CBSE Class 11 Business Studies Revision Notes Chapter 11

CBSE Class 11 Business Studies Revision Notes Chapter 11 – International Business 

Business Studies Class 11 Chapter 11 Notes prepared by the subject-matter experts at Extramarks will help students gain conceptual clarity regarding the concepts covered in the chapter. These revision notes provide a gist of the topics covered in Chapter 11 of Class 11 Business Studies and have been prepared as per the latest CBSE Syllabus. Going through these will help students develop a thorough understanding of the subject aspect, and subsequently perform better in exams. 

Revision Notes for CBSE Class 11 Business Studies Chapter 11 

Access Class 11 Business Studies Chapter 11– International Business 

International Business- Introduction and Meaning 

• Class 11 Business Studies Chapter 11 Notes covers what International Business is. It defines International Business as the manufacturing and trading of goods outside the boundaries of a country. 
• The new modes of communication and development of efficient means of transportation have made international business easier for most countries.
• Various items can be transported internationally. For example, technology, capital, personnel, intellectual property like patents, trademarks, copyrights, etc.

Reasons for International Business 

• Unequal Distribution of Natural Resources: Uneven distribution of natural resources makes it impossible for nations to produce goods of the same quality and cost. This affects productivity levels locally.
• Varied Differences: Another reason is the disparity in labour productivity and manufacturing costs caused by various socio-economic, geographic and political factors.
• Specialisation Advantage: The territorial division of labour principle also applies globally.  
• Price Differences: Countries export and import goods because of the disparity in prices. They export goods to nations where they can sell them for higher prices and import cheaper goods from other nations.

International Business Versus Domestic Business 

Some common differences between international and domestic business are:

Nationality of buyers and sellers

International Business – Buyers and sellers both are from different countries

Domestic Business – Buyers and sellers both are from the same country

Nationality of stakeholders

International Business – Belong to different countries with a wider set of values and aspirations

Domestic Business – Belong to the same country and have similarities in their values and behaviours

Mobility of factors production

International Business – Restricted

Domestic Business – Free

Currency used in business transactions

International Business – The price of one currency is expressed in terms of another, causing it to change over time.

Domestic Business – Since all business transactions are conducted in the same nation using the local currency, there are no currency-related issues.

Scope of International Business

The scope of international business is quite broad. Some of the key highlights are:

1. Merchandise Exports and Imports:

• It implies exporting and importing tangible goods to and from other countries.
• Trade in goods, also known as export and import of merchandise, refers only to the movement of tangible goods and leaves out the exchange of services.

2. Service Exports and Imports:

• It is also known as invisible trade.
• It involves trading intangible goods such as warehousing, transportation, communication, distribution and advertising, banking, tourism, etc.

3. Licensing and Franchising

• Licensing refers to the contractual arrangement in which one firm (licensor) grants access to its technology, patents, copyrights or trademarks to another firm in another country for a royalty fee.
• Franchising is also similar to licensing, and it is used in the context of the provision of services.

4. Foreign Investment

It entails investing funds in a foreign country in exchange for a financial return. There are two types:

• Foreign Direct Investment: Foreign Direct Investment is when a company invests in real estate such as factories and machinery in other nations in order to produce and market goods and services there.
• Portfolio Investment: Investments made by one company into another through the purchase of shares or the granting of loans are referred to as Portfolio Investments. In a Portfolio Investment, the other party typically generates income through dividends or interest on loans.

Benefits of International Business 

Benefits to Nations

• Foreign Exchange: To help with the payment of expenses for imported goods, international trade facilitates foreign exchange within a nation.
• Efficient Use of Resources: Due to the specialisation of each nation in the production of specific goods and services, international trade results in the efficient use of resources.
• Growth: International business helps in the country’s economic growth and creates employment opportunities. 
• Stability: International business helps in stabilising the prices of domestic products.

Benefits to Firms

• More Profitable: When the domestic prices are lower, business firms can earn more profits by selling their goods in countries where prices are higher.
• Increased Profitability: A firm can make use of its surplus production capacity and increase the profitability of its operations.
• Growth Prospects: When the demand for goods gets saturated in the domestic market, the company can look for growth prospects in developing countries.
• Self-Improvement: When a country wants to increase exports, it urges to be more diversified, more competitive and strategically strong.

Modes of Entry Into International Business 

1. Exporting and Importing – Exporting is the sale of goods and services from the home country to a foreign country. Importing is the process of the purchase of foreign goods and services. Following are two ways of exporting and importing:

• Direct Exporting/Importing: In this, a firm itself approaches the overseas buyers/suppliers and looks after all the formalities related to export and import, including those related to financing and shipment of products and services.
• Indirect Exporting/Importing: In this, most of the import/export tasks are performed by the middlemen.

1. Contract Manufacturing – Contract manufacturing is a type of business in which a company contracts with local manufacturers in other nations to obtain goods that meet their specifications. Outsourcing is another name for it.
2. Licensing and Franchising – A contractual arrangement in which a company gives access to its technology, patents and trade secrets to a foreign company against the payment of royalty. Cross Licensing facilitates the mutual exchange of knowledge, technology and patents between companies. Franchising is related to service business. The franchisers set rules and regulations as to how the franchises will operate.
3. Joint Ventures – A firm jointly owned by two or more independent firms.
4. Wholly Owned Subsidiaries -Companies with complete control over their overseas operations can establish wholly owned subsidiaries in other nations. There are two ways to establish it:

• Starting a new company.
• Acquiring a firmly established business in a foreign nation and utilising it to manufacture and promote goods in the host nation.

Export-Import Procedures and Documentation 

Export Procedure 

The process of export involves the following procedure: 

• Receipt of enquiry and send a quotation
• Receipt of order or indent 
• Obtaining export licence 
• Obtaining pre-shipment finance 
• Production or procurement of goods
• Pre-shipment inspection
• Excise clearance
• Obtaining a certificate of origin
• Reservation of shipping space
• Packing and forwarding
• Insurance of goods
• Custom clearance
• Obtaining a mates receipt
• Payment of freight and bill of lading
• Preparation of invoice 
• Securing payment

Import Procedure 

The process of import involves the following procedure: 

• Trade enquiry
• Obtaining foreign exchange
• Placing order or indent
• Obtaining a letter of credit
• Arranging for finance 
• Receipt of shipment advice
• Arrival of goods 

Refer to Class 11 Business Studies Chapter 11 Notes for further explanation. 

Foreign Trade Promotion: Incentives And Organisational Support

Foreign Trade Promotion Measures And Schemes 

Some of them are as follows: 

• Duty Drawback Scheme – Upon presentation of proof of goods exported, duties paid to the appropriate authorities (on export products) are repaid to exporters. Duty drawback is the term for such duty returns. Refunds of excise duties paid on items manufactured for export, and refunds of customs duties paid on imported raw materials and machines for manufacturing exports are some examples of duty drawbacks. The latter is also known as “custom drawback.”
• Export Manufacturing Under Bond Schemes – This facility allows businesses to manufacture goods without paying excise and other taxes. However, there is a condition. Firms wanting to use this service must provide assurance in the form of a bond to prove that they are making such goods for only export purposes. 
• Exemption from Payment of Sales Taxes – Sales tax is not applicable on goods intended for export. For some years, this income tax exemption is only available to units established in Special Economic Zones (SEZs)/Export Processing Zones (EPZs) and 100% Export Oriented Units (100% EOUs).

Organisational Support 

• Department of Commerce – The Department of Commerce formulates foreign trade policy and is responsible for foreign trade and issues related to it. This department also sets the tone for the overall import and export policies of the country.
• Export Promotion Councils (EPCs) – Registered under the Companies Act or the Societies Registration Act, they are non-profit organisations working with the goal of promoting and developing the country’s exports of specific items. 
• Commodity Boards – Community boards are supplemental to Export Promotion Councils (EPCs) and perform the same functions as EPCs to develop the production of conventional commodities and their exports.
• Export Inspection Council (EIC) – The Export Inspection Council was set up for the sound development of exports by the right use of quality control and pre-shipment inspection.
• Other such organisations include Indian Trade Promotion Organisations, Indian Institute of Foreign Trade, Indian Institute of Packaging and State Trading Organisations.

International Trade Institutions And Trade Agreements 

Representatives from forty-four countries gathered in Bretton Woods, New Hampshire, under the direction of J.M. Keynes, to discuss ways to restore the world’s lost peace after World Wars I and II.

Three organisations were viewed as foundations of global economic development:

• International Monetary Fund (IMF), 
• International Bank for Reconstruction and Development (IBRD), 
• International Trade Organisation. 

Refer to Class 11 Business Studies Chapter 11 Notes for further explanation. 

International Monetary Fund 

The IMF was founded with the main objective of creating an orderly international monetary system, which includes keeping an eye on the international monetary system and developments in the global economy to spot risks and suggest policies for the overall growth and financial stability of all nations. Additionally, IMF manages currency exchange rates and facilitates international payments.

World Trade Organisations and Major Agreements 

A decision to establish a permanent agency to oversee the promotion of free and fair trade among all states was one of the major conclusions of the GATT negotiations. On January 1, 1995, the World Trade Organisation replaced GATT. 

International Business: Class 11 Business Studies Chapter 11 Revision Notes Summary

Business Studies Class 11 Notes Chapter 11 starts with a brief note of what international business is and then proceeds to its various aspects. Students will learn how foreign investments are made to enter a global market and become significant players. The notes also contain pointers about portfolio investments.

The advantages of international business and their applications will also be covered. Further, in Chapter 11 Business Studies Class 11 Notes, students will learn more about the modes for entering an international venture.