international business management full notes

INTERNATIONAL BUSINESS MANAGEMENT

UNIT I

Versatile Business School, Egmore, Chennai - 600 008

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 IBRDVersatile Business School, Egmore, Chennai - 600 008

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


Stages Influence• Domestic Social and Cultural• International Technological• Multinational Economic• Global Political• Transnational

Domestic Business

InternationalBusiness

Approaches Influence• Ethnocentric Export• Polycentric Direct Investment• Regiocentric Licensing• Geocentric Franchising

Turnkey ProjectsJoint VentureMergers and Acquisition

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

INTERNATIONAL BUSINESS MODEL Versatile Business School, Egmore, Chennai - 600 008

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 Country’s 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 consider

regional environment

for policy/strategy

formulation

Geocentric

Companies view the

entire world as a single

unit


MODES OF ENTRY

Indirect Exporting Joint VenturesDirect Exporting

Turn Key ProjectsMergers and Acquisition

Direct Investment

Licensing arrangements with foreign companies

Franchising arrangements with foreign companies

Management Contracts

Contract Manufacturing


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 quotasVersatile Business School, Egmore, Chennai - 600 008

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

MarketsGlobalization of

Technology

Globalization of

ProductionGlobalization of

Investment


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, McDonald’s 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 customersVersatile Business School, Egmore, Chennai - 600 008


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

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

DISADVANTAGES

Kills domestic business

Exploits human resource

Unemployment and

underemployment

Widening gap between rich and poor

Transfer of natural resources

National sovereignty at stake

Commercial and political

colonialismVersatile Business School, Egmore, Chennai - 600 008

INTERNATIONAL BUSINESS

ENVIRONMENT

INTERNAL EXTERNAL

Organisational

StructureR&DHRMarketingProduction Finance

External Micro

Environment

External Macro

Environment

Shareholders Creditors Bankers &

Financial

Institutions

Competitors Suppliers

Customers

Social

&Cultural

Factors

Technological

FactorsEconomic Political

International

Factors

Natural Factors

Organisational

StructureR&DHRMarketingProduction Finance

External Micro

Environment

External Macro

Environment

Market &

Intermediary


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 giftsVersatile Business School, Egmore, Chennai - 600 008

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 ofinvestment

Globalization oftechnology


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 coca-

cola, 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 differentstrategies for each market

Eg coca cola, levis jeans employ separate strategies for eachcountry

Most of the foreign markets are the marketers for non-consumergoods like industrial products, machinery, computers, software,financial products

The global business firms compete with each other frequently indifferent 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



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 allowed 51% foreign direct investment in Indian

companies


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 1940’s 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 to liberalize

the trade and reduce the tariff amount


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 GATT’s 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 round’s 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

¾ 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 round’s 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


Ministerial conference

General council

Disputes settlement body

council

Director general

trade policy review body committees

CouncilFor

TradeIn

goods

CouncilFor

TradeIn

services

CouncilFor tradeRelated

Aspects of Intellectua

lrights

Secretariat

Of the WTO

CommitteeOn trade

Anddevelopme

nt

Committee

OnBalance

OfPaymentrestrcitio

n

Committee

On‘BudgetFinance

Andadmin

Structure of WTO


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

agreement

It was designed with an attempt to

establish International Trade

Organization

It was applied on a provisional basis

Its rules are applicable to trade in

merchandise goods

GATT was originally a multilateral

instrument, but plurilateral agreement

were added at a later stage

Its disputes settlement system was

not faster and automatic

It is a permanent institution

It is established to serve its own

purpose

Its activities are full and permanent

Its rules are applicable to trade in

merchandise and trade in services and

trade in related aspects of 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 businessin more than one country.

It is integrated global enterprise which links global resources withglobal markets at profit

These companies have sales offices or manufacturing facilities in manycountries

Mnc’s have worldwide involvement and a global perspective in itsmanagement and decision making


Features of MNC’s

• 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 cooperation’s 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

Produces the product required by the domestic

consumer in foreign countries with foreign

resources

Saves the domestic country from environmental

pollution

Get the customer for the country’s out dated

technology

Transfer capital to other countries ad cause

unfavorable balance of payment

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

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 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 country’s companies

• Host country’s government

• Host country’s customer

• Host country’s society

• Home country’s companies

• Home country’s government

• Home country’s customer

• Home country’s society


Conflict in MNC

• Macro economic area

• Production area

• Marketing area

• Finance area

• Human resource area

• Social and ethical area

• Environmental issues

• Competing


UNIT IVIBM


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

(Adjudicates

Disputes)

•Agriculture

•Social Security

•Completion of

Policy

Court of

Auditors

•EEC Budget

•Monitoring

expenditure

European

Commission

(Commissioners

and Assistants)

European Parliament

•Consultants

•Approvals

Advisory Committees

•Economic and social

•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 secretariat, Fixed

committees and rotating committees.


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

ESCAP’s 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 world’s population(2.6 billion people), approximately 60% of

world’s 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 Asia-

pacific 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. It’s 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 America’s 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

Network of people, firms, financial institutions, and

governments borrowing and investing internationally

Borrowers

Expands money supply

Reduces cost of money

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 firm’s 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 non-financial

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 companies electronically

connected to one another.


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

country’s foreign trade and investment with the

overall economic growth.


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.


EXIM-FUNCTIONS

Export Services Group offers variety of advisory and value-

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 a 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


IBMUNIT 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 formVersatile Business School, Egmore, Chennai - 600 008

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, nature,

and value of exports to the

statistical office for compilation of foreign trade data,


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 agentVersatile 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

Mate’s Receipt: The captain of the ship certifies the

loading of the cargo by issuing document called ‘Mate’s

Receipt’ to the Port Superintendent.

Port Trust Dues: Port trust authorities issues ‘Bill of

Lading’ to the exporter after receiving ‘Mate’s receipt’ from

the captain.

Bill of Lading: Agent collects ‘Mate’s Receipt’ and gives to

port trust authorities and in turn collects ‘Bill of Lading’.


CUSTOMS CLEARANCE

Exporter’s 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

Goods of less weight are exported.

Shipping by Land

Similar to Export by sea


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