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International Business – Class 11 Business Studies notes, important questions and MCQs

NCERT Class 11 Business Studies, chapter 10. Notes, key terms, important questions with answers and MCQs.

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Chapter overview

International business means business activities across national borders, including trade in goods and services, licensing, franchising, contract manufacturing, joint ventures and investment. It brings wider markets, foreign exchange and access to technology, but it is more complex than domestic business because of different laws, currencies, cultures and distances. Exports and imports follow set procedures, and institutions such as the WTO, IMF and World Bank govern the world economy.

Modes of entry

  • Exporting and importing: the simplest mode, directly or through intermediaries.
  • Contract manufacturing (outsourcing production), licensing (allowing use of patents or trademarks for a fee called royalty) and franchising (licensing for services, such as restaurant chains).
  • Joint ventures with foreign partners and wholly owned subsidiaries give more control but need more investment and carry more risk.

Export and import procedure

  • Export: receive the order and verify the importer's credit, often through a letter of credit; obtain the Import Export Code (IEC) from the DGFT; arrange pre-shipment finance; prepare goods, inspection and the shipping bill; load goods, get the mate's receipt and the bill of lading; send documents and receive payment.
  • Import: obtain the IEC, place the order, arrange a letter of credit, receive shipping documents, clear goods through customs with a bill of entry and pay duties.
  • Export promotion measures include export processing zones and SEZs, export-oriented units, duty drawback and export finance.

International institutions

  • The World Trade Organization (WTO), established on 1 January 1995 and based in Geneva, replaced GATT and promotes free and fair trade.
  • The International Monetary Fund (IMF) and the World Bank (IBRD) were set up after the Bretton Woods conference of 1944.
  • The IMF promotes monetary cooperation and helps countries with balance of payments problems; the World Bank finances development projects.

Key terms

International business
business activities that take place across national borders
Licensing
allowing a foreign firm to use patents, trademarks or technology in return for a royalty
Letter of credit
a guarantee by the importer's bank to pay the exporter on presentation of required documents
Bill of lading
a document issued by a shipping company acknowledging receipt of goods for shipment
World Trade Organization
the international organisation set up in 1995 to regulate and promote world trade

Important questions with answers

Distinguish between licensing and franchising.2 marks

Licensing is an arrangement in which a firm allows a foreign firm to use its patents, trademarks or technology to produce and sell goods in return for a royalty. Franchising is a similar arrangement used mainly for services, in which the franchisor allows the franchisee to use its brand name and business model under strict guidelines, as in fast-food chains.

What are the benefits of international business to a nation?3 marks

International business earns foreign exchange, allows a country to use its resources more efficiently by specialising in what it produces best, gives access to goods, raw materials and technology not available at home, creates employment and increases growth prospects.

Explain the steps involved in an export transaction.5 marks

An export transaction involves several steps. First, the exporter receives an enquiry and then an order from the importer, often in the form of an indent. Second, the exporter checks the importer's creditworthiness and usually asks for a letter of credit, a guarantee from the importer's bank to pay on presentation of documents. Third, the exporter obtains the necessary licence and the Import Export Code from the Directorate General of Foreign Trade and registers with the export promotion council. Fourth, the exporter may obtain pre-shipment finance from a bank to produce or buy the goods. Fifth, the goods are produced or procured, packed and marked, and inspected for quality if required. Sixth, the exporter obtains a certificate of origin if needed, reserves shipping space and gets the goods insured. Seventh, customs clearance is obtained by preparing the shipping bill and other documents, and the goods are loaded on the ship; the captain issues a mate's receipt, which is exchanged for the bill of lading from the shipping company. Eighth, the exporter prepares the invoice and sends the documents, such as the bill of lading, invoice and insurance policy, to the importer through the bank. Finally, the exporter receives payment under the letter of credit and the transaction is complete.

Quick revision

  • Modes: export/import, contract manufacturing, licensing, franchising, joint venture, subsidiary.
  • Export documents: L/C, IEC, shipping bill, mate's receipt, bill of lading.
  • Import: bill of entry, customs clearance.
  • WTO 1995 (Geneva); IMF and World Bank (Bretton Woods, 1944).

Exam tips

  • Learn the export procedure as a sequence of documents: order → L/C → IEC → shipping bill → mate's receipt → bill of lading.
  • Compare modes of entry on investment, risk and control.

Practice MCQs

  1. Business across national borders is called

    1. domestic business
    2. international business
    3. retail business
    4. local trade
    Show answer

    Answer: (b) international business. It involves different countries.

  2. The fee paid for using a patent or trademark under licensing is

    1. dividend
    2. royalty
    3. premium
    4. interest
    Show answer

    Answer: (b) royalty. It is paid to the licensor.

  3. The World Trade Organization was set up in

    1. 1944
    2. 1947
    3. 1995
    4. 2001
    Show answer

    Answer: (c) 1995. It replaced GATT.

  4. The Import Export Code in India is issued by the

    1. DGFT
    2. RBI
    3. SEBI
    4. WTO
    Show answer

    Answer: (a) DGFT. Directorate General of Foreign Trade.

  5. A guarantee from the importer's bank to pay the exporter is a

    1. bill of entry
    2. letter of credit
    3. mate's receipt
    4. shipping bill
    Show answer

    Answer: (b) letter of credit. It reduces the risk of non-payment.

  6. The document issued by the captain of the ship on receiving goods on board is the

    1. bill of lading
    2. certificate of origin
    3. shipping bill
    4. mate's receipt
    Show answer

    Answer: (d) mate's receipt. It is later exchanged for the bill of lading.

  7. Which mode of entry gives the most control but involves the highest investment and risk

    1. exporting
    2. licensing
    3. wholly owned subsidiary
    4. contract manufacturing
    Show answer

    Answer: (c) wholly owned subsidiary. The parent firm owns it fully.

  8. Why is international business more complex than domestic business

    1. it involves different laws, currencies, cultures and long distances
    2. it uses one currency
    3. it has no competition
    4. it needs no documents
    Show answer

    Answer: (a) it involves different laws, currencies, cultures and long distances. Many more factors are involved.

All chapters of Class 11 Business Studies

Written by Kundali IQ from standard, well-established facts to help with revision. This is not an official NCERT publication; always read your textbook too.