Exercise Solutions Available
Step-by-step answers for all textbook questions in this chapter
Chapter Overview
International Business is Chapter 11 of CBSE Class 11 Business Studies (Part 2). It covers business transactions that cross national boundaries — exports, imports, licensing, franchising, joint ventures, and FDI — along with the role of the WTO and India's export promotion schemes. Understanding this chapter is essential for grasping India's integration with the global economy.
Key Definitions
| Term | Definition |
|---|---|
| International Business | Business transactions that take place across national boundaries — between two or more countries. |
| Export | Selling goods and services to a foreign country. |
| Import | Buying goods and services from a foreign country. |
| Licensing | A contractual arrangement where one firm (licensor) allows another (licensee) to use its intellectual property for a fee (royalty). |
| Franchising | A broader arrangement where a franchisor allows a franchisee to use its brand, business system, and know-how for a fee and royalty. |
| Joint Venture | A partnership between two or more firms (from different countries) to undertake a specific project, sharing ownership and risk. |
| FDI | Foreign Direct Investment — investment by a foreign company in the equity of a domestic company, giving the investor management control. |
| Wholly-Owned Subsidiary | A company that is 100% owned by a foreign parent company. |
| WTO | World Trade Organisation — the global body that governs international trade rules and resolves disputes. |
| SEZ | Special Economic Zone — a designated area with tax benefits and simplified rules to promote exports and FDI. |
| EPCG | Export Promotion Capital Goods scheme — zero-duty import of capital goods with an export obligation. |
| ENT | Exchange Rate — the rate at which one currency is exchanged for another. |
Detailed Concepts
1. Reasons for International Business
1. Unequal distribution of resources — no country has all resources; trade fills the gap. 2. Specialisation — countries produce what they can make best (comparative advantage). 3. Larger market — domestic market may be too small for economies of scale. 4. Higher profits — international prices may be higher than domestic. 5. Technology access — importing advanced technology and machinery. 6. Foreign exchange — exports earn foreign exchange. 7. Political relations — trade strengthens diplomatic ties.
2. Modes of Entry into International Business
| Mode | Description | Investment | Control | Risk |
|---|---|---|---|---|
| Exporting | Selling goods produced domestically to foreign buyers | Low | Low | Low |
| Importing | Buying foreign goods for domestic sale/use | Low | N/A | Low |
| Licensing | Allow foreign firm to use IP for royalty | None | Very low | Low |
| Franchising | License + complete business system | Low | Moderate | Low |
| Joint Venture | Partnership with foreign firm, shared ownership | Moderate | Shared | Shared |
| Wholly-Owned Subsidiary | 100% owned foreign unit | High | Full | High |
| FDI | Investment in foreign company equity for control | High | High | High |
3. Exporting — Types and Procedure
Types:
- Direct exporting — firm handles export process itself.
- Indirect exporting — through intermediaries (export houses, trading companies).
Export Procedure (Key Steps): 1. Receive order — from foreign buyer, including product, price, delivery, and payment terms. 2. Assess feasibility — check ability to supply, profitability, compliance. 3. Obtain IEC — Importer Exporter Code from DGFT (mandatory). 4. Produce/procure goods — as per order specifications. 5. Obtain excise clearance — under GST, most goods are zero-rated for export. 6. Obtain certificate of origin — from Chamber of Commerce. 7. Marine insurance — insure goods against transit risk. 8. Customs clearance — submit shipping bill, get customs approval. 9. Shipment — book shipping space, load goods, get mate's receipt. 10. Prepare documents — commercial invoice, packing list, bill of lading, certificate of origin, insurance policy. 11. Payment — letter of credit (LC), advance payment, or documentary collection.
4. Import Procedure (Key Steps)
1. Trade enquiry — gather information about foreign suppliers. 2. Obtain IEC — same as exports. 3. Place import order — indent containing product, quantity, price, delivery terms. 4. Obtain foreign exchange — from authorised dealer (bank) under RBI guidelines. 5. Arrive at port — goods arrive; shipping company informs importer. 6. Customs clearance — submit bill of entry; pay customs duty and IGST. 7. Take delivery — after customs clearance, goods released from port.
5. Licensing and Franchising
Licensing:
- Licensor grants rights to use patent, trademark, technology, or copyright.
- Licensee pays royalty (a percentage of sales).
- Low investment, low risk for the licensor.
- Risk: licensee may become a competitor; quality may suffer.
Franchising:
- Franchisor grants right to use brand, business system, and know-how.
- Franchisee pays initial fee + ongoing royalty.
- Franchisor provides training, quality control, marketing support.
- Risk: loss of brand reputation if franchisee underperforms.
Licensing vs Franchising:
| Basis | Licensing | Franchising |
|---|---|---|
| Scope | IP rights only (patent, trademark) | IP + complete business system |
| Control | Very low | Moderate to high |
| Support | Minimal | Training, operations, marketing |
| Example | Technology licensing (pharma patent) | McDonald's, Subway |
| Fee | Royalty on sales | Initial fee + royalty |
6. Joint Venture
Advantages:
- Shared investment and risk.
- Access to local partner's market knowledge.
- Compliance with local regulations (some countries restrict foreign ownership).
- Synergy of complementary strengths.
Disadvantages:
- Conflict between partners over control.
- Cultural differences.
- Risk of technology leakage.
- Unequal contribution may cause friction.
7. FDI (Foreign Direct Investment)
Features:
- Long-term investment in a foreign enterprise.
- Significant control — usually 10%+ equity gives a "lasting interest."
- Not just portfolio investment (which is passive).
- Brings technology, management, and capital.
FDI in India:
- Allowed in most sectors through automatic route (no government approval needed).
- Some sectors need government approval (defence, telecom, multi-brand retail).
- FDI limits vary by sector.
8. WTO — World Trade Organisation
Established: 1995 (replaced GATT — General Agreement on Tariffs and Trade).
Objectives: 1. Reduce trade barriers — tariffs, quotas. 2. Promote free and fair trade. 3. Resolve trade disputes between member nations. 4. Provide a forum for trade negotiations. 5. Ensure transparency in trade policies.
Key Agreements:
- TRIPS — Trade-Related Aspects of Intellectual Property Rights.
- TRIMS — Trade-Related Investment Measures.
- GATS — General Agreement on Trade in Services.
- AoA — Agreement on Agriculture.
WTO and India:
- India is a founding member.
- Benefits: access to global markets, dispute resolution mechanism, MFN (Most Favoured Nation) treatment from all members.
- Concerns: pressure to reduce agricultural subsidies, competition from imports, patent regime under TRIPS affects pharma.
9. India's Export Promotion Schemes and Institutions
| Scheme/Institution | Purpose |
|---|---|
| EPCG | Zero-duty import of capital goods with export obligation (6x duty saved, 6 years) |
| SEZ | Special Economic Zones — tax holiday (5 years), duty-free import/export, single-window clearance |
| Export Processing Zones (EPZ) | Designated areas for export production with infrastructure and incentives |
| 100% EOU | 100% Export-Oriented Units — tax benefits, duty-free imports |
| DGFT | Directorate General of Foreign Trade — formulates and implements export-import policy |
| EDIF | Export Development Fund — financial assistance for export promotion |
| EXIM Bank | Export-Import Bank of India — finances export-import trade |
| ITPO | India Trade Promotion Organisation — organises trade fairs and exhibitions |
| FIEO | Federation of Indian Export Organisations — apex body of export promotion councils |
10. Documents in International Trade
| Document | Purpose |
|---|---|
| Commercial Invoice | Seller's bill for goods |
| Packing List | Details of packing and contents |
| Bill of Lading | Contract of carriage by sea; receipt of goods |
| Airway Bill | Contract of carriage by air |
| Certificate of Origin | Certifies country of manufacture |
| Marine Insurance Policy | Covers transit risk |
| Letter of Credit (LC) | Bank guarantee of payment to seller |
| Bill of Entry | For imports — submitted at customs |
| Shipping Bill | For exports — submitted at customs |
| Mate's Receipt | Issued by ship captain acknowledging cargo loading |
11. International Trade vs Internal Trade
| Basis | International Trade | Internal Trade |
|---|---|---|
| Boundaries | Crosses national borders | Within national borders |
| Currency | Different currencies | Same currency |
| Laws | Different legal systems | Same legal system |
| Customs | Customs duty applies | No customs duty |
| Risk | Higher (exchange rate, political) | Lower |
| Transport | Longer distances | Shorter distances |
| Regulation | More complex | Simpler |
Important Points for Exams
1. IEC (Importer Exporter Code) from DGFT is mandatory for both exports and imports. 2. Licensing gives IP rights only; franchising gives IP + business system. 3. EPCG allows duty-free capital goods import with an export obligation. 4. SEZs offer 5-year tax holidays and duty-free operations. 5. WTO replaced GATT in 1995; India is a founding member. 6. TRIPS covers intellectual property; GATS covers services. 7. Bill of lading is for sea transport; airway bill is for air transport. 8. FDI means long-term investment with control — not just buying shares on the stock market.
Common Mistakes
1. Confusing licensing with franchising — franchising includes the entire business system, not just IP rights. 2. Confusing FDI with portfolio investment — FDI gives control; portfolio investment is passive. 3. Saying EPCG has no obligation — it has an export obligation (6x duty saved within 6 years). 4. Confusing SEZ with EPZ — SEZ is broader (includes services, residential); EPZ is mainly for manufacturing. 5. Forgetting IEC as a mandatory requirement — no export/import without IEC. 6. Mixing up bill of lading (sea) and airway bill (air) — each is specific to the mode of transport.
Exam Tips
- For "modes of entry," list all modes with investment, control, and risk levels.
- For export/import procedure, list steps in order — sequence matters.
- For documents, state the purpose of each document briefly.
- For WTO, know the key agreements (TRIPS, GATS, TRIMS) and their full forms.
- For EPCG and SEZ, give specific details (6x obligation, 5-year tax holiday).
Detailed Case-Study Practice
Case 1: An Indian textile manufacturer wants to sell garments in Europe. What mode should it choose?
Analysis:
- Direct exporting is the simplest and lowest-risk mode.
- The manufacturer should obtain an IEC from DGFT.
- Participate in international trade fairs through ITPO.
- Use the EPCG scheme to import modern textile machinery at zero duty.
- Register with the Apparel Export Promotion Council (AEPC) for market support.
Case 2: A US fast-food brand wants to enter India. Should it use licensing or franchising?
Analysis:
- Franchising is more suitable for a fast-food brand.
- A food business requires standardised operations, training, quality control, and brand consistency — all provided under franchising.
- Licensing only grants IP rights (trademark, recipe); it does not provide operational support.
- Example: McDonald's, KFC, and Subway all use the franchising model in India.
Case 3: A company imports capital goods under EPCG but fails to meet the export obligation. What happens?
Analysis:
- The company must pay the customs duty that was saved, plus interest.
- The export obligation under EPCG is 6 times the duty saved, to be fulfilled within 6 years.
- Failure to meet the obligation results in penalty and confiscation of the duty benefit.
- The company can request an extension in genuine cases with DGFT approval.
Key Terms Glossary
| Term | Meaning |
|---|---|
| FOB | Free on Board — seller delivers goods on board the ship; buyer bears transit risk |
| CIF | Cost, Insurance, Freight — seller pays cost, insurance, and freight to destination port |
| Letter of Credit (LC) | Bank guarantee of payment to the exporter on presenting specified documents |
| Bill of Lading | Document issued by carrier acknowledging receipt of goods for shipment by sea |
| Indent | A formal purchase order sent by an importer to the exporter |
| Mate's Receipt | Receipt issued by ship's captain acknowledging cargo loaded on board |
| Bill of Entry | Declaration by importer at customs for assessment of import duty |
| IEC | Importer Exporter Code — mandatory registration with DGFT |
Exam-Focused Practice Questions
1. Explain the different modes of entry into international business with their advantages and limitations. (6 marks) 2. Describe the export procedure from India. (6 marks) 3. What is WTO? Discuss its objectives and key agreements. (5 marks) 4. Distinguish between licensing and franchising. (4 marks) 5. Explain the EPCG scheme and SEZs as export promotion measures. (5 marks)
Quick Revision Notes
- International business: Cross-border transactions; different currencies, laws, and regulations.
- Modes of entry: Export/Import (low risk), Licensing (IP only), Franchising (IP + system), JV (shared), Wholly-owned subsidiary (high control/risk), FDI (investment + control).
- Export steps: Order → IEC → Production → Insurance → Customs → Shipment → Documents → Payment.
- Import steps: Enquiry → IEC → Order → Forex → Arrival → Customs → Delivery.
- Licensing vs Franchising: IP rights only vs IP + business system; low control vs moderate control.
- WTO (1995): Replaced GATT; objectives — free trade, dispute resolution. Agreements: TRIPS, GATS, TRIMS, AoA.
- EPCG: Duty-free capital goods import; export obligation 6x duty saved in 6 years.
- SEZ: Tax holiday, duty-free, single window; promote exports and FDI.
- Key documents: Invoice, Packing list, Bill of lading, Certificate of origin, LC, Marine insurance.
- IEC: Mandatory for exports/imports — obtained from DGFT.
Further Reading
- [Chapter 10 Guide — Internal Trade](/school/cbse/class/11/business-studies/cbse-internal-trade)
- [Chapter 3 Guide — Private, Public and Global Enterprises](/school/cbse/class/11/business-studies/cbse-private-public-global-enterprises)
- [Class 11 Business Studies Subject Guide](/school/cbse/class/11/business-studies)