Spring 2014

Master of Business Administration- MBA Semester 4

IB0017 International Business Environment and International Law -4 Credits
(Book ID: B1414)
Assignment- 60 marks
Q.1. Explain PEST analysis. How is it used in international business?
Ans.
PEST is a well-known and widely applied tool when analyzing what the international market has to offer in International
marketing environment. PEST is used by business leaders worldwide to build their vision of the future.
International PEST Analysis would consider:

How easy will it be to move from purely domestic to international marketing?

Would your business benefit from inward foreign investment?
What is the nature of competition within each individual market, and how will companies from other nations
compete when you meet with them head-to-head in unfamiliar countries?

Political

Is there any historical relationship between countries that would benefit or hinder international marketing?
What is the influence of communities or unions for trading? E.g. The European Union and its authority over
European laws and regulation.
What kind of international and domestic laws will your business encounter?
What is the nature of politics in the country that you are targeting, and what is their view on encouraging foreign
competition from overseas?

Economic

What is the level of new industrial growth? E.g. China is experiencing terrific industrial growth.
What is the impact of currency fluctuations on exchange rates, and do your home market and your new international
market share a common currency? E.g. Polish companies trading in Eire will use Euros.
There are of course the usual economic indicators that one needs to be aware of such as inflation, Gross Domestic
Product (GDP), levels of employment, national income, the predisposition of consumers to spend savings or to use
credit, as well as many others.

Socio-cultural

Culture, religion and society are of huge importance.

What are the cultural norms for doing business? E.g. is there a form of barter?
Will cultural norms impact upon your ability to trade overseas? E.g. Putonghua is very difficult for many Western
people to learn.

Technology

Do copyright, intellectual property laws or patents protect technology in other countries? E.g. China and Jordan do
not always respect international patents.

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Does your technology conform to local laws? E.g. electrical items that run on non-domestic currents could be
dangerous.
Are technologies at different stages in the Product Life Cycle (PLC) in various countries? E.g. versions/releases of
software.

PEST Analysis is a useful tool for understanding the big picture of the environment in which you are operating, and for
thinking about the opportunities and threats that lie within it. By understanding your environment, you can take advantage of
the opportunities and minimize the threats.
PEST is a mnemonic standing for Political, Economic, Social and Technological. These headings are used first to brainstorm
the characteristics of a country or region and, from this, draw conclusions as to the significant forces of change operating
within it. This provides the context within which more detailed planning can take place, so that you can take full advantage of
the opportunities that present themselves.

Q. 2. Explain the various incoterms involved in international contract.

Ans.
Incoterms are a set of three-letter standard trade terms most commonly used in international contracts for the sale of goods.
These terms were developed by Paris-based International Chamber of Commerce (ICC) in 1936. These terms are reviewed
and updated by delegates from many countries to reflect the change in technologies and practice. The Government, legal
authorities and practitioners all over the world accept the Incoterms rule for international trade. Incoterms mainly deal with
risk of loss or damage of goods. The use of Incoterms in standard contracts will ensure that the meaning of terms used is
understood by both parties and there is no scope for confusion or distrust. It also helps to clearly define the requirements and
state the responsibilities and roles of both buyer and seller clearly. Some incoterms are listed below: 1.

Ex-Works (EXW): - The term Ex-Works is an agreement between a buyer and seller where the seller has no
responsibility for the goods after it is cleared from his premises. The other responsibilities such as loading the goods
and clearing the goods for export are taken by the buyer. The goods will be available at the sellers warehouse and it
is the buyers responsibility to transfer the goods from the sellers premises to their destination.

2.

Free Carrier (FCA): - The seller delivers the goods, cleared for export, to the carrier selected by the buyer. The
seller loads the goods if the carrier pickup is at the sellers premises. From that point, the buyer bears the costs and
risks of moving the goods to destination.

3.

Free Alongside Ship (FAS): -Free Alongside Ship means that the seller is responsible for the delivery of goods till it
reaches the ocean carrier at the port. The buyer is responsible for the loading fee, cargo insurance and other cost and
risk. Free Alongside Ship can be used only for sea and waterway transport.

4.

Free On Board (FOB): -Free On Board means the seller has to deliver the goods that are boarded on the ship. The
seller clears the goods for export. From that moment the buyer bears all the risk of loss and damage to goods. As per
the rules of Incoterms 1990 FOB is only used for ocean freight. However, it is also used in air freight.

5.

Cost and Freight (CFR): -Cost and Freight means that the seller is responsible for transportation of goods to the
named port of destination. The risk for the seller ends when the goods are delivered in the ship rail. After loading, the
risk is transferred to the buyer. Cost and Freight can be used for sea or inland waterway transport

6.

Carriage Paid To (CPT): -Carriage Paid To means that the seller pays the freight for the carriage of goods to the
destination. This is similar to CFR and it can be used for any mode of transport. The seller is responsible for bearing
the risk till the goods are loaded. After that the responsibility is for the buyer

7.

Carriage and Insurance Paid To (CIP): -Carriage and Insurance Paid To (CIP) means that the seller has to get
insurance for loss or damage of goods during the carriage. The seller has to clear the goods for export. This is used
for any mode of transport. The place of receipt and delivery will be different from the place of loading and unloading
the goods.

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8.

Cost, Insurance and Freight (CIF): -Cost, Insurance and Freight (CIF) is a trade term where seller has to arrange
the carriage of goods by sea to a port of destination, and provide the buyer with necessary documents to obtain the
goods from the carrier. It is similar to CIP

9.

Delivered At Terminal (DAT): -According to Delivered At Terminal (DAT), the sellers obligation ends when he
has delivered the goods to the disposal of the buyer, unloaded from the arriving carrier at the named destination
terminal, cleared for export, but not cleared for import. The buyer is responsible for the import clearance of the
goods.

10. Delivered At Place (DAP): -The term Delivered At Place (DAP) means that the sellers obligation ends when he has
delivered the goods to the disposal of the buyer at the named destination place, cleared for export, but not cleared for
import. The seller and buyer should agree which party will be responsible for unloading. The buyer is responsible for
the import clearance of the goods.
11. Delivered Duty Paid (DDP): -The term Delivered Duty Paid (DDP) means that the sellers obligation is fulfilled
when the goods have been made available to the buyer at the named place of destination, cleared for import. The
seller is also responsible for the export clearance of the goods. The seller is required to arrange for the import
clearance of the goods, including the payment of any applicable duties, taxes and fees. The buyer is responsible to
take delivery of the goods at the named place of destination.
Q.3. Discuss the general principles of the Law of Contract. What is an agreement?
Ans.
The law of contract is a legal agreement which links two or more parties. This contract contains valid legal agreement and is
enforceable by law. The purpose of the Law of Contract is to ensure that an individual fulfills his promise. The Indian
Contract Act, 1872 under Section 2(h) defines a contract as an agreement enforceable by law. An agreement is enforceable
by law only when it establishes a valid contract.
A legally enforceable contract is an exchange of promises with definite legal solutions for breach.
General contractual principles: The contracts are based on the principles of the common law and civil law. Lets us discussed these principles
1.

A contract is formulated by an offer and an acceptance: -An offer covers all the important factors in the contract.
The person to whom the offer is being given must accept it without making any alterations and this is referred to as
the mirror image rule. If there is any mismatch between the actual and accepted offer, then it is termed as the
counter offer and no further contract is made until the other party accepts the revised version. Such circumstances
arise when the each of the party use their own standard form of contract and is termed as battle of forms. This
results in a no-enforceable contract as the parties fail to follow the mirror image rule.
An offer can be withdrawn at any point of time before its acceptance, unless a definite commitment has been made to
keep the offer open for a specified time period.
Withdrawal of offers should always be communicated to make it effective. The common law says that an offer can be
withdrawn at any point of time before acceptance, even when the offer has specified a certain time period for the
offer to remain open.

2.

An offer contains all the important terms of the contract: - There may be situations where the parties omit
important terms of a contract. If the parties have agreed to provide the missing term, the contract may be effective.
For example, there are contracts where price is not mentioned because there is a well-known mechanism to
determine the on-going price of a commodity on a specific date. Remember, the more essential the missing term, the
less it is expected for the parties to have an enforceable contract.

3.

Performance of contracts: - If one party of the contract fails to fulfil its requirements, the other party usually bears
the damages for breaking the contract. In exceptional cases, a court order is provided to the defaulting party to fulfil

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the contract requirements. This is known as specific performance and is uncommon in the legal system. However, it
is common under the rules specified by civil law.
In rare cases where it is impossible for the party to fulfill the requirements of a contract without fault on its part, the
contract is assumed to be unfulfilled. Therefore, no liability is issued on the party that fails to perform the contract.
Agreement: There is no contract without an agreement. However, an agreement is not necessarily the same as a contract. The Indian
Contract Act, 1872 under Section 2(e), every promise and every set of promises, forming the consideration for each other, is
an agreement
An agreement may not be planned to be legally binding on the parties. This is the case when parties desire to officially record
their agreement even if they may not have finished all the particulars of the entire transaction
Generally, such agreements are referred to as Heads of Agreement (HoA), Memorandum of Understanding (MoU), or letter of
intent (LoI). These forms are constructed to signify trust and on-going commitment to each other and to follow the
discussions with a vision to enter into an enforceable contract at a later stage. However, an agreement to agree in the future
is not enforceable.

Q.4. Write short notes on:

a. Letter of credit
b. Export financing
Ans.
a.

Letter of credit: - A letter of credit adds a bank's promise to pay the businessman to that of the foreign buyer
provided that the businessman has complied with all the terms and conditions of the letter of credit. The foreign
buyer applies for issuance of a letter of credit from the buyer's bank to the businessman's bank and therefore is called
the applicant; the businessman is called the beneficiary.
Payment under a documentary letter of credit is based on documents, not on the terms of sale or the physical
condition of the goods. The letter of credit specifies the documents that are required to be presented by the
businessman such as an ocean bill of lading (original and several copies), consular invoice, draft, and an insurance
policy. The letter of credit also contains an expiration date. Before payment, the bank responsible for making
payment, verifies that all document conform to the letter of credit requirements. If not, the discrepancy must be
resolved before payment can be made and before the expiration date.
A letter of credit may either be irrevocable and thus, unable to be changed unless both parties agree; or revocable
where either party may unilaterally make changes. A revocable letter of credit is inadvisable as it carries many risks
for the businessman.
A change made to a letter of credit after it has been issued is called an amendment. Banks also charge fees for this
service. It should be specified in the amendment if the businessman or the buyer will pay these charges. Every effort
should be made to get the letter of credit right the first time since these changes can be time-consuming and
expensive.

b. Export financing: - There are two stages of export financing in India pre shipment and post shipment
financing.
Pre shipment refers to financing for the period prior to the shipment of goods to carry out pre export activities. The
objective of pre shipment finance is to enable the exporter to meet expenses which are related to procurement of raw
material, manufacturing process, storage, packing, and transport.

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Post shipment refers to financing for the period following the shipment of goods. The financing is usually short
term. The objective of post shipment finance is to finance export sales receivable only after the shipment of goods to
the realisation of export proceeds. All authorised dealers are eligible to offer this service.
Export credit can be classified into the following on the basis of the period of loans: Short term credit Credit is issued for a period less than 180 days. Short term credit includes pre-shipment and
post-shipment risks. The period for pre shipment is the period between the awarding of contract until shipment.
Long term credit Credit is issued for medium to long term (up to three years). This can be used for financing
exports of capital goods and services. This type of credit is mainly provided by the Exim bank and the commercial
bank refinanced by the Industrial Development Bank of India (IDBI). An important aspect of export credit is the risk
related to the transactions done with the overseas buyers
Q.5. Discuss the rights of an unpaid seller. What are the remedies available to the buyer against seller for breach of
contract?
Ans.
Rights of an unpaid seller: - The term unpaid seller may be defined as the seller to whom the full price of the goods
sold has not been paid. The legal definition of unpaid seller is given in Section 45 of the Sale poof Goods Act, as
under
The seller of the goods is deemed to be an unpaid seller within the meaning of this Act:
a. When the whole of the price has not been paid to tender;
b. When a bill of exchange or other negotiable instrument has been received as conditional payment and the condition
on which it was received has not been fulfilled by reason of dishonor of the instrument.
Sub-section 2 of Section 45 has extended the definition of seller to include any person who is in the position of a seller such
as an agent of the seller to whom the bill of lading has been endorsed, or a consignor who has himself paid the price.
An unpaid seller has the following two rights:
a) Right against goods: - Unpaid sellers rights against the goods may be discussed under the following two heads,
namely:
i.
Where the ownership of the goods has transferred to the buyer: In this case, the unpaid seller has the
following rights: Right of Lien, Right of stoppage of goods in transit, Right of resale.
ii.
Where the ownership of the goods has not transferred to the buyer: In this case, the unpaid seller the right of
withholding the delivery of goods sold.
b) Rights against the buyer personally: - Unpaid seller has the following rights against the buyer: Suit for price, Suit
for damage, Suit for Interest, Suit for repudiation of contract.
Buyers remedies against seller for breach of contract: - A buyer can exercise certain remedies against the seller who
commits a breach. These include the following:
I.

II.
III.

Suit for damages of non-delivery: - If the seller wrongfully neglects or refuses to deliver the goods to the buyer, the
buyer may sue the seller for damages of non-delivery. If there is a ready market for the goods, the measure of
damage is the difference between the contract price and the market price at the time of breach.
Suit for price: - If the buyer has paid the price and the goods are not delivered, the buyer can recover the amount
paid.
Suit for specific performance: - When the goods are specific or ascertained, a buyer may sue the seller for specific
performance of the contract and compel seller to deliver the same goods. Specific performance is a discretionary
remedy. Examples of specific performance include sale of a rare painting or an antique book.

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IV.

Suit for breach of warranty: - In case of a breach of warranty or where the buyer is compelled to treat the breach of
condition as breach of warranty, the buyer has the following remedies:
If the price has not been paid, the buyer may deduct the loss suffered and then pay the balance
If the loss is greater than the price, the buyer can sue the seller for damages. The damages will be equal to the
loss.

V.

Suit for damages for repudiation of contract before due date: - If the seller repudiates the contract before the due
date of delivery, the buyers can any of the following:
Treat the contract as rescinded and sue the seller for damages
Treat the contract as subsisting and wait till the actual date of delivery

VI.

Suit for Interest: - The court may award interest on the amount of price at rates the court thinks fit to the buyer from
the date of payment till the date of refund.

Q.6. What are the modes of settlement of disputes in international business? Discuss.
Ans.
It has always been objective of the international law to develop means and methods through which the disputes among the
nations may be resolved through peaceful means and on the basis on justice. In this connection, the rules of international law
are partly in the form of customs and partly in the form of law making treaties. The two Hague Conferences of 1899 and
1907, the Covenant of League of Nations and the United Nations Charter deserve special mention in this connection. The
methods of settlement of international disputes may be divided into two main categories:
a. Pacific means of settlement, and
b. Compulsive or forcible means of settlement.
The major point of dispute settlements are listed below:i.

Arbitration: - In arbitration, parties to a dispute agree to take their case to a third party in the form of an
agency of independent arbitration. They submit whatever documents of evidence they feel are relevant and
agree to accept the judgments of the arbitrators waving their rights to appeal through court systems.
Laws and governmental treaties that allow for the recognition and enforcement of awards made through
arbitration back the use of arbitration by international parties.
Other alternatives in the choice of arbitration forums are also available. The parties can designate the use of
a specific private and commercial arbitration firm or creation of a commission to arbitrate the dispute. Many
public entities choose the latter course because the commissions are composed of an equal number of
arbitrators chosen by each side to ensure proper hearing of each partys position.
Arbitration procedures are very similar to court. The only difference being that there are no hurdles of the
strict rules of procedure or law of evidence, yet legally binding. After the claim is filed and the opposite side
responds; the parties exchange information relevant to the case; the arbitrator hears both sides, studies the
evidence, and decides the case.
The difference between a court proceeding and arbitration is that arbitration takes less time and typically
costs less. The arbitration process is streamlined and not subject to delays and continuances that occur in the
court system. The arbitration process typically costs less because it is faster and less complicated. Also,
some parties do not feel the need to use an advocate in arbitration.

ii.

Arbitration often is contractual: - two parties agree to use arbitration to resolve a dispute. The parties agree
on what basis they want the arbitrator to decide the case.

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iii.

Judicial Settlement:- According to Article 7, International Court of Justice is one of the principal organs of
United Nations. All members of the United Nations are ipso facto members of the statute of International
Court of Justice. Any State which is not a member of the UN may also become a member on the
recommendation of the Security Council as laid down in Article 93 of the UN General Assembly. All the
decisions of the Court are made on the basis of majority of the judges and the President of the Court is
empowered to cast his vote in case of a tie.
According to Article 38 (1) of the Statue of International Court of Justice, the Court shall decide the dispute
submitted to it in accordance with international law and shall use the sources of international law in the
following order:
International Conventions
International Customs
General Principles of Law recognized by civilized nations
Judicial decisions or works of jurists as a subsidiary means for determining the rules of
international law.
It is one of the functions of the United Nations to make the progressive development of international law
and its codification. The International Court of Justice as a Chief Judicial Organisation of UN has done
commendable work in this connection. The World Court has contributed much in the progressive
development of International Law.

iv.

Negotiations: - Negotiations are also means of settlement of international disputes. It is as much less formal
method than judicial settlement. Sometimes disputes are settled only through negotiations. But if
negotiations fail to resolve the dispute, then other methods, such as good offices, mediation, etc., may be
used along with the negotiations.

v.

Good Offices: - When two States are not able to resolve their disputes, a third State may offer its good
offices for the same. An International Organisation or some individuals may also offer these offices. The
third state, individual or international organisation creates such an environment as may be conducive for the
settlement of disputes. Some general suggestions may also be put forward, but the third party does not taken
active part in the negotiations.

vi.

Mediation: - Mediation is yet another method through which efforts is made for the settlement of
international disputes. In the case of mediation, the third state of individual not only offers its services but
also actively participates in the talks to resolve the dispute.
The main distinction between good offices and mediation is that in case of good offices the third party
simply offers its services and does not actively participates in the talks whereas, in the case of mediation,
the third party actively participates in the talks and make suggestions so as to resolve the dispute between
the states. For example, Tashkent Agreement in 1965-66, erstwhile Soviet Union succeeded in bringing
about an agreement between India and Pakistan. The initiative of Soviet Union at the end of 1965 and
early 1966 in bringing representatives of India and Pakistan together at Tashkent to settle the conflict
between them and in creating a propitious atmosphere for settlement, is an example of good offices and
when India did not agree to withdraw its trope from Haji Pir in J & K but finally agreed to do so is a case of
mediation. USA forced Pakistan to withdraw from Kargil is an example of using its good offices

vii.

Conciliation: - In wider sense, conciliation is a method through which other States or the impartial persons
try to resolve the dispute peacefully through different means. Often the matter is referred to a Commission
or a Committee, which submits its report and recommends certain measures for the settlement of disputes.
These proposals are, however, not binding upon the parties. In the words of Judge Hudson, conciliation is a,
process of formal proposals of settlement after an investigation of the facts and an effort to recon ciliate to
accept or reject proposals formulated. The Hague Convention of 1899 and 1907 made the provision for a
Conciliation commission. In the present times, conciliation is also adopted as a method of international
disputes.

viii.

Enquiry: - Enquiry is also a method, which is often resorted to for the settlement of disputes. It may be
noted that it is not an independent method and is often applied along with other methods. The main

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objective of the enquiry is to make investigation of the relevant matters so as to establish facts, which may
hold the ultimate solution of the problem. For example, Enquiry Commissions are appointed for the
settlement of border disputes.

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