufacturer give the right to use intellectual property such as patent and trademark to a manufacturer in a foreign country for a fee
(a) Licensing(b) Contracted
(c) Joint venture
(d) None of these
► (a) Licensing
(a) Licensing
(b) Franchising
(c) Contract manufacturing
(d) Joint venture
► (c) Contract manufacturing
3. When two or more firms come together to create a new business entity that is legally separate and distinct from its parents is known as
(a) Contract manufacturing
(b) Franchising
(c) Joint ventures
(d) Licensing
► (c) Joint ventures
4. Which of the following is not an advantage of exporting?
(a) Easier way to enter into international markets
(b) Comparatively lower risks
(c) Limited presence in foreign markets
4. Which of the following is not an advantage of exporting?
(a) Easier way to enter into international markets
(b) Comparatively lower risks
(c) Limited presence in foreign markets
(d) Less investment requirements
► (c) Limited presence in foreign markets
(a) Licensing
(b) Franchising
(c) Contract manufacturing
(d) Joint venture
► (d) Joint venture
6. Which one of the following modes of entry permits greatest degree of control over overseas operations?
(a) Licensing/franchising(b) Wholly owned subsidiary
(c) Contract manufacturing
(d) Joint venture
► (b) Wholly owned subsidiary
(a) Licensing
(b) Franchising
(c) Contract manufacturing
(d) Joint venture
► (c) Contract manufacturing
(a) Textiles and garments
(b) Franchising
(c) Oil and petroleum products
(d) Basmati rice
► (b) Franchising
(a) Ayurvedic medicines
(b) oil and petroleum products
(c) Pearls and precious stones
(d) Machinery
► (a) Ayurvedic medicines
(a) USA
(b) UK
(c) Germany
(d) New Zealand
► (d) New Zealand
Page No: 277
Short Answer Questions
1. Differentiate between international trade and international business.
Answer
| International trade |
International business
|
| International trade refers to the exchange of goods and services across the international boundaries of countries. | International business not only includes movement of capital, of goods and services, but also of capital, personnel, technology and intellectual property like patents, trademarks, know-how and copyrights. |
| International trade means movements of goods only. | Business transaction that takes place between two or more countries is known as international business. |
| International trade is a narrow term. | International business is much broader than international trade. |
Answer
Three advantages of international business are:
→ Earning of foreign exchange: International business helps a country to earn foreign exchange which it can later use for meeting its imports of capital goods, technology, petroleum products and fertilisers, pharmaceutical products and a host of other consumer products which otherwise might not be available domestically.
→ More efficient use of resources: International business allows a country to produce what a country can produce more efficiently and trade the surplus production so generated with other countries to procure what they can produce more efficiently.
→ Improving growth prospects and employment potentials: International business encourages many countries, especially the developing ones to produce on a larger scale which not only helps in improving their growth prospects, but also created opportunities for employment of people living in these countries.
3. What is the major reason underlying trade between nations?
Answer
The major reason underlying trade between nations are:
→ Unequal distribution of natural resources among different nations.
→ 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.
→ Labour productivity and production costs differ among nations due to various socio-economic, geographical and political reasons.
4. Discuss as to why nations trade.
Answer
The nations cannot produce equally well or cheaply all that they need because of the unequal distribution of natural resources and various other factors such as labour productivity and production costs. Therefore, 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 and procuring the rest through trade with other countries which the other countries can produce at lower costs.
5. Enumerate limitations of contract manufacturing.
→ Improving growth prospects and employment potentials: International business encourages many countries, especially the developing ones to produce on a larger scale which not only helps in improving their growth prospects, but also created opportunities for employment of people living in these countries.
3. What is the major reason underlying trade between nations?
Answer
The major reason underlying trade between nations are:
→ Unequal distribution of natural resources among different nations.
→ 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.
→ Labour productivity and production costs differ among nations due to various socio-economic, geographical and political reasons.
4. Discuss as to why nations trade.
Answer
The nations cannot produce equally well or cheaply all that they need because of the unequal distribution of natural resources and various other factors such as labour productivity and production costs. Therefore, 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 and procuring the rest through trade with other countries which the other countries can produce at lower costs.
5. Enumerate limitations of contract manufacturing.
Answer
The limitations of contract manufacturing are:
→ Local firms might not adhere to production design and quality standards, thus causing serious product quality problems to the international firm.
→ Local manufacturer in the foreign country loses his control over the manufacturing process because goods are produced strictly as per the terms and specifications of the contract.
→ The profitability of local firm producing under contract manufacturing is low as it is not free to sell the contracted output as per its will. It has to sell the goods to the international company at prices agreed upon under the contract which may be lower than the open market prices.
Answer
Licensing is an easier way to expand globally because:
→ Under the licensing system, it is the licensor who sets up the business unit and invests his/her own money in the business and the licensor has to virtually make no investments abroad. Therefore, it is considered a less expensive mode of entering into international business.
→ Licensor is paid by the licensee by way of fees fixed in advance as a percentage of production or sales turnover and licensor does not bear risk of losses.→ Under the licensing system, it is the licensor who sets up the business unit and invests his/her own money in the business and the licensor has to virtually make no investments abroad. Therefore, it is considered a less expensive mode of entering into international business.
→ Since the business in the foreign country is managed by the licensee who is a local person, there are lower risks of business takeovers or government interventions.
→ Licensee being a local person has greater market knowledge and contacts which can prove quite helpful to the licensor in successfully conducting its marketing operations.
Answer
| Contract manufacturing | Wholly owned production subsidiary |
| A firm enters into a contract with one or a few local manufacturers in foreign countries to get certain components or goods produced as per its specifications. | The parent company acquires full control over the foreign company by making 100 per cent investment in its equity capital. |
| The firm has limited control over the local manufacturer. | The parent company has full control over its operations in another country through the subsidiary. |
| There is no or little investment in the foreign countries | The parent company buys up the entire equity of the firm abroad and makes this firm its subsidiary. |
8. Distinguish between licensing and franchising.
Answer
| Licensing | Franchising |
| The licensor grants licence to a foreign company (licensee) to produce and sell goods under the licensor's logo and trademarks for a fee. | The franchiser grants a foreign firm (franchisee) the right to operate a business using a common brand name for an initial or a regular fee. |
| Operations are related to production and marketing of goods. | Operations are related to the services business. |
| Less stringent rules and regulations | Strict rules and regulations |
9. List major items of India's exports.
Answer
The major items of India's exports are Tea, Basmati rice, Spices, Leather and leather products and Semi-precious stones.
Answer
The major items that are exported from India are tea, pearls, precious and semi-precious stones,
medicinal and pharmaceutical products, rice, spices, iron ore and concentrates, leather and leather manufactures, textile yarns fabrics, garments and tobacco. It also holds the distinct position of being the largest exporter in the world in select commodities such as basmati rice, tea, and ayurvedic products.
Answer
The major countries with whom India trades are USA, UK, Belgium, Germany, Japan, Switzerland, Hong Kong, UAE, China, Singapore and Malaysia.
Long Answer Questions
1. What is international business? How is it different from domestic business?
Answer
Manufacturing and trade beyond the boundaries of one’s own country is known as international business. 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 is different from domestic business in following ways:
| Domestic business | International business |
| Trade within the national boundaries of a country. | Trade between two or more countries. |
| People or organisations from one nation participate | People or organisations of different countries participate |
| More homogeneous in nature. | Lack homogeneity due to differences in language, preferences, customs, etc., across markets. |
| It is subject to political system and risks of one single country. | It have different forms of political systems and different degrees of risks which often become a barrier to international business. |
| Subjected to rules, laws or taxation system of one country. | Subjected to rules, regulations and laws of many countries. |
| Currency of domestic country is used. | Transactions involve use of currencies of more than one country. |
2. “International business is more than international trade”. Comment.
Answer
Answer
There are many benefits that firms derive by entering into international trade:
→ Prospects for higher profits: International business can be more profitable than the domestic business as business firms can earn more profits by selling their products in countries where prices are high.
→ Increased capacity utilisation: Firms can make use of their surplus production capacities and also improving the profitability of their operations by going for overseas expansion and procuring orders from foreign customers. Production on a larger scale often leads to economies of scale, which in turn lowers production cost and improves per unit profit margin.
→ Prospects for growth:Once the market in the domestic country becomes saturated, it becomes difficult to grow the turnover. By entering into overseas markets, business firms can improve prospects of their growth.
4. In what ways is exporting a better way of entering into international markets than setting up wholly owned subsidiaries abroad.
Answer
The exporting is better way of entering into international markets than setting up wholly owned subsidiaries abroad in following ways:
→Exporting is less complex than setting up and wholly owned subsidiaries abroad.
→ Exporting involves lesser time and effort as business firms are not required to invest that much time and money as is needed when they set up manufacturing plants and facilities as wholly owned subsidiary in host countries.
→ Since exporting does not require much of investment in foreign countries, exposure to foreign investment risks is nil or much lower than that in establishing wholly owned subsidiary.
→Exporting is less complex than setting up and wholly owned subsidiaries abroad.
→ Exporting involves lesser time and effort as business firms are not required to invest that much time and money as is needed when they set up manufacturing plants and facilities as wholly owned subsidiary in host countries.
→ Since exporting does not require much of investment in foreign countries, exposure to foreign investment risks is nil or much lower than that in establishing wholly owned subsidiary.
Answer
The factors that govern the choice of mode of entry into international business are:
→ Risk factor: The risk involvement differ from one mode to another. For example: there is no or little risk involved in the contract manufacturing, exporting and licensing modes while the risk is comparatively higher in setting up a wholly owned subsidiary. Thus, companies needs and requirements play an important role in choosing risk factor.
Answer
India is now the 10th largest economy in the world and the fastest growing economy, next only to China. As per the Goldman Sach Report 2004, India is projected to be the second largest economy by 2050. Despite these features, India’s involvement with international business is not very impressive. India’s share in world trade in 2003 was abysmally low, just 0.8 per cent as compared to those of other developing countries such as China (5.9 per cent), Hong Kong (3.0 per cent), South Korea (2.6 per cent), Malaysia (1.3 per cent), Singapore (1.9 per cent), and Thailand (1.1 per cent).
→ India’s total merchandise export was Rs. 606 crore in 1950-51. It has grown to Rs. 293, 367 crore in 2003-04. Thus, there has been an increase of 480 times in exports in the last five decades.
→ India’s total import was Rs. 6.8 crore in 1950-51. It has grown to Rs. 359, 108 crore in 2003-03. This shows a growth of 590 times over the same period.
→ Although in overall terms India accounts for just 0.8 per cent of world exports, in many individual product items such as tea, pearls, precious and semi-precious stones, medicinal and pharmaceutical products, rice, spices, iron ore and concentrates, leather and leather manufactures, textile yarns fabrics, garments and tobacco, its share is much higher and ranges between 3 per cent to 13 per cent. Also it holds the distinct position of being the largest exporter in the world in select commodities such as basmati rice, tea, and ayurvedic products.
7. What is invisible trade? Discuss salient aspects of India’s trade in services.
Answer