Chapter - 11

Interna tional B u s i n e s s
External Trade or Foreign Trade
or International Business
 International B u s i n e s s
Buying and selling of goods and services
between two countries are called external trade
or foreign trade or international business

It facilitates specialization and efficient utilization

of resources
 International B u s i n e s s
Reason for International Business
Some countries being in a better position to
produce better quality products or at lower costs
than what other nations can do
Oil
Extraction
 Differences between
Domestic Business
&

International Business
1 Nationality

Buyer and seller They are from

belong to one different countries
nation
2 Other Stakeholders

Suppliers, Various stakeholders

employees, from different
middlemen, countries
shareholders etc. are
the citizens of same
nation
3 Customer heterogeneity

Customers are more More heterogeneous

homogeneous in in the matter of
nature language,
preferences, customs
etc.
4 Business system and practices

Relatively same Different systems

system and practices are
followed
5 Political system and risk

Subject to the Subject to different

same country countries
6 Business regulations and policies

Subject to rules, Subject the rules and

laws, taxation policies prevailing the
policies of the same concerned nations
nation
7 Currency

Currency of the Currencies of more

domestic country than one countries
 Differences: D o m e s t i c V s . International B u s i n e s s
International
Basis Domestic Business
Business
Buyer and seller belong to They are from different
1. Nationality
one nation countries
Suppliers, employees,
2. Other middlemen, shareholders Various stakeholders
Stakeholders etc. are the citizens of same from different countries
nation
More heterogeneous in
3. Customer Customers are more the matter of
heterogeneity homogeneous in nature language, preferences,
customs etc.
 Differences: D o m e s t i c V s . International B u s i n e s s
Basis Domestic Business International Business

4. Business system Relatively same Different systems and

and practices system practices are followed

5. Political system Subject to the same Subject to different

and risk country countries

6. Business Subject to the rules, Subject to the rules and

regulations and laws, taxation policies policies prevailing the
policies of the same nation concerned nations

Currency of the Currencies of more

7. Currency
domestic country than one countries
 Scope of
International Business
S c o p e of International B u s i n e s s
1 Merchandise exports and imports
Merchandise means tangible goods
ie, thosethat can be seen and touched
S c o p e of International B u s i n e s s
2 Service exports and imports
It means trade in intangibles, i.e., those that cannot be
seen or touched
It is also known as invisible trade

Eg. Travel & Tourism, transportation, entertainment,

communication, educational service etc.
S c o p e of International B u s i n e s s
3 Licensing and franchising
Permitting a person/firm in a foreign country to produce
and sell goods under your trademarks, patents or
copyrights for a fee
Eg. Pepsi, Coca-Cola etc.

Franchising is similar to licensing with the difference that it is

connected with services
Eg.Mc Donald (fast food restaurants), KFC etc.
S c o p e of International B u s i n e s s
4 Foreign Investments
It means investment abroad in exchange for
financial return

It can be in FDI (Foreign Direct Investment)- directly

invested in properties, and FPI (Foreign Portfolio
Investment)- investing by way of acquiring shares or
granting loans
S c o p e of International B u s i n e s s
1.Merchandise exports and imports
2.Service exports and imports
3.Licensing and franchising
4.Foreign Investments
E x p o rt – I m p o r t
Procedure
 Export Procedure
Steps involved in exporting goods to
a foreign country
 Export Procedure
Receipt of enquiry and sending quotation
1
The exporter gets an enquiry from prospective buyers from
a foreign country and sending quotation in the form of a
proforma invoice

It contains all description about the product such as price,

quality, grade, size, weight, mode of delivery, type of packing,
payment terms etc.
 Export Procedure
2 Receipt of order or indent
If the buyer is satisfied with the conditions in the
proforma invoice, an order will be placed

This order is also called indent

It contains the description of goods, price, quality etc.
 Export Procedure
Assessing importer’s creditworthiness
3 and securing a guarantee for payments
After receiving indent, the exporter conducts an
enquiry about the financial capacity of the importer to
ensure the promptness in settlement

Usually, exporters may demand a letter of credit

 Letter of Credit
Letter of credit is a guarantee given by
the importer’s bank, that it will honour
payment up to a specified amount of
export bills to the bank of the exporter
 Export Procedure
4 Obtaining export license
To get the export license from the Import-Export
Licensing Authority, the exporter has to fulfil
certain formalities
 Formalities for Export – Import License
●
Open a Bank Account
● Obtaining Import Export Code (IEC) number from
the Directorate General of Foreign Trade (DGFT) or
Regional Import Export LicensingAuthority.

Contd...
 Formalities for Export – Import License
●
Registering with appropriate export promotion
council. Eg: Apparel Export Promotion Council,
Council for Leather Exports etc.
● Registering with Export Credit and Guarantee
Corporation (ECGC) to cover the risk of non-
payment.
 Export Procedure
5 Obtaining pre-shipment finance
After the confirmation of order the exporter may
approach his bank for getting pre-shipment finance
to carry out export production
 Export Procedure
6 Production or procurement of goods
The exporter makes ready the goods as per
specification either by production or by purchasing it
from the market
 Export Procedure
7 Pre-shipment inspection
In foreign trade the quality of goods must conform to
international standards.

For this compulsory inspection by Export Inspection

Agency – EIA(Govt. of India undertaking) should be done
 Export Procedure
8 Excise Clearance
All goods produced are subject to excise duty under Central
Excise and Tariff Act, but exported goods are either exempted or
if paid, it is later refunded
So the exporter has to apply to the Excise Commissioner for
export clearance
If the authority is satisfied, the excise clearance is given or the
claim for refund is allowed
Such refund of duty is called duty drawback
 Export Procedure
9 Obtaining certificate of origin
Certificate of Origin is a proof that the goods are actually
been produced in the country from where it is exported
Some importing countries provide tariff concession or other
exemptions for goods imported from certain countries

To avail such benefits the exporter has to obtain and submit

certificate of origin along with other export documents
 Export Procedure
10 Reservation of shipping space
The exporter has to apply for this by furnishing
complete information about the goods, probable date
of shipment and port of destination

On acceptance, the shipping company issues a

shipping order
 Shipping order
It is an instruction to the captain of the ship that the
specified goods after customs clearance at a
designated port be received on board
 Export Procedure
11 Packing and forwarding
Goods are packed and marked with details such as name
and address of importer, gross and net weight, destination
port, country of origin etc.
A packing list is attached herewith all other documents
 Packing List
Packing list is a document stating the number of
cases or packs and the details of goods contained
in these packs.
 Export Procedure
12 Insurance of goods
The exporter has to insure the goods with an
insurance company to cover the risk due to sea
perils in transit
 Export Procedure
13 Customs clearance
Before loading the goods on the ship, customs clearance
should be obtained by the exporter

For this the exporter prepares a shipping bill (5 copies)

 Shipping Bill
Shipping bill is a document contains the
particulars of goods, name of the vessel (ship),
destination port, exporting country, exporter’s
name, address etc.
 Shipping Bill
Documents to be attached with the shipping bill for
customs clearance:
● Export order.

● Letter of credit.

● Commercial invoice.

● Certificate of origin.

● Certificate of inspection.

● Marine insurance policy.

 Carting Order
Based on the above documents, the port authority
issues a Carting Order

It is an instruction to the staff at the gate of the

port to allow the cargo inside the dock

Gate
Pass
 Export Procedure
14 Obtaining mates receipt
After the goods are loaded on the ship, the captain
or mate of the ship issues a certificate called
mate’s receipt.
 Mates Receipt
It is a receipt issued by the captain or mate of the ship to
the exporter as an acknowledgement of the receipt of
goods in the ship, which contains the name of ship, berth,
date of shipment, description of packages, condition of
cargo etc.
 Export Procedure
15 Payment of freight and insurance of
bill of lading
The C&F agent (Clearing and Forwarding agent) submits
the mate’s receipt to the shipping company for computation
of freight.

After the payment of freight, the

shipping company issues a bill of
lading.
 Bill of lading
Bill of lading is document issued by the shipping
company after the cargo is loaded on the ship
It is prepared on the basis of Mates Receipt
The shipping company undertakes the delivery of goods
to the buyer by producing this document

In case goods sent by air, this document

is known as airway bill
 Export Procedure
16 Preparation of invoice
The exporter has to prepare an invoice of the goods,
which contains the details such as quantity and the
amount to be paid by the importer
 Export Procedure
17 Securing payment
After shipment of goods, the exporter sends the relevant
documents like Bill of lading, bill of exchange, letter of credit,
invoice, etc. to the bank for completing the formalities to
receive payment from the importer
 Export Procedure at a glance
1.Receipt of enquiry and sending quotations
2.Receipt of order or indent
3. Assessing importer’s creditworthiness
4. Obtaining export license
5.Obtaining pre-shipment finance
6.Production or procurement of goods
7.Pre-shipment inspection
8.Excise Clearance
9.Obtaining certificate of origin
 Export Procedure at a glance
10.Reservation of shipping space
11.Packing and forwarding
12.Insurance of goods
13.Customs clearance
14.Obtaining mates receipt
15.Freight and insurance of bill of lading
16.Preparation of invoice
17.Securing payment
 Import Procedure
Steps involved in importing goods to
our country
 Import Procedure
1 Trade enquiry
The importer has to collect information about the exporters
of the products he needs from various sources like trade
directories, trade associations, websites etc.

After identifying the exporter, he sends

the trade enquiry
 Trade Enquiry
Trade enquiry is a written request by the importer to
the overseas supplier for getting information
such as price, quality and other terms
and conditions for export
 Import Procedure
2 Obtain the import license
Certain goods can be imported freely, while others
require license

The importer has to apply for the import license at

DGFT and obtain IEC number
 Import Procedure
3 Obtaining foreign exchange
In import trade, payment is made in foreign
currency, all foreign exchange transactions are
regulated by RBI in India
The importer has to get prior sanction for foreign
exchange
 Import Procedure
4 Placing order or indent
The importer has to place an order or indent for the supply
of goods

It should contain price, quality, quantity, size, grade and

instructions relating to packing, shipping, delivery schedule,
insurance and mode of payment etc.
 Import Procedure
5 Obtaining letter of credit
The importer should obtain the letter of credit from
his bank and forward it to the exporter
 Import Procedure
6 Arranging finance
Importer should arrange fund in advance to pay to
the exporter on arrival of goods
 Import Procedure
7 Receipt of shipment advice
It is a document sent by the exporter to the importer
containing information about the shipment of goods
after it is being loaded on the ship
 Import Procedure
8 Retirement of import documents
After the goods are shipped, the exporter submits all the
necessary documents with his banker for getting payment

Here the importer has to retire (receive) the documents

either by ready payment or by accepting a bill of exchange
 Import Procedure
9 Arrival of goods
On arrival of goods the person in charge of the ship
informs the officer at the dock through a document
called import general manifest
 Import General Manifest
It is a document contains the details of imported
goods and on the basis of which the cargo is
unloaded
 Import Procedure
10 Customs clearance and release of goods
After fulfilling all the formalities at the dock and payment of
dock dues, freight if any and the customs duty, the importer
can release the goods from the port

In order to calculate the customs import duty, the importer

has to submit a document called the
Bill of Entry
 Bill of Entry
It is a form supplied by the customs office to the
importer for filling and submitting for assessment
of customs import duty
 Import Procedure
1. Trade enquiry
2. Obtain the import license
3.Obtaining foreign exchange
4.Placing order or indent
5.Obtaining letter of credit

Contd....
 Import Procedure
6. Arranging finance
7. Receipt of shipment advice
8. Retirement of import documents
9. Arrival of goods
10. Customs clearance and release of goods
International Trade Institutions and Trade Agreements

3 World Trade Organization – WTO

Established in 1995 – it was established to transform the
GATT (General Agreement on Tariffs and Trade) into a
permanent institution – Permanent body to look after
multilateral trade relations between different nations

Head Quarters – Geneva, Switzerland

 GATT
General Agreement on Tariffs and Trade
It is an arrangement to liberalize international trade from
high tariff and restrictions – GATT was came into
existence on 1st January 1948 and lasted till 1994 – It
was replaced by WTO in 1995.
Objectives of WTO
Geneva,
Switzerland
 Objectives of WTO
a)To ensure reduction of tariffs and other trade
barriers imposed by different countries.
b) To facilitate higher production and trade.

c) To facilitate the optimal use of world’s resources for

sustainable development.

d)To promote an integrated, more viable and durable

trading system.
Functions of WTO
Geneva,
Switzerland
 Functions of WTO
a) Mitigating grievances of member countries.

b)Laying down a commonly accepted code of

conduct in international trade relations.

c) Acting as a dispute settlement body.

 Functions of WTO
d)Ensures that all rules and regulations in the Act as
followed by member countries.

e)Consultation with IMF and World Bank for global

economic policy making.

f)Act as a supervising agency on Trade Related

Intellectual Property Rights (TRIPS).
Benefits of WTO
Geneva,
Switzerland
 Benefits of WTO
a.Helps in promoting international peace and facilitates
international business.

b.Settling disputes among member nations with mutual

consultation.
c.Smooth international trade and relations ensured.

d.Free trade improves the standard of living by

increasing income level.
 Benefits of WTO
e.Provided scope for getting varities of
qualitative products.
f. Achieved economic growth globally.
g. Ensured a good environment for free trade.
h. fostering growth of developing countries.
Prepared by: Rajesh Gidwani
T h a n k You