INTERNATIONAL BUSINESS

MANAGEMENT

 Africa
Antarctica
Asia
Europe
North America
South America

EVOLUTION OF INTERNATIONAL
BUSINESS

First phase of globalization in 1870

Ended with World war I driven by Industrial Revolution
A vast game of beggar-my-neighbour
Felt need for International Cooperation

IMF

IBRD

EVOLUTION OF INTERNATIONAL
BUSINESS

Prolonged recession before world war II

GATT by 23 countries
GATT
WTO
International trade
International Marketing

International Marketing
International Business

CHARACTERISTICS/FEATURES OF
INTERNATIONAL BUSINESS

Regional Integration
Declining Trade Barriers
Declining Investment Barriers
Growth in FDI
Strides in Technology
Growth of MNCs

Influence
Domestic
Cultural
International
Technological
Multinational
Global
Transnational

Domestic
Business
Approaches
Ethnocentric
Polycentric
Regiocentric
Geocentric

Social and

Economic
Political

International
Business
Influence
Export
Direct Investment
Licensing
Franchising
Turnkey Projects
Joint Venture
Mergers and

Acquisition

NTERNATIONAL BUSINESS MODEL

Goals
Market Share
High Profit
Risk Avoidance
Resource Acquisition
Expand Business
Capacities
Advantages
Low Price
Variety of Goods
High Living Standards
Economic Growth
Competitive
Advantages
Problems
Political risk
Foreign Debt
Exchange Instability
High Cost

INFLUENCES

Accurate Information e.g. Bata

Timely Information e.g. Coca Cola
Size of the Business
Market Segmentation
Potentiality of Markets
Inter-Country comparative study
Host Countrys Monetary System
National Security Policies e.g.: USA
Cultural Factors e.g. : Fiji
Language
Nationalism and Business Policy e.g.: USA s Be American, Buy
American Made

STAGES OF INTERNATIONALIZATION
Domestic Company
Limits operation, Vision, Mission to National political
boundaries
International Company
Focus on domestic practices but extend wings to foreign
countries (Mere export-import)
Multinational Company
Different strategy for different market
Global Company
Either produce in one country and market globally or
produce globally and market domestically
Transnational Company
Produces, markets, invests and operates across the world

APPROACHES TO INTL. BUSINESS

Ethnocentric
Domestic
companies view
foreign markets as
an extension to
domestic markets

Polycentric
Companies
establish foreign
subsidiaries and
empowers its
executives

Regiocentric
Subsidiaries

Geocentric

consider regional

Companies view

environment for

the entire world as

policy/strategy

a single unit

formulation

MODES OF ENTRY

GOALS OF INTERNATIONAL BUSINESS

To achieve higher rates of profits
Expanding production capacity
Severe competition in home country
Limited home market
Political stability vs. instability
Availability of technology and human resources
High cost of transportation
Nearness to raw material
Liberalization and Globalization
To increase market share
Higher rate of economic growth
Tariffs and import quotas

ADVANTAGES OF INTL BUSINESS

High living standards
Increased socio-economic welfare
Wider market
Reduced effects of business cycles
Reduced risks
Large-scale economies
Potential Untapped markets

ADVANTAGES OF INTL BUSINESS

Opportunity for challenge to domestic business
Division of labour and specialization
Economic growth of the world
Optimum and proper utilization of world resources
Cultural transformation
Knitting the world into a traditional village

PROBLEMS OF INTL BUSINESS

Political factors
Huge foreign indebtedness
Exchange instability
Entry requirements
Tariffs, quotas and trade barriers
Corruption
Bureaucratic practices of Govt
Technological pirating
Quality Maintenance

UNIT II

GLOBALIZATION

IMF

defines

globalization

as,

the

growing

economic

interdependence of countries worldwide through increasing

volume and variety of cross border transactions in goods and
services and of international capital flows and also through the
more rapid and widespread diffusion of technology

COMPONENTS OF GLOBALISATION

Globalization of
Markets

Globalization of
Production

Globalization of
Investment

Globalization of
Technology

GLOBALIZATION OF MARKETS
Globalization of markets refers to the process of integrating and

merging of the distinct world markets into a single market

EXAMPLE: Coca-Cola, Pepsi, McDonalds burgers, Levis Jeans

etc.,
FEATURES:
Size of the company need not be too large
Distinction of national markets still prevail
Most of the foreign markets are markets for non-consumer goods

REASONS FOR GLOBALIZATION OF

MARKETS
Large scale industrialization enabled mass production
Risk reduction by diversification
Increase profits and achieve goals
Adverse business environment in home country
Demand for their products in foreign markets
Failure of domestic companies to cater the needs of customers

GLOBALIZATION OF PRODUCTION
Globalization of production is locating the manufacturing facilities in a
number of locations around the globe. EXAMPLE: Jet airlines Boeing 777
and Swan opticals
REASONS:
Impositions of imports by the foreign country
Availability of high quality raw materials and components
Availability of inputs at low cost
Skilled human resource at low cost
Liberal labour laws
To reduce cost of transport
To cater to varying tastes of customers

GLOBALIZATION OF PRODUCTION
Globalization of investment refers to investment of capital by a global company
in any part of the world.
REASONS:
Increase in volume of global trade
Limitations of exporting and importing
Liberalization
Avoid restrictions

MODES OF GLOBALIZATION OF
PRODUCTION

Acquisition
Joint ventures
Long term loans
Issuing equity, shares, debentures, bonds
Global deposit receipt

GLOBALIZATION OF TECHNOLOGY

Latest technology and distinctive competencies

Technological collaboration
Usage of technology by paying royalty

GLOBALIZATION
ADVANTAGES

DISADVANTAGES

Kills domestic business

Free flow of capital, technology
Industrialization
Production facilities throughout the
world
Increase in production and
consumption
Lower prices and high quality
Jobs and Incomes
Higher standard of living
Balanced Human development
Welfare and prosperity

Exploits human resource

Unemployment and
underemployment
Widening gap between rich and poor
Transfer of natural resources
National sovereignty at stake
Commercial and political
colonialism

INTERNATIONAL BUSINESS
ENVIRONMENT

EXTERNAL

INTERNAL
Organisational
Organisational
Structure
Structure

Production

Finance

Marketing

External Micro
Environment

Shareholders

Creditors

HR

R&D

External Macro
Environment

Bankers &
Financial
Institutions

Competitors

Suppliers

Market &
Intermediary

Customers
Social
&Cultural
Factors

Technological
Factors

Economic

Political

International
Factors
Natural Factors

SOCIAL AND CULTURAL

ENVIRONMENT
CULTURE
Prescriptive
Socially Shared
Learned
Subjective
Cumulative
Dynamic

SOCIAL AND CULTURAL

ENVIRONMENT
Food habits and International business
Dressing habits and International business
Cross-Cultural communication process and Negotiations
Low-context cultures
High-context culture
Monochromic
Polychromic

SOCIAL AND CULTURAL

ENVIRONMENT
Cultural Universals
Communication
Time and Culture
Space and Culture
Culture and agreement
Culture of friendship
Culture and negotiation
Culture and superstition
Culture and gifts

ECONOMIC SYSTEM
Economic system: It is an organization of institution to satisfy
human needs/wants
Economic systems are based on resource allocation
There are three types of economic system
Capitalism: under this system, customer allocates resources
This economic system provides for economic democracy, thus giving the
customer, his choice for products

Communism: In this, economic system, private property and property

rights to income are abolished
Mixed: Under this system, major factor of production and distribution are
owned, managed and controlled by the state

 Countries classified by income

Low income countries US$ 755 or less
India, Pakistan and Bangladesh

Lower middle income countries US$756 to US$2,995

China, Indonesia and Sir Lanka

Upper middle income countries US$ 2996 to US$ 9265

Brazil, Hungary, Malaysia, Mexico and Saudi Arabia

Higher income countries US$9266 or more

USA, UK, Japan, Italy Australia

World bank refers to low and lower middle income countries as

developing countries
Higher income countries are referred to developed countries

POLITICAL ENVIRONMENT

Political ideology is the body of complex ideas, theories and

objectives
Political ideology of the people in the same country vary widely due
to the variation in culture, ethnic group, tribal, community, religious
and economic groups
Democracy : Pure democracy aims that all citizens should be equal
politically and legally and should enjoy freedom
Totalitarianism is extreme to democracy

 Types of political systems

Appraisal of political systems helps us in having and idea of political
systems and their impact on international business
Government may be parliamentary or absolutist
Parliamentary is open
Absolutist is closed
Government may be classified into
Two party system
Multi party system
Single party system
One party dominated system

GLOBALIZATION OF BUSINESS

Globalization is the shift towards a more integrated and

interdependent world economy
Globalization implies integration of the economy of the country with
the rest of the world economy and opening up of the economy for
foreign direct investment by liberalizing the rules and regulation and
by creating favorable socio-economic and political climate for global
business

FEATURES OF GLOBALIZATION
Operating and planning to expand business throughout the world
Erasing the difference between domestic and foreign markets
Buying and selling goods and services from any country to any country in the
world
Establishing manufacturing and distribution facilities in any part of the world
based on the feasibility and viability rather than national consideration
product planning and development are based on market consideration of the
entire world
Sourcing the factors of production and inputs like raw materials, machinery,
finance, human resources , technology and managerial skills from entire world
Global orientation in strategies, organizational structure, organizational culture
and managerial expertise
Setting the mind and attitude to view the entire globe as a single market

PROCESS OF GLOBALIZATION
Domestic company export to foreign countries through the dealers or
distributors of the home country
The domestic company exports to foreign countries directly on its
own
The domestic company becomes an international company by
establishing production and marketing operations in various key
foreign countires
The company replicates a foreign company in the foregin country by
having all the facilities including r&d, full fledged human resource
The company becomes a true foreign company by serving the needs
of foreign customer just like the home country company serves

Components of globalization

Globalization
of markets

Globalization of
production

Globalization of
investment

Globalization of
technology

GLOBALIZATION OF MARKETS
Globalization of markets refers to the process of integrating and
merging of the distinct world markets into a single market
This process involves the identification of some common norms,
values, taste, preference and convenience and slowly enables the
cultural shift towards the use of a common products or services
A number of consumer products have global acceptance. Eg cocacola, pepsi, sony and kfc

FEATURES OF GLOBALIZATION
OF MARKETS
The size of the company should be large to create a global market
The difference require the companies to formulate different strategies
for each market
Eg coca cola, levis jeans employ separate strategies for each
country
Most of the foreign markets are the marketers for non-consumer
goods like industrial products, machinery, computers, software,
financial products
The global business firms compete with each other frequently in
different national markets including their home markets

REASONS FOR GLOBALIZATION

OF MARKETS
Large scale industries enable mass production
Companies in order to reduce the risk
Companies globalize markets in order to increase their profits and
achieve company goals
To cater the demand for their products in the foreign markets
The failure of the domestic companies in catering the needs of their
customer pulled the foreign countries to market their product

GLOBALIZATION OF
PRODUCTION

Factors influencing the location of manufacturing facilities vary from

one country to another
They may be more favorable in foreign countries rather than in the
home country
Eg cheap lab our in developing countries, availability of high quality and
cheap raw materials in other countries enable the companies to produce
the products of high quality and low cost in various foreign markets

REASONS FOR GLOBALIZATION

OF PRODUCTION
Availability of high quality raw materials and components in other
countries
Availability of skilled human resources at low cost
Availability of inputs at low cost in foreign countries
Liberal lab our laws in the foreign countries
To reduce the cost of transportation and easy logistics management
To design and produce the product as per the varying tastes of
customers in foreign countries

GLOBALIZATION OF INVESTMENT
Globalization of investment refers to investment of capital by a
global company in any part of the world
Before 1930 many countries created barriers relating to export and
imports. After GATT the reduction in trade was implemented
After WTO the eliminated the investment barriers
India

has

companies

allowed

51%

foreign

direct

investment

in

Indian

REASONS FOR GLOBALIZATION

OF INVESTMENT

Many countries provided more congenial environment for attracting

direct investment
Significant amount of FDI is directed to the developing countries in
Asia and Eastern Europe
Small and medium companies have started investing in foreign
countries
Limitation of exporting and licensing force the domestic companies to
enter foreign countries
Sourcing funds globally: The Indian government has allowed Indian
companies to procured investment from foreign companies
Eg reliance, Dr. reddy lab and sat yam computers

GLOBALIZATION OF
TECHNOLOGY
Technological changes is improved after 1950
The revolution in telecommunication, IT and transportation have
made many company go into globalization
Methods of globalization technology
Companies with latest technology acquire distinctive competencies and gain the
advantages of producing high quality products at low cost
Companies may have technological collaboration with foreign companies through
which technology spreads from country to country
The foreign companies allow the companies of various other countries adopt their
technologies on royally payment basis

ADVANTAGES AND DISADVANTAGES OF GLOBALIZATION

Free flow of capital

Free flow of technology
Increase industrialization
Balanced development of world
economics
Increase in production and
consumption
Commodities at lower prices with
high quality
Increase in jobs and income
Higher standards of living
Balanced human development
Increase in welfare and prosperity

Globalization kills domestic business

Exploits human resources
Leads to unemployment and underemployment
Decline in demand for domestic products
Decline in income
Widening gap between rich and poor
Transfer of natural resources

MODE OF GLOBALIZATION

Acquisition of foreign companies

Joint ventures
Long term loans
Issuing equity shares, debentures and bonds
Global deposits receipts

DRIVERS OF GLOBALIZATION
Establishment of the world trade organization:
Government of the member countries of general agreement on trade and
tariff(GATT) concluded the Uruguay round negotiation on the 15th
December 1994. according to uruguay meeting they came with a political
support strengthen the world economy and lead to more trade,
investment, employment and income growth throughout the world WTO
was established on 1st Jan 1995. This is to facilitate the implementation,
administration and operation and further the objectives of this agreement
and on the multinational trade agreement

 Declining trade barriers:

International trade occurs when the goods flow across the countries.
Government used to impose trade barriers like quotas and tariffs in order
to protect domestic business from the competition of international
business. Advanced countries after world war 2 agreed to reduce tariffs
in order to encourage free flow of goods. Thus reduction of tariffs and
other trade barriers contributed for the growth of global trade

Declining investment barriers:

Global business firm invest in order to establish manufacturing and other
facilities in foreign country. Foreign government impose barriers on
foreign investment in order to protect domestic industry.
Various countries have been removing these barriers on foreign direct
investment

 Growth in foreign direct investment:

There are number of reasons for the growth of FDI. Which is also a
drivers of globalization

Strides in technology:
Technological changes has dramatically diverged global company to
globalization
Microprocessors and telecommunications
The internet and world wide web
On-line globalization
Transportation technology

Growth of multinational companies

Growth of multinational and transactional company are spreading their
operation in manufacturing, finance and other functional areas. Which are
been the drivers of globalization

TRADE LIBERALIZATION
Integration of the economy of a country with the rest of the world
economy is called globalization.
Indian government globalised economy by announcing economic
liberalization in 1991.
Integrated global economy were sown as early as 1940s when steps
were taken to establish
International Monetary Fund
International Bank for Reconstruction and Development
General Agreement on Tariffs and Trade

INTRODUCTION TO GATT
There were many barrier for free trade were laid down to support the
government expenditure
After II world war several international measures were undertaken to
liberalize trade and payment between nations
International

monetary

funds

and

international

bank

for

reconstruction and development were set up

International trade organization to deal with international trade was
sough to be set up
GATT (general agreement for trade and tariff)was set
the trade and reduce the tariff amount

to liberalize

GATT
The General Agreement on Tariffs and Trade (GATT) was
originally created by the Bretton Woods Conference as part
of a larger plan for economic recovery after World War II.
The GATTs main purpose was to reduce barriers to
international trade.
This was achieved through the reduction of tariff barriers,
quantitative restrictions and subsidies on trade through a
series of different agreements.
The GATT was an agreement, not an organization.
Originally, the GATT was supposed to become a full
international organization like the World Bank or IMF called
the International Trade Organization
The agreement was not ratified, so the GATT remained
simply an agreement.
The functions of the GATT have been replaced by the World
Trade Organization.

 GATT trade rounds

Geneva Round 1947 The first rounds duration was 7 months. 23
countries took part in the round. The main focus was Tariffs Signing
of GATT, 45,000 tariff concessions affecting $10 billion of trade.
Annecy Round 1949 The second round took place in 1949 in
Annecy, France. 13 countries took part in the round. The main focus
of the talks was more tariff reductions.
Torquay Round 1951 The third round occurred in Torquay,
England in 1950. 38 countries took part in the round. 8,700 tariff
concessions were made totaling the remaining amount of tariffs to
of the tariffs which were in effect in 1948.

 Geneva Round - 1955-1956 The fourth round returned to Geneva

in 1955 and lasted until May 1956. Twenty-six countries took part in
the round. $2.5 billion in tariffs were eliminated or reduced.
Dillon Round - 1960-1962 The fifth round occurred once more in
Geneva and lasted from 1960-1962. The talks were named after
U.S. Treasury Secretary and former Under Secretary of State,
Douglas Dillion, who first proposed the talks. 26 countries took part
in the round. Along with reducing over $4.9 billion in tariffs, it also
yielded discussion relating to the creation of the European Economic
Community (EEC).

 Kennedy - 1964 The sixth rounds duration was 37 months. 62

countries took part in the round and the main focus was

Tariffs,

Anti-dumping. Its achievement was Tariff concessions worth $40

billion of world trade
Tokyo Round - 1973-1979 Reduced tariffs and established new
regulations aimed at controlling the proliferation of non-tariff
barriers and voluntary export restrictions. 102 countries took part in
the round. Concessions were made on $190 billion worth.

 Uruguay Round - 1986-1994 The Uruguay Round began in 1986.

It was the most ambitious round to date, hoping to expand the
competence of the GATT to important new areas such as service,
capital, intellectual property, textiles, and agriculture. 123 countries
took part in the round. The Uruguay Round was also the first set of
multilateral trade negotiations in which developing countries had
played an active role

OBJECTIVES OF GATT

To raise standard of living

To ensure full employment and a large and steadily growing volume
of real income and effective demand
To develop the full use of the resource of the world
To expand production and international trade

ACTIVITIES OF GATT

Tariff bargaining
Bargaining on non- tariff trade barriers
Elimination of quantum restriction
Settlement of disputes between contracting parties

WORLD TRADE ORGANIZATION

WTO was established on January 1, 1995

WTO is the embodiment of the Uruguay Round results and the
successor to GATT
Government became member of the WTO on its first day
As of December 2000 there are 142 members of the WTO and 34
countries have an observer status
28 members are there in waiting list

Functions of WTO

Administering and implementing the multilateral and plurilateral

trade agreements which together make up WTO
Acting as a forum for multilateral trade negotiation
Seeking to resolve trade disputes
Overseeing national trade policies
Cooperating with other international institution involved in global
policy making

Structure of WTO
Ministerial
conference
General council

Disputes
settlement body
council

Council
For
Trade
In
goods

Council
For
Trade
In
services

Director
general

Council
For trade
Related
Aspects of
Intellectua
l
rights

Secretaria
t
Of the
WTO

trade policy review

body committees

Committee
On trade
And
developme
nt

Committe
e
On
Balance
Of
Payment
restrcitio
n

Committe
e
On
Budget
Finance
And
admin

 Ministerial

conference:

ministerial

conference

is

the

highest

hierarchical level in the organizational structure.

All the member countries of WTO are the representative of the ministerial
conference
The ministerial conference has the authority to make decision on all
matters relating to multilateral trade agreements

General council: General council is the executives body of the WTO

General council reports its decision and activities to the ministerial
conference
There are forms of general council

Dispute settlement body

Trade policy review body

 Council: The third level in the hierarchy is council

Council for trade in goods: This council supervise the implementation and
functioning of all agreement relating to trade in goods
Council for trade in service: This council overseas the implementation of all the
agreement relating to trade in services
Council for trade related aspects of intellectual property rights: This council
overseas the implementation

Committees: Various councils specified earlier, constitute committee

for administering the arrangement
Committees on trade and development: This committee is concerned with the
issues concerning developing countries and particularly least developed countries
Committee on balance of payments: some WTO members countries resort to trade
restrictive measures with a view to cope with their balance of payments problems
Committee on budget, finance and admin: this committee deals with the issues
relating to the budget, finance and administration of WTO

 Management bodies: plurilateral agreement of the WTO have their

management bodies.

These management bodies report to the

general council
WTO provides a more powerful mechanism to solve disputes over trade
among the members countries

Difference between GATT and WTO

It is a set of rules and multilateral

It is a permanent institution

agreement
It was designed with an attempt to
establish

International

Trade

It was applied on a provisional basis

Its rules are applicable to trade in

originally

Its rules are applicable to trade in

merchandise and trade in services
and trade in related aspects of

merchandise goods
was

purpose
Its activities are full and permanent

Organization

GATT

It is established to serve its own

multilateral

instrument, but plurilateral agreement

were added at a later stage
Its disputes settlement system was
not faster and automatic

intellectual property
Its

agreements

are

almost

multilateral
Its disputes settlement systems is
fast and automatic

Multinational corporation

Multinational corporation/company

Multinational corporation/company is an organization

doing business in more than one country.
It is integrated global enterprise which links global
resources with global markets at profit
These companies have sales offices or manufacturing
facilities in many countries
Mncs have worldwide involvement and a global
perspective in its management and decision making

Features of MNCs

MNC,s consider opportunities throughout the globe though they

do the business in the countries
MNC,s invest considerable portion of their assets internationally

MNC,s engage in international production and operate plants in a

number of countries

MNC,s take managerial decisions based on a global perspective.

The international operations are integrated into the cooperations
overall business

WHY COMPANIES BECOME MNCS

Protection
Tap global
Increase market share
Reduce cost
Overcome tariffs
Technological advantages

Growth of MNC

Expansion of market territory

Market superiorities
Financial superiorities
Technological superiorities
Product innovation

Classification of MNC
Global corporation: global corporation produces in home

country or in a single country and focuses on marketing

these products globally
International

corporation:

international

corporation

conduct the operations in one or more foreign countries,

but with domestic orientation
Multinational corporation: MNC,s operates in more than

one country, but operates like domestic company of the

product concerned
Transnational

corporation:

Transnational

corporation

produces, market, invest and operates across the world

Advantages and Disadvantages of MNC

Creates the demand for the home country

products
Boost up the industrial activity of the home

country
Create unemployment for home country

people
Earns foreign exchange for the home country

and contributes for the balance of payment

Get the benefits of foreign culture

payment

Produces the product required by the

domestic consumer in foreign countries with

foreign resources
Saves the domestic country from

May not create employment opportunities to domestic people by

following

geocentric approaches or outsourcing business operations in

various counties like USA software companies outsourcing business

operation in India

environmental pollution

May neglect the industrial development of the home country as the

transnational companies follow the secular approaches

May cause erosion of the domestic culture

May exploit the natural resources resulting in excessive exploitation of

Get the customer for the countrys out dated

technology

Transfer capital to other countries ad cause unfavorable balance of

natural resources

Role of MNC in developing countries

Industrializations is in a backward state in developing countries
Resource available in developing countries are insufficient to develop the
technology and thereby industrialization
Developing countries are rich in mineral and natural resource
Local manpower, materials, capital etc cannot be optimally utilized by the
developing countries on their own
Developing countries would be requires to import raw materials, capital
equipment, technology on their own, thus they need large foreign exchange
resources
Developing countries, though they produces goods and services on their own by
importing technology and materials, they fail in marketing the product due to
severe competitions

Conflict mostly arises

Host countrys companies
Host countrys government
Host countrys customer
Host countrys society
Home countrys companies
Home countrys government
Home countrys customer
Home countrys society

Conflict in MNC
Macro economic area
Production area
Marketing area
Finance area
Human resource area
Social and ethical area
Environmental issues
Competing

UNIT IV
IBM

KINDS OF ECONOMIC INTEGRATION

Free Trade Area: Group of countries agreeing to abolish all trade restrictions
Customs Union: (i) Member countries abolish all restrictions (ii) They adopt a
uniform commercial policy of barriers and restrictions
Common Market: (i) Member countries abolish all restrictions (ii) They adopt a
uniform commercial policy of barriers and restrictions (iii) They allow free
movement of human resource and capital
Economic Union: i) Member countries abolish all restrictions (ii) They adopt a
uniform commercial policy of barriers and restrictions (iii) They allow free
movement of human resource and capital (iv)Achieve uniformity in monetary and
fiscal policy

EUROPEAN UNION

Evolutionary stages
European coal and steel community
European common market/European economic community
European economic union

ACTIVITIES OF EU
Elimination of customs duties, quantitative restrictions with regard to exports and
imports of goods among member countries.
Establishment/formulation of a common custom tariff and common commercial policy
with regard to non-member countries
Abolition of all obstacles for movement of persons, services and capital among
member countries.
Common policy in agriculture and transport
Programmes to coordinate the economic policies and disequilibrium in balance of
payments of member countries.
Establishment of European Social fund
Establishment of European Investment Bank.

ORGANISATION OF EU

European council is the administrative body of the EU.

Each member country is represented by a minister in this council
Each member country holds presidency for 6 months on rotation basis.
The committee of permanent representatives called Corper acts as secretariat of
the council.

ORGANISATION OF EU

Court of Justice

Court of

European

(Adjudicates

Auditors

Commission

European Parliament Advisory Committees

Consultants
Economic and social

Disputes)

EEC Budget

(Commissioners

Approvals

Agriculture

Monitoring

and Assistants)

Social Security

expenditure

Completion of
Policy

Monetary
Coal & Steel Industry

NORTH AMERICAN FREE TRADE

AGREEMENT-NAFTA
NAFTA came into being on January 1,1994.
USA, Canada and Mexico together formed NAFTA
Initial agreement was between USA and Canada in 1989 which
was later extended to Mexico.

OBJECTIVES OF NAFTA

To create new business opportunities particularly in Mexico

Enhance competitive advantage of companies operating in USA, Canada and
Mexico.
Reduce price of products and services
Enhance industrial development
To provide stable and predictable environment for investors
To develop industries in Mexico, thereby reducing migration from Mexico to USA
Improve and consolidate political relationship among member countries

MEASURES AS PER AGREEMENT OF

NAFTA
Opening up of government procurement markets in member
countries
Protection of IP rights of NAFTA members
Simplification and harmonization of product standards in
member countries
Free flow of employees and business people among member
countries
Pollution control among USA-Mexico border

ASEAN-ASSOCIATION OF SOUTH EAST ASIAN

NATIONS
A group of 6 members viz singapore, Brunei, Malaysia,
Philippines, Thailand and Indonesia in 1992 to establish a
Common Effective Preferential Tariffs(CEPT) plan which
resulted in creation of ASEAN.
Organisation structure includes ASEAN economic ministers,
ASEAN

foreign

ministers,

ASEAN

committees and rotating committees.

secretariat,

Fixed

INDIA AND ASEAN

India became a sectoral dialogue partner of ASEAN in 1992. The

sectors were trade, investment, tourism and science and technology
India became a full dialogue partner of ASEAN during fifth ASEAN
summit in Bangkok in 1995

AFTA-Asian Free Trade Area

AFTA was formed in September 1994.

AFTA was formed to develop ASEAN trade
OBJECTIVES
To encourage inflow of foreign investment into this region
To establish free trade area in the member countries
To reduce tariff of the products produced in ASEAN countries

SAARC

SAARC stands for South Asian Association for Regional Co-operation

India, Bangladesh, Bhutan, Pakistan, the Maldives, Nepal and Sri
Lanka established SAARC on Dec 8, 1985.
Afghanistan joined SAARC in April 2007.

OBJECTIVES OF SAARC
To improve the quality of life and welfare of people
To develop region economically, socially, culturally
To provide opportunity for the people to live in dignity
To enhance self-reliance of members
To extend co-operation to other trade blocks
To enhance co-operation with developing countries
To have unity among member countries

ORGANIZATION STRUCTURE
The council of SAARC is the highest policy making body
The council is represented by the heads of the Government of the

member countries
The Council meets once in two years
This council is assisted by council of ministers
The council of ministers is represented by foreign ministers of member

countries
The council of ministers are assisted by standing committee which

consists of foreign secretaries of member countries

STANDING COMMITTEE
Monitoring and co-ordinating the programmes
Determining inter-sectoral priorities
Mobilizing co-operation within and outside the
region
Standing committee is assisted by Programming
committee

PROGRAMMING COMMITTEE
This includes the senior officials of the member countries. The
functions are
Scrutinising budget of the secretariat
Finalising annual schedule of the secretariat
Carrying out the activities assigned by the standing committee
Analysing reports of technical committees and SAARC
regional centres and submitting them to the standing
committee.

TECHNICAL COMMITTEE
This consists of representative of all member countries

FUNCTIONS
Formulating projects and programmes in their

respective areas
Monitoring and implementing projects
Submitting the reports to the standing committee

through the program committee

TECHNICAL COMMITTEE
The technical committees of SAARC includes
Agriculture
Environment
Rural Development
Tourism and transport
Communications
Health and population activity
Science and technology

 The Secretarial work is done by SAARC secretariat

located in Nepal.
The secretary-General is the chief of the secretariat
Ahmed Salim of Maldives is the oresent Secretary
General of SAARC

ESCAP
Economic and Social commission for Asia and The Pacific
ESCAP has 48 members countries
The original name of ESCAP was Economic commission for Asia and far east
ESCAPs geographical area is as follows:
East: Cook Island
West: Azerbaijan
North: Mangolia
South: Australia and New Zealand

APEC
APEC stands for Asia Pacific Economic co-operation
It looks for facilitating economic growth, co-operation, trade and investment in
Asia Pacific region.
APEC has 21 members referred as Member Economies which accounts for more
than a third of the worlds population(2.6 billion people), approximately 60% of
worlds GDP and about 47% of world trade.
It is the most economically dynamic region in the world

PURPOSE AND GOALS

To enhance the economic growth and prosperity of Asiapacific region

To reduce tariff and trade barriers
Creation of an environment for safe and efficient movement of
goods, services and people across borders

OPERATION OF APEC
Every year one of the 21 APEC member economies play host
to APEC meetings and serves as the APEC Chair.
The APEC host economy is responsible for chairing the Annul
meetings of APEC.
APEC is not a donor organization. Its activities are centrally
funded by small annual contributions from APEC members
economies.

MERCOSUR
The treaty signed by Argentina, Brazil, Paraguay and Uruguay on March 26, 1991
created Mercosur.
Mercosur is South Americas largest trade block.
OBJECTIVES
Free transit of transportation goods, services and factors between the member states.
Fixing of a common external tariff and adopting common trade policy
Co-ordination of macro-economic and sectoral policies of member states in areas of
foreign trade, agriculture, transport and communications etc.,

INTERNATIONAL CAPITAL MARKET

Borrowers
Expands money supply
Reduces cost of money

Network

of people, firms, financial

institutions, and

governments borrowing and investing internationally

Lenders
Spread / reduce risk
Offset gains / losses

INTERNATIONAL FINANCIAL MARKET

Few of the International financial markets are as follows:
Foreign exchange market
Eurocurrency market
Eurocredit market
Eurobond market
International stock markets

FOREIGN EXCHANGE MARKET

The foreign exchange market allows currencies to be exchanged in order to
facilitate international trade or financial transactions.
The foreign exchange market assists international trade and investment by
enabling currency conversion. For example, it permits a business in the United
States to import goods from the European Union member states
The system for establishing exchange rates has evolved over time.
From 1876 to 1913, each currency was convertible into gold at a specified rate
This was followed by a period of instability, as World War I began and the
Great Depression followed.
The 1944 Bretton Woods Agreement called for fixed currency exchange rates.

FOREIGN EXCHANGE MARKET

There is no specific building or location where traders
exchange currencies. Trading also occurs around the clock.
The market for immediate exchange is known as the spot
market.
The forward market enables an MNC to lock in the exchange
rate at which it will buy or sell a certain quantity of currency
on a specified future date.

EUROCURRENCY MARKET

The Eurocurrency market consists of banks (called Eurobanks) that accept deposits
and make loans in foreign currencies
A Eurocurrency is a freely convertible currency deposited in a bank located in a
country which is not the native country of the currency
The deposit can be placed in a foreign bank or in the foreign branch of a domestic
bank
In the 1960s and 70s, the Eurodollar market, or what is now referred to as the
Eurocurrency market, grew to accommodate increasing international business.

EUROCURRENCY MARKET
The Eurocurrency market is made up of several large
banks called Eurobanks that accept deposits and
provide loans in various currencies.
For

example,

the

Eurocurrency

market

has

historically recycled the oil revenues (petrodollars)

from oil-exporting (OPEC) countries to other
countries.

EUROCURRENCY MARKET

The Eurocurrency market in Asia is sometimes referred to separately as

the Asian dollar market.
The primary function of banks in the Asian dollar market is to channel
funds from depositors to borrowers.
Another function is interbank lending and borrowing.

EURO CREDIT MARKET

Loans of one year or longer are extended by Eurobanks to MNCs or government

agencies in the Eurocredit market. These loans are known as Eurocredit loans.
Floating rates are commonly used in Eurocredit Market

EUROBOND MARKET
In finance, a bond is an instrument of indebtedness of the bond issuer to the holders. It
is a debt security, under which the issuer owes the holders a debt and, depending on
the terms of the bond, is obliged to pay them interest (the coupon) and/or to repay
the principal at a later date, termed the maturity
There are two types of international bonds.
Bonds denominated in the currency of the country where they are placed but issued

by borrowers foreign to the country are called foreign bonds or parallel bonds.
Bonds that are sold in countries other than the country represented by the currency

denominating them are called Eurobonds.

INTERNATIONAL STOCK MARKETS

In addition to issuing stock locally, MNCs can also obtain funds by issuing stock in
international markets.
This will enhance the firms image and name recognition, and diversify the
shareholder base. The stocks may also be more easily digested.
Note that market competition should increase the efficiency of new issues.

 A stock exchange is an entity that provides "trading" facilities for stock

brokers and traders, to trade stocks, bonds, and other securities.

NASDAC
The NASDAQ

Stock

Market

commonly

known

as

the NASDAQ, is an American stock exchange. "NASDAQ"

originally stood for National Association of Securities
Dealers Automated Quotations.
It is the second-largest stock market comparing to official
stock exchanges by market capitalization in the world, after
the New York Stock Exchange.
The exchange platform is owned by NASDAQ OMX Group,
which also owns the OMX stock market network.

HISTORY
When the NASDAQ stock exchange began trading on February 8, 1971, it
was the world's first electronic stock market.
NASDAQ was the successor to the over-the-counter (OTC) system of
trading
NASDAQ was also the first stock market in the United States to start
trading online, highlighting NASDAQ-traded companies
In 1992, it joined with the London Stock Exchange to form the first
intercontinental linkage of securities markets
In 2006 NASDAQ changed from stock market to licensed national
exchange.

NASDAC
The NASDAQ-100 is a stock market index of 100 of the largest nonfinancial companies listed on the NASDAQ]
The NASDAQ has over the years put in place a series of stringent
standards that companies must meet before being included in the index.
Those standards include the following:
Being listed exclusively on NASDAQ in either the Global Select or Global
Market tiers.
Being publicly offered on an established American market for three months.
Having average daily volume of 200,000 shares.
Being current in regards to quarterly and annual reports.
Not being in bankruptcy proceedings.

NASDAC-OPERATIONS
The Nasdaq, on the other hand, is located not on a
physical trading floor but on a telecommunications
network
Instead, trading takes place directly between
investors and their buyers or sellers, through an
elaborate

system

of

connected to one another.

companies

electronically

NASDAQ 100
21st Century Fox (FOXA)
Amazon.com, Inc. (AMZN)
Apple Inc. (AAPL)
Cognizant Technology Solutions Corporation (CTSH)
Dell Inc. (DELL)
Google Inc. (GOOG)
Vodafone Group, plc. (VOD)
Yahoo! Inc. (YHOO)

EXIM BANK
Export-Import Bank of India is the premier export finance
institution of the country, established in 1982 under the
Export-Import Bank of India Act 1981.
Government of India launched the institution with a mandate,
not just to enhance exports from India, but to integrate the
countrys

foreign

trade

overall economic growth.

and

investment with

the

EXIM BANK-ORGANIZATION
Exim Bank is managed by a Board of Directors,
which

has

representatives

from

the

Government, Reserve Bank of India, Export Credit

Guarantee

Corporation

of

India,

a financial

institution, public sector banks, and the business

community.

EXIM-FUNCTIONS
The Bank's functions are segmented into several operating groups including:
Corporate Banking Group which handles a variety of financing programmes
for Export Oriented Units (EOUs), Importers, and overseas investment by Indian
companies.
Project Finance / Trade Finance Group handles the entire range of export credit
services such as supplier's credit, pre-shipment Agri Business Group, to spearhead the
initiative to promote and support Agri-exports. The Group handles projects and export
transactions in the agricultural sector for financing.
Small and Medium Enterprise: The group handles credit proposals from SMEs under
various lending programmes of the Bank.

 Export Services Group offers variety of advisory and value-

EXIM-FUNCTIONS

added information services aimed at investment promotion.

Export Marketing Services Bank offers assistance to Indian
companies, to enable them establish their products in overseas
markets.
The idea behind this service is to promote Indian export.
Export Marketing Services covers wide range of export
oriented companies and organizations.

EXIM-FUNCTIONS

Besides these, the Support Services groups, which include:

Research

&

Planning, Treasury

and Accounts,

Loan

Administration, Internal Audit, Management Information

Services, Information Technology, Legal, Human Resources
Management and Corporate Communications.

ECGC
The Export Credit Guarantee Corporation of India
Limited (ECGC)

is

company

wholly

owned

by

the Government of India based in Mumbai, Maharashtra

It

is

controlled

by

the Ministry

of

Commerce. Government of India.

It

was

transformed

into

Export

Credit

and

Guarantee Corporation Limited (ECGC) in 1964

and to Export Credit Guarantee Corporation of
India in 1983.

ECGC
ECGC of India Ltd, was established in July, 1957 to
strengthen the export promotion by covering the risk of
exporting on credit
It is managed by a Board of Directors comprising
representatives of the Government, Reserve Bank of India,
banking, insurance and exporting community.
ECGC is the fifth largest credit insurer of the world in terms of
coverage of national exports.

NEED FOR EXPORT CREDIT INSURANCE

An outbreak of war or civil war may block or delay payment for goods
exported.
Economic difficulties or balance of payment problems may lead a
country to impose restrictions on either import of certain goods or on
transfer of payments for goods imported.
The commercial risks of a foreign buyer going bankrupt or losing his
capacity to pay

FUNCTIONS OF ECGC
Provides a range of credit risk insurance covers to exporters
against loss in export of goods and services.
Offers guarantees to banks and financial institutions to enable
exporters to obtain better facilities from them.
Provides Overseas Investment Insurance to Indian companies
investing in joint ventures abroad in the form of equity or loan.

FUNCTIONS OF ECGC
Offers insurance protection to exporters against payment risks
Provides guidance in export-related activities
Makes available information on different countries with its own
credit ratings
Makes it easy to obtain export finance from banks/financial
institutions
Assists exporters in recovering bad debts
Provides information on credit-worthiness of overseas buyers

IBM
UNIT V

EXPORT PROCEDURES

Preliminaries

Offer and
Receipt of
confirmed
orders

Production
and clearance
of the
products for
exports

Shipment

Negotiation
of Documents
and
realization of
export
proceeds

Obtaining
various
export
incentives

PRELIMINARIES

Importer-Exporter Code Number (IEC Number): License to be obtained from

regional licensing authorities.
Membership in certain bodies: Membership in bodies like Export promotion
councils, India trade promotion organization etc.,
Registration: Register with Export promotion councils (EPC), Sales tax authorities
etc.,

INQUIRY,OFFER AND RECEIPT OF

CONFIRMED ORDERS

Inquiry is the request made by a prospective importer regarding his wish to import
certain goods.
Offer is a proposal submitted by a exporter expressing his intention to export
certain goods.
Exporter makes an offer in the form of Proforma Invoice

PROFORMA INVOICE
Proforma Invoice includes the following:
Name of the buyer: Complete details of buyer/importer
Description of goods: Technical, chemical and physical features
of goods.
Price: Unit wise and total price of the goods in internationally
accepted currencies or mutually agreed currencies.
The forms used should be f.o.b., c and c.i.f ., f (Cost, Insurance
and Freight (CIF) vs. Free On Board (FOB)) or internationally
accepted form.

PROFORMA INVOICE

Conditions of Sale:
Validity: The period for which the invoice is valid
Escalation Clause: Prices may increase before delivery of the goods due to
increase in cost of inputs. Hence, seller may include escalation clause
Delivery Schedule: Realistic delivery schedule should be indicated.
Inspection: Authority who will conduct inspection should be indicated.

PROFORMA INVOICE

Payment Terms: Letter of credit, bill of exchange should be included.

Other obligations:
Post sales service to be provided
Providing spare parts
Warranty/guarantee for equipment/technology
Confirmed Order: The buyer sends the confirmed order to the exporter by signing
the duplicate copy of the invoice which becomes the confirmed order

PROFORMA INVOICE
Export License: The exporter has to obtain the export license
from the authorities concerned if the items to be exported
requires license.

Procuring Finance: If the exporter does not have the required

finance then he should arrange it from various sources.

PRODUCTION/PROCUREMENT OF GOODS
The exporting house after receiving the order should produce the goods
as specified in the order.
Packing and Marketing:
The exporter should arrange for packing and marking of goods as per
International standards.
Bureau of Indian Standards
British Standard Packing Code
Exporters Encyclopedia
International Cargo-Handling Co-ordination Association.

PRODUCTION/PROCUREMENT OF GOODS
Quality control and pre-shipment inspection:
Quality and pre-shipment inspection by Export Inspection
Council
Excise Duty Rebates:
Goods meant for export are exempted from imposition of
excise duty. Rebate on duty is provided on submission of the
following forms:
AR-4 forms

SHIPMENT

Exporter has to contact shipping companies for space after

getting the order confirmed.
Shipping advise refers to mere information about availability
of space and there is no obligation to accept the cargo
Shipping order issuance creates obligation to accept the cargo

CUSTOMS CLEARANCE
The exporter has to get custom clearance of the goods before they are
loaded on the ship. The list of documents to be furnished includes the
following:
Proforma Invoice
GR-I Form (Duplicate)
AR-4 Form (Duplicate)
Export License
Letter of credit covering export order, export contract or order in
original
Certificate of Inspection

CUSTOMS CLEARANCE

Form of Declaration (in duplicate)

Shipping bill (Five copies)
Quality control Inspection certificate(If required)
Original contract wherever available
Packing list
Letter of registration certificate (If applicable)

CUSTOMS CLEARANCE
GR-I Form:
Exchange control document
Proceeds of sale to be realized in 180 days from date of shipment.
Not necessary in case of export to Bhutan and Nepal
AR-4 Form:
Every manufacturer for clearance of excisable goods files an
application AR-4 from his factory for export
The clearances can be 'under claim for rebate of duty' or 'under bond.'
The goods can be examined and sealed at the factory by a central
excise officer having jurisdiction over the factory. After shipment of
goods, the customs officer endorses AR-4 form

CUSTOMS CLEARANCE
Export License: The exporter has to obtain the export license
from the authorities concerned if the items to be exported
requires license.
Letter of Credit:A letter from a bank guaranteeing that a
buyer's payment to a seller will be received on time and for the
correct amount. In the event that the buyer is unable to make
payment on the purchase, the bank will be required to cover
the full or remaining amount of the purchase.

CUSTOMS CLEARANCE
Certificate of Inspection: Certifying or non certifying about the
fulfillment of National export standards
Form of Declaration:
Customs form completed and submitted by an exporter at the port
of export
(1)

to provide information on amount,

and value of exports to

statistical office for compilation of foreign trade data,

nature,
the

CUSTOMS CLEARANCE
Shipping bill: The bill contains the following
Name of the exporter
Description and Quantity of goods
Value of goods
Number of packages and markings on them
Amount of drawback claimed
Port of Destination
Names of the ship and its agent
Versatile Business School, Egmore, Chennai - 600 008

CUSTOMS CLEARANCE
Carting Order: Once the good for exports is ready and shipping order is
available, the superintendent of the concerned port trust gives permission
for physical movement of goods into port.
Customs Examination of Cargo at Dock: Checking of products to be
exported at the dock by Customs Appraiser
Let Ship:
Let ship order authorizes shipping company to accept the cargo
Issued by the preventive officer of the customs department before
loading takes place.

CUSTOMS CLEARANCE
Mates Receipt: The captain of the ship certifies the loading
of the cargo by issuing document called Mates Receipt to
the Port Superintendent.
Port Trust Dues: Port trust authorities issues Bill of
Lading to the exporter after receiving Mates receipt from
the captain.
Bill of Lading: Agent collects Mates Receipt and gives to
port trust authorities and in turn collects Bill of Lading.

CUSTOMS CLEARANCE
Exporters agent provides the following documents in the final
stage:
Copy of Invoice attested by customs
Copy of Shipping bill
Export promotion copy of shipping bill
Bill of lading
Original letter of credit
Customer's order or contract
Duplicate copy of AR-4 Form

NEGOTIATION OF DOCUMENTS AND REALIZATION

OF EXPORT PROCEEDS
The exporter submits relevant documents to his banker for getting payment of goods exported.
Submission of documents and process of getting payment through bank is called Negotiating the
Documents.
These documents are called as Negotiable set of documents
Documents include:
Bill of lading
Commercial Invoice with packing slip and bill of exchange
Certificate of origin
GR-I Form
Marine Insurance Policy
Letter of Credit

NEGOTIATION OF DOCUMENTS AND

REALIZATION OF EXPORT PROCEEDS
Government of India appointed a committee to recommend on the documentation
in export. Standardized documents suggested are as follows and the system is
called as Aligned Documentation System

Invoice
Exchange control Declaration (GR Form)
Shipping Bill
Bill of Lading

EXPORT DOCUMENTATION

Export incentives include,

Duty Drawback: Eligible to get back excise duty paid on all raw materials, components
and consumables used in production of goods exported.
Excise Duty Refund: Eligible for refund of paid at the beginning. Bonds can also be
executed without making payment.

SHIPPING BY OTHER MODES OF TRANSPORT

Shipping By Air
Mostly perishable
goods and goods
of very less weight

Shipping by Post

Shipping by Land

Goods of less
weight are
exported.

Similar to Export
by sea