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BY: VISHAL KADAM

Q) What is International Business? What are its


importance?
Q) Distinguish between International & Domestic Trade?
Distinction between internal and international trade
Distinction between internal and international trade in general
involves transaction for mutual benefit For this reason both
the trading parties will have equal interest.
Trade is a case of geographic specific area. An area
specialises in an activity and trade takes place.
Trade needs optimising activity. Profits are measured by
minimising cost and increasing volume of trade. International
trade has certain distinguishing factors as compared with
ordinary trade.
1. International trade is the trade between two countries
which are geographically and politically different. This gives
rise to a conflict of interests in terms of benefit.
2.
International trade has more restriction than internal
trade. The world has transformed from free trade to
protection.
3. Under protection a country prevents trade to safeguard the
interest of domestic industry.
4. The factors of production are perfectly mobile within a
country and immobile within countries. This feature helps in
retaining cost advantage in production. Different countries
have different currencies. With this the problems of equating
value and conversion of currencies arises. International
liquidity is a major problem. Yet there is no mechanism to
facilitate international payments. In 1930 IMF floated
specialised instruments called Special Drawing Rights
(SDR) as a common medium for international transaction. Due
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to disparities in economic development, SDR failed to provide


adequate international liquidity.
Presently the world is divided into trading blocks and
associations. The international trade is highly segmented
international trade leads specialised institutions for promoting
international co-operation, trade international payments
and development assistance.
Q) What is FDI ?
Foreign capital which enters the country in the form of equity
capital is termed as Foreign Direct investment (FDI).
It involves no interest payment, but only a share in the profit to
the extent of shares owned by foreigners. In India equity
participation by foreigners is permisible upto 51% of the capital
of a project, with higher limits of investment in selected areas,
such as technology, upgradation & exports.
Foreign direct investment (FDI) is a measure of foreign
ownership of productive assets, such as factories, mines and
land. Increasing foreign investment can be used as one
measure of growing economic globalization. Maps below show
net inflows of foreign direct investment as a percentage of
gross domestic product (GDP). The largest flows of foreign
investment occur between the industrialized countries (North
America, North West Europe and Japan). But flows to nonindustrialized countries are increasing.
The foreign direct investor may acquire 10% or more of the
voting power of an enterprise in an economy through any of the
following methods:
* By incorporating a wholly owned [subsidiary] or [company]
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* By acquiring shares in an associated enterprise


* Through a [[merger]] or an [Takeover| acquisition] of an
unrelated enterprise
* Participating in an equity [[joint venture]] with another
investor or enterprise
*Foreign direct investment incentives may take the following
forms:{Fact|date=June 2009}
* Low [corporate tax]and [income tax] rates
* Tax Holidays
* Other types of tax concessions
* Preferential [tariffs]
* Special economic zones
* Investment financial subsidies
* [soft loan] or loan [guarantees]
* Free land or land subsidies
* Relocation & expatriation subsidies
* Job training & employment subsidies
* [[infrastructure]] subsidies
* R&D support
* Derogation from regulations (usually for very large projects)
Q) What is Bilateral Investment Treaty?
A bilateral Investment Treaty (BIT) is an agreement establishing
the terms & conditions for private investment by nationals &
companies of one state in another state, BIT are established
through trade pacts .BITS grant investments made by an
investor of one contracting state in the territory of the other
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number of guarantees, which typically include fair & equitable


treatment, protection from expropriation, free transfer of
means & full protection & security.
Q8) What is regional integration framework?
Regional integration can be understood as a convergent
cooperation at
the macro or micro level. Whereas at the macro level it is
connected with the
integration of large-scale geographical areas (such as already
mentioned
Mediterranean groupings), at the micro-level we speak about
such forms of
.new regionalism. as euroregions, working communities etc.
These .new
forms. are connected with the phenomenon of cross-border
cooperation,
which has been developing in Europe since 1950s.
Q) What is the impact of FDI on distribution of wealth?
Q) What is the trend of FDI in recent years?
Foreign investment has played a very limited role so
far. foreign investment was allowed generally in areas of
hi-tech, sophisiticated technologies & substantial exports.
The normal ceiling for foreign investment was 40% of the
total equity capital, but a higher percentage of foreign
equity was considered in priority industries is the
technology was sophisiticated & not available in the
country, or if the venture was largely export oriented.
Foreign investment flows by category (us $ million)
94-

95-

96-

97-

95

96

97

98

98-99

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A. Direct Investment

131

2144

2821

3557

2462

169

135

202

179

171

1249

1922

2754

1821

b SIA/FIPB route

701

715

639

241

62

c. NRI (40% & 100)

442

---

11

125

360

382

2748

3312

1828

- 61

a. FIIS #

2009

1926

979

- 390

b. Euro equities @

150

683

1366

645

270

56

20

204

59

5,13 4,892

6,13

5,385 2401

a RBI automatic
route

d Acquisition fo
shares 400
B. Portfolio Investment

c. Off shore funds &

3
208

others

2
239

Total (A + B )

The Foreign Exchange Management Bill (FEMA) was introduced


by Govt. of India in parliament on August 4, 1998. The Bills
aims to consolidate and amend the law relating to Foreign
Exchange with the objective of facilitating external trade and
payments and for promoting the orderly development and
maintenance of Foreign Exchange Market in India. It was
adopted by parliament in 1999 and is known as Foreign
Exchange Management Act, 1999. Chapter II of FEMA deals
with the regulation & management of Foreign Exchange. Sec. 3
states that except as otherwise provided in this Act, no person
shall in any manner deal in or transfer any foreign exchange or
foreign security to any person not being an authorised person.
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Sec. 4 states that except otherwise provided in this Act, no


person resident in India shall acquire, hold, own, possess or
transfer any foreign exchange, foreign security or any
immovable property situated outside India.
Foreign Exchange means foreign currency and includes all
deposits, credits and balances, payable in any foreign currency
and any drafts, travelers cheques, letter of credit and bills of
exchange, expressed or drawn in Indian currency but payable,
in any foreign currency; any instrument payable, at the option
of the drawee or holders thereof or any other party thereto,
either in Indian currency or in Foreign currency or partly in one
or partly in other. In 1973, Act of 1947 was replaced by Foreign
exchange regulations Act, 1973 and which is now replaced by
Foreign Exchange Management Act, 1999.
Q) What are TRIPS?
Agreement on Trade Related Aspects of Intellectual Property
Rights (TRIPS)
The WTO Agreement on Trade-Related Aspects of Intellectual
Property Rights (TRIPS), negotiated during the Uruguay Round,
introduced intellectual property rules for the first time into the
multilateral trading system. The Agreement, while recognizing
that intellectual property rights (IPRs) are private rights,
establishes minimum standards of protection that each
government has to give to the intellectual property right in
each of the WTO Member countries. The Member countries are,
however, free to provide higher standards of intellectual
property rights protection.
The Agreement is based on and supplements, with additional
obligations, the Paris, Berne, Rome and Washington
conventions in their respective fields. Thus, the Agreement
does not constitute a fully independent convention, but rather
an integrative instrument which provides "Convention-plus"
protection for IPRs.
The TRIPS Agreement is, by its coverage, the most
comprehensive international instrument on IPRs, dealing with
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all types of IPRs, with the sole exception of breeders' rights.


IPRs covered under the TRIPS agreement are:
The TRIPS agreement is based on the basic principles of the
other WTO Agreements, like non-discrimination clauses National Treatment and Most Favoured Nation Treatment, and
are intended to promote "technological innovation" and
"transfer and dissemination"
of technology. It also recognizes the special needs of the leastdeveloped country Members in respect of providing maximum
flexibility in the domestic implementation of laws and
regulations.
Part V of the TRIPS Agreement provides an institutionalized,
multilateral means for the prevention of disputes relating to
IPRs and settlement thereof. It is aimed at preventing unilateral
actions.
Q) What is EURO?
EURO is the "Association of European Operational Research
Societies" within IFORS, the "International Federation of
Operational Research Societies". It is a "non profit" association
domiciled in Switzerland. Its affairs are regulated by a Council
consisting of representatives/alternates of all its members and
an Executive Committee which constitutes its board of
directors. Its aim is to promote Operational Research
throughout Europe.
The members of EURO are normally full members of IFORS and
comprise the national OR societies of countries located within
or nearby (in a broad sense) Europe. Each member is
represented in the EURO Council by two representatives, one of
whom votes, if required. Council meetings are held annually,
normally in conjunction with the EURO-k conferences.
The Council elects a President, a President-Elect, three VicePresidents, and a Secretary. These six EURO officers form the
Executive Committee. The President-Elect serves for only one
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year whereas all others are elected for two years. Since 1993
the Executive Committee is assisted by a Permanent
Secretariat.
Q) What is labelling?
Environmental labelling schemes are complex, causing
concerns about developing countries and small businesses
ability to export. How do you use labelling to inform consumers
about environmental protection without jeopardizing these
weaker players? Opinions are divided. Two WTO committees are
grappling with the question.
In the Committees work programme
Labelling is one of the subjects assigned to the Committee on
Trade and Environment (CTE). It is part of an item (3b) on the
committees work programme in which the committee is
assigned to consider the relationship between the provisions of
the WTOs agreements and the requirements governments
make for products in order to protect the environment. (In
addition to labelling, this includes standards and technical
regulations, and packaging, and recycling requirements.)
In 2001, the Doha Ministerial Conference made this an issue of
special focus for the regular CTE (i.e. the regular committee
sessions that are not part of the Doha Round negotiations).
(See paragraph 32(iii) of the Doha Declaration.)
The use of eco-labels (i.e. labelling products according to
environmental criteria) by governments, industry and nongovernmental organizations (NGOs) is increasing.
Concerns have been raised about the growing complexity and
diversity of environmental labelling schemes. This is especially
the case with labelling based on life-cycle analysis, which looks
at a products environmental effects from the first stages of its
production to its final disposal. These requirements could
create difficulties for developing countries, and particularly
small and medium-sized enterprises in export markets.
WTO members generally agree that labelling schemes can be
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economically efficient and useful for informing consumers, and


tend to restrict trade less than other methods. This is the case
if the schemes are voluntary, allow all sides to participate in
their design, based on the market, and transparent. However,
these same schemes could be misused to protect domestic
producers. For this reason, the schemes should not discriminate
between countries and should not create unnecessary barriers
or disguised restrictions on international trade.
Q) What is Dumping?
It occurs when goods are exported at a price less than their
normal value, generally meaning they are exported for less
than they are sold in the domestic market or third-country
markets, or at less than production cost.
Q16) Explain the legal environment for International Business?
Q17) What is the importance of intellectual property rights &
Patents in IB?
PATENTS
Article 27 Patentable Subject Matter
1.
Subject to the provisions of paragraphs 2 and 3, patents
shall be available for any inventions, whether products or
processes, in all fields of technology, provided that they are
new, involve an inventive step and are capable of industrial
application.i Subject to paragraph 4 of Article 65, paragraph 8
of Article 70 and paragraph 3 of this Article, patents shall be
available and patent rights enjoyable without discrimination as
to the place of invention, the field of technology and whether
products are imported or locally produced.
2.
Members may exclude from patentability inventions, the
prevention within their territory of the commercial exploitation
of which is necessary to protect ordre public or morality,
including to protect human, animal or plant life or health or to
avoid serious prejudice to the environment, provided that such
exclusion is not made merely because the exploitation is

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prohibited by their law.


3.
Members may also exclude from patentability:
(a) diagnostic, therapeutic and surgical methods for the
treatment of humans or animals;
(b) plants and animals other than micro-organisms, and
essentially biological processes for the production of plants or
animals other than non-biological and microbiological
processes. However, Members shall provide for the protection
of plant varieties either by patents or by an effective
sui generis system or by any combination thereof. The
provisions of this subparagraph shall be reviewed four years
after the date of entry into force of the WTO Agreement.
Article 28 Rights Conferred
1.
A patent shall confer on its owner the following exclusive
rights:
(a) where the subject matter of a patent is a product, to
prevent third parties not having the owners consent from the
acts
of: making, using, offering for sale, selling, or
1
importing for these purposes that product;
(b) where the subject matter of a patent is a process, to
prevent third parties not having the owners consent from the
act of using the process, and from the acts of: using, offering
for sale, selling, or importing for these purposes at least the
product obtained directly by that process.
2.
Patent owners shall also have the right to assign, or
transfer by succession, the patent and to conclude licensing
contracts.
Article 29 Conditions on Patent Applicants
1.
Members shall require that an applicant for a patent shall
disclose the invention in a manner sufficiently clear and
complete for the invention to be carried out by a person skilled
1

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in the art and may require the applicant to indicate the best
mode for carrying out the invention known to the inventor at
the filing date or, where priority is claimed, at the priority date
of the application.
2.
Members may require an applicant for a patent to provide
information concerning the applicants corresponding foreign
applications and grants.
Article 30 Exceptions to Rights Conferred
Members may provide limited exceptions to the exclusive
rights conferred by a patent, provided that such exceptions do
not unreasonably conflict with a normal exploitation of the
patent and do not unreasonably prejudice the legitimate
interests of the patent owner, taking account of the legitimate
interests of third parties.
Patents:
The agreement says patent protection must be available for
inventions for at least 20 years. Patent protection must be
available for both products and processes, in almost all fields of
technology. Governments can refuse to issue a patent for an
invention if its commercial exploitation is prohibited for reasons
of public order or morality. They can also exclude diagnostic,
therapeutic and surgical methods, plants and animals (other
than microorganisms), and biological processes for the
production of plants or animals (other than microbiological
processes).
Plant varieties, however, must be protectable by patents or by
a special system (such as the breeders rights provided in the
conventions of UPOV the International Union for the
Protection of New Varieties of Plants).
The agreement describes the minimum rights that a patent
owner must enjoy. But it also allows certain exceptions. A
patent owner could abuse his rights, for example by failing to
supply the product on the market. To deal with that possibility,
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the agreement says governments can issue compulsory


licences, allowing a competitor to produce the product or use
the process under licence. But this can only be done under
certain conditions aimed at safeguarding the legitimate
interests of the patent-holder.
If a patent is issued for a production process, then the rights
must extend to the product directly obtained from the process.
Under certain conditions alleged infringers may be ordered by a
court to prove that they have not used the patented process.
An issue that has arisen recently is how to ensure patent
protection for pharmaceutical products does not prevent people
in poor countries from having access to medicines while at
the same time maintaining the patent systems role in
providing incentives for research and development into new
medicines. Flexibilities such as compulsory licensing are written
into the TRIPS Agreement, but some governments were unsure
of how these would be interpreted, and how far their right to
use them would be respected.
A large part of this was settled when WTO ministers issued a
special declaration at the Doha Ministerial Conference in
November 2001. They agreed that the TRIPS Agreement does
not and should not prevent members from taking measures to
protect public health. They underscored countries ability to use
the flexibilities that are built into the TRIPS Agreement. And
they agreed to extend exemptions on pharmaceutical patent
protection for least-developed countries until 2016. On one
remaining question, they assigned further work to the TRIPS
Council to sort out how to provide extra flexibility, so that
countries unable to produce pharmaceuticals domestically can
import patented drugs made under compulsory licensing. A
waiver providing this flexibility was agreed on 30 August 2003.
Q) What is anti-dumping?
If a company exports a product at a price lower than the price it
normally charges on its own home market, it is said to be
dumping the product. Is this unfair competition? Opinions
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differ, but many governments take action against dumping in


order to defend their domestic industries. The WTO agreement
does not pass judgement. Its focus is on how governments can
or cannot react to dumping it disciplines anti-dumping
actions, and it is often called the Anti-Dumping Agreement.
(This focus only on the reaction to dumping contrasts with the
approach of the Subsidies and Countervailing Measures
Agreement.)
The legal definitions are more precise, but broadly speaking the
WTO agreement allows governments to act against dumping
where there is genuine (material) injury to the competing
domestic industry. In order to do that the government has to be
able to show that dumping is taking place, calculate the extent
of dumping (how much lower the export price is compared to
the exporters home market price), and show that the dumping
is causing injury or threatening to do so.
GATT (Article 6) allows countries to take action against
dumping. The Anti-Dumping Agreement clarifies and expands
Article 6, and the two operate together. They allow countries to
act in a way that would normally break the GATT principles of
binding a tariff and not discriminating between trading partners
typically anti-dumping action means charging extra import
duty on the particular product from the particular exporting
country in order to bring its price closer to the normal value
or to remove the injury to domestic industry in the importing
country.

There are many different ways of calculating whether a


particular product is being dumped heavily or only lightly. The
agreement narrows down the range of possible options. It
provides three methods to calculate a products normal value.
The main one is based on the price in the exporters domestic
market. When this cannot be used, two alternatives are
available the price charged by the exporter in another
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country, or a calculation based on the combination of the


exporters production costs, other expenses and normal profit
margins. And the agreement also specifies how a fair
comparison can be made between the export price and what
would be a normal price.
Calculating the extent of dumping on a product is not enough.
Anti-dumping measures can only be applied if the dumping is
hurting the industry in the importing country. Therefore, a
detailed investigation has to be conducted according to
specified rules first. The investigation must evaluate all
relevant economic factors that have a bearing on the state of
the industry in question. If the investigation shows dumping is
taking place and domestic industry is being hurt, the exporting
company can undertake to raise its price to an agreed level in
order to avoid anti-dumping import duty.
Detailed procedures are set out on how anti-dumping cases are
to be initiated, how the investigations are to be conducted, and
the conditions for ensuring that all interested parties are given
an opportunity to present evidence. Anti-dumping measures
must expire five years after the date of imposition, unless an
investigation shows that ending the measure would lead to
injury.
Anti-dumping investigations are to end immediately in cases
where the authorities determine that the margin of dumping is
insignificantly small (defined as less than 2% of the export price
of the product). Other conditions are also set. For example, the
investigations also have to end if the volume of dumped
imports is negligible (i.e. if the volume from one country is less
than 3% of total imports of that product although
investigations can proceed if several countries, each supplying
less than 3% of the imports, together account for 7% or more of
total imports).
The agreement says member countries must inform the
Committee on Anti-Dumping Practices about all preliminary and
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final anti-dumping actions, promptly and in detail. They must


also report on all investigations twice a year. When differences
arise, members are encouraged to consult each other. They can
also use the WTOs dispute settlement procedure.
Q) what is WTO? What is its impact on developing
countries?
The World Trade Organization (WTO) is the only global
international organization dealing with the rules of trade
between nations. At its heart are the WTO agreements,
negotiated and signed by the bulk of the worlds trading
nations and ratified in their parliaments. The goal is to help
producers of goods and services, exporters, and importers
conduct their business.
Impact on developing nations:
Expansion of world trade.
Increase in agricultural exports.
Large scale export of textile clothing.
Domination of rich and developed countries on WTO.
TRIPs and TRIMs.
Uruguay round agreements and their impact.
Domination of MNCs international Business
Q) Types of dumpings in International Market?
Types of Dumping
Selling same product at different prices, at home and abroad
Selling in the foreign market at price < price in home market
Selling in the foreign market at price < fair market value
which is often taken to mean < normal average cost
Seasonal - when exporter has a bumper crop
Cyclical - when exporter has a slump at home
Predatory - intended to eliminate competitors
Persistent - goes on and on
Sporadic Dumping: it is the occasional sale of a commodity at
below cost or at a lower price abroad than domestically inorder
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io unload an unforeseen and temporary surplus of the


commodity without having to reduce domestic prices
Persistent: Persistent dumping is a practice of selling a product
below its production cost.
Predatory: A type of anti-competitive event in which foreign
companies or governments price their products below market
values in an attempt to drive out domestic competition. This
may lead to conditions where one company has a monopoly in
a certain product or industry. Antitrust or competition laws
forbid predatory dumping in many countries such as the U.S.
and the European Union.
Also referred to as "predatory pricing".:
For example, suppose there are two companies selling identical
products; Viva Concepts is a domestic firm and company
Pragmatic is a foreign firm. Pragmatic wants to drive Viva
Concepts out of the market, so it prices its product far below
the cost of producing it. Viva Concepts must compete by
lowering its prices, which eventually causes the company to
lose money and exit the market.
Business Dictionary: Deliberate pricing of merchandise or
services for the sole purpose of driving competitors of similar
products or services out of the market. Once these competitors
are eliminated, the intent is to raise the price.
Q) What is intellectual property? Why is it considered as
an asset to the company?
A product of the intellect that has commercial value, including
copyrighted property such as literary or artistic works, and
ideational property, such as patents, appellations of origin,
business methods, and industrial processes.
The Legal Term * Intellectual Property * Defined & Explained ...
INTELLECTUAL PROPERTY - Property that can be protected
under federal law, including copyrightable works, ideas,
discoveries, and inventions. Such property would include
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novels, sound recordings, a new type of mousetrap, or a cure


for a disease.
Q) What is WTO? What are its objectives?
The below said are the objectives of WTO:
Raising standard of living of members of country and income,
promoting full employment.
Better share of growth in a world trade.
Settlement of trade disputes among members.
Expanding production and trade.
Optimum utilization of world resources.
Free trade i.e. trade without discrimination.
Protection and preservation of environment.
Q 26. What is economic integration
Elimination of tariff and non-tariff barriers to the flow of goods,
services, and factors-of-production between a group of nations,
or different parts of the same nation.
Meaning of Economic Integration:
A process whereby countries cooperate with one
another to reduce or eliminate barriers to the
international flow of products, people or capital
Takes place either on region or commodity
Levels Of Regional Economic Integration:
Five levels of regional integrations:
1. Preferential Trade Agreement
2.Free Trade Area
3. Customs Union
4.Common Market
5. Economic Union
6. Political Union

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Q 27. What is Preferential Trade Agreement(PTA):


The simplest form of economic integration

Offers member countries tariff reductions in certain


product categories

Discrimination or preferential treatment for some


countries is not allowed as it is against the principle
of Most Favoured Nation (MFN) under the WTO

Represents a unilateral relationship as tariffs would


be reduced only in one direction

Q28. What is a Free Trade Area(FTA):


An agreement between two or more countries to
remove all trade barriers between themselves.

Each country determines its own barriers and


maintains its own external tariffs on import against
non-members.

Tariffs and non-tariff barriers include quotas and


subsidies on international trade in goods and
services

Examples of FTA are: The ASEAN Free Trade


Agreement(AFTA) and the North American Free
Trade Areas(NAFTA)

Customs Union:
An agreement between two or more countries to
remove tariffs between themselves and set a
common external tariff on imports from nonmember countries

Each country determines its own barriers and


maintains its own external tariffs on imports against
non-members.

A customs union has common policies on product


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regulations and movement of factors of productions


in goods, services, capital and labor amongst
members

Unlike FTA, members of a customs union have


common policies on external tariffs against nonmembers.

Common Market:
An agreement between two or more countries to
remove all barriers to trade and allow free mobility
of capital and labor across member countries.

Harmonize trade policies by having common


external tariffs against non-members

Example is the European Union (EU) previously


known as European Economic Community(EEC)

Economic Union:
An agreement between two or more countries to
remove barriers to trade, allow free flow of labor
and capital and coordinate economic policies.

Sets trade policies through common external tariffs


on non-members.

Integration is more intense in an economic union


compared to a common market, as member
countries are required to harmonize their tax,
monetary, and fiscal policies and to create a
common currency

Example is the European Union(EU) where


economic and monetary integration has created a
single market with a common euro currency

Political Union:
An agreement between two or more countries to
coordinate their economic monetary and political

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systems.

Required to accept a common stance on economic


and political policies against non-members.

Example is US where each US state has its own


government that sets policies and laws. But each
state grant control to the federal government over
foreign policies, agricultural policies, welfare
policies and monetary policies. Goods, services,
labor and capital can all move freely without any
restrictions among the US states and the
government sets a common external trade policy

Q 29. What are Regional Trade Groups?


Q30. What is competitive advantage?
Q31. What is comparative advantage? What are its
importance in International Business?
In the Ricardian model, countries are assumed to differ only in
their productive capacities. It was in this model that David
Ricardo first formally demonstrated the principle of
comparative advantage. When defined in terms of productivity
differences, comparative advantage is regularly confused with
a simpler concept that economists call absolute advantage. It is
worth taking a few moments to illustrate the differences.
If the US has higher productivity in corn production compared
to Switzerland, while Switzerland has higher productivity in
watch production compared to the US, economists would say
the US has an absolute advantage in corn production and
Switzerland has an absolute advantage in watch production. In
this case it is intuitive that if the US concentrates on corn
production and Switzerland on watch production, then
resources could be shifted from relatively lower productivity
industries to higher productivity industries and the total
combined output of corn and watches would rise. With greater
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output, and after an appropriate trading pattern is introduced,


both countries could end up with more of both goods than
before, meaning that both countries can gain from trade. For
most who have studied economics this is what they remember
as comparative advantage. However, they are only partially
right.
It is correct that this example of trade is consistent with
comparative advantage; however, CA also covers cases that
are less obviously advantageous for countries. For example,
one might ask what happens if the US had higher productivity
in both corn and watches compared to Switzerland? This is the
question that Ricardo tackled when he formalized CA. His
answer to the question also substantially expanded the number
of situations in which technology differences could result in
advantageous trade.
Ricardos simple analysis demonstrated that even when one
country is technologically superior in both goods, it could still
be advantageous for countries to trade. In this circumstance, a
comparative advantage is present for those products that the
country can produce most-best in comparison to other
countries, even if the most best product is produced less
productively than in the other country. For example, suppose
the US is 10X more productive in corn and only 2X more
productive in watches compared to Switzerland. In this case the
US is clearly most-best at producing corn (10x > 2x). At the
same time though, Switzerland is X as productive in watches
and (1/10)X as productive in corn. Thus, Switzerlands mostbest product and hence its comparative advantage is watches
(since > 1/10) even though it cant produce them as
effectively as the US.
The reason both countries can benefit in this case is because
productivity is not the only determinant of industry advantage;
instead it is the combination of productivity and average
wages. In countries with lower productivity in all industries,
they will also have lower average wages. However, average
wages for similar workers will lie somewhere in the middle of
the range of the countrys industry productivities. In the
example above, wage differences between the US and
Switzerland in the absence of trade will fall in the range
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between 10X and 2X; perhaps wages will be 5X higher in the US


in this example (which implies they are 1/5 as high in
Switzerland). This means that for the relatively highest
productivity industry in Switzerland (watches), productivity (1/2
as productive) will sufficiently exceed the average wage (1/5 as
high) to make production in watches profitable in comparison to
the US.
Observers of this situation may well note that Switzerlands
advantage is due to low wages since wages are only 1/5 as high
as in the US. However, it is a mistake to think that low wages
gives an advantage in all industries. Thats because, as Ricardo
showed, in the low wage countrys least productive industry (in
this case corn), Switzerlands wage advantage (1/5 as high) will
be overwhelmed by its productivity disadvantage (1/10 as
productive). This means that corn production will be
unprofitable in Switzerland despite having lower wages.
Looking at this same situation from the US perspective, the US
is most-best at producing corn (10X as productive) but its
wages are only 5X higher. That implies it will be profitable for
the US to produce corn and sell it in Switzerland. At the same
time though, the US productivity advantage in watches is only
2X higher, which is not enough to compensate for its 5X higher
wages. Thats why the US will find cheaper watches in
Switzerland.
The most important conclusion from the Ricardian model is that
advantages from trade do not disappear just because another
country has lower wages; nor do they disappear just because
another country is more productive in everything. Ricardo
demonstrated that by specializing in producing the products
that one has a comparative advantage (which MAY NOT be
ones in which the country has an absolute advantage) the
world can expand total world output with the same quantity of
resources. The expansion of output is the realization of
increased economic efficiency that economists always talk
about. Finally, given the expanded output, international trade
can assure that all countries in the model gain from the surplus
thats created. In other words, without raising the quantity of
resources, the world economy would be able to produce greater
output and generate higher living standards for everyone.
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Economic efficiency will rise both internationally and nationally.


This is how all nations can benefit from free trade.
It is important to note at this stage that the Ricardian model
does not say that countries WILL gain from international trade;
only that countries CAN benefit from increased output and
trade if production is reorganized between countries
appropriately while all resources are kept fully employed. The
model is a gross simplification compared to the real world
though, and thus it clearly does not incorporate everything that
might happen with trade. Nevertheless the model does provide
an insight that quite likely carries over to more complex
situations. For example, the model results should cause
observers of international trade situations to hesitate when
fears grow that low wage countries may soon take over
production of the worlds output, or when developing countries
protect their markets because of fears that they cannot
compete with the more developed countries in the world. These
commonly expressed fears about international trade are shown,
by virtue of the Ricardian model, to be based on a
misperception.
The Theory of Comparative Advantage - Overview
Historical Overview
The theory of comparative advantage is perhaps the most
important concept in international trade theory. It is also one of
the most commonly misunderstood principles. The sources of
the misunderstandings are easy to identify. First, the principle
of comparative advantage is clearly counter-intuitive. Many
results from the formal model are contrary to simple logic.
Secondly, the theory is easy to confuse with another notion
about advantageous trade, known in trade theory as the theory
of absolute advantage. The logic behind absolute advantage is
quite intuitive. This confusion between these two concepts
leads many people to think that they understand comparative
advantage when in fact, what they understand is absolute
advantage. Finally, the theory of comparative advantage is all
too often presented only in its mathematical form. Using
numerical examples or diagrammatic representations are
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extremely useful in demonstrating the basic results and the


deeper implications of the theory. However, it is also easy to
see the results mathematically, without ever understanding the
basic intuition of the theory.
The early logic that free trade could be advantageous for
countries was based on the concept of absolute advantages in
production. Adam Smith wrote in The Wealth of Nations,
"If a foreign country can supply us with a commodity cheaper
than we ourselves can make it, better buy it of them with some
part of the produce of our own industry, employed in a way in
which we have some advantage. "
The idea here is simple and intuitive. If our country can produce
some set of goods at lower cost than a foreign country, and if
the foreign country can produce some other set of goods at a
lower cost than we can produce them, then clearly it would be
best for us to trade our relatively cheaper goods for their
relatively cheaper goods. In this way both countries may gain
from trade.
The original idea of comparative advantage dates to the early
part of the 19th century. Although the model describing the
theory is commonly referred to as the "Ricardian model", the
original description of the idea can be found in an Essay on the
External Corn Trade by Robert Torrens in 1815. David Ricardo
formalized the idea using a compelling, yet simple, numerical
example in his 1817 book titled, On the Principles of Political
Economy and Taxation. The idea appeared again in James Mill's
Elements of Political Economy in 1821. Finally, the concept
became a key feature of international political economy upon
the publication of Principles of Political Economy by John Stuart
Mill in 1848.
David Ricardo's Numerical Example
Because the idea of comparative advantage is not immediately
intuitive, the best way of presenting it seems to be with an
explicit numerical example as provided by David Ricardo.
Indeed some variation of Ricardo's example lives on in most
international trade textbooks today. (See page 40-5 in this text)
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In his example Ricardo imagined two countries, England and


Portugal, producing two goods, cloth and wine, using labor as
the sole input in production. He assumed that the productivity
of labor (i.e., the quantity of output produced per worker)
varied between industries and across countries. However,
instead of assuming, as Adam Smith did, that England is more
productive in producing one good and Portugal is more
productive in the other; Ricardo assumed that Portugal was
more productive in both goods. Based on Smith's intuition,
then, it would seem that trade could not be advantageous, at
least for England.
However, Ricardo demonstrated numerically that if England
specialized in producing one of the two goods, and if Portugal
produced the other, then total world output of both goods could
rise! If an appropriate terms of trade (i.e., amount of one good
traded for another) were then chosen, both countries could end
up with more of both goods after specialization and free trade
then they each had before trade. This means that England may
nevertheless benefit from free trade even though it is assumed
to be technologically inferior to Portugal in the production of
everything.
As it turned out, specialization in any good would not suffice to
guarantee the improvement in world output. Only one of the
goods would work. Ricardo showed that the specialization good
in each country should be that good in which the country had a
comparative advantage in production. To identify a country's
comparative advantage good requires a comparison of
production costs across countries. However, one does not
compare the monetary costs of production or even the resource
costs (labor needed per unit of output) of production. Instead
one must compare the opportunity costs of producing goods
across countries.
A country is said to have a comparative advantage in the
production of a good (say cloth) if it can produce cloth at a
lower opportunity cost than another country. The opportunity
cost of cloth production is defined as the amount of wine that
must be given up in order to produce one more unit of cloth.
Thus England would have the comparative advantage in cloth
production relative to Portugal if it must give up less wine to
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produce another unit of cloth than the amount of wine that


Portugal would have to give up to produce another unit of cloth.
All in all, this condition is rather confusing. Suffice it to say, that
it is quite possible, indeed likely, that although England may be
less productive in producing both goods relative to Portugal, it
will nonetheless have a comparative advantage in the
production of one of the two goods. Indeed there is only one
circumstance in which England would not have a comparative
advantage in either good, and in this case Portugal also would
not have a comparative advantage in either good. In other
words, either each country has the comparative advantage in
one of the two goods or neither country has a comparative
advantage in anything.
Another way to define comparative advantage is by comparing
productivities across industries and countries. Thus suppose, as
before, that Portugal is more productive than England in the
production of both cloth and wine. If Portugal is twice as
productive in cloth production relative to England but three
times as productive in wine, then Portugal's comparative
advantage is in wine, the good in which its productivity
advantage is greatest. Similarly, England's comparative
advantage good is cloth, the good in which its productivity
disadvantage is least. This implies that to benefit from
specialization and free trade, Portugal should specialize and
trade the good in which it is "most best" at producing, while
England should specialize and trade the good in which it is
"least worse" at producing.
Note that trade based on comparative advantage does not
contradict Adam Smith's notion of advantageous trade based
on absolute advantage. If as in Smith's example, England were
more productive in cloth production and Portugal were more
productive in wine, then we would say that England has an
absolute advantage in cloth production while Portugal has an
absolute advantage in wine. If we calculated comparative
advantages, then England would also have the comparative
advantage in cloth and Portugal would have the comparative
advantage in wine. In this case, gains from trade could be
realized if both countries specialized in their comparative, and
absolute, advantage goods. Advantageous trade based on
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comparative advantage, then, covers a larger set of


circumstances while still including the case of absolute
advantage and hence is a more general theory.
The Ricardian Model - Assumptions and Results
The modern version of the Ricardian model and its results are
typically presented by constructing and analyzing an economic
model of an international economy. In its most simple form, the
model assumes two countries producing two goods using labor
as the only factor of production. Goods are assumed
homogeneous (i.e., identical) across firms and countries. Labor
is homogeneous within a country but heterogeneous (nonidentical) across countries. Goods can be transported costlessly
between countries. Labor can be reallocated costlessly between
industries within a country but cannot move between countries.
Labor is always fully employed. Production technology
differences exist across industries and across countries and are
reflected in labor productivity parameters. The labor and goods
markets are assumed to be perfectly competitive in both
countries. Firms are assumed to maximize profit while
consumers (workers) are assumed to maximize utility. (See
page 40-2 for a more complete description)
The primary issue in the analysis of this model is what happens
when each country moves from autarky (no trade) to free trade
with the other country - in other words, what are the effects of
trade? The main things we care about are trade's effects on the
prices of the goods in each country, the production levels of the
goods, employment levels in each industry, the pattern of trade
(who exports and who imports what), consumption levels in
each country, wages and incomes, and the welfare effects both
nationally and individually.
Using the model one can show that, in autarky, each country
will produce some of each good. Because of the technology
differences, relative prices of the two goods will differ between
countries. The price of each country's comparative advantage
good will be lower than the price of the same good in the other
country. If one country has an absolute advantage in the
production of both goods (as assumed by Ricardo) then real
wages of workers (i.e., the purchasing power of wages) in that
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country will be higher in both industries compared to wages in


the other country. In other words, workers in the technologically
advanced country would enjoy a higher standard of living than
in the technologically inferior country. The reason for this is that
wages are based on productivity, thus in the country that is
more productive, workers get higher wages.
The next step in the analysis is to assume that trade between
countries is suddenly liberalized and made free. The initial
differences in relative prices of the goods between countries in
autarky will stimulate trade between the countries. Since the
differences in prices arise directly out of differences in
technology between countries, it is the differences in
technology that cause trade in the model. Profit-seeking firms
in each country's comparative advantage industry would
recognize that the price of their good is higher in the other
country. Since transportation costs are zero, more profit can be
made through export than with sales domestically. Thus each
country would export the good in which they have a
comparative advantage. Trade flows would increase until the
price of each good is equal across countries. In the end, the
price of each country's export good (its comparative advantage
good) will rise and the price of its import good (its comparative
disadvantage good) will fall.
The higher price received for each country's comparative
advantage good would lead each country to specialize in that
good. To accomplish this, labor would have to move from the
comparative disadvantaged industry into the comparative
advantage industry. This means that one industry goes out of
business in each country. However, because the model
assumes full employment and costless mobility of labor, all of
these workers are immediately gainfully employed in the other
industry.
One striking result here is that even when one country is
technologically superior to the other in both industries, one of
these industries would go out of business when opening to free
trade. Thus, technological superiority is not enough to
guarantee continued production of a good in free trade. A
country must have a comparative advantage in production of a
good, rather than an absolute advantage, to guarantee
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continued production in free trade. From the perspective of a


less developed country, the developed countries' superior
technology need not imply that LDC industries cannot compete
in international markets.
Another striking result is that the technologically superior
country's comparative advantage industry survives while the
same industry disappears in the other country, even though the
workers in the other country's industry has lower wages. In
other words, low wages in another country in a particular
industry is not sufficient information to know which country's
industry would perish under free trade. From the perspective of
a developed country, freer trade may not result in a domestic
industry's decline just because the foreign firms pay their
workers lower wages.
The movement to free trade generates an improvement in
welfare in both countries both individually and nationally.
Specialization and trade will increase the set of consumption
possibilities, compared with autarky, and will make possible an
increase in consumption of both goods, nationally. These
aggregate gains are often described as improvements in
production and consumption efficiency. Free trade raises
aggregate world production efficiency because more of both
goods are likely to be produced with the same number of
workers. Free trade also improves aggregate consumption
efficiency, which implies that consumers have a more pleasing
set of choices and prices available to them.
Real wages (and incomes) of individual workers are also shown
to rise in both countries. Thus, every worker can consume more
of both goods in free trade compared with autarky. In short,
everybody benefits from free trade in both countries. In the
Ricardian model trade is truly a win-win situation.
Defending Against Skeptics:
The True Meaning and Intuition of the Theory of Comparative
Advantage
Many people who learn about the theory of comparative
advantage quickly convince themselves that its ability to
describe the real world is extremely limited, if not non-existent.
Although the results follow logically from the assumptions, the
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assumptions are easily assailed as unrealistic. For example, the


model assumes only two countries producing two goods using
just one factor of production. There is no capital or land or other
resources needed for production. The real world, on the other
hand, consists of many countries producing many goods using
many factors of production. In the model, each market is
assumed to be perfectly competitive, when in reality there are
many industries in which firms have market power. Labor
productivity is assumed fixed, when in actuality it changes over
time, perhaps based on past production levels. Full employment
is assumed, when clearly workers cannot immediately and
costlessly move to other industries. Also, all workers are
assumed identical. This means that when a worker is moved
from one industry to another, he or she is immediately as
productive as every other worker who was previously employed
there. Finally, the model assumes that technology differences
are the only differences that exist between the countries.
With so many unrealistic assumptions it is difficult for some
people to accept the conclusions of the model with any
confidence, especially when so many of the results are
counterintuitive. Indeed one of the most difficult aspects of
economic analysis is how to interpret the conclusions of
models. Models are, by their nature, simplifications of the real
world and thus all economic models contain unrealistic
assumptions. Therefore, to dismiss the results of economic
analysis on the basis of unrealistic assumptions means that one
must dismiss all insights contained within the entire economics
discipline. Surely, this is not practical or realistic. Economic
models in general and the Ricardian model in particular do
contain insights that most likely carry over to the more complex
real world. The following story is meant to explain some of the
insights within the theory of comparative advantage by placing
the model into a more familiar setting.
Example case:
Suppose it is early spring and it is time to prepare the family
backyard garden for the first planting of the year. The father in
the household sets aside one Sunday afternoon to do the job
but hopes to complete the job as quickly as possible.
Preparation of the garden requires the following tasks. First, the
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soil must be turned over and broken up using the roto-tiller,


then the soil must be raked and smoothed. Finally, seeds must
be planted or sowed.
This year the father's seven-year-old son is anxious to help. The
question at hand is whether the son should be allowed to help if
one's only objective is to complete the task in the shortest
amount of time possible.
At first thought, the father is reluctant to accept help. Clearly
each task would take the father less time to complete than the
time it would take the son. In other words, the father can
perform each task more efficiently than the seven-year-old son.
The father estimates that it will take him three hours to prepare
the garden if he works alone, as shown in the following table.
Task

Completion
Time (hours)

Roto-Tilling

1.0

Raking

1.0

Planting

1.0

Total

3.0

On second thought, the father decides to let his son help


according to the following procedure. First the father begins the
roto-tilling. Once he has completed half of the garden, the son
begins raking the roto-tilled section while the father finishes
roto-tilling the rest of the garden plot. After the father finishes
roto-tilling he begins planting seeds in the section the son has
already raked. Suppose the son rakes slower than the father
plants, and that the father completes the sowing process just
as the son finishes raking. Note this implies that raking takes
the son almost 2 hours compared to one hour for the father.
However, because the son's work is done simultaneously with
the father's work, it does not add to the total time for the
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project. Under this plan the time needed to complete the tasks
in shown in the following table.
Task

Completion
Time (hours)

Roto-Tilling

1.0

Raking &
Planting

1.0

Total

2.0

Notice that the total time needed to prepare the garden has
fallen from 3 hours to 2 hours. The garden is prepared in less
time with the son's help than it could have been done
independently by the father. In other words, it makes sense to
employ the son in (garden) production even though the son is
less efficient than the dad in every one of the three required
tasks. Overall efficiency is enhanced when both resources (the
father and son) are fully employed.
This arrangement also clearly benefits both the father and son.
The father completes the task in less time and thus winds up
with some additional leisure time which the father and son can
enjoy together. The son also benefits because he has
contributed his skills to a productive activity and will enjoy a
sense of accomplishment. Thus both parties benefit from the
arrangement.
However, it is important to allocate the tasks correctly between
the father and the son. Suppose the father allowed his son to
do the roto-tilling instead. In this case the time needed for each
task might look as follows.
Task
Roto-Tilling
Raking
Planting
Total

Completion Time (hours)


4.0
1.0
1.0
6.0

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The time needed for roto-tilling has now jumped to 4 hours


because we have included the time spent traveling to and from
the hospital and the time spent in the emergency room! Once
the father and son return, the father must complete the
remaining tasks on his own. Overall efficiency declines in this
case compared to the father acting alone.
This highlights the importance of specializing in production of
the task in which you have a comparative advantage. Even
though the father can complete all three tasks quicker than his
son, his relative advantage in roto-tilling greatly exceeds his
advantage in raking and planting. One might say that the
father is most-best at roto-tilling while he is least-best at raking
and planting. On the other hand, the son is least-worse at
raking and planting but most-worse at roto-tilling. Finally,
because of the sequential nature of the tasks, the son can
remain fully employed only if he works on the middle task,
namely raking.
Interpreting the Theory of Comparative Advantage
The garden story offers an intuitive explanation for the theory
of comparative advantage and also provides a useful way of
interpreting the model results. The usual way of stating the
Ricardian model results is to say that countries will specialize in
their comparative advantage good and trade them to the other
country such that everyone in both countries benefit. Stated
this way it is easy to imagine how it would not hold true in the
complex real world.
A better way to state the results is as follows. The Ricardian
model shows that if we want to maximize total output in the
world then,
first, fully employ all resources worldwide;
second, allocate those resources within countries to each
country's comparative advantage industries;
and third, allow the countries to trade freely thereafter.
In this way we might raise the wellbeing of all individuals
despite differences in relative productivities. In this description,
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we do not predict that a result will carry over to the complex


real world. Instead we carry the logic of comparative advantage
to the real world and ask how things would have to look to
achieve a certain result (maximum output and benefits). In the
end we should not say that the model of comparative
advantage tells us anything about what will happen when two
countries begin to trade; instead we should say that the theory
tells us some things that can happen.
Q32.
Q33. What is IMF? What are its Objective?
International Monetary Fund also called, as IMF in short, is an
international financial organization that was established in
order to promote orderly exchange arrangements, international
monetary cooperation and exchange stability among various
member countries.This organization also aims to provide fast
economic growth to its member countries besides providing
highest employment levels. Temporary financial assistance is
also provided by this organization to its member countries for
easing off the balance of payments adjustments. Since its
inception, the objectives of IMF have remained the same but for
meeting the ever changing need it has evolved some
operations like technical assistance, financial assistance and
surveillance. The headquarters of this international organization
lies at Washington D .C in United States and at present, there
are 185 member countries of this organization.In the past some
years, this organization has helped member countries in great
way by observing the exchange rates to ensure stable global
financial systems. The last country to join this prestigious
organization is Montenegro, which joined on 18th January, 2007.
It is very important to note here that all the United Nation
member countries participate directly in International Monetary
Fund with exception of North Korea, Andorra, Cuba, Monaco,
Tuvalu, Liechtenstein, and Nauru.
The main objective of International Monetary Fund it to provide
financial assistance to all the member countries that are facing
financial problems. All the member states that are facing
problems regarding balance of payments can easily request for
loans etc for improving the situation. This can also be done by
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making request for the organizational management of


economies at IMF." But in return of getting assistance, the
member countries of International Monetary Fund are also
required to launch certain types of reforms that aim at
improving the financial strength of member country. The reader
should note here that many times, these reforms become quite
essential as the member countries, that have fixed exchange
rate policies, often engage in various types of monetary, fiscal
and political practices that are harmful for them. All those
countries that have budget deficits or are suffering from high
inflation levels or have strict prices controls, are also suffering
from balance of payment problem. These reforms are carried
out by means of structural adjustment programs and basic
motive of these reforms is to help the member countries to
come out of crisis permanently, rather than helping them
temporarily with financial assistance. These reforms, however,
have been criticized for their non-transparent behaviour.
Fast Facts on the IM
Membership: 186 countries
Headquarters: Washington, DC

Executive Board: 24 Directors representing countries or


groups of countries

Staff: approximately 2,478 from 143 countries

Total quotas: $325 billion (as of 3/31/09)

Additional pledged or committed resources: $500 billion

Loans committed (as of 9/1/09): $175.5 billion, of which


$124.5 billion have not been drawn

Biggest borrowers: Hungary, Mexico, Ukraine

Technical assistance: Field delivery in FY2009173 person


years during FY2009

Surveillance consultations: Concluded in 2008177


countries in 2008, of which 155 voluntarily published
information on their consultation (as of 03/31/09)

Original aims: Article I of the Articles of Agreement sets


out the IMFs main goals:
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promoting international monetary cooperation;

facilitating the expansion and balanced growth of


international trade;

promoting exchange stability;

assisting in the establishment of a multilateral


system of payments; and

making resources available (with adequate


safeguards) to members experiencing balance of
payments difficulties.

Q. What is the need and importance of world bank?


World Bank is a term used to describe an international financial
institution that provides leveraged loans to developing
countries for capital programs. The World Bank has a stated
goal of reducing poverty.
The World Bank differs from the World Bank Group, in that the
World Bank comprises only two institutions: the International
Bank for Reconstruction and Development (IBRD) and the
International Development Association (IDA), whereas the latter
incorporates these two in addition to three more: International
Finance Corporation (IFC), Multilateral Investment Guarantee
Agency (MIGA), and International Centre for Settlement of
Investment Disputes (ICSID).
The World Bank is one of two institutions created at the Bretton
Woods Conference in 1944. The International Monetary Fund, a
related institution is the second. Delegates from many
countries attended the Bretton Woods Conference. The most
powerful countries in attendance were the United States and
United Kingdom which dominated negotiations.
Although both are based in Washington, the World Bank is by
custom headed by an American, while the IMF is led by a
European.

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Key Factors
The World Bank sees the five key factors necessary for
economic growth and the creation of an enabling
business environment as:
1. Build capacity: Strengthening governments and educating
government officials.
2. Infrastructure creation: implementation of legal and
judicial systems for the encouragement of business, the
protection of individual and property rights and the
honoring of contracts.
3.

Development of Financial Systems: the establishment of


strong systems capable of supporting endeavors from
micro credit to the financing of larger corporate ventures.

4.

Combating corruption: Support for countries' efforts at


eradicating corruption.

5.

Research, Consultancy and Training: the World Bank


provides platform for research on development issues,
consultancy and conduct training programs (web based,
on line, tele-/video conferencing and class room based)
open for those who are interested from academia,
students, government and non-governmental organization
(NGO) officers etc.

The Bank obtains funding for its operations primarily through


the IBRDs sale of AAA-rated bonds in the worlds financial
markets. The IBRDs income is generated from its lending
activities, with its borrowings leveraging its own paid-in capital,
plus the investment of its "float". The IDA obtains the majority
of its funds from forty donor countries who replenish the banks
funds every three years, and from loan repayments, which then
become available for re-lending.
Active Areas
The World Bank is active in the following areas:
Agriculture and Rural Development
Conflict and Development

Development Operations and Activities

Economic Policy
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Education

Energy

Environment

Financial Sector

Gender

Governance

Health, Nutrition and Population

Industry

Information and Communication Technologies

Information, Computing and Telecommunications

International Economics and Trade

Labor and Social Protections

Law and Justice

Macroeconomic and Economic Growth

Mining

Poverty Reduction

Poverty

Private Sector

Public Sector Governance

Rural Development

Social Development

Social Protection

Trade

Transport

Urban Development

Water Resources
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Water Supply and Sanitation

Criteria
Many achievements have brought the MDG targets for 2015
within reach in some cases. For the goals to be realized, six
criteria must be met: stronger and more inclusive growth in
Africa and fragile states, more effort in health and education,
integration of the development and environment agendas,
more and better aid, movement on trade negotiations, and
stronger and more focused support from multilateral
institutions like the World Bank.
1.

Eradicate Extreme Poverty and Hunger: From 1990


through 2004, the proportion of people living in extreme
poverty fell from almost a third to less than a fifth.
Although results vary widely within regions and countries,
the trend indicates that the world as a whole can meet the
goal of halving the percentage of people living in poverty.
Africas poverty, however, is expected to rise, and most of
the 36 countries where 90% of the worlds undernourished
children live are in Africa. Less than a quarter of countries
are on track for achieving the goal of halving undernutrition.

1.

Achieve Universal Primary Education: The number of


children in school in developing countries increased from
80% in 1991 to 88% in 2005. Still, about 72 million
children of primary school age, 57% of them girls, were
not being educated as of 2005.

2.

Promote Gender Equality and Empower Women: The tide


is turning slowly for women in the labor market, yet far
more women than men- worldwide more than 60% - are
contributing but unpaid family workers. The World Bank
Group Gender Action Plan was created to advance
womens economic empowerment and promote shared
growth.

3.

Reduce Child Mortality: There is some improvement in


survival rates globally; accelerated improvements are
needed most urgently in South Asia and Sub-Saharan
Africa. An estimated 10 million-plus children under five
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died in 2005; most of their deaths were from preventable


causes.
4.

Improve Maternal Health: Almost all of the half million


women who die during pregnancy or childbirth every year
live in Sub-Saharan Africa and Asia. There are numerous
causes of maternal death that require a variety of health
care interventions to be made widely accessible.

5.

Combat HIV/AIDS, Malaria, and Other Diseases: Annual


numbers of new HIV infections and AIDS deaths have
fallen, but the number of people living with HIV continues
to grow. In the eight worst-hit southern African countries,
prevalence is above 15 percent. Treatment has increased
globally, but still meets only 30 percent of needs (with
wide variations across countries). AIDS remains the
leading cause of death in Sub-Saharan Africa (1.6 million
deaths in 2007). There are 300 to 500 million cases of
malaria each year, leading to more than 1 million deaths.
Nearly all the cases and more than 95 percent of the
deaths occur in Sub-Saharan Africa.

6.

Ensure Environmental Sustainability: Deforestation


remains a critical problem, particularly in regions of
biological diversity, which continues to decline.
Greenhouse gas emissions are increasing faster than
energy technology advancement.

7.

Develop a Global Partnership for Development: Donor


countries have renewed their commitment. Donors have
to ful. Ll their pledges to match the current rate of core
program development. Emphasis is being placed on the
Bank Groups collaboration with multilateral and local
partners to quicken progress toward the MDGs realization.

Q35. Role of WTO in economic integration


The World Trade Organization (WTO) is an international
organization designed by its founders to supervise and
liberalize international trade. The organization officially
commenced on January 1, 1995 under the Marrakech
Agreement, replacing the General Agreement on Tariffs and
Trade (GATT), which commenced in 1947.

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The World Trade Organization deals with regulation of trade


between participating countries; it provides a framework for
negotiating and formalising trade agreements, and a dispute
resolution process aimed at enforcing participants' adherence
to WTO agreements which are signed by representatives of
member governments and ratified by their parliaments. Most of
the issues that the WTO focuses on derive from previous trade
negotiations, especially from the Uruguay Round (1986-1994).
The organization is currently endeavouring to persist with a
trade negotiation called the Doha Development Agenda (or
Doha Round), which was launched in 2001 to enhance
equitable participation of poorer countries which represent a
majority of the world's population. However, the negotiation
has been dogged by "disagreement between exporters of
agricultural bulk commodities and countries with large numbers
of subsistence farmers on the precise terms of a 'special
safeguard measure' to protect farmers from surges in imports.
At this time, the future of the Doha Round is uncertain." [
The WTO has 153 members, representing more than 97% of
total world trade and 30 observers, most seeking membership.
The WTO is governed by a ministerial conference, meeting
every two years; a general council, which implements the
conference's policy decisions and is responsible for day-to-day
administration; and a director-general, who is appointed by the
ministerial conference. The WTO's headquarters is at the
Centre William Rappard, Geneva, Switzerland.
Q37. What is Globalization? Why companies go global?
Globalization (or globalisation) describes an ongoing process by
which regional economies, societies, and cultures have become
integrated through a globe-spanning network of communication
and trade. The term is sometimes used to refer specifically to
economic globalization: the integration of national economies
into the international economy through trade, foreign direct
investment, capital flows, migration, and the spread of
technology. However, globalization is usually recognised as
being driven by a combination of economic, technological,
sociocultural, political, and biological factors. The term can also
refer to the transnational circulation of ideas, languages, or
popular culture through acculturation
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An early description of globalization was penned by the


American entrepreneur-turned-minister Charles Taze Russell
who coined the term 'corporate giants' in 1897. Although it was
not until the 1960s that the term began to be widely used by
economists and other social scientists. The term has since then
achieved widespread use in the mainstream press by the later
half of the 1980s. Since its inception, the concept of
globalization has inspired numerous competing definitions and
interpretations.
The United Nations ESCWA has written that globalization "is a
widely-used term that can be defined in a number of different
ways. When used in an economic context, it refers to the
reduction and removal of barriers between national borders in
order to facilitate the flow of goods, capital, services and
labor... although considerable barriers remain to the flow of
labor... Globalization is not a new phenomenon. It began in the
late nineteenth century, but it slowed down during the period
from the start of the First World War until the third quarter of
the twentieth century. This slowdown can be attributed to the
inward-looking policies pursued by a number of countries in
order to protect their respective industries... however, the pace
of globalization picked up rapidly during the fourth quarter of
the twentieth century..."
Saskia Sassen writes that "a good part of globalization consists
of an enormous variety of micro-processes that begin to
denationalize what had been constructed as national
whether policies, capital, political subjectivity, urban spaces,
temporal frames, or any other of a variety of dynamics and
domains."
HSBC, world's largest bank, operates across the globe.
Tom G. Palmer of the Cato Institute defines globalization as "the
diminution or elimination of state-enforced restrictions on
exchanges across borders and the increasingly integrated and
complex global system of production and exchange that has
emerged as a result."
Thomas L. Friedman has examined the impact of the
"flattening" of the world, and argues that globalized trade,
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outsourcing, supply-chaining, and political forces have changed


the world permanently, for both better and worse. He also
argues that the pace of globalization is quickening and will
continue to have a growing impact on business organization
and practice.
Noam Chomsky argues that the word globalization is also used,
in a doctrinal sense, to describe the neoliberal form of
economic globalization.
Herman E. Daly argues that sometimes the terms
internationalization and globalization are used interchangeably
but there is a significant formal difference. The term
"internationalization" (or internationalisation) refers to the
importance of international trade, relations, treaties etc. owing
to the (hypothetical) immobility of labor and capital between or
among nations.
Finally, Takis Fotopoulos argues that globalization is the result
of systemic trends manifesting the market economys grow-ordie dynamic, following the rapid expansion of transnational
corporations. Because these trends have not been offset
effectively by counter-tendencies that could have emanated
from trade-union action and other forms of political activity, the
outcome has been globalisation. This is a multi-faceted and
irreversible phenomenon within the system of the market
economy and it is expressed as: economic globalisation,
namely, the opening and deregulation of commodity, capital
and labour markets which led to the present form of neoliberal
globalisation; political globalisation, i.e., the emergence of a
transnational elite and the phasing out of the all powerfulnation state of the statist period; cultural globalisation, i.e., the
worldwide homogenisation of culture; ideological globalisation;
technological globalisation; social globalisation
Globalization, since World War II, is largely the result of
planning by politicians to break down borders hampering trade
to increase prosperity and interdependence thereby decreasing
the chance of future war. Their work led to the Bretton Woods
conference, an agreement by the world's leading politicians to
lay down the framework for international commerce and

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finance, and the founding of several international institutions


intended to oversee the processes of globalization.
These institutions include the International Bank for
Reconstruction and Development (the World Bank), and the
International Monetary Fund. Globalization has been facilitated
by advances in technology which have reduced the costs of
trade, and trade negotiation rounds, originally under the
auspices of the General Agreement on Tariffs and Trade (GATT),
which led to a series of agreements to remove restrictions on
free trade.
Since World War II, barriers to international trade have been
considerably lowered through international agreements
GATT. Particular initiatives carried out as a result of GATT and
the World Trade Organization (WTO), for which GATT is the
foundation, have included:

Promotion of free trade:


o elimination of tariffs; creation of free trade zones with
small or no tariffs
o

Reduced transportation costs, especially resulting


from development of containerization for ocean
shipping.

Reduction or elimination of capital controls

Reduction, elimination, or harmonization of subsidies


for local businesses

Creation of subsidies for global corporations

Harmonization of intellectual property laws across


the majority of states, with more restrictions

Supranational recognition of intellectual property


restrictions (e.g. patents granted by China would be
recognized in the United States)

Cultural globalization, driven by communication technology and


the worldwide marketing of Western cultural industries, was
understood at first as a process of homogenization, as the
global domination of American culture at the expense of
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traditional diversity. However, a contrasting trend soon became


evident in the emergence of movements protesting against
globalization and giving new momentum to the defence of local
uniqueness, individuality, and identity, but largely without
success.
The Uruguay Round (1986 to 1994) led to a treaty to create the
WTO to mediate trade disputes and set up a uniform platform
of trading. Other bilateral and multilateral trade agreements,
including sections of Europe's Maastricht Treaty and the North
American Free Trade Agreement (NAFTA) have also been signed
in pursuit of the goal of reducing tariffs and barriers to trade.
World exports rose from 8.5% in 1970, to 16.2% of total gross
world product in 2001.
Measuring globalization
Looking specifically at economic globalization, demonstrates
that it can be measured in different ways. These centre around
the four main economic flows that characterize globalization:

Goods and services, e.g., exports plus imports as a


proportion of national income or per capita of population
Labor/people, e.g., net migration rates; inward or outward
migration flows, weighted by population

Capital, e.g., inward or outward direct investment as a


proportion of national income or per head of population

Technology, e.g., international research & development


flows; proportion of populations (and rates of change
thereof) using particular inventions (especially 'factorneutral' technological advances such as the telephone,
motorcar, broadband)

As globalization is not only an economic phenomenon, a


multivariate approach to measuring globalization is the recent
index calculated by the Swiss think tank KOF. The index
measures the three main dimensions of globalization:
economic, social, and political. In addition to three indices
measuring these dimensions, an overall index of globalization
and sub-indices referring to actual economic flows, economic
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restrictions, data on personal contact, data on information


flows, and data on cultural proximity is calculated. Data is
available on a yearly basis for 122 countries, as detailed in
Dreher, Gaston and Martens (2008). According to the index, the
world's most globalized country is Belgium, followed by Austria,
Sweden, the United Kingdom and the Netherlands. The least
globalized countries according to the KOF-index are Haiti,
Myanmar, the Central African Republic and Burundi.
A.T. Kearney and Foreign Policy Magazine jointly publish
another Globalization Index. According to the 2006 index,
Singapore, Ireland, Switzerland, the Netherlands, Canada and
Denmark are the most globalized, while Indonesia, India and
Iran are the least globalized among countries listed.
Effects of globalization
Globalization has various aspects which affect the world in
several different ways such as:

Industrial - emergence of worldwide production markets


and broader access to a range of foreign products for
consumers and companies. Particularly movement of
material and goods between and within national
boundaries. International trade in manufactured goods
increased more than 100 times (from $95 billion to $12
trillion) in the 50 years since 1955. Chinas trade with
Africa rose sevenfold during 2000-07 alone.
Financial - emergence of worldwide financial markets and
better access to external financing for borrowers. By the
early part of the 21st century more than $1.5 trillion in
national currencies were traded daily to support the
expanded levels of trade and investment. As these
worldwide structures grew more quickly than any
transnational regulatory regime, the instability of the
global financial infrastructure dramatically increased, as
evidenced by the Financial crisis of 20072010.

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As of 20052007, the Port of Shanghai holds the title as the


World's busiest port.

Economic - realization of a global common market, based


on the freedom of exchange of goods and capital. The
interconnectedness of these markets, however meant that
an economic collapse in any one given country could not
be contained.

India is right now home of almost every well known I.T


company around the globe. Four Indians were among the
world's top 10 richest in 2008, worth a combined $160 billion.
In 2007, China had 415,000 millionaires and India 123,000.

Health Policy - On the global scale, health becomes a


commodity. In developing nations under the demands of
Structural Adjustment Programs, health systems are
fragmented and privatized. Global health policy makers
have shifted during the 1990s from United Nations players
to financial institutions. The result of this power transition
is an increase in privatization in the health sector. This
privatization fragments health policy by crowding it with
many players with many private interests. These
fragmented policy players emphasize partnerships,
specific interventions to combat specific problems (as
opposed to comprehensive health strategies). Influenced
by global trade and global economy, health policy is
directed by technological advances and innovative
medical trade. Global priorities, in this situation, are
sometimes at odds with national priorities where
increased health infrastructure and basic primary care are
of more value to the public than privatized care for the
wealthy.

Britain is a country of rich diversity. As of 2008, 40% of


London's total population was from an ethnic minority
group. The latest official figures show that in 2008,
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590,000 people arrived to live in the UK whilst 427,000


left, meaning that net inward migration was 163,000.

Political - some use "globalization" to mean the creation of


a world government which regulates the relationships
among governments and guarantees the rights arising
from social and economic globalization. Politically, the
United States has enjoyed a position of power among the
world powers, in part because of its strong and wealthy
economy. With the influence of globalization and with the
help of The United States own economy, the People's
Republic of China has experienced some tremendous
growth within the past decade. If China continues to grow
at the rate projected by the trends, then it is very likely
that in the next twenty years, there will be a major
reallocation of power among the world leaders. China will
have enough wealth, industry, and technology to rival the
United States for the position of leading world power.
Informational - increase in information flows between
geographically remote locations. Arguably this is a
technological change with the advent of fibre optic
communications, satellites, and increased availability of
telephone and Internet.
Language - the most popular language is Mandarin (845
million speakers) followed by Spanish (329 million
speakers) and English (328 million speakers).
o

About 35% of the world's mail, telexes, and cables


are in English.

Approximately 40% of the world's radio programs are


in English.

About 50% of all Internet traffic uses English.

Competition - Survival in the new global business market


calls for improved productivity and increased competition.
Due to the market becoming worldwide, companies in
various industries have to upgrade their products and use
technology skillfully in order to face increased
competition.

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Ecological - the advent of global environmental challenges


that might be solved with international cooperation, such
as climate change, cross-boundary water and air pollution,
over-fishing of the ocean, and the spread of invasive
species. Since many factories are built in developing
countries with less environmental regulation, globalism
and free trade may increase pollution. On the other hand,
economic development historically required a "dirty"
industrial stage, and it is argued that developing countries
should not, via regulation, be prohibited from increasing
their standard of living.

The construction of continental hotels is a major consequence


of globalization process in affiliation with tourism and travel
industry, Dariush Grand Hotel, Kish, Iran.

Cultural - growth of cross-cultural contacts; advent of new


categories of consciousness and identities which embodies
cultural diffusion, the desire to increase one's standard of
living and enjoy foreign products and ideas, adopt new
technology and practices, and participate in a "world
culture". Some bemoan the resulting consumerism and
loss of languages. Also see Transformation of culture.
o Spreading of multiculturalism, and better individual
access to cultural diversity (e.g. through the export of
Hollywood and, to a lesser extent, Bollywood
movies). Some consider such "imported" culture a
danger, since it may supplant the local culture,
causing reduction in diversity or even assimilation.
Others consider multiculturalism to promote peace
and understanding between peoples. A third position
gaining popularity is the notion that multiculturalism
to a new form of monoculture in which no distinctions
exist and everyone just shift between various
lifestyles in terms of music, cloth and other aspects
once more firmly attached to a single culture. Thus
not mere cultural assimilation as mentioned above
but the obliteration of culture as we know it today.
o

Greater international travel and tourism. WHO


estimates that up to 500,000 people are on planes at

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any one time. In 2008, there were over 922 million


international tourist arrivals, with a growth of 1.9% as
compared to 2007.
o

Greater immigration, including illegal immigration.


The IOM estimates there are more than 200 million
migrants around the world today. Newly available
data show that remittance flows to developing
countries reached $328 billion in 2008.

Spread of local consumer products (e.g., food) to


other countries (often adapted to their culture).

Worldwide fads and pop culture such as Pokmon,


Sudoku, Numa Numa, Origami, Idol series, YouTube,
Orkut, Facebook, and MySpace. Accessible to those
who have Internet or Television, leaving out a
substantial segment of the Earth's population.

Worldwide sporting events such as FIFA World Cup


and the Olympic Games.

Incorporation of multinational corporations in to new


media. As the sponsors of the All-Blacks rugby team,
Adidas had created a parallel website with a
downloadable interactive rugby game for its fans to
play and compete.

Social - development of the system of non-governmental


organisations as main agents of global public policy,
including humanitarian aid and developmental efforts.

Technical

Development of a Global Information System, global


telecommunications infrastructure and greater
transborder data flow, using such technologies as the
Internet, communication satellites, submarine fiber
optic cable, and wireless telephones

Increase in the number of standards applied globally;


e.g., copyright laws, patents and world trade
agreements.

Legal/Ethical
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The creation of the international criminal court and


international justice movements.

Crime importation and raising awareness of global


crime-fighting efforts and cooperation.

The emergence of Global administrative law.

Religious
o

The spread and increased interrelations of various


religious groups, ideas, and practices and their ideas
of the meanings and values of particular spaces

Q.39. What are turnkey Contracts?


Turn-key refers to something that is ready for immediate use,
generally used in the sale or supply of goods or
services.Turnkey is often used to describe a home built ready
for the customer to move in. If a contractor builds a "turnkey
home" they frame the structure and finish the interior.
Everything is completed down to the cabinets and carpet.
"Turnkey" is commonly used in the construction industry, for
instance, in which it refers to the bundling of materials and
labor by sub-contractors.
'Turnkey' is also commonly used in motorsports to describe a
car being sold with drivetrain (engine, transmission, etc.) as a
racer may prefer to keep the pieces to use in another vehicle to
preserve a combination.
Similarly, this term may be used to advertise the sale of an
established business, including all the equipment necessary to
run it, or by a business-to-business supplier providing complete
packages for business start-up. An example would be the
creation of a "turnkey hospital" which would be building a
complete medical center with installed high-tech medical
equipment.
Use in business
In a turnkey business transaction different entities are
responsible for setting up a plant or a part of it. A complex
project involving infrastructure facility, a chemical plant, or a
refinery demands expertise which is not available with a single
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firm. The owner organizes the overall project with a turnkey


firm and 'receives' the project on its completion and can then
start to operate it. The 'agents' of the owner are: the principal
engineering firm, the licensor (if any),service subcontractors
(e.g. electrical contractor) and the suppliers. There may be
several contracts drawn up by the principal engineering firm
but they only identify the latter as the recipient of the services.
The principal contract is the one that binds the owner and
principal engineering firm.
A turnkey project could involve the following elements
depending on its complexity:

Project adminstration
licensing-in of process

design and engineering services

subcontracting

management control

procurment and expediting of equipment;

materials control

inspection of equipment prior to delivery

shipment, transportation

control of schedule and quality

pre-commisioning and completion

performance-guarantee testing

inventorying spare-parts

training of owner's/plant[[sub-system}}operating and


maintence personnel

A project-consultancy firm is often involved but it is required to


stay independent of the turnkey enginneers and be responsible
only to the owner - a watchdog so to speak. The projectconsultancy firm has access to all sections of the infrastructure
or plant (as applicable) but cannot direct the staff involved.
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The turnkey-contractor furnishes a wide variety of warranties


and guarantees and accepts several liabilities. These include :

(a) warranties for the timeliness of deliveries of


equipment, of erection and of completion times of
civil and mechanical works;
(b) warranties for workmanship in construction annd
erection of the works,according to specifications, and
warranties guarantees that proper standards will be
used

(c) liability for property or equipment under the


control of the engineering company who contracts
out the agreement to the turnkey-company

(d) proper safety standards being implemented

(e}civil and mechanical engineering warranties; in


the latter case the turnkey-contractor undertakes to
asssure that mechanical performance will be
maintained for a definite period

(f) training warranties of operating personnel in


charge of specific operations, and

(g) the very important process warrranties and


guarantees.

Turnkey projects can also be extended, known as 'turnkey plus',


where there is perhaps a small equity interest by the
engineering firm or the main suppliers to ensure allegiance
during the initial operational phases. Once the turnkey phase is
over and the engineering firm receives the 'completion
certificate', (from the owner), the latter will work independently
or with the licensor (if any).
1.

^ Manual on Technology Negotiation,Unido.95.2.E ISBN


92-1-106302-7

Specific usage
A prison turnkey
The term turnkey is also often used in the technology industry,
most commonly to describe pre-built computer "packages" in
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which everything needed to perform a certain type of task (e.g.


audio editing) is put together by the supplier and sold as a
bundle. This often includes a computer with pre-installed
software, various types of hardware, and accessories. Such
packages are commonly called appliances. Turnkey products
are synonymous to "off-the-shelf" solutions - i.e. not bespoke.
In the United States, the precise definition of the types of
allowable contractual features for government contracts are
contained in the Federal Acquisition Regulations.
In real estate, turn-key is defined as delivering a location that is
ready for occupation. The turn-key process includes all of the
steps involved to open a location including the site selection,
negotiations, space planning, construction coordination and
complete installation.
Q.40. What is strategic alliance?
A Strategic Alliance is a formal relationship between two or
more parties to pursue a set of agreed upon goals or to meet a
critical business need while remaining independent
organizations.
Partners may provide the strategic alliance with resources such
as products, distribution channels, manufacturing capability,
project funding, capital equipment, knowledge, expertise, or
intellectual property. The alliance is a cooperation or
collaboration which aims for a synergy where each partner
hopes that the benefits from the alliance will be greater than
those from individual efforts. The alliance often involves
technology transfer (access to knowledge and expertise),
economic specialization [1], shared expenses and shared risk.

Types of strategic alliances


Various terms have been used to describe forms of strategic
partnering. These include international coalitions (Porter and
Fuller, 1986), strategic networks (Jarillo, 1988) and, most
commonly, strategic alliances. Definitions are equally varied.
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An alliance may be seen as the joining of forces and resources,


for a specified or indefinite period, to achieve a common
objective.
According to Yoshino and Rangan[2] the Internationalisation
Strategies can be categorized using the model displayed at the
right side.
Stages of Alliance Formation
A typical strategic alliance formation process involves these
steps:

Strategy Development: Strategy development involves


studying the alliances feasibility, objectives and rationale,
focusing on the major issues and challenges and
development of resource strategies for production,
technology, and people. It requires aligning alliance
objectives with the overall corporate strategy.
Partner Assessment: Partner assessment involves
analyzing a potential partners strengths and weaknesses,
creating strategies for accommodating all partners
management styles, preparing appropriate partner
selection criteria, understanding a partners motives for
joining the alliance and addressing resource capability
gaps that may exist for a partner.

Contract Negotiation: Contract negotiations involves


determining whether all parties have realistic objectives,
forming high calibre negotiating teams, defining each
partners contributions and rewards as well as protect any
proprietary information, addressing termination clauses,
penalties for poor performance, and highlighting the
degree to which arbitration procedures are clearly stated
and understood.

Alliance Operation: Alliance operations involves


addressing senior managements commitment, finding the
calibre of resources devoted to the alliance, linking of
budgets and resources with strategic priorities, measuring
and rewarding alliance performance, and assessing the
performance and results of the alliance.
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Alliance Termination: Alliance termination involves winding


down the alliance, for instance when its objectives have
been met or cannot be met, or when a partner adjusts
priorities or re-allocates resources elsewhere.

The advantages of strategic alliance includes:


1. Allowing each partner to concentrate on activities that
best match their capabilities.
2. Learning from partners & developing competences that
may be more widely exploited elsewhere
3. Adequency a suitability of the resources & competencies
of an organization for it to survive.
There are four types of strategic alliances: joint venture, equity
strategic alliance, non-equity strategic alliance, and global
strategic alliances.

Joint venture is a strategic alliance in which two or more


firms create a legally independent company to share some
of their resources and capabilities to develop a
competitive advantage.
Equity strategic alliance is an alliance in which two or
more firms own different percentages of the company they
have formed by combining some of their resources and
capabilities to create a competitive advantage.

Nonequity strategic alliance is an alliance in which two or


more firms develop a contractual-relationship to share
some of their unique resources and capabilities to create a
competitive advantage.

Global Strategic Alliances working partnerships between


companies (often more than 2) across national boundaries
and increasingly across industries. Sometimes formed
between company and a foreign government, or among
companies and governments

Q44. What is J.V? How is it used to expand business?


A joint venture (often abbreviated JV) is an entity formed
between two or more parties to undertake economic activity
together. The parties agree to create a new entity by both
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contributing equity, and they then share in the revenues,


expenses, and control of the enterprise. The venture can be for
one specific project only, or a continuing business relationship
such as the Fuji Xerox joint venture. This is in contrast to a
strategic alliance, which involves no equity stake by the
participants, and is a much less rigid arrangement.
The phrase generally refers to the purpose of the entity and not
to a type of entity. Therefore, a joint venture may be a
corporation, limited liability company, partnership or other legal
structure, depending on a number of considerations such as tax
and tort liability.
Q) When are joint ventures used?
Joint ventures are not uncommon in the oil and gas industry,
and are often cooperations between a local and foreign
company (about 3/4 are international). A joint venture is often
seen as a very viable business alternative in this sector, as the
companies can complement their skill sets while it offers the
foreign company a geographic presence. Studies show a failure
rate of 30-61%, and that 60% failed to start or faded away
within 5 years. (Osborn, 2003) It is also known that joint
ventures in low-developed countries show a greater instability,
and that JVs involving government partners have higher
incidence of failure (private firms seem to be better equipped
to supply key skills, marketing networks etc.) Furthermore, JVs
have shown to fail miserably under highly volatile demand and
rapid changes in product technology. Some countries, such as
the People's Republic of China and to some extent India, require
foreign companies to form joint ventures with domestic firms in
order to enter a market .A joint ownership venture may be
brought about in three major ways:
(i) Foreign investor buying an interest in a local company.
(ii) local firm acquiring an interest in an existing foreign firm.
(iii)Both the foreign and local entrepreneurs jointly forming a
new enterprise.
Brokers :In addition, joint ventures are practiced by a joint
venture broker, who are people that often put together the two
parties that participate in a joint venture. A joint venture broker
then often make a percentage of the profit that is made from
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the deal between the two parties.


Reasons for forming a joint venture
Internal reasons
1.Build on company's strengths
2.Spreading costs and risks
3.Improving access to financial resources
4.Economies of scale and advantages of size
5.Access to new technologies and customers
6.Access to innovative managerial practices
Competitive goals
1.Influencing structural evolution of the industry
2.Pre-empting competition
3.Defensive response to blurring industry boundaries
4.Creation of stronger competitive units
5.Speed to market
6.Improved agility
Strategic goals
1. Synergies
2. Transfer of technology/skills
3. Diversification
Reasons for dissolving a joint venture
1. Aims of original venture met
2. Aims of original venture not met
3. Either or both parties develop new goals
4. Either or both parties no longer agree with joint venture
aims
5. Time agreed for joint venture has expired
6. Legal or financial issues
7. Evolving market conditions mean that joint venture is no
longer appropriate or relevant
Examples
AutoAlliance International (Ford + Mazda)
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Brewers Retail Inc. (Inbev, Molson Coors + Sapporo


Breweries)

CW Television Network (CBS Corporation + Warner Bros.)

Bank DnB NORD (DnB NOR + NORD/LB)

Dow Corning (Dow Chemical Company + Corning


Incorporated)

Fujitsu Siemens Computers (Fujitsu + Siemens AG)

GlobalFoundries (AMD + Advanced Technology Investment


Co. (ATIC))

Huawei Symantec (Huawei + Symantec)

Hulu (NBC Universal + Fox Entertainment Group + ABC,


Inc.)

INTO University Partnerships specialises in creating JVs


with British universities

LG.Philips Components (LG + Philips)

MSNBC (Microsoft + NBC Universal)

Nokia Siemens Networks (Nokia + Siemens AG)

NUMMI (General Motors + Toyota)

Penske Truck Leasing (GE + Penske)

PetroAlam (Royal Dutch Shell + Vegas Oil and Gas + GDF


Suez)

Prime Time Entertainment Network from the Prime Time


Consortium (Warner Bros. + the Chris-Craft group of
independent stations.)

Shell-Mex and BP (Royal Dutch Shell + British Petroleum,


1931-1975)

Sony BMG Music Entertainment (Sony Music


Entertainment [part of Sony] + Bertelsmann Music Group
[part of Bertelsmann])

Sony Ericsson (Sony + Ericsson)


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Strategic Alliance (Northwest Airlines + KLM)

The Balfour Beatty Skanska, construction contractors


(Balfour Beatty + Skanska)

The Baseball Network (ABC, NBC, + Major League


Baseball)

Tata DoCoMo (Tata Teleservices + NTT DoCoMo)

TNK-BP (BP + TNK (Tyumen Oil Co.))

TriStar Pictures (Columbia Pictures, HBO, + CBS)

United Launch Alliance (ULA) (Boeing + Lockheed Martin)

Uninor (Telenor + Unitech Group)

Verizon Wireless (Verizon Communications + Vodafone)

Virgin Mobile India (Virgin Group + Tata Teleservices)

The XFL (NBC + World Wrestling Entertainment)

NBC Universal (NBC [part of General Electric] + Vivendi


Universal Entertainment [part of Vivendi])

Canara HSBC Oriental Bank of Commerce Life Insurance


Company Limited. Canara Bank + HSBC + Oriental Bank
of Commerce

Q.45. What is counter trade? Explain with example?


Countertrade is exchanging goods or services that are paid
for, in whole or part, with other goods or services.
Contents
1 Types of countertrade
2 Necessity
3 Role of countertrade in the world market
4 References
Types of countertrade
There are five main variants of countertrade:
Barter: Exchange of goods or services directly for other
goods or services without the use of money as means of
purchase or payment.
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Switch trading: Practice in which one company sells to


another its obligation to make a purchase in a given
country.

Counter purchase: Sale of goods and services to a country


by a company that promises to make a future purchase of
a specific product from the country.

Buyback: occurs when a firm builds a plant in a country or supplies technology, equipment, training, or other
services to the country and agrees to take a certain
percentage of the plant's output as partial payment for the
contract.

Offset: Agreement that a company will offset a hard currency purchase of an unspecified product from that
nation in the future. Agreement by one nation to buy a
product from another, subject to the purchase of some or
all of the components and raw materials from the buyer of
the finished product, or the assembly of such product in
the buyer nation.

Necessity
Countertrade also occurs when countries lack sufficient hard
currency, or when other types of market trade are impossible.
In 2000, India and Iraq agreed on an "oil for wheat and rice"
barter deal, subject to UN approval under Article 50 of the UN
Gulf War sanctions, that would facilitate 300,000 barrels of oil
delivered daily to India at a price of $6.85 a barrel while Iraq oil
sales into Asia were valued at about $22 a barrel. In 2001, India
agreed to swap 1.5 million tonnes of Iraqi crude under the oilfor-food program.
The Security Council noted: "... although locally produced food
items have become increasingly available throughout the
country, most Iraqis do not have the necessary purchasing
power to buy them. Unfortunately, the monthly food rations
represent the largest proportion of their household income.
They are obliged to either barter or sell items from the food
basket in order to meet their other essential needs. This is one
of the factors which partly explains why the nutritional situation
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has not improved in line with the enhanced food basket.


Moreover, the absence of normal economic activity has given
rise to the spread of deep-seated poverty."
Role of countertrade in the world market
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accompanies biased or unverifiable information. Such
statements should be clarified or removed. (March 2009)
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discussion on the talk page. Please do not remove this
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Noted US economist Paul Samuelson was skeptical about the
viability of countertrade as a marketing tool, claiming that
"Unless a hungry tailor happens to find an undraped farmer,
who has both food and a desire for a pair of pants, neither can
make a trade". (This is called "double coincidence of wants".)
But this is a too simplistic interpretation of how markets
operate in the real world. In any real economy, bartering occurs
all the time.
The volume of countertrade is growing. In 1972, it was
estimated that countertrade was used by business and
governments in 15 countries; in 1979, 27 countries; by the start
of 1990s, around 100 countries. (Vertariu 1992).
More than 80 countries nowadays regularly use or require
countertrade exchanges. Officials of the General Agreement on
Tariffs and Trade (GATT) organization claimed that countertrade
accounts for around 5% of the world trade. The British
Department of Trade and Industry has suggested 15%, while
numerous scholars believe it to be closer to 30%, with eastwest trade having been as high as 50% in some trading sectors
of Eastern European and Third World Countries. A consensus of
expert opinions (Okaroafo, 1989) has put the percentage of the
value of world trade volumes linked to countertrade
transactions at between 20% to 25%.
According to an official US statement, "The U.S. Government
generally views countertrade, including barter, as contrary to
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an open, free trading system and, in the long run, not in the
interest of the U.S. business community. However, as a matter
of policy the U.S. Government will not oppose U.S. companies'
participation in countertrade arrangements unless such action
could have a negative impact on national security." (Office of
Management and Budget; "Impact of Offsets in Defense-related
Exports," December, 1985). A large part of countertrade has
involved military sales.
Q.46. What is the need for studying country & company
competitiveness while entering in IB?

MARKETING
Q.47. What is MR? What is its importance in International
Business?
Market research is any organized effort to gather information
about markets or customers. It is a very important
component of business strategy. The term is commonly
interchanged with marketing research; however, expert
practitioners may wish to draw a distinction, in that
marketing research is concerned specifically about
marketing processes, while market research is concerned
specifically with markets.
Market research,as defined by the ICC/ESOMAR International
Code on Market and Social Research, includes social and
opinion research, [and] is the systematic gathering and
interpretation of information about individuals or organizations
using statistical and analytical methods and techniques of the
applied social sciences to gain insight or support decision
making.

1 History

2 Market research for business/planning

3 Financial performance
o

3.1 Top ten of the market research sector

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2006

4 See also

5 References

6 External links

History
Market research began to be conceptualized and put into
formal practice during the 1920s,[4] as an offshoot of the
advertising boom of the Golden Age of radio in the
United States. Advertisers began to realize the
significance of demographics revealed by sponsorship of
different radio programs, so they increasingly sought more
direct feedback about their markets.
Market research for business/planning
Market research is for discovering what people want, need, or
believe. It can also involve discovering how they act. Once that
research is completed, it can be used to determine how to
market your product.
Questionnaires and focus group discussion surveys are some of
the instruments for market research.
For starting up a business, there are some important things:

Market information

Through Market information one can know the prices of the


different commodities in the market, as well as the supply and
demand situation. Information about the markets can be
obtained from different sources, varieties and formats, as well
as the sources and varieties that have to be obtained to make
the business work.

Market segmentation

Market segmentation is the division of the market or population


into subgroups with similar motivations. It is widely used for
segmenting on geographic differences, personality differences,
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demographic differences, technographic differences, use of


product differences, psychographic differences and gender
differences.

Market trends

Market trends are the upward or downward movements of a


market, during a period of time. The market size is more
difficult to estimate if one is starting with something completely
new. In this case, you will have to derive the figures from the
number of potential customers, or customer segments. [Ilar
1998]
Besides information about the target market, one also needs
information about one's competitors, customers, products, etc.
Lastly, you need to measure marketing effectiveness. A few
techniques are:

Customer analysis
Choice Modelling

Competitor analysis

Risk analysis

Product research

Advertising the research

Marketing mix modeling

International Marketing Research follows the same path as


domestic research, but there are a few more problems
that may arise. Customers in international markets may
have very different customs, cultures, and expectations
from the same company. In this case, secondary
information must be collected from each separate country
and then combined, or compared. This is time consuming
and can be confusing. International Marketing Research
relies more on primary data rather than secondary
information. Gathering the primary data can be hindered
by language, literacy and access to technology.

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Role of marketing research


The task of marketing research is to provide management
with relevant, accurate, reliable, valid, and current
information. Competitive marketing environment and the
ever-increasing costs attributed to poor decision making
require that marketing research provide sound information.
Sound decisions are not based on gut feeling, intuition, or
even pure judgment.
Marketing managers make numerous strategic and tactical
decisions in the process of identifying and satisfying customer
needs. They make decisions about potential opportunities,
target market selection, market segmentation, planning and
implementing marketing programs, marketing performance,
and control. These decisions are complicated by interactions
between the controllable marketing variables of product,
pricing, promotion, and distribution. Further complications are
added by uncontrollable environmental factors such as general
economic conditions, technology, public policies and laws,
political environment, competition, and social and cultural
changes. Another factor in this mix is the complexity of
consumers. Marketing research helps the marketing manager
link the marketing variables with the environment and the
consumers. It helps remove some of the uncertainty by
providing relevant information about the marketing variables,
environment, and consumers. In the absence of relevant
information, consumers' response to marketing programs
cannot be predicted reliably or accurately. Ongoing marketing
research programs provide information on controllable and noncontrollable factors and consumers; this information enhances
the effectiveness of decisions made by marketing managers.
Traditionally, marketing researchers were responsible for
providing the relevant information and marketing decisions
were made by the managers. However, the roles are changing
and marketing researchers are becoming more involved in
decision making, whereas marketing managers are becoming
more involved with research. The role of marketing research in
managerial decision making is explained further using the
framework of the "DECIDE" model:
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D : Define the marketing problem


E : Enumerate the controllable and uncontrollable decision
factors
C : Collect relevant information
I : Identify the best alternative
D: Develop and implement a marketing plan
E: Evaluate the decision and the decision process
The DECIDE model conceptualizes managerial decision making
as a series of six steps. The decision process begins by
precisely defining the problem or opportunity, along with the
objectives and constraints.[4] Next, the possible decision factors
that make up the alternative courses of action (controllable
factors) and uncertainties (uncontrollable factors) are
enumerated. Then, relevant information on the alternatives and
possible outcomes is collected. The next step is to select the
best alternative based on chosen criteria or measures of
success. Then a detailed plan to implement the alternative
selected is developed and put into effect. Last, the outcome of
the decision and the decision process itself are evaluated.
Marketing research characteristics
First, marketing research is systematic. Thus systematic
planning is required at all the stages of the marketing
research process. The procedures followed at each stage
are methodologically sound, well documented, and, as
much as possible, planned in advance. Marketing research
uses the scientific method in that data are collected and
analyzed to test prior notions or hypotheses.
Marketing research is objective. It attempts to provide accurate
information that reflects a true state of affairs. It should be
conducted impartially. While research is always influenced by
the researcher's research philosophy, it should be free from the
personal or political biases of the researcher or the
management. Research which is motivated by personal or
political gain involves a breach of professional standards. Such
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research is deliberately biased so as to result in predetermined


findings. The motto of every researcher should be, "Find it and
tell it like it is." The objective nature of marketing research
underscores the importance of ethical considerations, which are
discussed later in the chapter.
Marketing research involves the identification, collection,
analysis, and dissemination of information. Each phase of this
process is important. We identify or define the marketing
research problem or opportunity and then determine what
information is needed to investigate it., and inferences are
drawn. Finally, the findings, implications and recommendations
are provided in a format that allows the information to be used
for management decision making and to be acted upon directly.
It should be emphasized that marketing research is conducted
to assist management in decision making and is not: a means
or an end in itself. The next section elaborates on this definition
by classifying different types of marketing research.
Q.48. What is international Marketing?
International Marketing marketing activities intended to
facilitate the exchange or transfer of goods between nations
International Marketing The conduct and co-ordination of
marketing activities in more than one country
Q.49. What is Market Segmentation?
Market segmentation is a concept in economics and marketing.
A market segment is a sub-set of a market made up of people
or organiztions sharing one or more characteristics that cause
them to demand similar product and/or services based on
qualities of those products such as price or function. A true
market segment meets all of the following criteria: it is distinct
from other segments (different segments have different needs),
it is homogeneous within the segment (exhibits common
needs); it responds similarly to a market stimulus, and it can be
reached by a market intervention. The term is also used when
consumers with identical product and/or service needs are
divided up into groups so they can be charged different
amounts. These can broadly be viewed as 'positive' and
'negative' applications of the same idea, splitting up the market
into smaller groups.
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While there may be theoretically 'ideal' market segments, in


reality every organistion engaged in a market will develop
different ways of imagining market segments, and create
Product differentiation strategies to exploit these segments.
The market segmentation and corresponding product
differentiation strategy can give a firm a temporary commerical
advantage.
Q50. What is niche marketing?
A niche market is the subset of the market on which a specific
product is focusing; therefore the market niche defines the
specific product features aimed at satisfying specific market
needs, as well as the price range, production quality and the
demographics that is intended to impact.
Every single product that is on sale can be defined by its niche
market. As of special note, the products aimed at a wide
demographic audience, with the resulting low price (due to
price elasticity of demand), are said to belong to the
mainstream nichein practice referred to only as mainstream
or of high demand. Narrower demographics lead to elevated
prices due to the same principle.
In practice, product vendors and trade businesses are
commonly referred as mainstream providers or narrow
demographics niche market providers (colloquially shortened to
just niche market providers). Small capital providers usually opt
for a niche market with narrow demographics as a measure of
increasing their gain margins.
Nevertheless, the final product quality (low or high) is not
dependant on the price elasticity of demand; it is associated
more with the specific needs that the product is aimed at
satisfy and in some cases with brand recognition with which the
vendor wants to be associated (e.g., prestige, practicability,
money saving, expensiveness, planet environment conscience,
power, &c.).
Q.51. What is Market Strategy?
Marketing strategy is a process that can allow an organization
to concentrate its limited resources on the greatest
opportunities to increase sales and achieve a sustainable
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competitive advantage. A marketing strategy should be


centered around the key concept that customer satisfaction is
the main goal.
Marketing strategy is a method of focusing an organization's
energies and resources on a course of action which can lead to
increased sales and dominance of a targeted market niche. A
marketing strategy combines product development, promotion,
distribution, pricing, relationship management and other
elements; identifies the firm's marketing goals, and explains
how they will be achieved, ideally within a stated timeframe.
Marketing strategy determines the choice of target market
segments, positioning, marketing mix, and allocation of
resources. It is most effective when it is an integral component
of overall firm strategy, defining how the organization will
successfully engage customers, prospects, and competitors in
the market arena. Corporate strategies, corporate missions,
and corporate goals. As the customer constitutes the source of
a company's revenue, marketing strategy is closely linked with
sales. A key component of marketing strategy is often to keep
marketing in line with a company's overarching mission
statement.
Basic theory:
.Target Audience
.Proposition/Key Element
.Implementation
Q52. What is concentrated Marketing Strategy?
market concentration is a function of the number of firms and
their respective shares of the total production (alternatively,
total capacity or total reserves) in a market. Alternative terms
are Industry concentration and Seller concentration.[1]
Market concentration is related to the concept of industrial
concentration, which concerns the distribution of production
within an industry, as opposed to a market.
Q.53. What is international Marketing? Explain the factors to be
considered while selection of International Marketing for an
existing business?
International marketing can be defined as the application of
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marketing strategies, planning and activities to external or


foreign markets. International marketing is of consequence to
firms which operate in countries and territories other than their
home country, or the country in which they are registered in
and have their head office. The factors influencing international
marketing are culture, political and legal factors, a country's
level of economic development, and the mode of involvement
in foreign markets. The reasons why a firm would engage in
international markets are numerous, including the maturity
within domestic markets or increasing general market share,
sales or revenue.

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Culture
Social norms, attitudes towards buying foreign goods,
and the working practices of foreign markets are all
cultural factors when opting to invest in foreign markets.
Social norms affect business practices, since social norms
are one factor in the demand for a product. In the
tobacco industry, for example, adolescents in developing
countries are often the focus for the marketing and
advertisement campaigns due to their vulnerability.
Tobacco companies will often use symbols and
fabrications in western society associated with smoking
as a means of attracting these prospective consumers. [15]
A company marketing pork would experience less sales in
an Islamic country, than it would in China (which is the
world's largest consumer of pork). In Western societies,
sexuality and sexual topics are often used in marketing
communications (such as advertising, for instance).
However, in a comparatively more conservative society
(such as India for instance) social attitudes may shun the
use of sexual topics to advertise products.
Political and legal factors
The following political/legal factors are of bearing in
international marketing:
.Government attitude to business
.The level of governmental regulations, red-tape and
bureaucracy
.Monetary regulations
.Political stability
Not all governments are as open to foreign investment as
others, nor are all governments equally favourable to business.
Typically, a firm may opt to invest in an economy in which the
government is more inclined to support business activity in a
country. In other words, the "business-friendliness" of a foreign
government is paramount in this instance.

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Additionally, some economies are more "liberal" and less


regulated, by comparison to other economies. Excessive
regulations can be a hindrance on a firm, since they contribute
to additional costs to a firm. Conversely, regulations can aid in
assisting firms, by easing the path of doing business. A firm
seeking to invest in foreign markets must gauge the regulatory
arrangement of the economy it is looking to invest in. Monetary
regulations, akin to the above points, can hinder the ability to
do business. A high level of monetary regulations can hamper
foreign investment within an economy.
Lastly, the political stability of a country is also a key factor in
foreign investment decisions. Nation-states experiencing
continual coup-d'etat can appear unattractive to invest in, since
the continual changes in political system can compound the
inherent risk in investing. Typically, a firm would opt to invest in
a country which had a stable mode of government, and in
which handovers of power were peaceful and non-violent. Even
if a country is not a liberal democracy, a firm may often opt to
invest in such an economy, if the country in question
demonstrated a stable political system. The key factor in noting
a nation-state's political stability is to avert excessive costs
from diminshed production, coupled with the loss of current and
non-current assets.
Level of economic development
The level of economic development of an economy can affect
foreign investment decisions. Within the field of developmental
economics, differing modes of economic development can be
identified. These are:

Developing economy
Newly-Industrialised country
Industrialised country (also known as a developed country,
advanced economy or first world economy)

A developing economy has a comparatively low general living


standard (as defined by material lifestyle/level of material
possession). Moreover, a developing economy may also be at
subsistence level, or possess a large share of its Gross
Domestic Product in primary industries. Accordingly, a
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developing country would not be a profitable market for highend consumer goods, or fast-moving consumer goods
commonly found in developed/advanced economies. Exports of
machinery (related to the extraction and processing of raw
materials) may be viable for a developing economy, due to
primary industries possessing a large share of national income.
A newly-industrialised economy is an economy which has
experienced high recent economic growth, and thus has
experienced a rise in general living standards. Coupled with the
rapid economic growth, the emergence of a middle class leads
to the development of a consumerist culture in the society. A
newly-industrialised economy would consequently possess a
small general demand for high-end consumer goods, but not to
the extent of an advanced economy. A newly-industralised
economy may export manufactured goods to other countries,
and often possess secondary sector industries as a high
percentage of its economic output.
An industrialised economy is typically identified via a high
Gross Domestic Product per capita, a high United Nations
Human Development Index rating and a high level of
tertiary/quaternary/quinary sector industries in the context of
its national income. Thus, the high general living standard
denotes the highest generalised demand for goods and
services within all modes of economic development.
Commonly, developed/advanced economies are high exporters
of high-tech manufactured goods, as well as service sector
products (such as financial services, for instance).

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Globalisation
The greater economic ties/links between economies has
presented a prime opportunity for firms trading
internationally. The advantages to an international
marketing firm are that regulations and costs are lower,
which can promote the use of outsourcing to foreign
economies. The disadvantages to a firm in a globalised
economy include negative public relations resulting from
the exploitation of low cost labour, concerns surrounding
environmental degradation, etc.
Regional trading blocks
Within the past few decades, numerous regional trading
blocks have emerged, as a means of encouraging and
easing closer economic ties between neighbouring
countries. Common examples of such blocks include the
European Union, the North American Free Trade
Agreement (NAFTA) and the Association of South East
Asian Nations (ASEAN). Other examples are:
CARICOM (the Caribbean Community)
EFTA (European Free Trade Association)

ECOWAS (Economic Community of West African States)

Regional economic blocks often permit free (and thus less


inhibited/restricted) trade between member nation-states. As
such, a British firm would find trading in Germany less
problematic (and vice versa, as both the United Kingdom and
Germany are both EU member states), by comparison with a
British firm trading with Mexico or Thailand.
Such trading blocks can also, conversely, place
restrictions/regulations on trade. To use the earlier example of
the EU again, the EU may place regulations on the packaging,
labelling and distribution of a product. Consequently, a UK firm
trading in Germany would have to adhere to the European
Union regulations, in order to trade legitimately within the
European Union.

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Q.58. What are MNCs? Why are MNCs increasing?


Definitions of Multinational Corporations
Different types of definitions exist for Multinational
Corporations because of the different kinds of multinational
business organisations and each definition characterises a
particular group. Further in maintaining a standard definition of
Multinational Corporations there is the problem of gradual
evolution of a domestic firm into a Multinational Corporation.
The following are some of the definitions commonly used to
define a Multinational Corporation: In the words of James Baker, Multinational Corporations is a
company, which has a direct investment based in several
countries, generally derives 20% to 50% or more of its net
profit from operations and whose policy decisions are based on
the alternatives available anywhere in the world.
According to ILO report (i.e. International Labour Organisation),
The essential nature of the Multinational Corporations lies in
the fact that its managerial headquarters are located in one
country, while the enterprise carries out operations in number
of other countries.
According to Prof. Raymond Vernon, Multinational Corporations
means a company that attempts to carry out its activities on an
international scale as though there are no national boundaries,
on the basis of common strategy directed from a corporate
centre.
Leonard Gomes, Multinational Corporations is a corporation
that controls production facilities in more than one country,
such facilities having been acquired through the process of FDI
(i.e. Foreign Direct Investments).
Q.59. What are Methods of formation of Multinational
Corporations?
Multinational Corporations are like big corporations. A
company can become Multinational Corporations either by
way of expansion and diversification. The following are the
methods used by the companies to grow and become big.
1. Merger and Acquisition:
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Merger and Acquisition have played a vital role in the


growth of most of the leading corporations in the world.
Nearly 2/3 of the giant public corporations in the U.S.A. are
the outcome of merger and acquisition. Merger means
combination of the two companies, in which one company
merges with another. After merger, acquired company
looses its identity forever. British Leyland Motor Corporation
and Associated Cement Company are the examples of
merger.
2. Subsidiaries:
This is another method of forming Multinational
Corporations. Under this method a subsidiary or new
company is opened in another company. The subsidiary
again opens its subsidiary in another country. For example
Uni-Lever is a Multinational Corporations, and Hindustan
Lever is a subsidiary. Suppose Hindustan Lever opens its
subsidiary in another country say Nepal, Bangladesh, etc,
then automatically the parent company (i.e. Uni-Lever) will
become large.
3. Joint Venture:
It is a type of partnership between Multinational
Corporations and domestic company. Multinational
Corporations enters into joint venture through
Direct Foreign Investment: It means supply of capital
through equity participation. Investment can also be
made in this subsidiary. The profits earned by subsidiary
and joint venture is re-invested or returned back to the
parent company.
Technical Know-How: Multinational Corporations agrees
to supply raw materials, machinery or technical knowhow. For supplying technology to subsidiary or joint
venture, it may charge royalty, commission or fees for
consultancy or share in the profits.
4. Production and Marketing:
Multinational Corporations can use the production facilities
available in a developing country to produce goods and to
be sold in other countries. For example, Modi Company of
India and Rank Xerox have started a joint venture, which

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manufactures Xerox machines, which will be marketed by


Rank Xerox in East European Markets.
5. Production:
To use the production facilities from other country,
Multinational Corporations may invest in a domestic
company. For example, Texas Instrument and Boeing
Corporation have proposed to manufacture some of their
parts in India, to be used in their product. Though this does
not result into growth of Multinational Corporations but it
generally leads to extension of activities.
6. Turn Key Projects:
Multinational Corporations can undertake the completion of
project from its conception to completion stage at an
agreed contract price. Sometimes Multinational
Corporations also agree to operate and maintain the project
for a specific period. Big projects like petro-chemical, steel
plants, fertilizer projects, etc, requiring huge finance and
state-of-art technology, can be given to Multinational
Corporations for construction purpose.
1. Q.59. What are features of Multinational Corporations?
The term Multinational is a comprehensive term and
includes international and transnational corporations. The
Multinational Corporations organises and co-ordinates
multiple activities across the country.
2. The development of Multinational Corporations dates back
to second half of the 19th century, but their real growth
started after the Second World War.
3. The activities of Multinational Corporations are spread over
a large number of countries. It maintains both
manufacturing and marketing base in several countries, and
is well accustomed with local customs and traditions.
4. Multinational Corporations are managed on Centralised
Authority basis. The Parent company works like a holding
company and the branches or subsidiaries function as per
the policies and directions of the parent company.
Multinational Corporations control and govern a group of

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mostly independent muti-domestic foreign subsidiaries


producing goods and services mainly for the local market.
5. Multinational Corporations expand their activities either by
taking over an existing company or by starting a new
company in another country.
6. Multinational Corporations undertake both manufacturing
and marketing activities and they are predominantly
engaged in hi-tech and consumer goods industries. Majority
of the Multinational Corporations are engaged in
pharmaceutical, petrochemicals, engineering, defence,
airlines, tele-communications, consumer goods industry,
chemicals, automobiles, etc.
7. The international trade is dominated by Multinational
Corporations. They are rightly described as messengers of
economic progress and international co-operation.
8. Multinational Corporations are like any other profit making
organisation and their activities centre around economic
gains only. They do not take much interest in social welfare
activities of the host country.
9. Multinational Corporations provide technical, financial and
other assistance to developing countries for their economic
and industrial growth.
10. The ownership and management of Multinational
Corporations group companies is vested with the main or
parent company. The subsidiary companies are expected to
operate under the control and guidance of the parent
company.
11. Multinational Corporations are quality and cost conscious
and are managed by professionals and expert. They have
their own organization culture and systems. Multinational
Corporations believe in doing more with less.
12. Multinational Corporations have well-developed research
and development facilities, financial resources and a well
established network of marketing, which is used to develop
new product or technology and then sell it throughout the
world.
13. In the past Multinational Corporations were established in
developing countries, but in recent years Multinational
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Corporations from developing countries like India, south


Korea, Japan, etc also shown are also operating at world
level.
14. Multinational Corporations may be owned and managed
privately or publicly
Most of the Multinational Corporations are nationally controlled
but internationally owned.
Q.60. What are TNCs? How are they different from MNCs?
Transnational corporation (TNC), also called multinational
enterprise (MNE), is a corporation or enterprise that manages
production or delivers services in more than one country. It can
also be referred as an international corporation. ILO defined
MNC as a corporation which has his managerial head quarters
in one country known as the home country and operates in
several other countries known as host countries.
The first modern TNC is generally thought to be the Dutch East
India Company. Nowadays many corporations have offices,
branches or manufacturing plants in different countries than
where their original and main headquarter is located.
This often results in very powerful corporations that have
budgets that exceed some national GDPs. Trancenational
corporations can have a powerful influence in local economies
as well as the world economy and play an important role in
international relations and globalization. The presence of such
powerful players in the world economy is reason for much
controversy.
Transnational corporations -- those corporations which operate
in more than one country or nation at a time -- have become
some of the most powerful economic and political entities in
the world today. From Joshua Karliner, in his book, The
Corporate Planet: Ecology and Politics in the Age of
Globalization [Sierra Club Books, 1997], we can gleam a host of
fundamental realizations, including the fact that many of these

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companies have far more power than the nation-states across


whose borders they operate.
For example, the combined revenues of just General Motors
and Ford -- the two largest automobile corporations in the world
-- exceed the combined Gross Domestic Product (GDP) for all of
sub-Saharan Africa. The combined sales of Mitsubishi, Mitsui,
ITOCHU, Sumitomo, Marubeni, and Nissho Iwai, Japans top six
Sogo Sosha or trading companies, are nearly equivalent to the
combined GDP of all of South America. Overall, fifty-one of the
largest one-hundred economies in the world are corporations.
The revenues of the top 500 corporations in the U.S. equal
about 60 percent of the countrys GDP. Transnational
corporations hold ninety percent of all technology and product
patents worldwide, and are involved in 70 percent of world
trade. More than thirty percent of this trade is intra- firm; in
other words, it occurs between units of the same corporation.
The number of transnational corporations in the world has
jumped from 7,000 in 1970 to 40,000 in 1995. While global in
reach, these corporations home bases are concentrated in the
Northern industrialized countries, where ninety percent of all
transnationals are based. More than half come from just five
nations: France, Germany, the Netherlands, Japan and the
United States. But despite their growing numbers, power is
concentrated at the top. i.e., the 300 largest corporations
account for one-quarter of the worlds productive assets.
The United Nations has justly described these corporations as
the productive core of the globalizing world economy. Their
250,000 foreign affiliates account for most of the world's
industrial capacity, technological knowledge, international
financial transactions, and ultimately the power of control. In
terms of energy, they mine, refine and distribute most of the
worlds oil, gasoline, diesel and jet fuel, as well as build most of
the worlds oil, coal, gas, hydroelectric and nuclear power
plants. They extract most of the worlds minerals from the
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ground. They manufacture and sell most of the worlds


automobiles, airplanes, communications satellites, computers,
home electronics, chemicals, medicines and biotechnology
products. They harvest much of the worlds wood and make
most of its paper. They grow many of the worlds major
agricultural crops, while processing and distributing much of its
food.
Given their dominance of politics, economics and technology, it
is not surprising to find the big transnationals deeply involved
in most of the worlds serious environmental crises.
Transnational corporations exert significant influence over the
domestic and foreign policies of the Northern industrialized
government that host them. Surprise! Indeed, the interests of
the most powerful governments in the world are often
intimately intertwined with the expanding pursuits of the
transnationals that they charter. At the same time,
transnational corporations are moving to circumvent national
governments. The borders and regulatory agencies of most
governments are caving in (or being paid off) to the New World
Order of globalization, allowing corporations to assume an ever
more stateless quality, leaving them less and less accountable
to any government anywhere.
These corporations, together with their host governments, are
reorganizing the world economic structures -- and thus the
balance of political power -- through a series of
intergovernmental trade and investment accords. These
treaties serve as the frameworks within which globalization is
evolving -- allowing international corporate investment and
trade to flourish across the Earth. They include:

The Uruguay Round of the General Agreement on Tariffs


and Trade (GATT)

The World Trade Organization, which was created to


enforce the GATT's rules.
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The proposed Multilateral Agreement on Investment.


(MAI)

The North American Free Trade Agreement (NAFTA).

The European Union (EU).

These international trade and investment agreements allow


corporations to circumvent the power and authority of national
governments and local communities, thus endangering
workers rights, the environment and democratic political
processes.
Q. 60. What are the benefits of MNCs to the Host country?
MERITS OF MULTINATIONAL CORPORATIONS
For some, Multinational Corporations are an invaluable dynamic
force and instrument for wider distribution of capital,
technology and employment. For others, they are monsters
which our present institutions, national or international, cannot
adequately control, a law to themselves with no reasonable
concept, the public interest or social policy can accept.
Multinational Corporations have no doubt been playing a vital
role in establishing new industries, transmitting resources,
technology and managerial skills and building up of physical
and social infrastructure required for rapid progress of the poor
countries. The services of Multinational Corporations are useful
to both developed as well as developing countries. They have
helped many countries, companies and industries to expand
and develop. These organisations confer the following benefits
upon the host and parent company:
The developing countries need both foreign capital and
technology to exploit and use available resources for
economic and industrial development. Multinational
Corporations can supply the required financial and technical
and other resources to the needy countries in exchange for
economic gains. They raise investment, capital in countries
where it is abundant and invest it where capital is scarce
and interest rates are high.

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They locate labour incentive operations where wages are


the lowest and thereby help raise incomes among the
worlds lowest income groups.
Technology is necessary to bring down the cost of
production, improve quality of goods, and produce goods of
uniform quality on a large scale. A developing country like
India cannot divert its limited resources to develop
technology of its own. Instead it can be bought readily by
paying a price. Multinational Corporations are agents
between developed and developing countries for transfer of
capital, technology, resources and raw materials. They help
less developed countries in obtaining latest techniques of
production without undergoing the slow process of
innovation, which involves invariably high costs.
They work to equalise the cost of factors of production
around the world. They provide an efficient means of
integrating national economies. Multinational Corporations
also help in creating some linkage effects of considerable
significance. Such linkage effects may be either in a
backward direction or a forward one.
In developing countries, despite growth of output by 6-10%
per unit, employment has been registering a growth rate of
roughly 1-3% only. Less developed countries under these
conditions are looking upon Multinational Corporations as
an alternative source to fill the saving investment and
foreign exchange gaps, which exist by and large in all
countries.
Multinational Corporations are dynamic and offer growth
opportunities for domestic industries. The professional
approach of Multinational Corporations in production and
marketing helps to increase profitability of local industries.
They also assist local producers to enter the global markets
through their well-established international networks of
production and marketing.
Multinational Corporations also stimulate domestic
enterprises because to support their own operations, the
Multinational Corporations may encourage and assist
domestic suppliers. They help increase the competition and
break monopoly.
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Multinational Corporations have access to many markets in


different countries. They have the necessary skill and
expertise to market products at international level. Further
Multinational Corporations can undertake selling of products
from one country to another on a large scale. Through their
global marketing operations they promote exports from less
developed countries and help them to develop a highly
productive export sector.
They also kindle a managerial revolution in the host
countries through professional management and the
employment of highly sophisticated management
techniques.
The home country or the country where the Multinational
Corporations has its head office also benefits since the
earnings of the Multinational Corporations are deposited
with the home country. Therefore the home country earns
substantial amount of foreign exchange without much
efforts.
It enhances the goodwill and reputation of the home
country. It also ensures better bi-lateral relations between
host and home country.
Q. What are DEMERITS OF MULTINATIONAL
CORPORATIONS
Multinational Corporations have been subject to a number of
criticisms, like those mentioned below:
The goals of Multinational Corporations and the host
country differ ideologically. The goal of the Multinational
Corporations is based on the growth and profit philosophy
while that of host Government is based on growth and
welfare. Both Multinational Corporations and host
Government has nationalist sentiments and would certainly
like to protect the interests of their nation at any cost. This
creates a conflict between the two parties.
Multinational Corporations are criticised on the point that
they supply out-dated technology at high costs. Most of the
time out-dated, obsolete and unwanted technology of
developed countries is dumped on the soils of the
developing countries. It is also argued that the technology
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transfer has failed to meet the local demands. Thus


developing countries are forced to pay a high price for substandard technology. To some extent this criticism is true.
Multinational Corporations develop new technology
primarily for their own benefits. They do not take or develop
technology to suit the needs of a particular country. They
are more guided and governed by economic considerations
than individual needs of a country.
Multinational Corporations are guided by pure economic
considerations and therefore has less regard for developing
countries. To them a country is like a customer and trade
means business. Multinational Corporations technology is
designed for worldwide profit maximisation, not the
development needs of poor countries in particular,
employment needs and relative factor scarcities in these
countries. In general, it is asserted, the imported
technologies are not adapted to the consumption needs, the
size of the domestic markets, resource availabilities and the
stage of development of many of the LDCs.
Through their power and flexibility, Multinational
Corporations can evade or undermine national economic
autonomy and control, and their activities may be inimical
to the national interests of particular countries. There are
instances of Multinational Corporations unduly interfering in
the political ad social affairs of the small and under
developed countries.
Multinational Corporations buys raw materials at a cheaper
rates and exports finished products at much higher rates to
host countries. Japan has been importing Iron ore from India
as raw material for its industries at a lower price and selling
steel at a higher price.
The working of Multinational Corporations is a burden on the
limited resources of the developing countries. They charge
high price in the form of dividend, commission and royalty
paid by local subsidiary to its parent company. Further,
Multinational Corporations are reluctant to accept the
returns in local currency. This leads to outflow of hard
earned foreign currency.

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Multinational Corporations prefer to invest in area of low


risk and high profitability. Issues like social welfare, national
priority, etc do not find any place on the agenda of
Multinational Corporations. This is evident from the
consumer goods industry. In India virtually from toothbrush
to talcum powder, we find the presence of Multinational
Corporations.
Multinational Corporations may destroy competition and
acquire monopoly. The tremendous power of the global
corporations poses the risk that they may threaten the
sovereignty of the nations in which they do business.
Multinational Corporations can have unfavourable effect on
the balance of payments of a country, For Instance, the
coca-cola, until 1978 had remitted abroad nearly Rs. 6
crores on an initial investment of Rs. 6.6 lakhs in India.
Multinational Corporations retard the growth of employment
in the home country.
The transnational corporations cause the fast depletion of
some of the non-renewal resources in the host country.
Q. What are business ethics? Why is it needed in International
Business?
Business ethics (also known as Corporate ethics) is a form of
applied ethics or professional ethics that examines ethical
principles and moral or ethical problems that arise in a business
environment. It applies to all aspects of business conduct and is
relevant to the conduct of individuals and business
organizations as a whole. Applied ethics is a field of ethics that
deals with ethical questions in many fields such as medical,
technical, legal and business ethics.
In the increasingly conscience-focused marketplaces of the 21st
century, the demand for more ethical business processes and
actions (known as ethicism) is increasing.[1] Simultaneously,
pressure is applied on industry to improve business ethics
through new public initiatives and laws (e.g. higher UK road tax
for higher-emission vehicles).[2] Businesses can often attain
short-term gains by acting in an unethical fashion; however,
such behaviours tend to undermine the economy over time.
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Business ethics can be both a normative and a descriptive


discipline. As a corporate practice and a career specialization,
the field is primarily normative. In academia descriptive
approaches are also taken. The range and quantity of business
ethical issues reflects the degree to which business is perceived
to be at odds with non-economic social values. Historically,
interest in business ethics accelerated dramatically during the
1980s and 1990s, both within major corporations and within
academia. For example, today most major corporate websites
lay emphasis on commitment to promoting non-economic social
values under a variety of headings (e.g. ethics codes, social
responsibility charters). In some cases, corporations have
redefined their core values in the light of business ethical
considerations (e.g. BP's "beyond petroleum" environmental
tilt).
International business ethics
While business ethics emerged as a field in the 1970s,
international business ethics did not emerge until the late
1990s, looking back on the international developments of that
decade.[6] Many new practical issues arose out of the
international context of business. Theoretical issues such as
cultural relativity of ethical values receive more emphasis in
this field. Other, older issues can be grouped here as well.
Issues and subfields include:

The search for universal values as a basis for international


commercial behaviour.
Comparison of business ethical traditions in different
countries. Also on the basis of their respective GDP and
[Corruption rankings].

Comparison of business ethical traditions from various


religious perspectives.

Ethical issues arising out of international business


transactions; e.g. bioprospecting and biopiracy in the
pharmaceutical industry; the fair trade movement;
transfer pricing.

Issues such as globalization and cultural imperialism.

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Varying global standards - e.g. the use of child labor.

The way in which multinationals take advantage of


international differences, such as outsourcing production
(e.g. clothes) and services (e.g. call centres) to low-wage
countries.

The permissibility of international commerce with pariah


states.

Foreign countries often use dumping as a competitive threat,


selling products at prices lower than their normal value. This
can lead to problems in domestic markets. It becomes difficult
for these markets to compete with the pricing set by foreign
markets. In 2009, the International Trade Commission has been
researching anti-dumping laws. Dumping is often seen as an
ethical issue, as larger companies are taking advantage of
other less economically advanced companies.

Q. What is business value? What are its components?


business value is an informal term that includes all forms of
value that determine the health and well-being of the firm in
the long-run. Business value expands concept of value of the
firm beyond economic value (also known as economic profit,
Economic value added, and Shareholder value) to include other
forms of value such as employee value, customer value,
supplier value, channel partner value, alliance partner value,
managerial value, and societal value. Many of these forms of
value are not directly measured in monetary terms.
Business value often embraces intangible assets not
necessarily attributable to any stakeholder group. Examples
include intellectual capital and a firm's business model. The
Balanced scorecard methodology is one of the most popular
methods for measuring and managing business value.
Components of Business Value
Shareholder Value
For a publicly traded company, shareholder value is the part of
its capitalization that is equity as opposed to long-term debt. In
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the case of only one type of stock, this would roughly be the
number of outstanding shares times current shareprice. Things
like dividends augment shareholder value while issuing of
shares (stock options) lower it. This Shareholder value added
should be compared to average/required increase in value, also
known as cost of capital.
For a privately held company, the value of the firm after debt
must be estimated using one of several valuation methods, s.a.
discounted cash flow or others.
Customer Value
Customer value is the value received by the end-customer of a
product or service. "End-customer" can include a single
individual (consumer) or an organization with various
individuals playing different roles in the buying/consumption
processes. Customer value is conceived variously as utility,
quality, benefits, and customer satisfaction.
Employee Value
Channel Partner Value
The value a business underpins on partner relationships in the
business. Partner value here stresses that it can be critical to a
firms functioning. It ceases to exist or carry out business
activities if partner value is diminished or lost.
Supplier Value
Managerial Value
Societal Value
Q.What is Corruption?
The word corrupt (Middle English, from Latin corruptus, past
participle of corrumpere, to destroy. when used as an adverb
literally means "utterly broken". In modern English usage the
words corruption and corrupt have many meanings:

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Political corruption: the abuse of public power, office, or


resources by government officials or employees for
personal gain, e.g. by extortion, soliciting or offering
bribes.[2]
Corporate corruption: corporate criminality and the abuse
of power by corporation officials, either internally or
externally.

Putrefaction: the natural process of decomposition in the


human and animal body following death.

Data corruption: an unintended change to data in storage


or in transit.

Linguistic corruption: the change in meaning to a


language or a text introduced by cumulative errors in
transcription as changes in the language speakers'
comprehension.

Bribery in politics, business, or sport (including match


fixing).

Q. What is Relationship Marketing?


Relationship marketing is a form of marketing developed from
direct response marketing campaigns conducted in the 1970s
and 1980s which emphasizes customer retention and
satisfaction, rather than a dominant focus on point-of-sale
transactions.
Relationship marketing differs from other forms of marketing in
that it recognizes the long term value to the firm of keeping
customers, as opposed to direct or "Intrusion" marketing, which
focuses upon acquisition of new clients by targeting majority
demographics based upon prospective client lists.
Q. What is HRM Strategy?
Q. What is relationship marketing? What are its benefits?
Relationship marketing is a form of marketing developed from
direct response marketing campaigns conducted in the 1970s
and 1980s which emphasizes customer retention and

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COMPILED
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BY: VISHAL KADAM

satisfaction, rather than a dominant focus on point-of-sale


transactions.
Relationship marketing differs from other forms of marketing in
that it recognizes the long term value to the firm of keeping
customers, as opposed to direct or "Intrusion" marketing, which
focuses upon acquisition of new clients by targeting majority
demographics based upon prospective client lists.
Q. What is international financial market?
International Financial Markets and the Implications for
Monetary and Financial Stability", was chosen in recognition of
the growing role played by asset markets and financial factors
in shaping the environment in which monetary policy operates
and in triggering episodes of financial instability.
Q. What is deregulation financial market?
Deregulation is the removal or simplification of government
rules and regulations that constrain the operation of market
forces.[1] Deregulation does not mean elimination of laws
against fraud, but eliminating or reducing government control
of how business is done, thereby moving toward a more free
market.
Q. What is integration of financial market?
Q. What is cross border alliances? Why is it required?
Cross-border alliances can be legally defined and therefore
readily counted. Their number has surged since the mid 1990s,
a trend particularly evident among U.S., European and Asian
companies According to Booz-Allen & Hamilton, more than
20,000 cross border alliances were formed between 1996 and
2005.
Almost all companies surveyed agreed that cross-border
alliances would grow in importance to their business. Most
cross border alliances are concentrated in relatively few
industries--those typified by high entry costs, globalization,
scale economies, and rapidly changing technologies--and span
all elements of the value chain with particular emphasis on joint
development activities.

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International Business

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Given the range and scope of cross border activity and an


equivalent range and scope of themes in cross-border alliances
it is not surprising to see that the result is a complex patchwork
of cross-border alliances, with emphasis on short- and longterm issues. As this occurs, the industry structure and the
rational behavior of major players within the industry structure
is also undergoing major change.
Cross border alliances are international agreements on
collaboration between two or more independent companies
who exploit a tangible or intangible asset They consist primarily
of joint ventures and cooperative business arrangements
involving shared risk, cost, or reward without full ownership and
with a significant degree of exclusivity. Supplier contracts are
the loosest form of cross border alliance. Management or
technology contracts are often a "stepping stone to further
investment, and joint ventures are a more significant
commitment of both tangible and intangible resources. My
study focused on cross-border joint ventures.
Cross-border alliances are only one of three options executives
can use to achieve corporate goals and objectives in the face of
changing market conditions. They are formed when they yield
benefits that cannot be achieved in-house or through outright
acquisition or merger. They have beers used by managements
to:
* Secure economies of scale in the R&D and manufacturing
functions to offset the higher cost and risk of bringing new
products to the market without losing the identity or
independence of the company in the market place.
* Reduce the cost and time required to establish major
positions in new geographic markets compared with the cost of
direct investment or acquisition.
* Eliminate difficulties in successfully consummating mergers of
equals that are complementary and where two managements
can agree on a common vision and plan. particularly givers the
poor experience of cross-border mergers in the 1980s and
1990s.
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* Participate in some of the more rapidly growing markets


where involvement of a local partner is either required (eg. joint
ventures in parts of Asia and South America) or desirable.
Once in place however cross-border alliances are frequently
difficult to manage and have their own costs Few of them have
been used as vehicles to pursue multiple opportunities and
even fewer could be considered a complete success on the
scale needed to make a fundamental impact on the
development of the company. In particular, links with a partner
can create inflexibility, coordination difficulties and risk of
competitive conflict.
Q. What is Euro Market?
The market comprised of the member countries of the
European Union (EU). The Euromarket includes countries that
have fixed external tariffs and no internal tariffs, and follow the
monetary policy set by the European Central Bank. While many
member states do use the Euro as their common currency, the
Euromarket applies to all states in the EU.
Q. What is LIBOR?
London Inter-Bank Offer Rate. The interest rate that the banks
charge each other for loans (usually in Eurodollars). This rate is
applicable to the short-term international interbank market, and
applies to very large loans borrowed for anywhere from one day
to five years. This market allows banks with liquidity
requirements to borrow quickly from other banks with
surpluses, enabling banks to avoid holding excessively large
amounts of their asset base as liquid assets. The LIBOR is
officially fixed once a day by a small group of large London
banks, but the rate changes throughout the day.
Q. What is emerging markets? Why advance countries are
interested in them?
Q. What is Pre-shipment finance?
Pre-shipment Finance :
Pre-shipment funds are available in the form of credit or
loan prior to the actual shipment of goods. These finances help
an exporter in purchasing raw material & components, buying
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COMPILED
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equipment & machinery & manufacturing or sorting the goods


meant for export. Pre-shipment finance is also called as
PACKING CREDIT Pre-shipment finance is available in the
following forms:
1.
2.
3.
4.
5.
6.

Extended Packing Credit Loan


Packing Credit Loan [Hypothecation]
Packing Credit Loan [Pledge]
Secured Shipping Loan
Advance Against Back To Back Letter Of Credit
Advance Against Red Clause Or Green Clause Letter Of
Credit
7. Packing Credit For Imports Against Advance License
Entitlement.
8. Pre-shipment Credit in Foreign Currency System
9. Credit Against Proceeds Of Cheques /Drafts etc. Received
Directly Towards Advance Payment For Exports.
Extended Packing Credit loan :
This facility, though for a short period, is granted to those
exporters who are rated first class by the bank. Loan is granted
for making advance payment to suppliers for acquiring
exportable goods. Once goods are taken by exporter in his own
custody, the bank converts the clean advance into
hypothication or pledge loan.
Packing Credit loan [Hypothication] :
In this case packing credit is extended for obtaining raw
material, work-in-progress & finished goods. The goods
acquired are treated as security for the loan granted. The
exporter is in possession of the goods & is required to execute
hypothecation deed in favour of the bank. The activity of the
production or conversion of such raw materials & WIP into
finished goods can be undertaken even by sub contractors.

Packing Credit Loan [Pledge] :


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This facility is available in case of seasonal goods or those


acquired by the exporters under odd lots. The documents
relating to acquisition of raw-materials are pledged to the bank
while possession of the goods remain with the exporter.
Secured Shipping Loan :
Once the raw material is converted in to the finished
goods, the same has to be handed over to transport operator or
to the clearing & forwarding agent. The security loan can be
obtained only after this. This type of loan is of short duration &
is released against lorry receipt or railway receipt. The only
condition which banks insist on, is that the goods are handled
by approved transport operators or clearing & forwarding
agents.
Advance Aginst Back To Back Letter Of Credit :
In this exporter opens a letter of credit in favour of the
supplier instead of blocking the funds for purchase of raw
material or finished products from manufacturers. When an
exporter who has received original letter of credit from
importer, requests his banker to open a L/C in favour of his
suppliers. Generally banks are reluctant to open back to back
L/C, but if it is opened, the original L/C is retained by the bank
as a security.
Advance Against Red Clause Or Green Clause Letter Of Credit :
Red clause L/C authorizes the negotiating bank to make
advances to the beneficiary (the exporter) to enable him to
purchase the goods for export. Until & unless the goods are
purchased & shipped, the exporter cannot obtain bill of lading
& insurance policy. Incase he needs packing credit, he has to
request the buyer to arrange for opening a red clause letter of
credit which contains a special clause in red L/C authorizing &
advancing bank to make either immediate payment to the
beneficiary in full or in part as per the terms stated in the L/C &
against specified documents & conditions. After executing the
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order, the exporter draws a draft asper the terms of credit &
the proceeds thereof are first utilized by the bank in repayment
of the advance under the red clause agreement.
The term Green Clause envisages the grant of storage
facilities at the port in addition to the pre-shipment credit
facility to the beneficiary [the exporter]. The opening of such
credit, covering import of goods, in India requires prior approval
of RBI.
Packing Credit For Imports Against Advance License Entitlement
:
This credit facility is available to manufacturer exp9orters
who are not in receipt of L/C or confirmed export order. Finance
is made available for imports against license for manufacturer
of export goods. However, two conditions need to be fulfilled.
They are:
The bank must be satisfied that the imported material will be
utilized for the goods meant for export only;
The confirmed order or L/C should be produced within
reasonable time not exceeding 60 days from the date of
advance.
Credit Against Proceeds Of Cheque/Drafts etc. :
Bank can grant export credit at concessional rate of interest in
such cases subject to following condition have been fulfilled :
Accommodation is granted for the transit period stipulated by
FEDAI for collection of the instruments or till the date of
realization of proceeds thereof whichever is earlier.
The bank`s past experience with the borrower & the letter`s
track records are good.
The bank must get satisfactory evidence that the instrument
represents the advance remitted against as export order.
The trade practices suggest the possibility of such
instrument being received towards advance payments or the
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COMPILED
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exporters are able to satisfy the ban with reasons for receiving
payments directly.
It is ensured by the bank in due course that the goods
have been actually shipped.
Rate of Interest : Pre-shipment advances are granted to the
exporters at a very concessional rate of interest. The present
rates of interest ( revised W.E.F. 24th June 1993 ) are as under :Pre-shipment Advance up to
initial 180 days

13 % Per Annum.
( Concessional Rate )

Pre-shipment Advance for a


further period of 90 days

15 % Per Annum.
( Concessional Rate )

Pre-shipment Advance beyond


270 days up to 360 days
Pre-shipment advance against
incentives receivable from the
government covered by ECGC
guarantees. ( up to 90 Days )

Bankers are free to determine


Rate
13 % Per Annum.

Q. What is Packing Credit? What are its conditions?


It can be given on production of sufficient evidence i.e. cable &
telex / fax, the L/C or firm export order received by the exporter
and lodged with the bank within a reasonable time { ( as
agreed ) upon by the bank ) of the grant of such advance. It
should reveal quantity & particulars of goods, value of the
order, date of shipment / delivery period, terms of payment and
name of the buyer.
1) It can also be given under the ' Red Clause ' L/C i.e. at the
instance and responsibility of the foreign bank establishing
L/C. In a Red Clause L/C, the packing credit advance is
made against the deposit of L/C and execution of the letter
of pledge / hypothecation / trust receipt and other loan
documents.

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2) Exporters who do not receive the export order in their name


such as suppliers to merchant exporters and Export / Trading
/ Houses, are also eligible provided :i) They produce a letter from the concerned merchant /
Export /Trading
House that a portion of the ' Order ' has been allotted to
them, detailing the goods to be supplied.
ii) The merchant exporter or Export / Trading neither has
availed nor wish to seek packing credit in respect of the
apportioned order, from any other bank / source.
iii) The letter from merchant exporter or Export / Trading House
is countersigned by the bank advising the L/C.
4) Sub-Contractors or Sub - Suppliers supplying the goods for
exports under a consortia arrangement are also eligible for
packing credit.
5) Where the goods are to be manufactured by the
manufacturer
and processed / packed etc. by Export / Trading House
/Merchant Exporter before making the shipment. Preshipment Finance can be availed by both the parties i.e. the
supplier as well as Export / Trading House or Merchant
Exporter for the required period, subject to the condition
that the total period of facility availed by both does not
exceed the maximum period permitted for concessional
finance.
The pre-shipment credit is required to be liquidated from the
proceeds of relative export bills when purchased, negotiated or
discounted. However, this condition has been relaxed by the
RBI. For instance, if for any reason, an exporter who has
availed of pre-shipment credit, is confronted with the
cancellation of the export order and, hence, unable to adjust
the credit against relative export bill proceeds, the wiping off
such out standings through export bill drawn on other importers
either in same country or in any other country is permitted,
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COMPILED
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provided the relative bills are in respect of the very goods, for
which credit was originally granted.
Q. What is Currency Risk in export trade?
Definition:
The risk that a business' operations or an investment's value
will be affected by changes in exchange rates. For example, if
money must be converted into a different currency to make a
certain investment, changes in the value of the currency
relative to the American dollar will affect the total loss or gain
on the investment when the money is converted back. This risk
usually affects businesses, but it can also affect individual
investors who make international investments. also called
exchange rate risk.
Q. What is exchange rate?
Rate at which one currency may be converted into another. The
exchange rate is used when simply converting one currency to
another (such as for the purposes of travel to another country),
or for engaging in speculation or trading in the foreign
exchange market. There are a wide variety of factors which
influence the exchange rate, such as interest rates, inflation,
and the state of politics and the economy in each country also
called rate of exchange or foreign exchange rate or currency
exchange rate.
Q. What is Letter of Credit? What are the parties to letter of cre
dit ?
A standard, commercial letter of credit is a document issued
mostly by a financial institution, used primarily in trade finance,
which usually provides an irrevocable payment undertaking
Parties to a Letter of Credit:
Following persons are generally parties, to a letter of Credit:

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COMPILED
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Buyer and seller agree terms,


including means of transport, period
of credit offered (if any), latest date of
shipment, Incoterm to be used.

Buyer applies to bank for issue of


letter of credit. Bank will evaluate
buyer's credit standing, and may
require cash cover and/or reduction of
other lending limits.
Issuing bank issues L/C, sending it to
the Advising bank by airmail or (more
commonly) electronic means such as
telex or SWIFT.

Advising bank establishes authenticity


of the letter of credit using signature
books or test codes, then informs
seller (beneficiary). Advising bank
MAY confirm L/C, i.e. add its own
payment undertaking.
Seller should now check that L/C
matches commercial agreement, and
that all its terms and conditions can
be satisfied, (e.g. all documents can
be obtained in good time.) If there is
anything that may cause a problem,
an AMENDMENT must be requested.

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COMPILED
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Seller ships the goods, then


assembles the documents called for
in the L/C (invoice, transport
document etc.) Before presenting the
documents to the bank, the seller
should check them for
discrepancies with the L/C, and
correct the documents where
necessary.
The documents are presented to a
bank, often the Advising bank. The
Advising bank checks the documents
against the L/C. If the documents are
compliant, the bank pays the seller
and forwards the documents to the
Issuing bank.
The Issuing bank now checks the
documents itself. If they are in order
(and it is a sight L/C), it reimburses
the seller's bank immediately.

The Issuing bank debits the buyer and


releases the documents (including
transport document), so that the
buyer can claim the goods from the
carrier.
Benificiary : The exporter of goods in whose favour the L/C
has been established.
Customer/importer : The person we intends to import the
goods and instructs bank to established Letter of Credit.

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Issuing Bank: The Banker in the importers Country who


opened the L/C.
Correspondent Bank or Advising Bank: The banker in the
exporters country, who is authorised by the issuing bank
to advise the beneficiary of the Credit and to effect such
payment or to accept and pay such bills of exchange or to
negotiate against Stipulated documents and on
Compliance of Stipulated terms and condition specified by
the importer on the exporter.
Confirming Bank: The banker in the exporters(beneficiary)
country, who at the desire of the beneficiary adds
confirmation to the letter of Credit so that beneficiary can
get payment without recourse from the Confirming bank.
The Confirming bank may be correspondent bank itself or
some other bank.
Generally following types of Letter of Credit are in operation.

Revocable or Irrevocable Letters of Credit


Confirmed Credit
Transferable Credit
With or without Recourse Credit
Revolving Letter of Credit
Transit Credit
Back to Back Credit
The Sight Credit
The Credit available against Time Draft (Usance Credit)
The Deferred payment Credit.

Q) What is Bill of Ladding?


A Bill of ladding is the document of TITLE (sometimes
referred to as a BOL,or B/L) is a document issued by a carrier
to a shipper against Mate Receipt, acknowledging that specified
goods have been received on board as cargo for conveyance to
a named place for delivery to the consignee who is usually
identified. The standard short form bill of lading is evidence of
the contract of carriage of goods and it serves a number of
purposes:

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It is evidence that a valid contract of carriage, or a


chartering contract, exists, and it may incorporate the full
terms of the contract between the consignor and the
carrier by reference (i.e. the short form simply refers to
the main contract as an existing document, whereas the
long form of a bill of lading (connaissement intgral)
issued by the carrier sets out all the terms of the contract
of carriage);
It is a receipt signed by the carrier confirming whether
goods matching the contract description have been
received in good condition (a bill will be described as
clean if the goods have been received on board in
apparent good condition and stowed ready for transport);
and
It is also a document of transfer, being freely transferable
but not a negotiable instrument in the legal sense, i.e. it
governs all the legal aspects of physical carriage, and, like
a cheque or other negotiable instrument, it may be
endorsed affecting ownership of the goods actually being
carried. This matches everyday experience in that the
contract a person might make with a commercial carrier
like FedEx for mostly airway parcels, is separate from any
contract for the sale of the goods to be carried, however it
binds the carrier to its terms, irrespectively of who the
actual holder of the B/L, and owner of the goods, may be
at a specific moment.

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Q) Explain the role of EXIM Bank in Export promotion?


Q) What is export finance? Explain the role of exim bank in
export finance?
OR
Q) What is Exim Bank? What are its Function?
EXIM BANK FINANCE
i

The Export - Import Bank of India ( EXIM Bank ) provides


financial assistance to promote Indian Exporters through direct
financial assistance, overseas investment finance for export
production and export development, pre-shipment credit, buyer's
credit, lines of credit, re-lending facilities, export bill rediscounting,
refinance to commercial banks, finance for computer software
exports, finance for export marketing and bulk import finance to
commercial banks. The EXIM bank also extends non-funded facility
to Indian exporters in the form of guarantees. The diversified
lending programmes of the EXIM banks now covers various stage of
exports i.e. from the development of export markets to expansion of
production capacity, project exports, exports of technology services
and export of computer software.
Financing Programmes
Loans to Indian Companies :1) Deferred payment exports :- Term finance is provided to Indian
exporters of eligible goods & services which enables them to
offer deferred credit to overseas buyers. Deferred credit can also
cover Indian Consultancy, technology & other services.
Commercial banks participate in this programme directly or
under risk syndication arrangements.
2) Pre-shipment credit :- Finance is available from EXIM bank for
companies executing export contracts involving cycle time
exceeding 6 months. The facility also enables provision of rupee
mobilisation expenses for construction / turnkey project
exporters.
3) Term Loan for Export Production :- EXIM bank provides term loan /
deferred payment guarantees to 100 % EOUs, units in free trade
zones and computer software exporters. In collaboration with
International Finance Corporation, Washington, EXIM bank
provides to enable small & medium enterprises upgrade export
production capability.

4) Facilities for deemed Exports :- Deemed exports are eligible for


funded & non-funded facilities from EXIM bank.
5) Overseas Investment Finance :- Indian Companies establishing
joint ventures overseas are provided finance towards their
contribution in the joint ventures.
6) Finance for Export Marketing :- This programme, which is a
component of a World Bank Loan, helps exporters implement
their export market development plans.
Loans to Foreign Governments, Companies & Financial Institutions :1) Overseas Buyer's Credit :- Credit is directly offered to foreign
entities for import of eligible goods and related services on
deferred payments.
2) Lines of Credit :- Besides Foreign Governments, Finance is
available to foreign financial institutions & Govt. agencies to on
lend in the respective country for import of goods and services
from India.
3) Relating facility to banks overseas :- Re-lending facility is
extended to banks overseas to enable them to provide term
finance to their clients world-wide for imports from India.
Loans to Commercial Banks in India :1) Export Bills Re-discounting :- Commercial banks in India who are
authorised to deal in foreign exchange can re-discount their short
term export bills with EXIM bank, for an unexpired usance period
of not more than 90 days.
2) Re-finance of Export Credit :- Authorised dealers in foreign
exchange can obtain from EXIM bank 100 % re-finance of
deferred payment loans extended for export of eligible Indian
goods.
Guaranteeing of Obligations :EXIM bank participates with commercial banks in India in the
issue of guarantees required by Indian Companies for export
contracts and for execution of overseas construction and turnkey
projects.

ORGANISATIONS :-

EXIM bank is fully owned by the Govt. of India and is managed by a


Board of Directors with repatriation from the Govt., Financial
Institutions, Banks, Business Community.
The operations are
grouped into Project Finance, Trade Finance, Overseas Investment
Finance supported by Planning & Co-ordination groups.

Schemes of assistance operated by EXIM Bank of India :-

A)For Indian Exporters :1) Export ( Supplier's ) Credit :- enables Indian exporters to extend
item credit to importer overseas, of eligible Indian goods.
2) Finance for Consultancy & Technology Services :- enables Indian
exporters of consultancy and technology services to extend
credit to importer overseas.
3) Pre-shipment Credit :- enables Indian exporters to buy R/M and
other inputs for export contracts involving cycle time exceeding 6
months.
4) Foreign Currency Pre-shipment Credit :- enables eligible exporter
to access finance through commercial banks for imports of R/M &
other ouputs needed for export production.
5) Finance for EOUs & units in EPZs :- enables Indian companies to
acquire indigeneous and imported machinery & other items for
export production.
6) Foreign Currency lines of credit for imports :- enables eligible
export oriented units to acquire imported machinery for export
production.
7) Production Equipment.Finance :- enables eligible export-oriented
units to acquire equipments.
8) Overseas Investment Finance :- enables Indian promoters to
finance equity contribution in joint ventures set up abroad.
9) Project Preparatory Services Overseas :- enables Indian
consultancy firms undertake project preparatory studies in
developing countries by grant / loan financing.
10) Business Advisory & Technical Assistance Services Overseas :enables
Indian
Consultancy
firms
assignments in select countries financing.

undertake

11) Africa Project Development facility :- enables Indian

specific

consultancy firms undertake specific assignment in Sub-Saharan


Africa through grant financing.
12) EC International Investment Partners Facility :- enables setting
up of joint ventures in India between Indian Companies &
enterprises in the European Community.
B) For Commercial Banks :1) Re-finance of Export Supplier's Credit :- enables banks to offer
credit to Indian exporters of eligible goods, who extend term
credit over 180 days to foreign importer overseas.
2) Export bills re-discounting : enables banks to re-discount export
bills with usance not exceeding 180 days.
3) Re-lending facility :- enables banks overseas to make available
term finance to their client, for import of eligible Indian goods.
4) Re-finance of Term Loans to EOUs :- enables banks to offer credit
to eligible export-oriented units to acquire indigeneous and
imported machinery and other assets for export production.
5) Re-finance of term loans for Computer Software Exports :enables acquisition of imported and indigeneous computer
system and project related assets.
6) Small Scale Industry ( SSI ) Export Bills Re-discounting :- enables
banks to re-discount export bills of their SSI customers with
usance not exceeding 90 days.
7) Bank Import Finance :- enables banks to offer to importers for
bulk import of consumable inputs.
C) For Overseas Entities :-

1) Lines of Credit :- enables overseas financial institutions, foreign


governments, their agencies to on-lend terms loans to finance
import of eligible goods from India.
2) Buyer's Credit :- enables overseas buyers to import eligible goods
from India on deferred credit terms.
Q) What is packing credit? What are its condition?
Packing credit is the another name for preshipment finance
Pre-shipment funds are available in the form of credit or loan prior

to the actual shipment of goods. These finances helps an exporter


in purchasing raw material & components, buying equipment &
machinery & manufacturing or sorting the goods meant for export.
Pre-shipment finance is available in the following forms :
1.
2.
3.
4.
5.
6.
7.

Extended Packing Credit Loan


Packing Credit Loan [Hypothecation]
Packing Credit Loan [Pledge]
Secured Shipping Loan
Advance Against Back To Back Letter Of Credit
Advance Against Red Clause Or Green Clause Letter Of Credit
Packing Credit For Imports Against Advance License
Entitlement.
8. Pre-shipment Credit in Foreign Currency System
9. Credit Against Proceeds Of Cheques /Drafts etc. Received
Directly Towards Advance Payment For Exports.
Extended Packing Credit loan :
This facility, though for a short period, is granted to those
exporters who are rated first class by the bank. Loan is granted for
making advance payment to suppliers for acquiring exportable
goods. Once goods are taken by exporter in his own custody, the
bank converts the clean advance into hypothication or pledge loan.
Packing Credit loan [Hypothication] :
In this case packing credit is extended for obtaining raw
material, work-in-progress & finished goods. The goods acquired are
treated as security for the loan granted. The exporter is in
possession of the goods & is required to execute hypothication deed
in favour of the bank. The activity of the production or conversion of
such raw materials & WIP into finished goods can be undertaken
even by sub contractors.

Packing Credit Loan [Pledge] :


This facility is available in case of seasonal goods or those
acquired by the exporters under odd lots. The documents relating to
acquisition of raw-materials are pledged to the bank while
possession of the goods remain with the exporter.
Secured Shipping Loan :

Once the raw material is converted in to the finished goods,


the same has to be handed over to transport operator or to the
clearing & forwarding agent. The security loan can be obtained only
after this. This type of loan is of short duration & is released against
lorry receipt or railway receipt. The only condition which banks
insist on, is that the goods are handled by approved transport
operators or clearing & forwarding agents.
Advance Aginst Back To Back Letter Of Credit :
In this exporter opens a letter of credit in favour of the supplier
instead of blocking the funds for purchase of raw material or
finished products from manufacturers. When an exporter who has
received original letter of credit from importer, requests his banker
to open a L/C in favour of his suppliers. Generally banks are
reluctant to open back to back L/C, but if it is opened, the original
L/C is retained by the bank as a security.
Advance Against Red Clause Or Green Clause Letter Of Credit :
Red clause L/C authorizes the negotiating bank to make
advances to the beneficiary (the exporter) to enable him to
purchase the goods for export. Until & unless the goods are
purchased & shipped, the exporter cannot obtain bill of lading &
insurance policy. Incase he needs packing credit, he has to request
the buyer to arrange for opening a red clause letter of credit which
contains a special clause in red L/C authorizing & advancing bank to
make either immediate payment to the beneficiary in full or in part
as per the terms stated in the L/C & against specified documents &
conditions. After executing the order, the exporter draws a draft
asper the terms of credit & the proceeds thereof are first utilized by
the bank in repayment of the advance under the red clause
agreement.
The term Green Clause envisages the grant of storage facilities
at the port in addition to the pre-shipment credit facility to the
beneficiary [the exporter]. The opening of such credit, covering
import of goods, in India requires prior approval of RBI.
Packing Credit For Imports Against Advance License Entitlement :

This credit facility is available to manufacturer exporters who


are not in receipt of L/C or confirmed export order. Finance is made
available for imports against license for manufacturer of export
goods. However, two conditions need to be fulfilled. They are:

The bank must be satisfied that the imported material will be


utilized for the goods meant for export only;
The confirmed order or L/C should be produced within reasonable
time not exceeding 60 days from the date of advance.
Credit Against Proceeds Of Cheque/Drafts etc. :
Bank can grant export credit at concessional rate of interest in
such cases subject to following condition have been fulfilled :
Accommodation is granted for the transit period stipulated by FEDAI
for collection of the instruments or till the date of realization of
proceeds thereof whichever is earlier.
The bank`s past experience with the borrower & the letter`s track
records are good.
The bank must get satisfactory evidence that the instrument
represents the advance remitted against as export order.
The trade practices suggest the possibility of such instrument
being received towards advance payments or the exporters are able
to satisfy the ban with reasons for receiving payments directly. It is
ensured by the bank in due course that the goods have been
actually shipped.
Q) What is L/C? What is its importance in Export Finance?
Refer Pg. No 58 & also add the below said
Negotiation Bill Drawn Under L/C :An exporter can avail of postshipment credit by drawing bills or drafts under the Letter Of Credit.
The bank insists on production of the necessary documents as
stated in the L/C. If all documents are in order the bank negotiate
the bill & advance is granted to the exporter.

Q) What is financial risk? How to evaluate the financial risk in


International Business?
Q) What are import export documents? What is the legal
importance of the documents?
The importers are required to furnish the following documents
along with Bill of Entry

Invoice
Packing list
Letter of guarantee of bank
Insurance policy
Catalogue
Contract of suppliers
Price list
Import license
Insurance policy
Bill of Lading
Certificate of origin

Introduction
An exporter without any commercial contract is completely exposed
of foreign exchange risks that arises due to the probability of an
adverse change in exchange rates. Therefore, it becomes important
for the exporter to gain some knowledge about the foreign
exchange rates, quoting of exchange rates and various factors
determining the exchange rates. In this section, we have discussed
various topics related to foreign exchange rates in detail.
Export from India required special document depending upon the
type of product and destination to be exported. Export Documents
not only gives detail about the product and its destination port but
are also used for the purpose of taxation and quality control
inspection certification.
Shipping Bill / Bill of Export
Shipping Bill/ Bill of Export is the main document required by the
Customs Authority for allowing shipment. A shipping bill is issued by
the shipping agent and represents some kind of certificate for all
parties, included ship's owner, seller, buyer and some other parties.
For each one represents a kind of certificate document.
Documents Required for Post Parcel Customs Clearance

In case of Post Parcel, no Shipping Bill is required. The relevant


documents are mentioned below:

Customs Declaration Form - It is prescribed by the Universal


Postal Union (UPU) and international apex body coordinating
activities of national postal administration. It is known by the
code number CP2/ CP3 and to be prepared in quadruplicate,
signed by the sender.
Despatch Note- It is filled by the exporter to specify the
action to be taken by the postal department at the destination
in case the address is non-traceable or the parcel is refused to
be accepted.

Commercial Invoice - Issued by the exporter for the full


realisable amount of goods as per trade term.

Consular Invoice - Mainly needed for the countries like


Kenya, Uganda, Tanzania, Mauritius, New Zealand, Burma,
Iraq, Ausatralia, Fiji, Cyprus, Nigeria, Ghana, Zanzibar etc. It is
prepared in the prescribed format and is signed/ certified by
the counsel of the importing country located in the country of
export.

Customs Invoice - Mainly needed for the countries like USA,


Canada, etc. It is prepared on a special form being presented
by the Customs authorities of the importing country. It
facilitates entry of goods in the importing country at
preferential tariff rate.

Legalised / Visaed Invoice - This shows the seller's


genuineness before the appropriate consulate or chamber or
commerce/ embassy.

Certified Invoice - It is required when the exporter needs to


certify on the invoice that the goods are of a particular origin
or manufactured/ packed at a particular place and in
accordance with specific contract. Sight Draft and Usance Draft
are available for this. Sight Draft is required when the exporter
expects immediate payment and Usance Draft is required for
credit delivery.

Packing List - It shows the details of goods contained in each


parcel / shipment.

Certificate of Inspection It is a type of document


describing the condition of goods and confirming that they

have been inspected.

Black List Certificate - It is required for countries which have


strained political relation. It certifies that the ship or the
aircraft carrying the goods has not touched those country(s).

Manufacturer's Certificate - It is required in addition to the


Certificate of Origin for few countries to show that the goods
shipped have actually been manufactured and is available.

Certificate of Chemical Analysis - It is required to ensure


the quality and grade of certain items such as metallic ores,
pigments, etc.

Certificate of Shipment - It signifies that a certain lot of


goods have been shipped.

Health/ Veterinary/ Sanitary Certification - Required for


export of foodstuffs, marine products, hides, livestock etc.

Certificate of Conditioning - It is issued by the competent


office to certify compliance of humidity factor, dry weight, etc.

Antiquity Measurement It is issued by Archaeological


Survey of India in case of antiques.

Shipping Order - Issued by the Shipping (Conference) Line


which intimates the exporter about the reservation of space of
shipment of cargo through the specific vessel from a specified
port and on a specified date.

Cart/ Lorry Ticket - It is prepared for admittance of the cargo


through the port gate and includes the shipper's name, cart/
lorry No., marks on packages, quantity, etc.

Shut Out Advice - It is a statement of packages which are


shut out by a ship and is prepared by the concerned shed and
is sent to the exporter.

Q) What is role of ECGC in International Business?


Export Credit Guarantee Corporation of India Ltd.
Export Credit Guarantee Corporation of India Limited, was
established in the year 1957 by the Government of India to
strengthen the export promotion drive by covering the risk of
exporting on credit.

Being essentially an export promotion organisation, it functions


under the administrative control of the Ministry of Commerce,
Government of India. It is managed by a board of directors
comprising representatives of the Government, Reserve Bank of
India, banking, insurance and exporting community. ECGC, the fifth
largest credit insurer of the world, presently covers 17.31% of
India's total exports. The present paid-up capital of the company is
Rs.1.50 bn, which is expected to be enhanced to Rs.5 bn by the
year 2002.
Major Functions:

To provide a range of credit risk insurance covers to exporters


against loss in export of goods and services

To offers guarantees to banks and financial institutions to


enable exporters obtain better facilities from them.

ECGC also helps exporters by

Providing insurance protection to exporters against payment


risks
Providing guidance in export related activities

Providing information on credit-worthiness of overseas buyers

Providing information on about 180 countries with its own


credit ratings

Making it easy to obtain export finance from banks/financial


institutions

Assisting exporters in recovering bad debts

The covers issued by ECGC can be divided broadly into four


groups:

Standard Policy
Specific Policies

Financial Guarantees

Special Schemes

Standard Policy:
Shipments (Comprehensive Risks) Policy, which is commonly known
as the Standard Policy, is the one ideally suited to cover risks in

respect of goods exported on short-term credit; i.e. credit not


exceeding 180 days. The policy covers both commercial and
political risks from the date of shipment.
Specific Policies:
Specific Policies are designed to protect Indian firms against
payment risks involved in international business.
a. Exports on deferred terms of payment
b. Services rendered to foreign parties and
c. Construction works and turnkey projects undertaken abroad.
These policies are issued separately for each specific contract, and
cover risks normally from the date of contract.
Financial Guarantees:
Financial Guarantees are issued to banks in India to protect them
from risks of loss involved in their extending financial support at
pre-shipment and post-shipment stages. These also cover a host of
non-fund based facilities that are extended to exporters.
Special Schemes:
Some special schemes include:

Transfer Guarantee meant to protect banks that add


confirmation to Letters of Credit opened by foreign banks
Insurance cover for Buyers Credit and Lines of Credit

Exchange Fluctuation Risk Insurance

Risks covered under the Standard Policies:

Commercial Risks:

1) Insolvency of the buyer


2) Buyer`s protected default to pay for goods accepted by him.
3) Buyer`s failure to accept goods subject to certain conditions.
Political Risks :

1) Imposition of restriction on remittances by the government in


the buyer`s country or any government action which may
block or delay payment to exporter.
2) War, revolution, or civil disturbances in the buyer`s country.
3) New import licensing restriction or cancellation of a valid
import license in the buyer`s country, after the date of
shipment or contract, as applicable.
4) license in the buyer`s country, after the date of shipment or
contract, as applicable.
5) Cancellation of export license or imposition of new export
licensing restriction in India after a date of contract (under
contract policy).
6) Payment of additional handling, transport or insurance charges
occasioned by interruption or diversion of voyage which
cannot be recovered from the buyer.
7) Any other causes of loss occurring outside India, not normally
insured by commercial insurers & beyond the control of the
exporter &/or buyer.
Risks not covered under Standard policy:
The losses due to the following risks are not covered :
1) Commercial disputes including quality disputes raised by the
buyer, unless the exporter obtains a decree from a court of low
in the buyer`s country in his favour.
2) Causes inherent in the nature of the goods.
3) Buyer`s failure to obtain import or exchange authorization
from authorities in his country.
4) Insolvency or default any agent of the exporter or of the
collecting bank.
5) Loss or damage to goods which can be covered by commercial
insurers.
6) Exchange fluctuation.
7) Discrepancy in documents.
Q) What is SEZ? What are its Benefits?
A Special Economic Zone in short SEZ is a geographically bound
zones where the economic laws in matters related to export and
import are more broadminded and liberal as compared to rest parts
of the country. SEZs are projected as duty free area for the purpose
of trade, operations, duty and tariffs. SEZ units are self-contained
and integrated having their own infrastructure and support services.

Within SEZs, a units may be set-up for the manufacture of goods


and other activities including processing, assembling, trading,
repairing, reconditioning, making of gold/silver, platinum jewellery
etc.
As per law, SEZ units are deemed to be outside the customs
territory of India. Goods and services coming into SEZs from the
domestic tariff area or DTA are treated as exports from India and
goods and services rendered from the SEZ to the DTA are treated as
imports into India.
Benefits of SEZ
Apart from providing state-of-the-art infrastructure and access to a
large well-trained and skilled work force, the SEZ also provides
enterprises and developers with a favorable and attractive
framework of incentives which include 100% income tax exemption
for a period of five years and an additional 50% tax exemption for
two years thereafter. Similarly, 100% FDI is also provided in the
manufacturing sector. Exemption from industrial licensing
requirements and no import license requirements is also given to
the SEZ units.
Read more about the benefits of SEZ units Various SEZ Units in
India
The area under 'SEZ' covers a wide range of zones, including Export
Processing Zones (EPZ), Free Zones (FZ), Industrial Estates (IE), Free
Trade Zones (FTZ), Free Ports, Urban Enterprise Zones and others.
Usually the goal of an SEZ structure is to increase foreign
investment
in
the
country.
At present there are fourteen functional SEZs located at Santa Cruz
(Maharashtra), Cochin (Kerala), Kandla and Surat (Gujarat), Chennai
(Tamil Nadu), Visakhapatnam (Andhra Pradesh), Falta and Salt Lake
(West Bengal), Nodia (Uttar Pradesh), Indore (Madhya Pradesh),
Jaipur
(Rajasthan),
etc.
Role of State Government in Establishment of SEZ Units
State Governments play a very active role to play in the
establishment of SEZ unit. Any proposal for setting up of SEZ unit in
the Private / Joint / State Sector is routed through the concerned

State government who in turn forwards the same to the Department


of Commerce with its recommendations for consideration. Before
recommending any proposals to the Ministry of Commerce &
Industry (Department of Commerce), the States Government
properly checks all the necessary inputs such as water, electricity,
etc required for the establishment of SEZ units. The State
Government has to forward the proposal with its recommendation
within 45 days from the date of receipt of such proposal to the
Board of Approval. The applicant also has the option to submit the
proposal directly to the Board of Approval. Representative of the
State Government, who is a member of the Inter-Ministerial
Committee on private SEZ, is also consulted while considering the
proposal.
Q) What is DBK?
DBK or drawback means refund of custom duties paid on the
imports of raw material, components & packing material used for
export products. Banks offer per-shipment as well as post-shipment
advances against DBK entitlements. However ,the scheme of
granting free advances against claims of DBK has been discounted
with effect from 2nd March, 1992.
Q) What is FOB Price?
Free on Board(FOB)
The sellerss responsibility ends the moment the contracted
goods are placed on board the ship, free of cost to the buyer at
a port of shipment named in the sales contract. On board
means that a Received for Shipment Bill of Lading is not
sufficient. Such B/L if issued must be converted into Shipped on
Board B/L by using the stamp Shiped on Board and must bear
signature of the carrier or his authorised representative
together with date on which the goods were boarded.
Q) What is impact of incentives on export pricing?
Q) What is negative list of exports?
Negative list of exports contain those items which are either banned
or cannot be freely exported.

The negative list of exports consists of these parts:


Prohibited Items
Restricted Items
Canalised Items

Part I: Prohibited Items:


The prohibited items are banned from exporting. The list of
prohibited items contains ten items. The items are:
All forms of wild animals.
Exotic Birds.
All items of plants.
Beef.
Human Skeletons.
Tallow, fat and / or oils of any animals origin.
Wood and wood products.
Chemicals as notified by DGFT.
Sandalwood items as notified by DGFT.
Red sanders wood in any form.

Part II: Restricted Items:


The restricted items are allowed to be exported only
with special licensing by the DGFT . Some of the restricted
items are as follows:
Beche de Mer of sizes below three inches.
Cattle

Camel
Chemical fertilizers and micronutrient fertilizers
Fabrics / Textile items with imprints of excerpts or verses of the Holy
Quran.
De oiled groundnut cakes
Fresh and frozen silver pomfrets of weight less than 300 gms.
Fur of domestic animals, excluding lamb for skin.
Fodder, including wheat and rice straw.
Hides and skin as mentioned in the policy.

Part III: Canalised Items:


The list contains those items which are to be
exported only through designated canalized agencies. At present
there are six items which are canalized. They are:

ITEMS
CANALIZING
AGENCIES
2.Gum Karaya

1.Petroleum ProductsIndian Oil Corporation Ltd.

The Tribal Co-operative


Marketing Federation of
India Ltd.
ScrapMMTC and MITCO
Concentrate

Indian Rare Earths Ltd,

3.Mica waste and


4.Mineral ores and

Kerala
Minerals and Metals Ltd,
MMTC.

5.Niger SeedsNAFED, TRIFED.

6.OnionsNAFED.

Q) What are imports? Why imports are necessary?


Q) What is th role of RBI in export promotion?
Q) How is SEZ different from EPZ?
Q) What is export pricing g what factors should be considered while
fixing export price?
Q) What are
different terms used in export pricing?
INCO TERMS
While finalising the terms of import contract, the Importer, should,
inter alia, be fully conversant with the mode of pricing and the
manner of payment for the imports. As regards mode of pricing, the
overseas supplier normally quote the terms prevailing in
international trade.
The importer for his benefits should know the meaning of the
technical terminology. To avoid ambiguity in interpretation of such
terms, International Chamber of Commerce, Paris, Has give detailed
definition of a few standard terms popularly known as INCO
TERMS. These terms have almost universal acceptance and are
explained below:
Ex-work
Ex-work means that the sellers responsibility is to make the
goods available to the buyer at works or factory. The full cost
and risk involved in bringing the goods from this place to the
desired destination will be borne by the buyer. This terms thus
represents the minimum obligation for the seller. It is mostly
used for sale of plantation commodities such as tea, coffee and
cocoa.
Free on Rail (FOR)/Free on Truck (FOT)
These terms are used when the goods are to be carried by rail,
but they are also used for road transport. The sellers

obligations are fulfilled when the goods are delivered to the


carrier.
Free Alongside Ship (FAS)
Once the goods have been placed alongside the ship, the
sellers obligations are fulfilled and the buyer notified. The
buyer has to contract with the sea carrier for the carriage of the
goods to the destination and pay the freight. The buyer has to
bear all costs and risks of loss or damage to the goods
hereafter.
Free on Board(FOB)
The sellerss responsibility ends the moment the contracted
goods are placed on board the ship, free of cost to the buyer at
a port of shipment named in the sales contract. On board
means that a Received for Shipment Bill of Lading is not
sufficient. Such B/L if issued must be converted into Shipped on
Board B/L by using the stamp Shiped on Board and must bear
signature of the carrier or his authorised representative
together with date on which the goods were boarded.
Cost and Freight (C & F)
The seller must on his own risk and not as an agent of the buyer,
contract for the carriage of the goods to the port of destination
named in the sale contract and pay the freight. This being a
shipment contract, the point of delivery is fixed to the ships rail
and the risk of loss or of damage to the goods is transferred from
the seller to the buyer at that very point. As will be seen though
the seller bears the cost of carriage to the named destination, the
risk is already transferred to the buyer at the port of shipment
itself.

Cost Insurance Freight (CIF)


The term is basically the same as C & F but with the addition
that the seller has to obtain insurance at his cost against the
risks of loss or damage to the goods during the carriage.
Q)Explain the need and importance of SEZ?
Q) Explain the merits and demerits of SEZ?
A SEZ unit which has been set up for carrying on manufacturing,
trading or service activity has both advantages as well as
disadvantages. SEZ advantages are quite far more as compared to
its disadvantages which are almost negligible.
Advantages

15 year corporate tax holiday on export profit 100% for initial


5 years, 50% for the next 5 years and up to 50% for the
balance 5 years equivalent to profits ploughed back for
investment.
Allowed to carry forward losses.

No licence required for import made under SEZ units.

Duty free import or domestic procurement of goods for setting


up of the SEZ units.

Goods imported/procured locally are duty free and could be


utilized over the approval period of 5 years.

Exemption from customs duty on import of capital goods, raw


materials, consumables, spares, etc.

Exemption from Central Excise duty on the procurement of


capital goods, raw materials, and consumable spares, etc.
from the domestic market.

Exemption from payment of Central Sales Tax on the sale or


purchase of goods, provided that, the goods are meant for
undertaking authorized operations.

Exemption from payment of Service Tax.

The sale of goods or merchandise that is manufactured outside


the SEZ (i.e, in DTA) and which is purchased by the Unit
(situated in the SEZ) is eligible for deduction and such sale
would be deemed to be exports.

The SEZ unit is permitted to realize and repatriate to India the


full export value of goods or software within a period of twelve
months from the date of export.

Write-off of unrealized export bills is permitted up to an


annual limit of 5% of their average annual realization.

No routine examination by Customs officials of export and


import cargo.

Setting up Off-shore Banking Units (OBU) allowed in SEZs.

OBU's allowed 100% income tax exemption on profit earned


for three years and 50 % for next two years.

Exemption from requirement of domicile in India for 12 months


prior to appointment as Director.

Since SEZ units are considered as public utility services, no


strikes would be allowed in such companies without giving the
employer 6 weeks prior notice in addition to the other
conditions mentioned in the Industrial Disputes Act, 1947.

The Government has exempted SEZ Units from the payment of


stamp duty and registration fees on the lease/license of plots.

External Commercial Borrowings up to $ 500 million a year


allowed without any maturity restrictions.

Enhanced limit of Rs. 2.40 crores per annum allowed for


managerial remuneration.

Disadvantages

Revenue losses because of the various tax exemptions and


incentives.
Many traders are interested in SEZ, so that they can acquire at
cheap rates and create a land bank for themselves.
The number of units applying for setting up EOU's is not
commensurate to the number of applications for setting up
SEZ's leading to a belief that this project may not match up to
expectations.

Q). Explain the types and causes of disequilibrium


balance of payments

in the

In general terms, a deficit in the balance of payments is called


disequilibrium. Such a deficit may be at the capital account, current
account ; occasional, chronic ; cyclical, enlarging deficits. Each type
is caused by different set of factors. But in general, disequilibrium
is an unfavourable position in BoP caused by continuous deficits
which are large.
Types of disequilibrium in BoP :
Following are the different types of disequilibrium in BoP :
1. Cyclical disequilibrium : This is caused by the trade cycles. The
economic activity changes in cyclical fashion with boom
depression.
In each state, the disequilibrium is caused
depending on the spurt of incomes, intensity of demand for
imports, domestic prices and nature of exports and imports.
The impact of cyclical disequilibrium is found in developed
economies as compared with less developed economies.
2. Secular equilibrium : Secular disequilibrium depends on the level
of growth in an economy.
An economy can be a primitive economy, or an economy
under preparatory stage for development or an economy in
the take-off stage or an economy with high mass consumption.
These are the stages of growth as given by W.W.Rostow.
Secular disequilibriumis characterised by the level of
population, capital accumulation, technology and resources.
3. Structural disequilibrium : This is caused mainly due to the
nature and composition of exports and imports. The elasticities
of exports and imports determine the efficiency of any methods
of correcting the trade. For example , stagnant exports and
elastic imports cause BoP problems. Correction of such
disequilibrium will need structural changes in the composition of
trade and foreign exchange position.
Causes of disequilibrium in developing countries :
BoP disequilibrium is common with most developing economies.
Study of the factors and nature of disequilibrium will help in
correction and design of methods of protection.
Following are the important causes of disequilibrium :
1. Large population, increasing growth rates of population.
2. Stagnant exports due to out dated products
3. Increasing demand for imports.
4. Low productivity and poor growth rates.
5. Lack of bargaining power.
6. Large external debt due to which the burden of debt servicing
increases.
7. Adverse terms of trade.
8. Cyclical fluctuations in economic activity.

9. Problems of international liquidity.


10. Absence of ant trading association or regional block
11. Weak currency
12. Absence of trade ties with developed economies.
In addition all the problems of under development contribute to
disequilibrium in BoP. Since there is no effective mechanism to
correct, the disequilibrium becomes chronic.

Capital account :
It deals with capital movements between one country and
rest of the world. Capital movements can be private,
governmental or institutional ( IMF, World Bank and others).It
can be again classified as short term and long term capital
movements.
Other items include amortisation, debt servicing,
monetary gold and miscellaneous. Amortisation is the loan
liquidated, debt servicing is the repayment of principle and
interest and non-monetary gold is the payments made interms
of gold.
These capital transactions will also have a debit or credit
depending on the directions of flows. Capital account can
show a deficit or a surplus revealing the strength of the
economy. The deficits of the current account will be financed
by the capital account. So there is a spill over of deficits of
current acceptant into capital account.
Finally, the balance of payments will have the deficit or
surplus, reflecting the overall position of all the international
transactions.
Important ratios :
1. Balance of trade :
Balance of trade is an important indicator of the efficiency of
export sector and import substitution sector. It is the position of an
economy interms of merchandise on current account. It is an
important indicator because it will highlight the foreign exchange
commitments of the country with respect to each country and
currency.
2. Basic balance :

This is the difference between exports + inflow of long term


capital AND imports + out flow of private capital. It is measure of
gross movements in currencies in and out of the economy.
3. Liquidity balance :
In international trade, liquidity is a major consideration in
international payments. Liquidity balance deals with the difference
in the official exchange holdings over a given period of time. High
liquidity balance improves the credit worthiness of a country.
4. Official settlement balance :
It is a gross indicator of financial position arising out of the
balance of payments. It is the difference between exports + all
private capital inflows AND imports + all private out flows. It gives
a clear picture of the balance of payments position pertaining to a
given time period.
Q) What is LERMS?
It stands for liberalized exchange rate management system
(LERMS) was introduction March 1992, as a result the foreign
exchange market in India effectively became a two ties one, with a
direct exchange rate system in force, one rate was the
administration (or official) one at which specified type or proportion
of currency exchange had to be transacted by demand and supply
in the transaction in March 1993 this system was abolished and now
single market determined rate in applicable for all transaction.

Export Promotion Councils (EPC)


Export Promotion Councils are registered as non -profit
organisations under the Indian Companies Act. At present there are
eleven Export Promotion Councils under the administrative control
of the Department of Commerce and nine export promotion councils
related to textile sector under the administrative control of Ministry
of Textiles. The Export Promotion Councils perform both advisory
and executive functions. These Councils are also the registering
authorities under the Export Import Policy, 2002-2007.
Commodity Boards
Commodity Board is registered agency designated by the Ministry
of Commerce, Government of India for purposes of exportpromotion and has offices in India and abroad. There are five
statutory Commodity Boards, which are responsible for production,
development and export of tea, coffee, rubber, spices and tobacco.

Federation of Indian Export Organisations (FIEO)


FIEO was set up jointly by the Ministry of Commerce, Government of
India and private trade and industry in the year 1965. FIEO is thus a
partner of the Government of India in promoting Indias exports.
Address: Niryaat Bhawan, Rao Tula Ram Marg, Opp. Army Hospital.
Research & Referral, New Delhi 110057
Indian Institute of Foreign Trade (IIFT)
The Indian Institute of Foreign Trade (IIFT) was set up in 1963 by the
Government of India as an autonomous organisation to help Indian
exporters in foreign trade management and increase exports by
developing human resources, generating, analysing and
disseminating data and conducting research.
Address: B-21 Kutub Institutional Area, Mehrauli Road, New Delhi110016
Indian Institution of Packaging (IIP)
The Indian Institute of Packaging or IIP in short was established in
1966 under the Societies Registration Act (1860). Headquartered in
Mumbai, IIP also has testing and development laboratories at
Calcutta, New Delhi and Chennai. The Institute is closely linked with
international organisations and is recognized by the UNIDO (United
Nations Industrial Development Organisation) and the ITC
(International Trading Centre) for consultancy and training. The IIP is
a member of the Asian Packaging Federation (APF), the Institute of
Packaging Professionals (IOPP) USA, the Insitute of Packaging (IOP)
UK, Technical Association of PULP AND Paper Industry (TAPPI), USA
and the World Packaging Organisation (WPO).
Address: B-2, MIDC Area, P.B. 9432, Andheri (E), Mumbai 400096.
Export Inspection Council (EIC)
The Export Inspection Council or EIC in short, was set up by the
Government of India under Section 3 of the Export (Quality Control
and Inspection) Act, 1963 in order to ensure sound development of
export trade of India through Quality Control and Inspection.
Address: 3rd Floor, ND YMCA, Cultural Centre Bldg., 1, Jai Singh
Road, New Delhi-110001.
Indian Council of Arbitration (ICA)
The Indian Council for Arbitration (ICA) was established on April 15,
1965. ICA provides arbitration facilities for all types of Indian and
international commercial disputes through its international panel of

arbitrators with eminent and experienced persons from different


lines of trade and professions.
Address: Federation House, Tansen Marg, New Delhi-110001
India Trade Promotion Organisation (ITPO)
ITPO is a government organisation for promoting the countrys
external trade. Its promotional tools include organizing of fairs and
exhibitions in India and abroad, Buyer-Seller Meets, Contact
Promotion Programmes, Product Promotion Programmes, Promotion
through Overseas Department Stores, Market Surveys and
Information Dissemination.
Address: Pragati Bhawan Pragati Maidan, New Delhi-10001
Chamber of Commerce & Industry (CII)
CII play an active role in issuing certificate of origin and taking up
specific cases of exporters to the Govt.
Federation of Indian Chamber of Commerce & Industry
(FICCI)
Federation of Indian Chambers of Commerce and Industry or FICCI
is an association of business organisations in India. FICCI acts as the
proactive business solution provider through research, interactions
at the highest political level and global networking.
Address: Federation House, Tansen Marg, New Delhi-110001
Bureau of Indian Standards (BIS)
The Bureau of Indian Standards (BIS), the National Standards Body
of India, is a statutory body set up under the Bureau of Indian
Standards Act, 1986. BIS is engaged in standard formulation,
certification marking and laboratory testing.
Address: 9, Manak Bhavan, Bahadur Shah Zafar Marg, New Delhi110002
Textile Committee
Textile Committee carries pre-shipment inspection of textiles and
market research for textile yarns, textile machines etc.
Address: Textile Centre, second Floor, 34 PD, Mello Road, Wadi
Bandar, Bombay-400009
Marine Products Export Development Authority (MPEDA)
The Marine Products Export Development Authority (MPEDA) was

constituted in 1972 under the Marine Products Export Development


Authority Act 1972 and plays an active role in the development of
marine products meant for export with special reference to
processing, packaging, storage and marketing etc.
Address: P.B No.4272 MPEDA House, pannampilly Avenue,
Parampily Nagar, Cochin-682036
India Investment Centre (IIC)
Indian Investment Center (IIC) was set up in 1960 as an
independent organization, which is under the Ministry of Finance,
Government of India. The main objective behind the setting up of
IIC was to encourage foreign private investment in the country. IIC
also assist Indian Businessmen for setting up of Industrial or other
Joint ventures abroad.
Address: Jeevan Vihar, 4th Floor, Parliament Street, New Delhi110001
Directorate General of Foreign Trade (DGFT)
DGFT or Directorate General of Foreign Trade is a government
organisation in India responsible for the formulation of guidelines
and principles for importers and exporters of country.
Address: Udyog Bhawan, H-Wing, Gate No.2, Maulana Azad Road,
New Delhi -110011
Director General of Commercial Intelligence Statistics
(DGCIS)
DGCIS is the Primary agency for the collection, compilation and the
publication of the foreign inland and ancillary trade statistics and
dissemination of various types of commercial informations.
Address: I, Council House Street Calcutta-700001