Question Bank - International Business Management

MBA SEM – II QUESTION BANK: INTERNATIONAL BUSINESS
MBA SEM – II (OUTCOME BASED SYLLABUS) : INTERNATIONAL BUSINESS
Module 1: Introduction to International business, its importance and various concepts involved in it such as:
entrepot trade, various tariff and non tariff barriers, regional trading blocs and types of trade agreements.
CO 1: Students should be able to understand various concepts and terminologies involved in International
Business and importance of international trade
Q1. Elaborate following concepts in International trade : Entrepot Trade, tariff and non-tariff Barriers and
Trade Agreements
Ans:
Entrepot:
An entrepot or transshipment port is a port, city, or trading post where merchandise may be
imported, stored or traded, usually to be exported again. Importance of entrepot was due the growth of
long-distance trade during the era of industrialization. Such centers played a critical role in trade during the
days of wind-powered shipping. The benefit of the entrepôt in the past was that it removed the need for
ships to travel the whole distance of the shipping route. Ships would sell their goods into the entrepôt and
the entrepôt would, in turn, sell them to another ship traveling a further leg of the route.
In modern times customs areas have largely made such entrepots obsolete, but the term is still used
to refer to duty-free ports with a high volume of re-export trade. Singapore and Hong Kong are good
examples of entrepot. Entrepot trade may encompass some value addition activities like storage, repackaging
and break bulking. In general, Entrepot is a kind of foreign trade where gods are imported and re-exported
with or without value addition.
Tariff and non-tariff barriers:
Trade barriers are restrictions imposed on the movement of goods between countries (import and export).
The major purpose of trade barriers is to promote domestic goods than exported goods, and there by
safeguard the domestic industries. Trade barriers can be broadly divided into tariff barriers and non tariff
barriers. Tariff barriers are also helpful in getting revenues to the Government from the import and export
trade activities.
Tariff Barriers: Term tariff means ‘Tax’ or ‘duty’. Tariff barriers are the ‘tax barriers’ or the ‘monetary
barriers’ imposed on internationally traded goods when they cross the national borders.
Major tariff barriers:
MBA OUTCOME BASED SYLLABUS 2019 - RTMNU Page 1

1. Specific duty: It is based on the physical characteristics of the good. A fixed amount of money can be
levied on each unit of imported goods regardless of its price. Eg. Imposing of Rs 500 on imported
shoes.
2. Ad Valorem tariffs: This is the most common type of tariff. The Latin phrase ‘ad valorem’ means
“according to the value”. This tax is flexible and depends upon the value or the price of the
commodity. In this the customs duty is calculated as a percentage of the value of the product. This
helps the government in getting revenues in proportion to the value of goods imported.
3. Combined or compound duty: It is a combination of specific and ad valorem duty on a single product,
for instance, there can be a combined duty when 10% of value(ad valorem) and Rs. 60 per
kilogram(specific tax) are charged on import of a metal
4. Sliding scale duty: The duty which varies along with the price of the commodity is known as sliding
scale duty or seasonal duties. These duties are confined to agricultural products, as their prices
frequently vary because of natural and other factors.
5. Countervailing duty: It is imposed on certain import where it is being subsidized by exporting
governments. As a result of the government subsidy, imports become cheaper than domestic goods,
to nullify the effect of subsidy; this duty is imposed in addition to normal duties.
6. Revenue tariff: A tariff which is designed to provide revenue or income to the home government is
known as revenue tariff. Generally this tariff is imposed with a view of earning revenue by imposing
duty on consumer goods, particularly on luxury goods whose demand from the rich consumers is
inelastic in nature.
7. Anti –dumping duty: At times exporters attempt to capture foreign markets by selling goods at rock-
bottom prices, such practice is called dumping. (China practices the activity of dumping in various
countries including USA and India.) As a result of dumping, domestic industries find it difficult to
compete with imported goods. To offset anti-dumping effects, duties are levied in addition to normal
duties.
8. Protective tariff: In order to protect domestic industries from stiff competition of imported goods,
protective tariff is levied on imports. Normally a very high duty is imposed, so as to either discourage
imports or to make the imports more expensive as that of domestic products. These are quite similar
to countervailing duties. Only difference is that countervailing duties are levied with an intention to
compensate subsidies of exporting countries.
Non Tariff Barriers: Any barriers other than tariff or use of tariff are called non tariff barriers. It is meant for
constructing barriers for the free flow of the goods. It do not affect the price of the imported goods or the
revenues of Government from foreign trade. However it affects the quality and quantity of the goods.
1. LICENSES: License is granted by the government, and allows the importing of certain goods to the
country. These are granted on the restricted items.

2. Voluntary Export Restrains (VER): these types of barriers are created by the exporting country rather
than the importing one. These restrains are usually levied on the request of the importing company.
eg. Brazil can request Canada to impose VER on export of sugar to brazil and this helps to increase
the price of sugar in Brazil and protects its domestic sugar producers.
3. Quotas: under this system, a country may fix in advance, the limit of import quantity of commodity
that would be permitted for import from various countries during a given period. This is divided into
the following categories: a) Tariff quota: certain specified quantity of imports allowed at duty free or
at a reduced rate of import duty. A tariff quota, therefore, combines the features of a tariff and
import quota. b) Unilateral quota: the total import quantity is fixed without prior consultations with
the exporting countries. c) Bilateral quota: here quotas are fixed after negotiations between the
quota fixing importing country and the exporting country. d) Multi lateral quota: a group of countries
can come together and fix quotas for each country.
4. Product standards: Here the importing country imposes standards for goods. If the standards are not
met, the goods are rejected.
5. Domestic / local content requirements: Importing governments impose DCR to boost domestic
production. It means that the country will import goods only if the intermediates, spares or raw
material from importing country is used in the manufacturing of the goods.
6. Product Labeling: certain countries insist on specific labeling of the products. Eg.EU insist on products
labeling in major languages in EU.
7. Packaging requirements: certain nations insist on particular type of packaging of goods. Eg. EU insist
on packaging with recyclable materials.
8. Foreign exchange regulations: The importer has to ensure that adequate foreign exchange is
available for import of goods by obtaining a clearance from exchange control authorities prior to the
concluding of contract with the supplier.
9. State trading: In some countries like India, certain items are imported or exported only through
channelizing agencies like MMTT( Minerals and metals trading cooperation of India)
10. Embargo: Partial or complete prohibition of trade with any particular country, mainly because of the
political tensions.
11. Administration policies: Strict Customs inspection, strong regulatory authorities, strict national policy
of trade
12. Other NTBs are: • Health and safety regulations. • Technical formalities • Environmental regulations /
Eco friendly products, etc.
Trade Agreements:
Trade agreements are when two or more nations agree on the terms of trade between them. They determine
the tariffs and duties that countries impose on imports and exports. All trade agreements affect

international trade. Imports are goods and services produced in a foreign country and bought by domestic
residents.
There are three types of trade agreements. The first is a unilateral trade agreement. It occurs when a
country imposes trade restrictions and no other country reciprocates. A country can also unilaterally loosen
trade restrictions, but that rarely happens.
Bilateral trade agreements are between two countries. Both countries agree to reduce trade restrictions to
expand business opportunities between them. They lower tariffs and confer preferred trade status with each
other. ( Most Favoured Nation – MFN). India has Bilateral Trade Agreements with all SAARC countries under
SAPTA , excluding Pakistan. India has withdrawn MFN status to Pakistan in 2019.
Multilateral trade agreements are the most difficult to negotiate. These are among three countries or more.
The greater the number of participants, the more difficult the negotiations are. They are also more
complex than bilateral agreements. Each country has its own needs and requests. General Agreemtn on Tariff
and Trade (GATT) is a agreement between 140 countries. Multilateral trade agreements cover a larger
geographic area and lead to form a group of trading countries called a trade bloc. That confers a
greater competitive advantage on the signatories. All countries also give each other most favoured
nation status. They agree to treat each other equally.
The largest multilateral regional trade agreement is the North American Free Trade Agreement (NAFTA)
which is also a trade bloc. It is between the United States, Canada and Mexico. Their combined economic
output of NAFTA is $20 trillion.
Q2. Explain various types of trading blocs with suitable examples. What do you mean by BREXIT and
CALEXIT?
Ans:
A trade bloc is a type of intergovernmental agreement, often part of a regional intergovernmental

organization, where barriers to trade (tariffs and others) are reduced or eliminated among the participating
states. Examples: European Union EU, South Asian Preferential trade agreement SAPTA, North American Free
trade area NAFTA

Major features of a trade bloc are reduction or elimination of barriers to trade, member nations discriminate
trade relations with outside nations, trade disputes among member countries are handled constructively, no
discrimination within trade bloc, stimulates economic growth , free access to markets of member countries
and simple and customized business standards. It also increases distribution efficiency and helps in pooling
factors. Counties can exercise combined bargaining power over outside nations.
However it may lead to regionalism and become victim of “group think”. Some countries feel loss of
sovereignty (Britain in EU) and stronger countries may exploit weaker countries (Mexico being exploited by
USA in NAFTA). Some countries may become over-dependent on the trade bloc( Greece crisis in EU).
Brexit: On 23 June 2016 a referendum was held to decide whether the UK should remain in the European
Union or leave it. More than 30 million people voted and Leave won by 51.9 per cent to 48.1 per cent.A new
word was created – Brexit – which is a short way of saying “The Britain leaves the European Union” by mixing
the words Britain and Exit.
The European Union is a trade bloc of 28 European Countries. Each of these countries pays to be a member
and in return, they get access to special ways of working together. This includes being part of a “single
market”, which means that countries can trade with one another and people can move around freely – as if
we were all living together in one big country.
The EU has its own parliament, laws and currency (the euro – although the UK doesn’t use this as they still
use pounds and pence).
The 48 per cent who voted to remain in the EU, including former Prime Minister David Cameron, felt that
being a member of a 28-nation club is better than going it alone. They felt it was easier for Britain to sell
things to other EU countries, meaning it was good for businesses and trade.

The idea of the single market was to increase trade between countries, creating jobs and lowering prices.
However, the European Parliament decides on many rules and standards that EU countries have to follow
and Brexit supporters felt that they were losing control of our own affairs and laws.
The UK pays billions of pounds in membership fees to the EU every year and isn’t getting much back in return
for this. Also, many people are moving from poorer countries to richer countries around the world. This has
made some people in the UK worry about the free movement rule, which allows people in the EU to move to
any other EU country without needing special permission (a visa).
Cal-exit: Calexit was inspired by Brexit. "Calexit" refers to the secession (withdrawal) of California from the
United States, after which it would become an independent country. The term has become popular after
Donald Trump's victory in the 2016 U.S. presidential election – Hillary Clinton won the state of California with
61% of the vote – though it is not the state's first independence movement. 20% Califironians supported
Calexit in 2014. They figure increased to 32% in 2016. Calexit is led by the group Yes California, which
describes itself as "the nonviolent campaign to establish the country of California using any and all legal and
constitutional means to do so."
At $2.46 trillion, California's gross domestic product (GDP) was larger than France's ($2.42 trillion) in 2015.
Using World Bank figures, California would be the world's sixth largest economy, if it were an independent
country. Being the richest and most prosperous state in USA, California now wishes to come out of the
Political Union.
Q3. Explain various types of trade blocs with suitable examples. What is GREXIT?
Ans:
A trade bloc or regional trading bloc (RTB) is a co-operative union or group of countries within a specific
geographical boundary. RTB protects its member nations within that region from imports from the non-
members. Trading blocs are a special type of economic integration. There are six types of trading blocs –

Preferential Trade Area − Preferential Trade Areas (PTAs), the first step towards making a full-fledged RTB,
exist when countries of a particular geographical region agree to decrease tariffs on selected goods and
services imported from other members of the area. Foreign trade policy and structure of each member
country, however remains different for outside countries i.e. the countries which are not members of RTB.
For. EX. Countries Sri Lanka and India which are under SAPTA preferential trade area, will reduce their
barriers of trade with each other. However they will have different foreign trade policies while dealing with
Singapore which is not a member of SAPTA
Free Trade Area − Free Trade Areas (FTAs) are like PTAs but in FTAs, the participating countries agree to
remove barriers to trade on goods coming from the participating members. Foreign trade policy and
structure of each member country, however remains different for outside countries. NAFTA (North American
Free Trade Area) is an example of Free Trade Area between Canada, USA and Mexico. Barriers to trade are
removed within these nations but their policies to trade with India or China are different.
Customs Union − A customs union has no tariff barriers between members, plus they agree to a common
(unified) external tariff against non-members. Effectively, the members are allowed to negotiate as a single
bloc with third parties, including other trading blocs, or with the WTO. Example : Russia , Kazakhstan, Belarus
came together to form Eurasian Customs Union.
Common Market − A ‘common market’ is an exclusive economic integration. The member countries trade
freely all types of economic resources – not just tangible goods. All barriers to trade in goods, services,
capital, and labor are removed in common markets. In addition to tariffs, non-tariff barriers are also
diminished or removed in common markets. Example : East African Common Market, EAC. The EAC is
currently made up of six Partner States: Burundi, Kenya, Rwanda, South Sudan, Tanzania and Uganda.
Economic Union - An economic union is a type of trade bloc which is composed of a common market with a
customs union. The participant countries have both common policies on product regulation, freedom of
movement of goods, services and the factors of production (capital and labour) and a common external trade
policy. It refers to an agreement between countries that allows products, services, and workers to cross
borders freely. The union requires the integration of monetary and fiscal policies, so that member countries
coordinate policies, taxation, and government spending related to the agreement. They also use a common
currency that comes with fixed exchange rates.
Example: The European Union is the world’s largest trade bloc. Importing goods and services from more than
100 countries, it is the biggest import market, as well as the biggest exporter in the world. The EU’s common
currency is the euro, which is used by its 27 member states: Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech
Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania,
Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden. The
EU countries coordinate their economic policies, laws, and regulations to address economic and financial

issues. One of the union’s founding principles is free trade among its members. It is also committed to the
liberalization of world trade outside of its borders.
Political Union: It has all features of economic union plus no separate sovereignty and has a common
Government. Represents the potentially most advanced form of integration with a common government and
were the sovereignty of a member country is significantly reduced. Only found within nation-states, such as
federations where there are a central government and regions having a level of autonomy. United States of
America is an example of political Union.
Let us discuss the issue faced by European Union , named as “Grexit”.
GREXIT: Grexit means Greece + Exit. After the 2009 financial crisis, Greece became the epicentre of Europe’s
debt problems. By 2010 it was heading towards bankruptcy, setting off fears of a second financial crisis. Many
now see the exit of Greece from the euro or Grexit as it is also known, as the only solution for the country to
end its cycle of borrowing, regain control of its monetary policy, and stabilize the economy. The Eurozone is a
monetary union consisting of 19 countries that have each adopted the euro as their sole currency. It should
not be confused with the European Union, which is a politico-economic union with no common currency –
though, all members of the Eurozone are also members of the European Union. In order to join the Eurozone,
members must meet a set of criteria and, once approved, must adopt a set of fiscal policies. By definition, the
Grexit refers to the exit of Greece from this monetary union. Although the Eurozone has its advantages in
terms of trade, there are drawbacks to sharing a currency with the 19 other countries. Namely: Greece’s
monetary policy, including how much money it can print, is controlled by the European Central Bank. Many
countries are concerned that increasing the amount of euros in circulation would result in inflation in other
Eurozone countries. By reintroducing the drachma through the Grexit, Greece would regain control of its
monetary policy and could implement its own fiscal plans. That said, there are issues with changing currency.
If, as in the case of the Grexit, the replacement currency is expected to devalue against the euro, this could
lead to a bank run as people rush to withdraw the more valuable euro, placing further stress on the economy.
The probability of a Grexit and the reintroduction of a devalued drachma have already prompted many
people to withdraw their Euros from the country’s banks. In the nine months leading up to March 2012,
deposits in Greek banks had fallen 13%. Thus on one side GREXIT is essential and inevitable future of
Eurozone while on the other side withdrawal of Greece is going to create lot of economic issues related to
currency value difference. However it is said that Greece will still continue to be a part of EU.
Q4. Discuss Incoterms as put forward by ICC and practice all over the world. Also discuss the importance of
international trade for Indian economy.
Ans:
The International Chamber of Commerce published a set of international rules regarding the interpretation of
commercial terms for the first time in 1935. These rules became known as Incoterms in 1963 although they

have been changed and added to over the years, the latest version being that of 2010. ‘Incoterms’ is the
short and snappy way of saying International Commercial Terms. First published way back in 1936, they’re a
set of 11 rules defining who’s responsible for what during international transactions.
They are used in international trade to define the obligations and responsibilities of the buyer/exporter and
seller/importer of a product.
There can sometimes be misunderstandings in international negotiations due to different interpretations of

trade in different countries. Incoterms are intended to avoid this confusion as they establish rules at an
international level.
As they’re known and accepted from Australia to Zimbabwe, a requirement on every single commercial
invoice, they greatly reduce the risk of potentially costly misunderstandings.
Incoterms spell out all the tasks, risks and costs involved during the transaction of goods from seller to buyer.
EXW – Ex-Works
1. Buyer assumes almost all costs and risk throughout the shipping process
2. Seller’s only job is making sure the buyer can access the goods
3. Once the buyer has access, it’s all down to them (including loading the goods)
4. Risk transfers from seller to buyer: At the seller’s warehouse, offices or wherever the goods are being
collected from
DAP – Delivered At Place
1. Seller covers the costs and risk of transporting goods to an agreed address
2. Goods are classed as delivered when they’re at the address and ready to be unloaded
3. Export and import responsibilities are the same as DAT
4. Risk transfers from seller to buyer:When goods are ready for unloading at the agreed address
DDP – Delivered Duty Paid
1. Seller takes almost all responsibility throughout the shipping process
2. They cover all costs and risk of transporting goods to the agreed address
3. Seller also makes sure goods are ready for unloading, fulfils export and import responsibilities and
pays any duties
4. Risk transfers from seller to buyer:When goods are ready for unloading at the agreed address.
CIP – Carriage And Insurance Paid To
1. Same seller responsibilities as CPT with one difference: the seller also pays for insuring the goods
2. Seller is only obliged to purchase the minimum possible cover
3. If the buyer wants more comprehensive insurance, they have to organise it themselves
4. Risk transfers from seller to buyer:When the buyer’s carrier receives the goods.
DAT – Delivered At Terminal
1. Seller is responsible for the costs and risk of delivering the goods to an agreed terminal
2. The terminal could be an airport, warehouse, road or container yard

3. Seller organises customs clearance and unloads the goods at the terminal
4. Buyer sorts import clearance and any related duties
5. Risk transfers from seller to buyer:At the terminal.
FCA – Free Carrier
1. It’s the seller’s job to get the goods to the buyer’s carrier at an agreed location
2. Seller is also required to clear goods for export
CPT – Carriage Paid To
1. Same seller responsibilities as FCA with one difference: the seller covers delivery costs
2. As with FCA, it’s the seller’s responsibility to clear goods for export
FAS – Free Alongside Ship
1. Seller assumes all costs and risk until goods have been delivered next to the ship
2. Buyer then takes over risk and takes care of export and import clearance
3. Risk transfers from seller to buyer:When goods have been delivered next to the ship.
FOB – Free On Board
1. Seller assumes all costs and risk until goods have been delivered on board the ship
2. They also sort out export clearance
3. Buyer assumes all responsibilities as soon as the goods are on board
4. Risk transfers from seller to buyer:When goods have been delivered onto the ship.
CFR – Cost And Freight
1. Seller has the same responsibilities as FOB but must also pay the cost of bringing the goods to the
port
2. As with FIB, the buyer assumes all responsibilities as soon as the goods are on board
3. Risk transfers from seller to buyer:When goods are on the ship.
CIF – Cost, Insurance And Freight
1. Seller has the same obligations as CFR but must also cover insurance costs
2. As with CIF, they’re only required to purchase the minimum cover
3. If the buyer requires more comprehensive insurance, they have to pay for it themselves
4. Risk transfers from seller to buyer:When the goods are on the ship.
Terms-cum-documents special reference to India can be stated as
S. No. EXPORTS IMPORTS
1 Shipping Bill Bill of Entry
2 Commercial Invoice Commercial invoice
3 Packing List Packing List
4 Bill of Lading Bill of Lading
5 Foreign Exchange Control Form (SDF) Foreign Exchange Control Form (Form A-1)

6 Terminal Handling Receipt Terminal Handling Receipt
7 Technical Standard Certificate Certified Engineer's Report
8 Cargo Release Order
9 Product manual
10 Inspection report
The following is the main importance of imports for Indian economy
(i) To Meet the Shortage of Essential Consumer Goods :– Indian economy can meet the shortage of essential
consumer goods like food grains, edible oils, sugar etc. through imports. For example, in 1994 due to less
production of sugarcane in the country, there was shortage of sugar. To meet this shortage of sugar, it was
imported in huge quantity from foreign countries.
(ii) To meet the Need of Capital Goods: – India needs many capital goods like machinery, equipments etc., for
its industrial development. Out of these some capital goods cannot be produced at all in India. In this way,
the need of capital goods like machinery can be met through imports.
(iii) To obtain Important Inputs: – For industrial and agricultural development of India, many important inputs
like petrol, chemical fertilizers, minerals etc. are needed. These cannot be produced in sufficient quantity in
the country. Thus, their shortage can be met through imports.
The importance of exports in Indian economy is as follows
(i) Export of Surplus Production: – In India the production of some products like tea, jute etc. is more than its
domestic needs. The advantageous and large scale production of these products is possible due to the
exports of these to the foreign countries.
(ii) To obtain Foreign Exchange: – India requires foreign exchange for its imports. This foreign exchange can
be obtained by exporting its products.
Q5. Explain the various tariff & Non-tariff measures and the reasons why Government may adopt tariff &
non tariff barriers.
Ans: The Government of India administers the international business through various policy documents or
methods. The policy documents/methods are known as instruments of Trade Policy. The various Trade Policy
Instruments can be enlisted here.
Instruments of Trade Policy
Various methods employed to regulate trades which include tariffs, non-tariff measures, and financial
controls.
Tariffs Instruments

Are the official constraints on import of certain goods and services levied in the form of customs duties or tax
on products moving across borders.
Classification Tariffs:
 On the basis of direction of trade: import vs. exports tariffs

 On the basis of purpose: protective vs. revenue tariffs
 On the basis of time length : tariff surcharge vs. countervailing duty
 On the basis of tariff rates : specific, ad-valorem, and combined
 On the basis of production and distribution points:
 Single stage sales tax
 Value added tax (VAT)
 Cascade tax
 Excise tax
 Turnover tax
Why Are Tariffs and Trade Barriers Imposed?
Tariffs are often created to protect infant industries and developing economies but are also used by
more advanced economies with developed industries. Here are five of the top reasons tariffs are used:
1. Protecting Domestic Employment: The levying of tariffs is often highly politicized. The possibility of
increased competition from imported goods can threaten domestic industries. These domestic companies
may fire workers or shift production abroad to cut costs, which means higher unemployment and a less
happy electorate. The unemployment argument often shifts to domestic industries complaining about
cheap foreign labor, and how poor working conditions and lack of regulation allow foreign companies to
produce goods more cheaply. In economics, however, countries will continue to produce goods until they
no longer have a comparative advantage (not to be confused with an absolute advantage).
2. Protecting Consumers: A government may levy a tariff on products that it feels could endanger its
population. For example, South Korea may place a tariff on imported beef from the United States if it
thinks that the goods could be tainted with a disease.
3. Infant Industries: The use of tariffs to protect infant industries can be seen by the Import Substitution
Industrialization (ISI) strategy employed by many developing nations. The government of a developing
economy will levy tariffs on imported goods in industries in which it wants to foster growth. This
increases the prices of imported goods and creates a domestic market for domestically produced goods
while protecting those industries from being forced out by more competitive pricing. It decreases
unemployment and allows developing countries to shift from agricultural products to finished goods.
Criticisms of this sort of protectionist strategy revolve around the cost of subsidizing the development of

infant industries. If an industry develops without competition, it could wind up producing lower quality
goods, and the subsidies required to keep the state-backed industry afloat could sap economic growth.
4. National Security: Barriers are also employed by developed countries to protect certain industries that
are deemed strategically important, such as those supporting national security. Defense industries are
often viewed as vital to state interests, and often enjoy significant levels of protection. For example,
while both Western Europe and the United States are industrialized, both are very protective of defense-
oriented companies.
5. Retaliation: Countries may also set tariffs as a retaliation technique if they think that a trading partner
has not played by the rules. For example, if France believes that the United States has allowed its wine
producers to call its domestically produced sparkling wines "Champagne" (a name specific to the
Champagne region of France) for too long, it may levy a tariff on imported meat from the United States. If
the U.S. agrees to crack down on the improper labeling, France is likely to stop its retaliation. Retaliation
can also be employed if a trading partner goes against the government's foreign policy objectives.
Common Types of Tariffs
There are several types of tariffs and barriers that a government can employ:
 Specific tariffs
 Ad valorem tariffs
 Licenses
 Import quotas
 Voluntary export restraints
 Local content requirements
Specific Tariffs: A fixed fee levied on one unit of an imported good is referred to as a specific tariff. This tariff
can vary according to the type of good imported. For example, a country could levy a $15 tariff on each pair
of shoes imported, but levy a $300 tariff on each computer imported.
Ad Valorem Tariffs: The phrase "ad valorem" is Latin for "according to value," and this type of tariff is levied
on a good based on a percentage of that good's value. An example of an ad valorem tariff would be a 15%
tariff levied by Japan on U.S. automobiles. The 15% is a price increase on the value of the automobile, so a
$10,000 vehicle now costs $11,500 to Japanese consumers. This price increase protects domestic producers
from being undercut but also keeps prices artificially high for Japanese car shoppers.
Licenses: A license is granted to a business by the government and allows the business to import a certain
type of good into the country. For example, there could be a restriction on imported cheese, and licenses
would be granted to certain companies allowing them to act as importers. This creates a restriction on
competition and increases prices faced by consumers.

Import Quotas: An import quota is a restriction placed on the amount of a particular good that can be
imported. This sort of barrier is often associated with the issuance of licenses. For example, a country may
place a quota on the volume of imported citrus fruit that is allowed.
Voluntary Export Restraints (VER): This type of trade barrier is "voluntary" in that it is created by the
exporting country rather than the importing one. A voluntary export restraint is usually levied at the behest
of the importing country and could be accompanied by a reciprocal VER. For example, Brazil could place a
VER on the exportation of sugar to Canada, based on a request by Canada. Canada could then place a VER on
the exportation of coal to Brazil. This increases the price of both coal and sugar but protects the domestic
industries.
Local Content Requirement: Instead of placing a quota on the number of goods that can be imported, the
government can require that a certain percentage of a good be made domestically. The restriction can be a
percentage of the good itself or a percentage of the value of the good. For example, a restriction on the
import of computers might say that 25% of the pieces used to make the computer are made domestically, or
can say that 15% of the value of the good must come from domestically produced components.
In the final section, we'll examine who benefits from tariffs and how they affect the price of goods.
Who Benefits from Tariffs?
The benefits of tariffs are uneven. Because a tariff is a tax, the government will see increased revenue as
imports enter the domestic market. Domestic industries also benefit from a reduction in competition, since
import prices are artificially inflated. Unfortunately for consumers - both individual consumers and
businesses - higher import prices mean higher prices for goods. If the price of steel is inflated due to tariffs,
individual consumers pay more for products using steel, and businesses pay more for steel that they use to
make goods. In short, tariffs and trade barriers tend to be pro-producer and anti-consumer.The effect of
tariffs and trade barriers on businesses, consumers and the government shifts over time. In the short run,
higher prices for goods can reduce consumption by individual consumers and by businesses. During this
period, some businesses will profit, and the government will see an increase in revenue from duties. In the
long term, these businesses may see a decline in efficiency due to a lack of competition, and may also see a
reduction in profits due to the emergence of substitutes for their products. For the government, the long-
term effect of subsidies is an increase in the demand for public services, since increased prices, especially in
foodstuffs, leave less disposable income.

Non-Tariff Instruments
Contrary to tariffs, which are straightforward, non-tariff measures are non-transparent and obstruct trade on
discriminatory basis.
Major Non-Tariff Policy Instruments:
 Government participation in trade

 Customs and entry procedure
 Quotas
o Absolute quota
o Tariff quotas
o Voluntary quotas
 Other trade restrictions
Q6. Define international Business, International Trade and International marketing. How international
Business will be beneficial to countries and firms?
Business transaction taking place within the geographical boundaries of a nation is known as domestic or
national business. It is also referred to as internal business or home trade. Manufacturing and trade beyond
the boundaries of one’s own country is known as international business. The fundamental reason behind
international business is that the countries cannot produce equally well or cheaply all that they need. This is
because of the unequal distribution of natural resources among them or differences in their productivity
levels. Hence the importance of international business arises; following definitions will clearly help the
concept more precisely.
International Business: All those business activities which involves cross border transactions of goods,
services, and resources between two or more nations
International Trade: Exports of goods and services by a firm to a foreign-based buyer (importer)
International Marketing: It focuses on the firm-level marketing practices across the border, including market
identification and targeting, entry mode selection, and marketing mix and strategic decisions to compete in
international markets.
Benefits of International Business
International business is important to both nations and business firms. It offers them several benefits.
Growing realization of these benefits over time has in fact been a contributory factor to the expansion of
trade and investment amongst nations, resulting in the phenomenon of globalisation. Some of the benefits of
international business to the nations and business firms are discussed below.
Benefits to Countries
(i) Earning of foreign exchange: International business helps a country to earn foreign exchange
which it can later use for meeting its imports of capital goods, technology, petroleum products
and fertilisers, pharmaceutical products and a host of other consumer products which otherwise
might not be available domestically.
(ii) More efficient use of resources: As stated earlier, international business operates on a simple
principle — produce what your country can produce more efficiently, and trade the surplus
production so generated with other countries to procure what they can produce more efficiently.
When countries trade on this principle, they end up producing much more than what they can
when each of them attempts to produce all the goods and services on its own. If such an
enhanced pool of goods and services is distributed equitably amongst nations, it benefits all the
trading nations.
(iii) Improving growth prospects and employment potentials: Producing solely for the purposes of
domestic consumption severely restricts a country’s prospects for growth and employment.
Many countries, especially the developing ones, could not execute their plans to produce on a
larger scale, and thus create employment for people because their domestic market was not
large enough to absorb all that extra production. Later on a few countries such as Singapore,
South Korea and China which saw markets for their products in the foreign countries embarked
upon the strategy ‘export and flourish’, and soon became the star performers on the world map.
This helped them not only in improving their growth prospects, but also created opportunities for
employment of people living in these countries.
(iv) Increased standard of living: In the absence of international trade of goods and services, it would
not have been possible for the world community to consume goods and services produced in
other countries that the people in these countries are able to consume and enjoy a higher
standard of living.
Benefits to Firms
(i) Prospects for higher profits: International business can be more profitable than the domestic
business. When the domestic prices are lower, business firms can earn more profits by selling
their products in countries where prices are high.
(ii) Increased capacity utilization: Many firms setup production capacities for their products which
are in excess of demand in the domestic market. By planning overseas expansion and procuring
orders from foreign customers, they can think of making use of their surplus production
capacities and also improving the profitability of their operations. Production on a larger scale
often leads to economies of scale, which in turn lowers production cost and improves per unit
profit margin.

(iii) Prospects for growth: Business firms find it quite frustrating when demand for their products
starts getting saturated in the domestic market. Such firms can considerably improve prospects
of their growth by plunging into overseas markets. This is precisely what has prompted many of
the multinationals from the developed countries to enter into markets of developing countries.
While demand in their home countries has got almost saturated, they realized their products
were in demand in the developing countries and demand was picking up quite fast.
(iv) Way out to intense competition in domestic market: When competition in the domestic market
is very intense, internationalisation seems to be the only way to achieve significant growth.
Highly competitive domestic market drives many companies to go international in search of
markets for their products. International business thus acts as a catalyst of growth for firms
facing tough market conditions on the domestic turf.
(v) Improved business vision: The growth of international business of many companies is essentially
a part of their business policies or strategic management. The vision to become international
comes from the urge to grow, the need to become more competitive, the need to diversify and
to gain strategic advantages of internationalization
Q7. What is Regional Trade Blocs or Free trade agreement? Explain the major trading blocs exist in the
world.
Ans:
Definition: A regional trade block is the result of economic integration of various trading areas of
different countries and it is also known as trade blocks, regional trade organizations, and regional
groupings. A trade block (regional trade block/regional grouping) is a type of intergovernmental
agreement, often part of a regional intergovernmental organization, where regional barriers to trade
(tariffs and non-tariff barriers) are reduced or eliminated among the participating countries.
Characteristics:
1. It implies a reduction or elimination of barriers to trade, and
2. This trade liberalization is discriminatory, in the sense that it applies only to the member countries of
the trade block, outside countries being discriminated against in their trade relations with trade block
members.

TYPES OF REGIONAL TRADE BLOCKS:
1. Preferential trading agreement: It is loosest form of economic integration. Under this, a group of
countries have a formal agreement to allow each other’s goods and services to be traded on preferential
terms
2. Free trade area: It is a permanent arrangement between neighboring countries. It involves the complete
removal of tariffs on goods traded among the members of the free trade area.
3. Customs union: Customs union removes barriers to trade in goods and services among themselves.
4. Common market: It has no barriers to trade among members; in addition, the common market removes
restrictions on the movement of factors of production (labor, capital and technology) across borders.
5. Economic union: This represents full integration of the economics of two or more member countries. In
addition to eliminating internal trade barriers, adopting external trade policies and abolishing restrictions
on the mobility of the factors of production among members.
6. Political union: While some degree of political integration often accompanies economic integration,
political union implies more formal political links between countries. A limited form of political union may
exist where two or more countries share common decision-making bodies and have common policies.

Regional Trade block designed to achieve various economic, social & political purposes.
Major regional trade blocks/groups:
1. European Union (EU):
The largest and most comprehensive of the regional economic groups is the European Union. To abolish
internal tariffs in order to more closely integrate EU and hopefully allow economic co-operation to help
avoid further political conflicts. It includes European Economic Community later it is called as European
Community.
2. North American Free Trade Agreement :( NAFTA):
It came into being on January 1, 1994. The most affluent nations of the world I.e., USA and Canada with
Mexico – a developing country joined together, to eliminating all tariffs and trade barriers among these
countries.
3. South Asian Association for Regional Cooperation (SAARC):
December 1985 The successful performance of this trade block is, for economic development of the
member countries and in improving the employment opportunities, incomes and living standards of the
people of the region gave impetus for the formation of SAARC.
4. SAARC Preferential Trading Arrangement (SAPTA):
The member states realizing the fact that expansion of intra-regional trade could act as a stimulus to the
development of their economics, by expanding investment and production, decided to establish and
promote regional preferential trading agreement. December 7, 1995.
5. South Asian Free Trade Area (SAFTA):
The SAFTA agreement came into force from January 1, 2006. The agreement promotes mutual trade and
economic cooperation among the contracting states, through exchange of concessions in accordance
with it. In general, the agreement requires the completion of trade liberalization program.
6. Association of South-East Asian Nations (ASEAN):
A group of six countries, Viz, Singapore, Brunei, Malaysia, Philippines, Thailand and Indonesia, agreed in
January 1992 to establish a Common Effective Preferential Tariffs (CEPT). It enables the member
countries to have close cohesiveness, share their economic and human resources and synergy in the
development of their agricultural sectors, industrial sectors and service sectors. Their strength is well
educated and skilled human resources. This strength enabled them to achieve faster industrialization.
7. ASEAN Free Trade Area (AFTA):
The major objectives of the AFTA are:

 To encourage inflow of foreign investment into this region,
 To establish free trade area in the member countries,
 To reduce tariff of the products produced in ASEAN countries. AFTA was formed in the year
(September 1994)
8. Mercosur:
The Southern Common Market (MERCOSUR for its Spanish initials) is a regional integration process,
initially established by Argentina, Brazil, Paraguay and Uruguay, and subsequently joined by Venezuela
and Bolivia* -the latter still complying with the accession procedure. Its official working languages are
Spanish and Portuguese. It came into force on January 1, 1995. It has three
Objectives:
1. Establishment of a free trade zone,
2. A common external tariff (a customs union), and
3. Free movement of capital, labor, and services.
9. Asia Pacific Economic Cooperation (APEC):
It was formed in 1989 in response to the growing interdependence among the Asiapacific economics.
APEC is a much looser economic grouping but is unique for its members, the huge differences in their
economics and stage of development, and for the juxtaposition of almost every system along the political
spectrum.
10. European Free Trade Association: (EFTA)
It was formed in 1959. The member countries of EFTA include: Austria, Norway, Portugal, Sweden, and
Switzerland. The associate members are Finland and Iceland, Great Britain and Denmark. The EFTA
council makes policy decisions of the organization.
11. Latin American Integration Association: (LAIA)
It was formed in 1960. The countries signed the LAIA agreement were Argentina, Brazil, Chile, Mexico,
Paraguay, Peru, Uruguay, Colombia, Ecuador, Venezuela, and Bolivia. The council of ministers is assisted
by a conference of contracting parties which makes discussions on issues requiring a joint resolution of
the members.
12. Economic and Social Commission for Asia and the pacific (ESCAP)
It has 48 member countries and 10 associate members. The ESCAP’s geographical covers as follows:
i) East: Cook Islands

ii) West: Azerbaijan
iii) North: Mongolia

iv) South: Australia and New Zealand
13. Andean Pact:
It was formed in 1969 includes Bolivia, Chile, Ecuador, Colombia, and Peru. It have had to deal with low
economic growth, hyperinflation, high unemployment, political unrest and crushing debt burdens.
14. Central American Common Market and CARRICOM:
It referred to as CARRICOM, it was established in 1973. However, it has repeatedly failed to make any
progress towards economic integration. A formal commitment to economic and monetary union was
adopted by CARRICOM’s member states in 1984, but since then little progress has been made.
Q8. Regional economic integration is a process that passes through different stages. Explain what do you
understand by the statement with clear contemporary examples.
Ans:
Economic integration can be classified in five additive levels, each present in the global landscape:
 Free trade. Tariffs (a tax imposed on imported goods) between member countries are
significantly reduced, some abolished altogether
 Custom union
 Common market
 Economic union (single market)
 Political union.
Economic integration is an arrangement among nations that typically includes the reduction or elimination of
trade barriers and the coordination of monetary and fiscal policies. Economic integration is sometimes
referred to as regional integration as it often occurs among neighboring nations.
Forms of economic integration are:
Economic Union, (ii) Customs Union, (iii) Free Trade Area, (iv) Sectoral or Partial Integration, (v) Preferential
Trading, (vi) Long-term Trade Agreements. These different forms of integration visualize different degrees
of economic cooperation in the descending order.
Regional integration theory seeks to explain the establishment and development of regional international
organizations. Governments use regional integration to maximize their national security and economic
interests in the context of regional interdependence.

Objectives of economic integration are:
At the most basic level, economic integration is an agreement between countries, which aims to reduce costs
for both producers and consumers. Its end goal is to remove barriers to the free flow of goods and services so
that member countries can share a common market and harmonize their fiscal policies.
Different types of regional integrations are:
Main types of Regional economic integration:
 Free trade area is the most basic form of economic cooperation. ...
 Customs union provides for economic cooperation. ...
 Common market allows for the creation of an economically integrated market between member
countries.
Stages of integration are:
The degree of economic integration can be categorized into seven stages:
 Preferential trading area.

 Free-trade area.
 Customs union.
 Single market.
 Economic union.
 Economic and monetary union.
 Complete economic integration.
The benefits of regional integration:
Development of infrastructure programmes in support of economic growth and regional integration.

Development of strong public sector institutions and good governance; reduction of social exclusion and the
development of an inclusive civil society. Contribution to peace and security in the region.
How regional integration affect countries:
Regional cooperation can strengthen the voices of all small nations. These countries often face severe
disadvantages in dealing with the rest of the world because of their low bargaining power and high
negotiation costs. The regional integration also can affect the economic development or economic growth.
Examples are:
Free Trade Area: Free Trade Areas (FTAs) are created when two or more countries in a region agree to
reduce or eliminate barriers to trade on all goods coming from other members. The North Atlantic Free Trade
Agreement (NAFTA) is an example of such a free trade area, and includes the USA, Canada, and Mexico.
Customs union

It involves the removal of tariff barriers between members, together with the acceptance of a common
(unified) external tariff against non-members. for example, Germany imposes a 10% tariff on Japanese cars,
while France imposes a 2% tariff, Japan would export its cars to French car dealers, and then sell them on to
Germany, thereby avoiding 80% of the tariff. This is avoided if a common tariff is shared between Germany
and France (and other members of the customs union.)
Common Market: A common (or single) market is the most significant step towards full economic integration.
In the case of Europe, the single market is officially referred to the 'internal market'.
Economic union: Economic union is a term applied to a trading bloc that has both a common market
between members, and a common trade policy towards non-members, although members are free to pursue
independent macro-economic policies.
The European Union (EU) is the best known Economic union, and came into force on November 1st 1993,
following the signing of the Maastricht Treaty (formally called the Treaty on European Union.)
Monetary Union: Monetary union is the first major step towards macro-economic integration, and enables
economies to converge even more closely. Monetary union involves scrapping individual currencies, and
adopting a single, shared currency, such as the Euro for the Euro-17 countries, and the East Caribbean
Dollar for 11 islands in the East Caribbean. This means that there is a common exchange rate, a
common monetary policy, including interest rates and the regulation of the quantity of money, and a single
central bank, such as the European Central Bank or the East Caribbean Central Bank.
Complete Economic Integration: Complete economic integration involves a single economic market, a
common trade policy, a single currency, a common monetary policy, together with a single fiscal policy,
including common tax and benefit rates – in short, complete harmonization of all policies, rates, and
economic trade rules.
Q9. Discuss Trade Barriers? Elaborate Tariff barriers and Non-Tariff barriers with suitable example.
Ans:
Trade Barriers: That describes any government policy or regulation that restricts international trade. Trade
barriers are restrictions imposed on the movement of goods between countries (import and export). The
major purpose of trade barriers is to promote domestic goods than exported goods, and there by safeguard
the domestic industries.
Trade barriers can be broadly divided into
A. Tariff barriers and
B. Non Tariff barriers.

A. Tariff barriers (TB)
 Term tariff means ‘Tax’ or ‘duty’.
• Tariff barriers are the ‘tax barriers’ or the ‘monetary barriers’ imposed on internationally
traded goods when they cross the national borders. Also known as duties or import duties.
They are usually associated with protectionism, the economic policy of restraining trade
between nations. For political reasons, tariffs are usually imposed on imported goods,
although they may also be imposed on exports.
• Tariffs usually aim first to
 Limit imports and
 Raise revenue
Tariff Barriers
1. Specific duty: It is based on the physical characteristics of the good. A fixed amount of money can be
levied on each unit of imported goods regardless of its price. Eg. A tariff of $ 10 on every kilogram of
butter imported.
2. Ad Valorem tariffs: The Latin phrase ‘ad valorem’ means “according to the value”. This tax is flexible
and depends upon the value or the price of the commodity. Eg. if India imposes an ad valorem tariff
of 40% on butter, it means that the tariff will be 40% of the value of the butter being imported.
3. Combined or compound duty: It is a combination of specific and ad valorem duty on a single product,
for instance, there can be a combined duty when 10% of value(ad valorem) and 1$ per
kilogram(specific tax) are charged on metal M.
4. Sliding scale duty: The duty which varies along with the price of the commodity is known as sliding
scale duty or seasonal duties. These duties are confined to agricultural products, as their prices
frequently vary because of natural and other factors.
5. Countervailing duty: It is imposed on certain import where it is being subsidized by exporting

governments. As a result of the government subsidy, imports become more cheaper than domestic
goods, to nullify the effect of subsidy, this duty is imposed in addition to normal duties.
6. Prohibitive tariff: is one so high that nearly no one imports any of that item. In 1810, India was
exporting more textiles to England than England was exporting to India.
7. Revenue tariff: A tariff which is designed to provide revenue or income to the home government is
known as revenue tariff. Generally this tariff is imposed particularly on luxury goods whose demand
from the rich is inelastic. A tariff on coffee imports imposed by countries where coffee cannot be
grown, for example raises a steady flow of revenue.

8. Protective tariff: is Intended to artificially inflate prices of imports and protect domestic industries
from foreign competition. For example, a 50% tax on an imported machine raises the price from $100
to $150. Without a tariff, the local manufacturers could only charge $100 for the same machine; now
they can charge $149 and make the sale.
9. An environmental tariff: Similar to a 'protective' tariff, is also known as a 'green' tariff or 'eco-tariff',
and is placed on products being imported from, and also being sent to countries with substandard
environmental pollution controls.
10. Anti –dumping duty: At times exporters attempt to capture foreign markets by selling goods at rock-
bottom prices, such practice is called dumping. As a result of dumping, domestic industries find it
difficult to compete with imported goods. To offset anti-dumping effects, duties are levied in addition
to normal duties.
11. Classification of tariff on the basis of trade relationship:
 Single column tariff: here the tariff rates are fixed for various commodities and the same rates
are charged for imports from all countries. Tariff rates are uniform for all countries and
discrimination between importing countries is not made.
 Double column tariff: here two rates of tariff on all or some commodities are fixed. The lower
rate is made applicable to a friendly country or the country with which bilateral trade agreement
is entered into. The higher rate is made with all other countries.
 Triple column: here 3 rates are fixed. They are: general rate, international rate, preferential rate.
The first two are similar to lower and higher rates while the preferential rate is substantially
lower than the general rate and is applicable to friendly countries with trade agreement or with
close trade relationship.
B. Non Tariff Barriers (NTB)
• Any barriers other than tariff.
• It is meant for constructing barriers for the free flow of the goods.
• It do not affect the price of the imported goods but It affects the quality and quantity of the
goods.
1. LICENSES: License is granted by the government, and allows the importing of certain goods to the
country.
2. VOLUNTARY EXPORT RESTRAINS (VER): These type of barriers are created by the exporting country
rather than the importing one. These restrains are usually levied on the request of the importing

company. Eg. Brazil can request Canada to impose VER on export of sugar to brazil and this helps to
increase the price of sugar in Brazil and protects its domestic sugar producers.
3. Quotas: under this system, a country may fix in advance, the limit of import quantity of commodity
that would be permitted for import from various countries during a given period.
4. This is divided into the following categories:
a) Tariff quota: certain specified quantity of imports allowed at duty free or at a reduced rate of
import duty. A tariff quota, therefore, combine the features of a tariff and import quota.
b) Unilateral quota: the total import quantity is fixed without prior consultations with the exporting
countries.
c) Bilateral quota: here quotas are fixed after negotiations between the quota fixing importing
country and the exporting country.
d) Multi lateral quota: a group of countries can come together and fix quotas for each country.
5. Product standards: here the importing country imposes standards for goods. If the standards are not
met, the goods are rejected.
6. Domestic content requirements: governments impose DCR to boost domestic production.
7. Product Labeling: certain countries insist on specific labeling of the products. Eg. EU insist on products
labeling in major languages in EU.
8. Packaging requirements: certain nations insist on particular type of packaging of goods. Eg. EU insist
on packaging with recyclable materials.
9. Foreign exchange regulations: the importer has to ensure that adequate foreign exchange is available
for import of goods by obtaining a clearance from exchange control authorities prior to the
concluding of contract with the supplier.
10. State trading: in some countries like India, certain items are imported or exported only through
canalising agencies like MMTT ( minerals and metals trading cooperation of India)
11. Embargo: partial or complete prohibition of trade with any particular country, mainly because of the
political tensions.

Module 2: Modes of entry into International Business, Internationalization process and managerial
implications case studies related to internationalization process. International business approaches:
ethnocentric, polycentric, regiocentric, geocentric
CO 2: Students should be able to evaluate various modes of entry in to International business and should be
able to select the best mode of entry given a situation.
Q1: A 15 years old and reputed furniture manufacturing company in India is getting substantial exports
business since last 5 years. Its export business share is steadily growing at a pace of 6 to 8% every year. This
year company has received almost 30% business from exports, mainly from Latin America. Suggest them
most appropriate modes of entry in order to expand further in global market. Evaluate the modes selected
by you.
Ans:
Since the furniture manufacturing company is 15 years in the business and now their export account in
steadily increasing every year leading to 30% export business share, it is high time that the company moves
to the next mode of international business. Various modes of entry to international business are:
1. Direct Exporting
2. Licensing and Franchising
3. Joint Ventures
4. Strategic Acquisitions
5. Foreign Direct Investment
Out of these modes, company is currently practicing “direct exporting mode”. Now they can decode to move
on next modes of entry. The market which they are targeting is Latin America which includes South American
countries along with Mexico. Most of these counties are developing countries and posies strong brand loyalty
to local brands (Ex: Brazil). Considering this fact, company can either start by licensing manufacturing work to
local firm in South America or can provide franchise for outlets throughout the continent. Franchising mode
will not reduce the cost of transportation and the brand may not be very acceptable to patriotic buyers.
Licensing mode has the risk that local manufacturers will get hold on their market and later on break the
contract and manufacture on their own. Hence the best option will be joint venture. However Licensing can
also be an option if company does not have enough financial strength to start operations in foreign land. Also
there is another fact that company already has some noticeable market in South American continent. Thus
Licensing and Joint venture are the two options which can be utilized by the company.
Licensing: Companies which want to establish a retail presence in an overseas market with minimal risk,
the licensing and franchising strategy allows another person or business assume the risk on behalf of the
company. In Licensing agreement an host country partner will pay you a royalty or commission to use your
brand name, manufacturing process, products, trademarks and other intellectual properties and also
proportion of their revenues and profits with parent firm.
Advantages of Licensing
 Low cost of entry into an international market
 Licensing partner has knowledge about the local market
 Offers you a passive source of income
 Reduces political risk as in most cases, the licensing partner is a local business entity
 Allows expansion in multiple regions with minimal investment
Disadvantages of Licensing
 In some cases, you might not be able to exercise complete control on its licensing partners in
the overseas market
 Licensees can leverage the acquired knowledge and pose as future competition for your
business
 Your business risks tarnishing its brand image and reputation in the overseas and other
markets due to the incompetence of their licensing partners
Joint Venture: A joint venture is one of the preferred modes of entry into international business for
businesses who do not mind sharing their brand, knowledge, and expertise.
Companies wishing to expand into overseas markets can form joint ventures with local businesses in the
overseas location, wherein both joint venture partners share the rewards and risks associated with the
business. Both business entities share the investment, costs, profits and losses at the predetermined
proportion.
Advantages of Joint Venture
 Both partners can leverage their respective expertise to grow and expand within a chosen
market
 The political risks involved in joint-venture is lower due to the presence of the local partner,
having knowledge of the local market and its business environment
 Enables transfer of technology, intellectual properties and assets, knowledge of the overseas
market etc. between the partnering firms
Disadvantages of Joint Venture

 Joint ventures can face the possibility of cultural clashes within the organisation due to the
difference in organisation culture in both partnering firms
 In the event of a dispute, dissolution of a joint venture is subject to lengthy and complicated
legal process.
Conclusion: Precise selection of mode of entry depends on some additional knowledge such as financial
strength of the manufacturing company, competence level of local manufacturing companies in South
America, Country in South America which gives highest sales. If it is Brazil, Joint venture will work better and
if it is Mexico, then Licensing will be the better option.
Q2. What modes of entry in international business are available for a large scale domestic two wheeler
manufacturing company which is targeting following markets?
i) Nepal, the neighbor. India shares Most Favored Nation status with Nepal through SAPTA
ii) China, which has best business infrastructure, large market and cheap labour.
Ans:
Various modes of entry to international business are:
1. Direct Exporting
2. Licensing and Franchising
3. Joint Ventures
4. Strategic Acquisitions
5. Foreign Direct Investment
Nepal:
There are several problems with Nepal’s foreign trade: It is a land-locked country competes with India in high
imports and low exports, it produces low quality goods with a high cost of production, capital formation is
inefficient and government policy is not pro-business. Nepal is bordered by India from three different sides
that include an open border policy. As a result, there is a large flow of Indian goods at low prices. Nepal does
not have a well-developed industrial base, therefore, production is of low quality and it cost more to produce
which makes its products non-competitive for the international market place. Population of Nepal is only 2.8
crore with high poverty index. Thus Nepal itself is not a big market, neither can it export to other countries
being land locked. Thus best mode of entry in Nepal would be “Direct Exporting”.
Direct exporting involves you directly exporting your goods and products to another overseas market. For
some businesses, it is the fastest mode of entry into the international business. Direct exporting, in this case,
could also be understood as Direct Sales. In case you foresee a potential demand for your goods and products
in an overseas market, you can opt to supply your goods to an importer instead of establishing your own

retail presence in the overseas market. Then you can market your brand and products directly or indirectly
through your sales representatives or importing distributors.
Advantages of Direct Exporting
 You can select your foreign representatives in the overseas market.
 You can utilize the direct exporting strategy to test your products in international markets before
making a bigger investment in the overseas market.
 This strategy helps you to protect your patents, goodwill, trademarks and other intangible assets.
Disadvantages of Direct Exporting
 For offline products, this strategy will turn out to be a really high cost strategy. Everything has to be
setup by your company from scratch.
 There is a good amount of lead time that goes into the market research, scoping and hiring of the
representatives in that country.
China
China is the largest and one of the fastest growing consumer markets in the world. India has very good trade
relations with China. China offers best infrastructure for foreign investors in order to attract Foreign Direct
Investments (FDI) and readily allows other countries to set up their manufacturing bases on its land. China
offers attractive tax structure and very professional business atmosphere. However China now imposes a
large number of anti-pollution, safety, local energy supply, and local transport issue regulations that must be
complied with in setting up a new factory. These rules must be complied with even when the factory will be
located in a well established industrial zone. Considering these facts if the company has good financial
strength and looking for a long term business with China and Hong Kong, best mode of entry would be either
a Joint Venture (requires lesser financial strength) or Foreign Direct Investment (requires larger financial
strength).
Joint Venture:
A joint venture is one of the preferred modes of entry into international business for businesses who do not
mind sharing their brand, knowledge, and expertise.
Companies wishing to expand into overseas markets can form joint ventures with local businesses in the
overseas location, wherein both joint venture partners share the rewards and risks associated with the
business. Both business entities share the investment, costs, profits and losses at the predetermined
proportion.
Advantages of Joint Venture
 Both partners can leverage their respective expertise to grow and expand within a chosen market

 The political risks involved in joint-venture is lower due to the presence of the local partner, having
knowledge of the local market and its business environment
 Enables transfer of technology, intellectual properties and assets, knowledge of the overseas market
etc. between the partnering firms
Disadvantages of Joint Venture
 Joint ventures can face the possibility of cultural clashes within the organisation due to the difference
in organisation culture in both partnering firms
 In the event of a dispute, dissolution of a joint venture is subject to lengthy and complicated legal
process.
Foreign Direct Investment:
It involves a company entering an overseas market by making a substantial investment in the country. Some
of the modes of entry into international business using the foreign direct investment strategy include
mergers and acquisitions or 100% own set up. This strategy is viable when the demand or the size of the
market, or the growth potential of the market in the substantially large to justify the investment. Some of the
reasons because of which companies opt for foreign direct investment strategy as the mode of entry into
international business can include:
 Restriction or import limits on certain goods and products.
 Manufacturing locally can avoid import duties.
 Companies can take advantage of low-cost labour, cheaper material.
Advantages of Foreign Direct Investment
 You can retain your control over the operations and other aspects of your business
 Leverage low-cost labour, cheaper material etc. to reduce manufacturing cost towards obtaining a
competitive advantage over competitors
 Many foreign companies can avail for subsidies, tax breaks and other concessions from the local
governments for making an investment in their country
Disadvantages of Foreign Direct Investment
 The business is exposed to high levels of political risk, especially in case the government decides to
adopt protectionist policies to protect and support local business against foreign companies
 This strategy involves substantial investment to be made for entering an international market

Q3. What are the various International business approaches? Evaluate the international business
approach for i) an Indian software firm which has sales and development offices in USA, JAPAN and UK and
ii) Unilever plc ( a global FMCG industry having spate existence in separate countries such as Hindustan
Unilever Limited in India.
Ans:
International business approaches are similar to the stages of internationalization or globalization. Douglas
Wind and Pelmutter advocated four approaches of international business. They are: 1. Ethnocentric
Approach 2. Polycentric Approach 3. Regiocentric Approach and 4. Geocentric Approach.
1. Ethnocentric Approach: The domestic companies normally formulate their strategies, their product
design and their operations towards the national markets, customers and competitors. But, the
excessive production more than the demand for the product, either due to competition or due to
changes in customer preferences push the company to export the excessive production to foreign
countries. The domestic company continues the exports to the foreign countries and views the
foreign markets as an extension to the domestic markets just like a new region. The executives at the
head office of the company make the decisions relating to exports and, the marketing personnel of
the domestic company monitor the export operations with the help of an export department. The
company exports the same product designed for domestic markets to foreign countries under this
approach. Thus, maintenance of domestic approach towards international business is called
ethnocentric approach. This approach is suitable to the companies during the early days of
internationalization and also to the smaller companies.
2. Polycentric Approach: The domestic companies which are exporting to foreign countries using the
ethnocentric approach find at the later stage that the foreign markets need an altogether different
approach. Then, the company establishes a foreign subsidiary company and decentralizes all the
operations and delegates decision-making and policy-making authority to its executives. In fact, the
company appoints executives and personnel including a chief executive who reports directly to the
Managing Director of the company. Company appoints the key personnel from the home country and
all other vacancies are filled by the people of the host country.
The executives of the subsidiary formulate the policies and strategies, design the product based on
the host country’s environment (culture, customs, laws, government policies, etc.), and the
preferences of the local customers. Thus, the polycentric approach mostly focuses on the conditions
of the host country in policy formulation, strategy implementation and operations.
3. Regiocentric Approach: The Company after operating successfully in a foreign country thinks of
exporting to the neighboring countries of the host country. At this stage, the foreign subsidiary
considers the regional environment (for example, Asian environment like laws, culture, policies,
etc.), for formulating policies and strategies. However, it markets more or less the same product

designed under polycentric approach in other countries of the region, but with different market
strategies.
4. Geocentric Approach: Under this approach, the entire world is just like a single country for the
company. They select the employees from the entire globe and operate with a number of
subsidiaries. The headquarters coordinate the activities of the subsidiaries. Each subsidiary functions
like an independent and autonomous company in formulating policies, strategies, product design,
human resource policies, operations, etc.
i. International business approach of an Indian software firm which has sales and development
offices in USA, JAPAN and UK is Polycentric because company has decentralized its
operations and delegated decision making and policy making authorities to its branches in
USA, Japan and UK.
ii. Unilever Plc operates on the principal of Geocentric Approach because they have separate
organization as individual business entities such as Hindustan Unilever Limited. These firms
like HUL operate as independent and autonomous companies.
Q4. RTM Biz is successfully running a packaged food business all over India, now it would like to expand its
business in the U.S. market. Suggest all the possible modes to enter into U.S. market. Evaluate all and
Select the best mode of entry.
Ans:
Businesses can enter foreign markets through selling online, exporting, franchising and licensing, pursuing a
joint venture or acquiring a foreign company.
As RTM Biz is running a package food business all over India, following possible modes of entry are suggested.
Exporting Goods
Exporting goods is another fast way to tap foreign markets. If there is a demand for the goods you sell,
chances are high that an importer somewhere on foreign soil wants to buy whatever you're selling. Rather
than attempting to establish your own brick-and-mortar presence in a foreign country and then market
yourself there, you can instead sell your goods wholesale to an importer. This process is fast and easy, since
you don't have to get involved with the retail process. You get paid by the importer and then they distribute
the product as they see fit.
Exporting goods is a smart option but does have its downside. By selling to the importer, you're adding a
middleman between you and your customers, and middlemen cost money. Importers buy only goods they
know they can sell for a profit, so you may find yourself selling to them at a discount to keep everybody
happy.

Franchising and Licensing: If you want to establish a brick-and-mortar presence on foreign soil with minimal
risk, consider allowing another person or business to assume the risk for you. Through a licensing agreement
or a franchise, a business person pays you for the use of your name, trademarks, manufacturing process and
products.
You supply support materials to the business in some cases, but the exercise of running the business falls on
the licensee. They'll pay you a licensing fee every year. In return, they get to keep any profits their franchise
makes but also assume all of the losses themselves. This is an excellent way to introduce yourself to a new
market with minimal cost and risk.
Partnering and Strategic Alliance : Partnering and Strategic Alliance is an excellent way to enter foreign
markets. If you and a related company are both looking to expand, a joint venture allows you to share the
risks and the rewards. Together, your two businesses can split the costs associated with finding and building a
new location on foreign soil.
If the business you partner with is already established in a foreign country, you stand to benefit greatly from
a partner who understands local laws and customs. In China, some industries require that a foreign business
must partner with a Chinese one in order to operate. No matter who you partner with, if a joint venture goes
well, you'll share in the profits. If it doesn't, you'll need to absorb only half the loss.
Acquiring Foreign Companies: If you can raise sufficient capital, it's possible to simply acquire a foreign
company and make it your own where the law allows. Acquiring a controlling interest in a foreign company
gives you ownership of a business that is already established and known in the market. You can continue to
allow the company's current management to operate the company for you, allowing you to benefit from
their knowledge, experience and connections. Buying another company is an expensive process, but it gives
you a fully functioning company from day one.
New, Wholly Owned Subsidiary: The proess of establishing of a new, wholly owned subsidiary (also called a
greenfield venture) is often complex and potentially costly, but it affords the firm maximum control and has
the most potential to provide above-average returns. The costs and risks are high given the costs of
establishing a new business operation in a new country. The firm may have to acquire the knowledge and
expertise of the existing market by hiring either host-country nationals—possibly from competitive firms—or
costly consultants. An advantage is that the firm retains control of all its operations.
A Comparative Evaluation of all possible modes of entry is as follows

Type of Entry Advantages Disadvantages
Exporting Fast entry, low risk Low control, low local knowledge,
potential negative environmental impact
of transportation
Licensing and Fast entry, low cost, low risk Less control, licensee may become a
Franchising competitor, legal and regulatory
environment (IP and contract law) must

be sound
Partnering and Shared costs reduce investment Higher cost than exporting, licensing, or
Strategic Alliance needed, reduced risk, seen as local franchising; integration problems
entity between two corporate cultures
Acquisition Fast entry; known, established High cost, integration issues with home
operations office
Greenfield Venture Gain local market knowledge; can be High cost, high risk due to unknowns,
(Launch of a new, seen as insider who employs locals; slow entry due to setup time
wholly owned maximum control
subsidiary)
Referring to the above discussion and evaluation of various possible modes of entry into international
business, it is suggested that first RTM Biz should go for exporting the packaged food items to U.S. market
and after a sufficient duration and establishing brand presence and understanding the likes and dislikes of the
market, it should go for licensing and franchising.
Q5. Explain the various approaches to International Business. An Indian herbal beauty product company
wants to expand its business to Europe, America and ASEAN countries. What approach(es) you will
recommend for such expansion.
Ans: The various approaches to the International Business are popularly known as EPRG Orientations, which
can be listed as
1. Ethno Centric approaches

2. Poly Centric approaches
3. Region Centric approaches
4. Geo Centric approaches
EPRG Orientations
Ethnocentric orientation
The belief which considers one’s own culture as superior to others. The belief that the business strategy
which has worked in the home country would also be suitable in alien cultures.
Polycentric orientation
It is based on the belief that substantial differences exist among various countries. Therefore, a single
business strategy cannot be effective across the world and customized business strategies need to be
adapted in different countries.
Region centric orientation

A firm treats the region as a uniform cultural segment and adopts a similar business strategy within the
region but not across the region.
Geocentric orientation
The approach considers the whole world a single market and attempts to formulate integrated business
strategies. A geocentric firm attempts to identify cultural similarities across countries and formulates a
globally uniform business strategy.
The EMIC & ETIC Dilemma :
 The Emic school holds that attitudes, interests, and behaviour are unique to a culture and best
understood in their own terms. It emphasizes studying the business research problem in each
country’s specific context and identifying and understanding its unique facets.
 The Etic school emphasizes identifying and assessing universal attitudinal and behavioural concepts
and developing ‘pan-cultural’ measures. Thus, etic is basically concerned with measuring universal
behavioural and attitudinal traits.
Emphasis is often placed an identifying and developing constructs that are feasible across countries and
cultures, while conducting cross country research.
Suitable choice and justification for chosen approach should be made. For example for ASEAN countries,
largely the culture is same and geographically they belong to same region thus Region Centric orientation
might be suggested.
Q6. A Universal Silk garment company, Nagpur is regularly getting export orders from Canada and earnings
a good amount of profit. A managing director would like to open their unit in Canada, but other members
are not agreeing with his decision. Instead the other members suggested expanding the export business in
US market. What are the various modes through which they can enter in the international market? Suggest
your views whether the company should continue their regular exports in Canada rather than setting up
wholly owned subsidiaries abroad.
Ans:
There are seven major modes of entering an international market.
1. Exporting
An item produced in a domestic market can be sold abroad. Storing and processing is mainly done in the
supplying firm’s home country. Export can increase the sales volume. When a firm receives canvassed items
and exports them, it is called Passive Export.

Alternately, if a strategic decision is taken to establish proper processes for organizing the export functions
and for obtaining foreign sales, it is known as Active Export.
 Advantages − Low investment; Less risks
 Disadvantages − Unknown market; No control over foreign market; Lack of information about
external environment
2. Licensing
In this mode of entry, the manufacturer of the home country leases the right of intellectual properties, i.e.,
technology, copyrights, brand name, etc., to a manufacturer of a foreign country for a predetermined fee.
The manufacturer that leases is known as the licensor and the manufacturer of the country that gets the
license id known as the licensee.
 Advantages − Low investment of licensor; Low financial risk of licensor; Licensor can investigate the
foreign market; Licensee’s investment in R&D is low; Licensee does not bear the risk of product
failure; Any international location can be chosen to enjoy the advantages; No obligations of
ownership, managerial decisions, investment etc.
 Disadvantages − Limited opportunities for both parties involved; Both parties have to manage
product quality and promotion; One party’s dishonesty can affect the other; Chances of
misunderstanding; Chances of trade secrets leakage of the licensor.
3. Franchising
In this mode, an independent firm called the franchisee does the business using the name of another
company called the franchisor. In franchising, the franchisee has to pay a fee or a fraction of profit to the
franchisor. The franchisor provides the trademarks, operating process, product reputation and marketing, HR
and operational support to the franchisee.
Note − The Entrepreneur magazine’s top ranker in "The 2015 Franchise 500" is Hampton Hotels. It has 2,000
hotels in 16 countries.
 Advantages − Low investment; Low risk; Franchisor understands market culture, customs and
environment of the host country; Franchisor learns more from the experience of the franchisees;
Franchisee gets the R&D and brand name with low cost; Franchisee has no risk of product failure.
 Disadvantages − Franchising can be complicated at times; Difficult to control; Reduced market

opportunities for both franchisee and franchisor; Responsibilities of managing product quality and
product promotion for both; Leakage of trade secrets
4. Turnkey Project

It is a special mode of carrying out international business. It is a contract under which a firm agrees – for a
remuneration – to fully carry out the design, create, and equip the production facility and shift the project
over to the purchaser when the facility is operational.
5. Mergers & Acquisitions
In Mergers & Acquisitions, a home company may merge itself with a foreign company to enter an
international business. Alternatively, the home company may buy a foreign company and acquire the foreign
company’s ownership and control. M&A offers quick access to international manufacturing facilities and
marketing networks.
 Advantages − Immediate ownership and control over the acquired firm’s assets; Probability of
earning more revenues; The host country may benefit by escaping optimum capacity level or
overcapacity level
 Disadvantages − Complex process and requires experts from both countries; No addition of capacity
to the industry; Government restrictions on acquisition of local companies may disrupt business;
Transfer of problems of the host country’s to the acquired company.
6. Joint Venture
When two or more firms join together to create a new business entity, it is called a joint venture. The
uniqueness in a joint venture is its shared ownership. Environmental factors like social, technological,
economic and political environments may encourage joint ventures.
 Advantages − Joint ventures provide significant funds for major projects; Sharing of risks between or
among partners; Provides skills, technology, expertise, marketing to both parties.
 Disadvantages − Conflicts may develop; Delay in decision-making of one affects the other party and it
may be costly; The venture may collapse due to the entry of competitors and the changes in the
partner’s strength; Slow decision-making due to the involvement of two or more decision-makers.
7. Wholly Owned Subsidiary
Wholly Owned Subsidiary is a company whose common stock is fully owned by another company, known as
the parent company. A wholly owned subsidiary may arise through acquisition or by a spin-off from the
parent company.
However Exporting is a better way of entering into international markets than setting up wholly owned
subsidiaries abroad in the following ways
(i) Exporting is the easiest way of gaining entry into international markets. It is less complex than
setting up and managing joint ventures or wholly owned subsidiaries abroad.
(ii) Exporting does not involve the set up of an organization in abroad.

(iii) Less time and efforts are required in case of direct exporting, but in case of setting up of
manufacturing units it will be complex with the international norms of that country.
(iv) There will not be any risk of investment as it controlled from the domestic country and no need of
foreign direct investment in abroad.
(v) The parent firm is able to exercise full control over its operations in foreign countries. Hence it is not
easy
(vi) Since the parent company on its own looks after the entire operations of foreign subsidiary, the
disclosure of its technology or trade secrets to others is very challenging task which may not be
applicable in case of direct exports..
Summary of advantages and disadvantages of various modes of entry in international business.
Q7. Explain the dimensions of International Business with the concept of EPRG framework. Which
approach will you suggest for a large size Toy manufacturing unit based at Nagpur, India.
Ans:
EPRG stand for Ethnocentric, Polycentric, Regiocentric, and Geocentric. It is a framework created by Howard
V Perlmuter and Wind and Douglas in 1969. It is designed to be used in an internationalization process of
businesses and mainly addresses how companies view international management orientations. According to

the EPRG Framework (or the EPRG Model), there are four management approaches that an organization can
take to get more involved in international business substantially.
The EPRG Framework suggests that companies must decide which approach is most suitable for achieving
successful results in countries abroad. For this reason, the EPRG Framework can be a useful tool to utilize if a
company does not know yet how to manage business activities between companies in the local country and a
host country. The EPRG Framework is additionally useful for making strategic decisions.
Ethnocentric
In this approach of the EPRG Framework, the company in a local country that wants to do business overseas
does not put in much effort to do research abroad about the host country’s market. Instead, most of
the market research is executed in the headquarters in the local country. With this approach, the company
seeks for markets abroad that share the same characteristics as the local market so that the marketing
strategy does not have to be adapted. More specifically, the ethnocentric approach uses the same marketing
strategies that are created by local personnel and further utilized multiple countries.
It is many times possible that companies that utilize this approach believe that local products should not be
adapted to the local need of countries abroad because the products are already of high quality. Another
reason could be that a specific product is sold in large volume in the local market, and for this reason, it is
believed it will do the same in other markets abroad.
The ethnocentric approach of the EPRG Framework has benefits but also downsides. At first, the company
saves a lot of operational costs that can be invested elsewhere. But the downside is that the company does
not build up new knowledge about the market abroad, which could substantially increase sales volume if
products and strategies would be adopted to the needs of the host country.
Polycentric
In the polycentric approach of the EPRG Framework is the opposite of the ethnocentric approach. A company
that utilizes this approach carefully considers different markets abroad to identify host countries that could
potentially offer the most benefits. It means that if a company has a local headquarter and a separate office
overseas in a host country that manages the operations in that or more countries, the marketing strategies
are locally created and implemented based on the local needs. Businesses that utilize the polycentric
approach of the EPRG Framework strongly believe that every market has its differences. For this reason,
these types of companies implement different marketing strategies for each market.
In the polycentric approach, it is therefore easier to make strategic decisions based on current cultural
differences and political differences. Companies that use this approach can also more easily adapt to changes
in the market because of their decentralized decision-making authorities.
The downside is that the local headquarter has less control over its operations abroad. As long as the
business operations in the host country demonstrate to be successful, this might not be a problem. But if the
business operations overseas show to be not too profitable and result in losses, it is more difficult for the
local company to minimize those losses.
However, companies that use this approach learn by doing. For this reason, a learning effect occurs, and new
knowledge is an intellectual asset of the company. If a company is the first to enter a market or offer an
unfamiliar product, the local company has first-mover advantages. It could have the best location in a host
country to operate the business, and this could additionally substantially increase profit margins.
Regiocentric
In a regiocentric approach of the EPRG Framework, businesses create and implement internationalization
strategies for specific regions. Companies that utilize this type of approach use this for the area in which the
local business is operated. It can also be that an organization utilizes two kinds of approaches. An
organization can use a regiocentric approach for the business in the region in which it operates. And the
same organization can use a polycentric or ethnocentric approach to do business in countries outside the
region.
Businesses that use a regiocentric approach of the EPRG Framework many times believe that the markets in
the region share the same characteristics of the market in the home country.
It is still challenging to determine countries in one region that share the same characteristics. Consider, for
example; some companies use this approach for NAFTA countries, which include the United States, Canada,
and Mexico. All countries are in the same region but still have some different characteristics. The same
implies for the Benelux, which include Belgium, Netherlands, and Luxembourg. The countries are in the same
region, but Belgium has different market characteristic than the Netherlands and Luxembourg. The reason
why companies use this approach to group countries into for example NAFTA and Benelux. is depending on
the type of industry and product or service. Every organization has its way of internationalization.
Geocentric
A geocentric approach of the EPRG Framework means that a business strongly believes that it is possible to
utilize one type of strategy for all countries, regardless of the cultural differences. However, companies that
use this approach attempt to create products or offer services in a way that best suit national and
international customers. This means that instead of believing that their product or service is excellent and
that it will sell in other markets, like in the ethnocentric approach, these organization proactively adapt their
products and services that best meet the global needs.
Companies sometimes prefer this type of strategy of the EPRG Framework because it does not involve many
adoptions, which minimizes operational costs. These companies use one strategy to sell a product or service,
and could for this reason, achieve economies of scale. Organizations that have a geocentric approach are
many times considered as key international businesses because these companies utilize a combination of the
polycentric and ethnocentric approaches. It means that organizations with a geocentric approach of the EPRG

Framework can identify similar cultural characteristic, and they can convert the different cultural
characteristics into mutual characteristics.
EPRG Framework conclusions
Determining which approach to utilize is dependent on the type of business and in which industry it operates.
Due to globalization, many companies operate abroad or are willing to do business overseas. However, doing
business abroad really depends on the size of the company and the experience they have. Even if a business
does not know yet what type of approach of the EPRG Framework / EPRG Model is most suitable to the
current position of the company, it is always good to research potential markets in term of what size,
characteristic, and similar available products in the market. There is a lot to learn from competitors. This
knowledge is free, and it could help to identify what opportunities are available, and thus, which approach of
the EPRG Framework is best for an internationalization process.
Q8. Evaluate the mode of entry in international market in following cases and select the best mode of
entry given a situation.
a) Airtel has purchased Zain Telecommunications in South Africa
b) There are large number of Pizza-huts restaurants in India but none of them is owned buy Pizza-hut.
Ans:
The modes of entry into international business one can opt for include direct export,
licensing, international agents and distributors, joint ventures, strategic alliance, and foreign direct
investment.
Airtel is one of leading brands. for years together, Airtel’s ads did what they were supposed to. In fact, if one
would appreciate branding and advertising, it would not be an exaggeration to state that Airtel is one of the
finest examples of great Indian marketing. Having said that, what is that which Airtel did not consider during
its recent rebranding exercise? How could the organization, that stands tall with possibly the greatest
consumer association, overlook such repercussions? Was it ‘money down the drain’ for Airtel or yet another
case of finest execution on the company’s behalf?
Airtel’s recent acquisition of Zain (South Africa) and Warid (Bangladesh) have put the Indian telecom giant on
the world map. The much talked-about acquisition of Zain acted as a launch pad for Airtel on the
International telecom scene, and thus the company’s effort to rebrand itself to establish as an international
player.
Now, let’s consider another acquisition that was quite opposite to Airtel. While Airtel (Indian company)
acquired Zain (foreign company) to cater to international market, Vodafone acquired Hutch to enter the high-
potential Indian telecom market.

As far as Airtel is concerned, it suffered a 41% dip in its bottom line (Q3 2010), owing primarily to its
rebranding exercise and foreign currency fluctuations. Given that it is a market leader in India, Airtel’s
decision to opt for rebranding will always be questioned.
Airtel’s primary aim was to project itself as a “global player” and hence its huge effort to come out with
everything new – logo, signature tune, caption, etc. While Airtel’s senior management might have clarified
umpteen times that the entire rebranding exercise was an effort to bring in some dynamism, youthfulness,
and humility, and throw open new markets for the company through these aspects, still question remains
why could not have all this be done with the same logo, same signature tune and same caption.
Vodafone acquired Hutch but the main problem remained as to how it would appeal to such a vast
population that swore by Cheeka – the Pug that was popularly known as “the hutch dog”. The pug was so
popular that even after its removal from Hutch’s ads, many customers would still have it as their mobile
wallpaper. Vodafone faced two challenges – one to enter a market that is not very welcoming of foreign
players and another to replace India’s most loved dog so as to establish its entry in India.
Vodafone entered the market, used the pug to indicate the change in the company. The ad showed the pug
leaving (its pink kennel) for a walk only to return to its kennel now painted red. This simple yet terrific ad
aptly explained the exit of Hutch (pink) and entry of Vodafone (red). The company, in its later
advertisements, phased out the pug to shift towards feature-oriented ads. We were then slowly but steadily
introduced to “Zoo Zoos” which attained instant cult status. These weird talking animated characters caught
the attention of the nation. However, even this became a huge problem to Vodafone as Zoo Zoos started to
become larger than Vodafone itself – something that is worrisome to every company. Concept
overshadowing the product is something that isn’t just acceptable to any company.
The latter’s transition from Hutch to Vodafone was a terrific move – one that required Vodafone to find
acceptance in a highly competitive yet high potential market. As a global player trying to get a foothold in a
complex market, it was essential that Vodafone underwent such major marketing & branding exercise.
After acquiring Zain's telecom business, Airtel ran into a dispute with Econet Wireless — a minority
stakeholder in Zain Telecom.
Bharti Airtel lost a court case in Nigeria and potentially faced $3 billion in payouts over a 5% stake claimed by
Econet Wireless in its Nigerian unit.
Bharti Airtel lost a court case in Nigeria and potentially faced $3 billion in payouts over a 5% stake claimed by
Econet Wireless in its Nigerian unit.
“With these settlements, Airtel has closed several ongoing major litigations in Nigeria, UK and Netherlands,”
While both the companies were very good at executing the transition, in terms of changing the hoardings
across the nation (in a single night), Airtel to go through the entire rebranding process was not worth.

Pizza Hut, a division of US-based Yum! Brands Inc, is betting big on India which has been identified by the fast
food chain as one of the key markets for its future global growth. The company, which today opened its
9,000th restaurant outside the US in Mumbai, has already lined up plans to double its outlets in India to over
700 over the next five years.
"Pizza Hut is in 105 countries across the world and we choose India for celebrating this milestone because it is
one of the key countries for accelerating the global growth,"
Presently, Yum! Brands has over 350 stores of Pizza Hut spread over 100 cities in India and are operated by its
two franchise partners -- Devyani International and Sapphire Foods India.
"India now has five consecutive quarters of same store sales growth and it's on cusp of accelerating growth.
It's always been a big potential market for us," said by International president Mr. Pant.
"The potential in India for Pizza Hut is riding on the consumer momentum, which Pizza Hut have
tremendous."
Pizza Hut, which opens a new store every 18 hours, has a global network of 16,500 stores.
A good partnership with franchise is critical for Pizza Hut for its success.
"Pizza Hut has grown stronger in India over the last 20 years, and it believe their own digital-centric delivery
and contemporary, open kitchen restaurants will build the next generation of pizza lovers to further reinforce
Pizza Hut as the most loved and trusted food service brands in India,"
Q9. Evaluate any two Modes of entry into International Business with suitable Case examples each ?
Ans:
Some of the modes of entry into international business you can opt for include
1. Direct export,
2. Licensing,
3. Joint ventures,
4. Strategic alliance, and
5. Foreign direct investment-FDI etc.
Let’s understand in detail what each of these modes of entry entail.
1. Exporting
Exporting is the most common mode of entering foreign markets. Most manufacturing companies enter into
international markets by exports.
There are different forms of Exporting:
a) Direct exporting

b) Indirect exporting
c) Intra-corporate transfer
a) Direct exporting: Direct exporting involves sales to customers located outside the company’s home
country. It involves selling the products of a country directly through its supply chain management to
end users or to intermediaries such as sales agent. In case you foresee a potential demand for your
goods and products in an overseas market, you can opt to supply your goods to an importer instead
of establishing your own retail presence in the overseas market.
b) Indirect exporting: This type of exporting occurs when a company exports products in their original
form or in the modified form to another country through another domestic company.
c) Intra-corporate transfer: It means selling of products by a company to its affiliated company in

another country. This occurs when a company ships goods from its operations in one country to an
affiliated company in another country.
Then you can market your brand and products directly or indirectly through your sales representatives or
importing distributors.
And if you are in an online product based company, there is no importer in your value chain.
 Advantages of Exporting
 Exporting is a relatively low cost activity to get involved in international business and to earn
profit.
 Manufacturing is home based so it is less risky than manufacturing and operating overseas.
 This create economies of scale leads to expansion of profit.
 Disadvantages of Direct Exporting
 In relation to location economies, a firm may not always be located in the best region.
 An exporting firm will have to work with an agent who is not necessarily loyal to one brand.
 Firm is also dependent on fluctuations of transportation cost.
CASELET-1 Exporting
 Jumping on a Japanese Jam Deal
Managers at Chivers Hertley recently scored a major coup by landing a big order from jusco, one of japan’s
largest retailers. Chivers is a UK firm that makes a variety of fruit preserves-Jellies, jams and marmalades.
Because its domestic market has matured. Chivers sees export as an important growth opportunity. The firm
currently obtains 15% of its revenues from export, with France, Germany and Holland its foreign market.

Based on its feedback, Chivers began developing a new product line just for the japanese market. First,
product formulas were altered to include more fruits and less sugar. In addition, Chivers also developed
blueberry as a flavor, since it is popular among Japanese consumers. The firm also switched to consumer jars
because Japanese consumers are accustomed to making more frequent trips to market, use jams more
sparingly than british consumers do, and have less strong space. Chivers also created exclusive new brand
name just for jusco called Cambridgeshire. The jar labels have a sepia picture of king’s College, Cambridge,
taking advantage of Japanese respect for British Universities.
Source: Japanese Jam Deal Set to Boost Preserve Group, Financial Times, Nov 3, 1997, p.3 (P. Subba Rao,
International Business Text and Cases, p.98, 2 nd edition, Himalaya Publishing house)
CASELET-2-Intra-corporate Transfers
 Inter Corporate Transfers of General Motors
General Motors (GM) Latin America, Africa & Middle East region (GM LAAM) is one of GM’s four regional
business units, made up of its Latin American Operations (LAO) sub-division in South America-SA, its Africa
and Middle east region operations sub-division. General Motors opted for the strategy of entering South
American market is to locate its manufacturing facilities in the South American countries in view of lower
labour cost and logistics and material cost. It produces in South American countries and transfer the products
to other markets in African. Middle East etc. for sale.
Gm employs approximately 33000 people in its core automotive business and majority owned joined
ventures. In south America, GM enjoys a long standing leadership position in the key automotive markets of
GMLAAM vehical sales in 2006 totalled 1,035,277 units, representing an increase of 17.4% from the previous
year and an overall market share of 17.7%. The total vehical market in SA strengthened in 2006, with total
industry sales at 3,271,812 up 481540 units from 2005. GM’s SA operations achieve total sales of 730,897
representing an increase of 14.6 percent from 2005 and a market share of 22.3 percent.
Source: GM Annual Reports. (P. Subba Rao, International Business Text and Cases, p.99, 2nd edition, Himalaya
Publishing house)
2. Licensing
International licensing is a process by which companies can internationally exploit successful products
without having to setup overseas factories. Under international licensing a company in one country (the
licensor) permits another company in another country (the licensee) to use its intellectual property like
patents, trademarks, copy right, technology, technical know-how, marketing skills etc.

Companies which want to establish a retail presence in an overseas market with minimal risk, the licensing
strategy allows another person or business assume the risk on behalf of the company. In Licensing
agreement and franchise, an overseas-based business will pay you a royalty or commission to use your brand
name, manufacturing process, products, trademarks and other intellectual properties.
While the licensee or the franchisee assumes the risks and bears all losses, it shares a proportion of their
revenues and profits you.
 Advantages of Licensing
 It allows company to enter into a foreign market without or low cost of entry into an
international market.
 It helps to gain partner has knowledge about the local market and instant assess too.
 Offers you a passive source of income
 Reduces political risk as in most cases, the licensing or franchising partner is a local business
entity
 Allows expansion in multiple regions with minimal investment, might be improve products or to
alter them so that they meet local market needs.
 Disadvantages of Licensing
 It limits market opportunities.
 In some cases, you might not be able to exercise complete control on its licensing in the overseas
market
 It has full audit provision
 Your business risks tarnishing its brand image and reputation in the overseas and other markets
due to the incompetence of their licensing and franchising partners.
 In the long run, royalty payments from a licensee may not provide the maximum for a licensor.
CASELET-3- LICENSING
 Ranbaxy to Sell UK firms Cancer Drug
Ranbaxy Laboratories Ltd. India’s largest pharmaceutical company, it has an exclusive licensing agreement
with K S Biomedix Ltd., a UK based Bio- pharmaceutical company for marketing TransMID, a novel bio-
pharmaceutical product for treatment of brain cancer. Ranbaxy has exclusive marketing rights for TransmID
in India and an option to extend this arrangement to China and other South East Asian markets.

According to the statement, TransMID is set to enter Phase III trials and is in development for the treatment
of high-grade glioma, a terminal brain cancer for which there is no known cure.” A study conducted at leading
neuro-oncology centres in the United States showed highly promising clinical response rate and an
improvement in survival times in patients, with recurrent brain cancer. The US FDA has granted TransMID a
‘fast-track’ status for the treatment of malignant tumours of the central nervous system”, the statement said.
Dr. Brain Tempest, president- pharmaceuticals, Ranbaxy said, “We will continue to provide novel products for
Indian customers and are very excited at add TransMID to our portfolio and believe this product will help
strengthen our position in the high value Oncology Segment.”
Source: Adapted from Deccan Chronicle. (P. Subba Rao, International Business Text and Cases, p.101, 2 nd
edition, Himalaya Publishing house)

Module 3: Various Macro factors affecting International Business Environment: Political, Economical, Socio-
cultural, Technological, Environmental and Legal factors.
CO 3: Students should be able to relate and discuss the presence of macro factors (PESTEL ) on international
business environment
Q1. How does the political and economic environment affect the investments by foreign companies in
India?
Ans:
Political factors
Political Stability: Since 2014, India has stable Government with a clear majority in Lok Sabha. In 2019, same
Government was elected with thumping majority and is now approaching towards majority in Rajya Sabha. A
stable Government always creates an environment of trust among foreign investors and leads to cordial
international business relations.
Political will power and initiatives: Government which is in rule is pro-business Government which is putting
efforts in developing supporting environment for business and is striving to increase FDI share in India in
various sectors. This Government has focused on certain economy elevation programs like “Start up India”
for boosting entrepreneurship spirit of youth, “stand up India” for economic empowerment of the deprived
localities, “make in India” to boost manufacturing sector and “digital India” to remove red tapism and non
transpired handling of public funds by middlemen.
Political Ideology of Government: Vision and Thinking: Transparent Governance, strict control on
bureaucracy and efforts to curtail corruption are major political steps by the central Government though it
has not yet percolated in state Governments and local Governments. Policies are good but need strict and
timely implementation. Implementation of GST and decision of demonetization had given temporary shocks
to the economy but those were recovered in a span of about one year.
Foreign Direct Investments: Definitely the Foreign Direct Investments in India have increased tremendously It
had reported 6% growth in year 2018-19 which continued steadily in first two quarters of year 2019-20
Protection of local industry and SMEs: In manufacturing sector, India is emerging as fastest developing
economy overtaking China. India has recently reduced corporate taxes to boost manufacturing sector and
diluted GST norms to protect SMEs. However it will take time for small scale companies to recover.
Foreign Policy: India as per its new EXIM policy has shifted its major trade from European countries to Asian
countries strengthening the Asian countries and reducing the expenses on imports due to dealing in cheaper
currencies than Euro and Pound.

International relations and trade pattern: India is developing strong international relations with major
economies of the world and at the same time also maintains trade relations with developing nations. India
exports mainly to USA, Saudi Arabia, China and Hong Kong while imports mainly from China, UAE, Saudi
Arabia and USA. India has been continuously shifting its imports from European Union to Africa and Asia.
Currently India shares MFN status with Vietnam and SAARC countries under SAPTA, except Pakistan.
Economic factors
Indian economy is in phase of expansion with a GDP growth rate of 4.5% despite of global recession and
negative GDP rates of many developed nations like Germany. India is facing economic slowdown due to the
global recession.
Inflation rate: Inflation rate (CPI) in India is 5.54% which is increased in last year. It is closely monitored by
RBI as well as Finance ministry both making dynamic changes in monetary as well as fiscal policy.
Capital Formation: One of the important step by India in last 5 years (2014 till 2019) is development of
national infrastructure. Development of express highways, high-speed trains, increased number of ports,
increase avenues of Inland water transport through rivers like Ganga and Yamuna, connecting hilly regions
like Jammu & Kashmir, Laddakh and east India through tunnels, development of 5 star industrial areas across
the nation are the major steps taken.
Economic system: Since 1990 LPG reforms India is slowly coming out of socialist influences and the so called
mix economy of India is slowly tending towards capitalism. Current Government is privatizing many of its
businesses and encouraging Public Private Partnerships in all sectors (PPP).
Ease of Doing Business: As per the Doing Business 2020 report by World Bank, India has jumped by 14 ranks
(from 77th improved to 63rd rank) in Ease of Doing Business out of 170 countries listed.
Conclusion: Though India’s imports are improving, exports are still not very promising. Now it is high time
that Indian Government should run “trade with India” program for global trade improvement. Another
problem is the oil crisis which every country is going to face due to world war like situation in Gulf after the
armed conflicts between USA and Iran. India’s major import commodity is oil but it has very less reservoir of
oil compared to USA and China which needs to be increased with immediate effect. Stable political
Government, emerging infrastructural capabilities and capitalistic approach can surely give India a good stand
in foreign trade in near future.
Q2. How do technical factors affect the investments by foreign companies in India? What steps is India
taking to improve it?
Ans:
Now a day, technology plays a vital role in International business. Inception of Industry 4.0, Artificial
Intelligence, Big Data and Data Analytics, Business Intelligence, Nanotechnology and disruptive technologies

and becoming buzzwords. Entire international business environment is undergoing a radical change is
technological aspects. Because of close knit world, technological changes in one country make a very big
impact on other parts of the country. One can observe a butterfly effect at global level and that is why world
is now also called a s a global village. There are following important parameters of technological
environment.
1) Telecommunications: This is the most obvious dimension of the technological environment facing
international business. Now people are using smart phones, smart watches and other telecommunications
services, giving a way to international growth. As a result, growth in the wireless technology business
worldwide has been rapid and the future promises even more. This growth is welcome as business, domestic
or global, cannot prosper without an efficient telephone system. Technologies such as Artificial Intelligence,
Big Data and Data Analytics, Business Intelligence, Nanotechnology have fostered closely knit global business.
However, all the countries in the world are not on same platform. For examples, in some countries are
already using 5G telecommunications, while some are still stuck up in 2G and 3G. One needs to access the
situation of a particular country before joining hands with any local business in that country.
2) Transportation: Technology In addition to developments in computers and telecommunications, several

major innovations in transportation have occurred since World War II. In economic terms, the most
important are probably the development of commercial jet aircraft and super freighters and the introduction
of containerization, which simplifies transshipment from one mode of transport to another. While the advent
of commercial jet has reduced the travel time of businessmen, containerization has lowered the costs of
shipping goods over long distances. In India, Government has initiated Inland Water Transport in Ganga and
Yamuna Rivers. This transportation system is continuously bringing down the transportation cost. Use of
alternative energies is another challenge the world is facing. State of the art warehouses, well developed
shipment ports, cargo hubs and use of hyper loops and bullet trains are increasing new opportunities in
International business.
3) Globalization of Production: Technological breakthroughs have facilitated globalization of production. A

worldwide communications network has become essential for any MNC. Texas Instruments (TI), the US
electronics firm, For example, has nearly 50 plants in 19 countries. A satellite based communications system
allows Texas Instruments to coordinate on a global scale; its production planning, cost accounting, financial
planning, marketing, customer service and human resource, etc. Because of globalization of production,
countries become interdependent and effectively use the local strengths and factor endowments (A factor
endowment , is commonly understood to be the amount of land, labor, capital, and entrepreneurship that a
country possesses and can exploit for manufacturing.)
4) Globalization of Markets: Along with the globalization of production, technological innovations have
facilitated the inter-nationalization of markets. As stated earlier, containerization has made it more
economical to transport goods over long distances, thereby creating global markets. Low-cost global

communications networks such as the World Wide Web are helping to create electronic global market places.
In addition, low-cost jet travel has resulted in the mass movement of people around the world. This has
reduced the cultural distance between the countries and is bringing about convergence of consumer tastes
and preferences. At the same time, global communications networks and global media are creating a
worldwide culture. Worldwide culture is creating world market for consumer goods. Signs of a global market
are already visible. It is now easy to find, a McDonald’s restaurant in Tokyo as it is in New York, to buy a Dell
Laptop in Mumbai as it is in Berlin and to buy Levis jeans in Paris as it is in San Francisco.
But with globalization of markets come some inevitable pressures on the manufacturers. They need to
localize their products in each market and raise their quality standards to make the product “global”. They
are subjected to local consumerism and laws of consumer protection. Companies need to take extra care
before launching their products in global markets.
5) E-Commerce and M-commerce: The Internet and the access gained to the World Wide Web have
revolutionized international marketing practices. Firms ranging from a few employees to large multinationals
have realized the potential of marketing globally online and so have developed the facility to buy and sell
their products and services online to the world.
Because of the low entry costs of the Internet it has permitted firms with low capital resources to become
global marketers, in some cases overnight. There are, therefore, quite significant implications for SMEs. For
all companies, the implications of being able to market goods and services online have been far reaching.
The Internet has led to an explosion of information to consumers, giving them the potential to source
products from the cheapest supplier in the world. This had led to the increasing standardization of prices
across borders or, at least, to the narrowing of price differentials as consumers become more aware of prices
in different countries and buy a whole range of products via the net.
In B2C marketing this has been most dramatically seen in the purchase of such things as flights, holidays, CDs
and books. The Internet, by connecting end- users and producers directly, has reduced the importance of
traditional intermediaries in international marketing (i.e., agents and distributors) as more companies have
built the online capability to deal direct with their customers, particularly in B2B and B2C marketing.
M-commerce has further accelerated growth of international business. Use of mobile phones, apps and
mobile activated website portals are the future of business and international business, both.
6) Technology Transfer: Technology transfer is a process that permits the flow of technology from a source to
a receiver. The source in this case is the owner or holder of the knowledge, while the recipient is the
beneficiary of such knowledge. The source could be an individual, a company, or a country. 50 years back,
technology diffusion was very slow process. It took years for television to come to India from US. But now
technologies are transferred across the globe in maximum 7 to 15 days. This fast transfer of technologies is
helping in boosting international business to a large extent.

Thus it can be concluded that technological environment is playing a major role in boosting international
business across developed, developing and under developed nations.
Q3. Discuss the present macro factors for doing international trade. Relate some questions on macro
factors that will come.
Ans:
International Business environment involve critical macro factor, these are can be termed as PESTEL. PESTEL
is an acronym for the political, economic, sociocultural, technological, environmental, and legal contexts in
which a firm operates. Its study and anlysis helps managers gain a better understanding of the opportunities
and threats they face; consequently, the analysis aids in building a better vision of the future business
landscape and how the firm might compete profitably. This useful tool analyzes for market growth or decline
and, therefore, the position, potential, and direction for a business. When a firm is considering entry into new
markets, these factors are of considerable importance. Moreover, PESTEL analysis provides insight into the
status of key market flatteners, both in terms of their present state and future trends.
Firms need to understand the macroenvironment to ensure that their strategy is aligned with the powerful
forces of change affecting their business landscape. When firms exploit a change in the environment—rather
than simply survive or oppose the change—they are more likely to be successful. A solid understanding of
PESTEL also helps managers avoid strategies that may be doomed to fail given the circumstances of the
environment.
Political Factors: The political environment can have a significant influence on businesses. In addition,
political factors affect consumer confidence and consumer and business spending. This is particularly
important for companies entering new markets. Government policies on regulation and taxation can vary
from state to state and across national boundaries. Political considerations also encompass trade treaties,
such as NAFTA, ASEAN, and EU. Such treaties tend to favour trade among the member countries but impose
penalties or less favourable trade terms on non-members.
Economic Factors: Managers also need to consider macroeconomic factors that will have near-term and long-
term effects on the success of their strategy. Inflation rates, interest rates, tariffs, the growth of the local and
foreign national economies, and exchange rates are critical. Unemployment, availability of critical labor, and
the local cost of labor also have a strong bearing on strategy, particularly as related to the location of
disparate business functions and facilities.
Sociocultural Factors: The social and cultural influences on business vary from country to country. Depending
on the type of business, factors such as the local languages, the dominant religions, the cultural views toward
leisure time, and the age and lifespan demographics may be critical. Local sociocultural characteristics also
include attitudes toward consumerism, environmentalism, and the roles of men and women in society. For
example, Coca-Cola and PepsiCo have grown in international markets due to the increasing level of

consumerism outside the United States. Making assumptions about local norms derived from experiences in
your home market is a common cause for early failure when entering new markets. However, even home-
market norms can change over time, often caused by shifting demographics due to immigration or aging
populations.
Technological Factors: The critical role of technology is discussed in more detail later in this section. For now,
suffice it to say that technological factors have a major bearing on the threats and opportunities firms
encounter. For example, new technology may make it possible for products and services to be made more
cheaply and to a better standard of quality. New technology may also provide the opportunity for more
innovative products and services, such as online stock trading and remote working. Such changes have the
potential to change the face of the business landscape.
Environmental Factors: The environment has long been a factor in firm strategy, primarily from the
standpoint of access to raw materials. Increasingly, this factor is best viewed as both a direct and indirect cost
for the firm. Environmental factors are also evaluated on the footprint left by a firm on its respective
surroundings. For consumer-product companies like PepsiCo, for instance, this can encompass the waste-
management and organic-farming practices used in the countries where raw materials are obtained.
Similarly, in consumer markets, it may refer to the degree to which packaging is biodegradable or recyclable.
Legal Factors: Finally, legal factors reflect the laws and regulations relevant to the region and the
organization. Legal factors can include whether the rule of law is well established, how easily or quickly laws
and regulations may change, and what the costs of regulatory compliance are. For example, Coca-Cola’s
market share in Europe is greater than 50 percent; as a result, regulators have asked that the company give
shelf space in its coolers to competitive products in order to provide greater consumer choice.
The PESTEL framework includes sample questions or prompts, the answers to which can help determine the
nature of opportunities and threats in the macro-environment. These questions are examples of the types of
issues that can arise while considering the macro factors in terms of PESTEL analysis.
Political Factors
1. How stable is the political environment in the prospective country?
2. What are the local taxation policies? How do these affect your business?
3. Is the government involved in trading agreements, such as the European Union (EU), the North
American Free Trade Agreement (NAFTA), or the Association of Southeast Asian Nations (ASEAN)?
4. What are the country’s foreign-trade regulations?
5. What are the country’s social-welfare policies?
Economic Factors
1. What are the current and forecast interest rates?

2. What is the current level of inflation in the prospective country? What is it forecast to be? How does
this affect the possible growth of your market?
3. What are local employment levels per capita, and how are they changing?
4. What are the long-term prospects for the country’s economy, gross domestic product (GDP) per
capita, and other economic factors?
5. What are the current exchange rates between critical markets, and how will they affect production
and distribution of your goods?
Sociocultural Factors
1. What are the local lifestyle trends?
2. What are the country’s current demographics, and how are they changing?
3. What is the level and distribution of education and income?
4. What are the dominant local religions, and what influence do they have on consumer attitudes and
opinions?
5. What is the level of consumerism, and what are the popular attitudes toward it?
6. What pending legislation could affect corporate social policies (e.g., domestic-partner benefits or
maternity and paternity leave)?
7. What are the attitudes toward work and leisure?
Technological Factors
1. To what level do the local government and industry fund research, and are those levels changing?
2. What is the local governments and industry’s level of interest and focus on technology?
3. How mature is the technology?
4. What is the status of intellectual property issues in the local environment?
5. Are potentially disruptive technologies in adjacent industries creeping in at the edges of the focal
industry?
Environmental Factors
1. What are the local environmental issues?
2. Are there any pending ecological or environmental issues relevant to your industry?
3. How do the activities of international activist groups (e.g., Greenpeace, Earth First!, and People for
the Ethical Treatment of Animals [PETA]) affect your business?
4. Are there environmental-protection laws?

5. What are the regulations regarding waste disposal and energy consumption?
Legal Factors
1. What are the local government’s regulations regarding monopolies and private property?
2. Does intellectual property have legal protections?
3. Are there relevant consumer laws?
4. What is the status of employment, health and safety, and product safety laws?
Q4. Explain the significance of Culture in success of the International Business decisions.
Ans:
While trading internationally, the Socio-Cultural environments play a vital role in formulation the
International Business Strategy. This is primarily important because various countries have different cultures.
The language and their meanings are also different for different countries.
Significance of culture
A firm operating internationally comes across a wide range of diverse cultural environments, which
significantly influence international business decisions. Managers operating internationally need to
appreciate the differences among cultural behaviour of their business partners and consumers across various
countries.
Self Reference Criterion (SRC): An unconscious reference to one’s own cultural values, experiences, and
knowledge as a basis for decision-making. SRC significantly influences ability of international managers to
objectively evaluate environmental factors and make business decision.
Approach to eliminate SRC:
Step 1: Define the business problem or goal in home-country traits, habits, or norms.
Step 2: Define the business problem or goal in foreign country cultural traits, habits, or
norms. Make no value judgments.
Step 3: Isolate the SRC influence in the problem and examine it carefully to see how it
complicates the problem.
Step 4: Redefine the problem without the SRC influence and solve for the optimum business
goal situation.
Concept of Culture in International Business:

Culture is the way of life of people, including their attitudes, values, beliefs, arts, sciences, modes of
perception, and habits of thought and activity. Cultural differences across the countries significantly influence
business decisions.
Constituents of Culture:
A variety of learned traits that influence human behaviour can contribute to the culture of a social group, the
major constituents, include:
 value system
 norms
 aesthetics
 customs and traditions
 language
 religion
Value System in International Business:
Shared assumptions of a group about how things ought to be or abstract ideas about what a group believes
to be good, desirable, or right.
Norms: Guidelines or social rules that prescribe appropriate behaviour in a given situation.
Aesthetics: Ideas and perceptions that a cultural group upholds in terms of beauty and good taste. It
includes areas related to music, dance, painting, drama, architecture, etc.
Traditions & Customs: Traditions: The elements of culture passed down from generation to generation.
Customs: An established pattern of behaviour within a society.
Language: A systematic means of communicating ideas or feelings by the use of conventionalized signs,
gestures, marks, or especially articulate vocal sounds.
Religion: Religious beliefs significantly influence business decision making. Religion encompasses three
distinct elements:
• Explanation: God seen as a ‘first cause’ behind the creation of the universe
• A standard organization: Consisting of places of worships and rituals
• Moral rules of good behaviour

Q5. Why do you think political environment is essential? Discuss the trade war between any two countries
which affects the international Business due to political decisions?
Governments and politics play a large role in international business. The political environment in
international business consists of a set of political factors and government activities in a foreign market that
can either facilitate or hinder a business' ability to conduct business activities in the foreign market. There is
often a high degree of uncertainty when conducting business in a foreign country, and this risk is often
referred to as political risk or sovereign risk.
Every campaign, product launch or global market initiative has the chance/probability to go wrong. The
factors that could pose threat to the launch are countless and while some are predictable and can be
controlled, many others cannot. In general, the factors that can be controlled are pertinent to the company
and its organization and are called internal factors. Those that cannot be controlled are the external factors,
or the environment. Politics is one of the main environmental factors and is in general out of companies’
ambit. When a company launches a product, a campaign or operations in a foreign market, it can be
entangled in problems if the launch runs into issues that are political in nature.
The political environment can impact business organizations in many ways. It could add a risk factor and lead
to a major loss. You should understand that the political factors have the power to change results. It can also
affect government policies at local to federal level. Companies should be ready to deal with the local and
international outcomes of politics.
Changes in the government policy make up the political factors. The change can be economic, legal or social.
It could also be a mix of these factors.
Increase or decrease in tax could be an example of a political element. Your government might increase taxes
for some companies and lower it for others. The decision will have a direct effect on your businesses. So, you
must always stay up-to-date with such political factors. Government interventions like shifts in interest rate
can have an effect on the demand patterns of company.
Certain factors create Inter-linkages in many ways. Some examples are:
 Political decisions affect the economic environment.
 Political decisions influence the country’s socio-cultural environment.
 Politicians can influence the rate of emergence of new technologies.
 Politicians can influence acceptance of new technologies.
The political environment is perhaps among the least predictable elements in the business environment. A
cyclical political environment develops, as democratic governments have to pursue re-election every few
years. This external element of business includes the effects of pressure groups. Pressure groups tend to
change government policies.

As political systems in different areas vary, the political impact differs. The country’s population
democratically elects open government system. In totalitarian systems, government’s power derives from a
select group.
Corruption is a barrier to economic development for many countries. Some firms survive and grow by
offering bribes to government officials. The success and growth of these companies are not based on the
value they offer to consumers.
Below, is a list of political factors affecting business:
 Bureaucracy
 Corruption level
 Freedom of the press
 Tariffs
 Trade control
 Import restrictions on quality and quantity of product
 Intellectual property law (Copyright, patents)
 Consumer protection and e-commerce
 Laws that regulate environment pollution &many more…
There are 4 main effects of these political factors on business organizations. They are:
(i) Impact on economy

(ii) Changes in regulation
(iii) Political stability
(iv) Mitigation of risk
I. Impact on economy
The political situation of a country affects its economic setting. The economic environment affects the
business performance
For example, there are major differences in Democratic and Republican policies in the US. This influences
factors like taxes and government spending, which ultimately affect the economy. A greater level of
government spending often stimulates the economy.
II. Changes in regulation
Governments could alter their rules and regulations. This could in turn have an effect on a business.
After the accounting scandals of the early 21st century, the US SEC became more attentive on corporate
compliance. The government introduced the Sarbanes-Oxley compliance regulations of 2002. This was a
reaction to the social environment. The social environment urged a change to make public companies more
liable.

III. Political Stability
Lack of political stability in a country effects business operations. This is especially true for the companies
which operate internationally.
For example, an aggressive takeover could overthrow a government. This could lead to riots, looting and
general disorder in the environment. These disrupt business operations. Sri Lanka was in a similar state
during a civil war. Egypt and Syria faced disturbances too.
IV. Mitigation of Risk
Buying political risk insurance is a way to manage political risk. Companies that have international operations
use such insurance to reduce their risk exposure.
The importance of observing the political environment
Firms should track their political environment. Change in the political factors can affect business strategy
because of the following reasons:
 The stability of a political system can affect the appeal of a particular local market.
 Governments view business organizations as a critical vehicle for social reform.
 Governments pass legislation, which impacts the relationship between the firm and its
customers, suppliers, and other companies.
 The government is liable for protecting the public interest.
 Government actions influence the economic environment.
 Government is a major consumer of goods and services.
The recent example of US and china’s trade war due to political decisions not only affects their trades
Volumes, but it also affects their financial performance. The US Government imposed imports tariffs on
Chinese exports and other goods; in turn Chinese Government cancelled most of agricultural imports
contract of US. Contrary GDP’s rate of US was negative as compare to China in 2019; on the other hand China
may face the Lower FDI investment in 2020.
Q6. Question:“A global business firm operates in an environment which is complex and multidimensional“.
Relate and discuss the main features of International political and legal environment.
Ans:
Understand government-business trade relations and how political and legal factors the policies that govern
the local economy and business environment. In fact, political stability is a key part of government efforts to
attract foreign the political and economic ideologies that define countries impact their legal systems.

To understand the above it is essential to see the basic feature of International business, they are as follows:
Features of International Business
 Large scale Operations

 Immobility of Factors
 Heterogeneous Markets
 Integration of Economies
 Dominated by developed countries and MNCs
 Beneficial to Participating Countries
 Keen Competition
 Special Role of Science and Technology
International Business Environment is multidimensional including the political risks, cultural differences,
exchange risks, legal & taxation issues. Therefore International business environment comprises the political,
economic, regulatory, tax, social & cultural, legal, & technological environments. All these factors will shape
the political-legal environment in which the firm has to operate and compete. There are three main elements
of a political-legal environment.
Political-Legal Environment. Lobbyists (industry associations) are the interface between government and
business. They work for the best interests of the industry and try to persuade governments to support them
on issues. Industry associations often provide information and data to the public.
Objectives of international business are;
 To enhance free trade at global level and attempt to bring all the countries together for the purpose
of trading.
 To increase globalization by integrating the economies of different countries.
 To achieve world peace by building trade relations among different nations.
Change in the political factors can affect business strategy because of the following reasons: The stability of
a political system can affect the appeal of a particular local market Government actions influence the
economic environment. A political factor is anything that can have an effect on any given political activity.
The political environment consists of factors related to management of public affairs and their impact on
the business of an organization.
The legal environment consists of laws, courts, attorneys and legal customs and practices. The Central
Government, State Government and Local bodies affect business operations.
Political risk is a type of risk faced by investors, corporations, and governments that political decisions,
events, or conditions will significantly affect the profitability of a business actor or the expected value of a
given economic action. The term political risk has had many different meanings over time.

The political environment in international business consists of a set of political factors and government
activities in a foreign market that can either facilitate or hinder a business' ability to conduct business
activities in the foreign market. There is often a high degree of uncertainty when conducting business in a
foreign country, and this risk is often referred to as political risk or sovereign risk.
The common political factors that influence the international business landscape. The type of economic
system a country builds is a political choice. Foreign countries often will have different economic systems
from your domestic market, and adjustments often need to be made to take these differences into account.
For example, a country may operate in a market economy where private individuals own most of the
property and operate most of the businesses. A market economy is usually the best economic environment
for a foreign business because of the protection of private property and contract rights.
Some countries lean more towards a socialist economy where many industries and businesses are owned by
the state. Operating businesses in this environment will be more difficult, but products can still be produced
and sold as people still pick their jobs and earn money.
A few countries operate under a communistic economic system where the state pretty much controls all
aspects of the economy. Conducting business in this environment ranges from difficult to impossible.
Of course, the reality is that all economies are mixed economies that take parts from two or more of the
'pure' economic systems. For example, you can conduct business in communist China in Hong Kong and other
special areas where a market economy is allowed to operate.
Businesses also must often contend with different governmental systems. Examples include democracies,
authoritarian governments, and monarchies. Some governments are easier to work with than
others. Democracies, for example, are answerable to their citizens and the rule of law.
Regarding legal environment one has to study Legal Systems:
It’s important to know the rules you must play by. There are four major bases for legal systems:
 Common law: found in the UK, the US, Canada and other countries under English influence
 Islamic Law: Derived from the Koran and found in Islamic States
 Commercial legal system: Found in Marxist-socialist economies and states like China, and the former
Soviet Union
 Civil or Code law: found in Germany, France, Japan and non-Islamic and non-Marxist countries
There are three different types of international legal disputes; those between governments, between a
company and a government and between two companies. There is no absolute international law system, so
there are many ways to handle conflict. The question most commonly asked in these instances are “Whose
law governs?”
In order to resolve legal issues, there are three general ways to determine jurisdiction.

 On the basis of jurisdictional clauses in contracts
 On the basis of where a contract was entered into
 On the basis of where the provisions of the contract were performed
Some laws that are essential to focus on that are involved with global marketing are: intellectual property
rights laws, commercial laws within countries (such as marketing laws), environmental laws, foreign
countries’ antitrust laws, and cyber laws.
Government policies and laws vary from country to country, and doing business abroad means that
government may have a greater level of involvement than what you are used to in domestic business.
Overall, the primary marketing objective is to develop a plan that will be enhanced or at least not negatively
affected by the political and legal environments.
Q7. Elaborate the reasons to study Business Environment? What are the various Tools for Analyzing the
Business Environment?
Ans:
 Environment means surrounding, things, objects, factors, influences and circumstances.
 Business Environment means the factors/activities those surround the business. Prospects of a
business depend not only on the resources but also on the environment. It is a mixture of
complex and dynamic external and internal factors of the business. Hence an analysis of the
environment is required for policy formulation and strategy formulation.
 Definition of Business Environment: The aggregate of all conditions, events and influences that
surround and affect business -David Keith.
Business environment is divided into two parts:
1. Internal Environment
Internal Organisation of a Business. Their changes affect working system and based on this company
can change/modify these factors.
2. External Environment
Those factors that create opportunities and threat for the company. It is divided into two parts a)
Micro Environment b) Macro Environment
The main factors of Internal Environment:
1. Mission and objectives of the firm
2. Business and Managerial policies

3. Production capacity, technology, Efficiency
4. Organisation and Management Structure
5. Management Information system
6. Labour management relations
7. Availability and Resources
8. Prospects of Business Development
9. Operation, Finance, Marketing, HR and R&D
The main factors of External Environment:
1. Micro Environment (Directly)
A. Supplier
B. Customers
C. Competitors
D. Market Intermediaries
E. Bankers/ Financial Institutions
F. Shareholders
G. Creditors
2. Macro Environment (Indirectly)
A. Political
B. Economical
C. Socio-cultural
D. Technological
E. Environmental
F. Legal factors
A. Political Environment
The political arena has a huge influence upon the regulation of businesses, and the spending power of
consumers and other businesses.
The main elements of Political Environment are:
1. Ideology:- Orientation regarding the Political scenario of particular country like Capitalism, Socialism,
Mixed.
2. Nationalism:- It represents political culture of any country.

3. Political Stability:- It shows how the political system of country stable. It is very important for the
growth of International business. Unstable political system hamper the growth of business as well as
country too.
4. International Relations: This plays a very important role. More the healthy environment and good
political scenario build the strong stable business growth. Like various International Institutions and
Regional blocks i.e. WTO, SAARC, EU etc.
# Types of Political System
1. Individualism: In this type of system the overall control is in the hand of private and there is adverse
form between Government and business like USA, Australia, Newzealand etc.
2. Collectivism: In this type of system it is opposite to individualism which shows high level of
connection between government and business like Taiwan, Japan, China etc.
3. Democracy: In this type citizens participate in the decision making and governance process of the
that particular country like India.
4. Totalitarian: In this type no individual freedom, Monopolistic having single dictatorship or leader like
Germany, soviet union etc.
B. Economical Environment
Marketers need to consider the state of a trading economy in the short and long-terms. This is especially true
when planning for international marketing. You need to look at:
1. Interest rates.
2. The level of inflation Employment level per capita.
3. Long-term prospects for the economy Gross Domestic Product (GDP) per capita, and so on.
Apart from this following points are also need to consider:
1. Capital Movement 2. Flow of services 3. Increase in Production
4. Primary products 5. Industrial Economies 6. Technical revolution
# Types of Economic System
1. Market Capitalism: Under this system it is based on Individualism having private ownership.
2. Command:- Under this system government work for society and whatever they do which on the urge
of socialism.

3. Mixed:- It is a combination of market capitalism and command having some private and some
government contribution for the welfare of the society, citizens as well as business.
# Economies classified by following important aspects:
1. Growth Status 2. Inflation 3. Savings and Investment trends 4. Balance of

Payment 5. Economic and Trade Policies 6. Economic Transaction 7. Level of income
C. Technological environment.
Technology is vital for competitive advantage, and is a major driver of globalization. Consider the following
points:
 Technology can be defined as knowledge of methods to perform certain tasks efficiently and solve
problems pertaining to products and services.
 Technology is application of knowledge.
 Technology is one of the significant factors which determines the level of economic development of a
country.
 The difference between the nations is mostly reflected by the level of technology.
For e.g. though India had vast natural resources, it remained as a major importing country due to its low level
technology before 1991.
Following points are very important in terms of Technology:
1. Investment in Technology: Under this country and business houses spend lots of money on
technology for better, New and unique products and services. E.g. Most of the countries like Canada,
Germany, Japan spends on Infrastructure, Highways, Communication systems, Water management
,R&D, Human capital for development in Knowledge and skills etc.
2. Technology Transfer: Under this few countries transform from communism to capitalism like hungary
and Poland transform from communism to capitalism by using Tax & other incentives to invite firms
like General Electric, General motors etc.
3. Degree of Protection: Like Intellectual Property Rights and globalization increases day by day and
now the world is single market protection that to technology based play a very important role. It
includes Patent, Literature, Copy rights, logo etc.
4. Technology and Globalisation: In simple terms it shows PICKUP which includes P-Production, I-
Innovations, C-Change, K-Knowledge, u-Utilities, P-Possession.
D. Socio Cultural environment
Culture is an integral part of society. It is like software of the mind and indicates ways of living.

The social and cultural influences on business vary from country to country. It is very important that such
factors are considered. Factors include:
1. What is the dominant religion?

2. What are attitudes to foreign products and services?
3. Does language impact upon the diffusion of products onto markets?
4. What are the roles of men and women within society?
5. How long are the population living? Are the older generations wealthy?
#SOCIAL ENVIRONMENT includes:
i. Poverty
ii. Labor and Employment
iii. Development of women and Children
iv. Education
v. Health
vi. Population and Family Welfare
vii. Public amenities in rural and urban areas
#CULTURAL ENVIRONMENT includes:
i. Religious Aspects
ii. Language
iii. Customs
iv. Traditions
v. Beliefs
vi. Tastes and Preferences
vii. Living habits
viii. Eating habits
ix. Dressing habits
# Culture play a significant role in business operation which includes products and services, marketing,
communication, negotiation, promotion and advertisement.
* Factors for Interpretation of Culture:
1. Cultural Metaphors Tradition: Swedish summer home love for nature. Japanese garden, Spanish bullfight
etc.
2. Stereotypes: It shows experiences of groups and guides its behavior like Japanese are very Reserved and
humble, in latin America people take long time to be social.
3. Idioms:- It shows various traits of society like expression etc.

E. Legal Environment
A legal system is the mechanism for formulation. Implementation, enforcement of laws in a specified
jurisdiction. Different laws to regulate business operation, business transaction, rights and obligation of the
parties methods etc.
E.g. in Germany if company wants to advertise their products before that they have to take legal counseling
as per the advertising laws in Germany.
# Kinds of legal systems
1. Common law: under this system traditions, customs, values, culture & usage is common to all like in
USA, Newzealand, Canada, UK and Australia.
2. Civil Law: Under this identified rules, regulations & codes for business activities are applicable like in
France, Germany, Japan.
3. Theocratic Law: This is based on religious precepts where the head believe based on tradition like in
Islamic country.
4. Customary law: This shows the Philosophical tradition or great spiritual part which downline the
same like African nations.
Mixed Law: Under this system countries having mixed type of laws which includes any of the above like in
USA Common and Civil Law shows countries runing two or more legal system.

Module 4: Various Government Institutes supporting foreign trade and their role: DGFT, Export
Promotion Council, ECGC, SEZs, EPZs and EOUs, EXIM Bank and FEMA
CO 4: Students should be able to examine and elaborate the role of various Government institutions in
India which support International trade.
Q1. Elaborate the role of DGFT and Export promotion council (EPC) in boosting international trade of India
Ans:
DGFT:
The Directorate General of foreign Trade (DGFT) is the agency of the Ministry of Commerce and Industry of
the Government of India, responsible for execution of the import and export Policies of India.. DGFT plays a
very important role in the development of trading relations with various other nations and thus help in
improving not only the economic growth but also provides a certain impetus needed in the trade industry.
For promoting exports and imports DGFT establish its regional offices across the country.
It is an attached office of the Ministry of Commerce and Industry and is headed by Director General of
Foreign Trade. Right from its inception till 1991, when liberalization in the economic policies of the
Government took place, this organization has been essentially involved in the regulation and promotion of
foreign trade through regulation. Keeping in line with liberalization and globalization and the overall objective
of increasing of exports, DGFT has since been assigned the role of “facilitator”. The shift was from prohibition
and control of imports/exports to promotion and facilitation of exports/imports, keeping in view the interests
of the country.
Role of DGFT in promotion of foreign trade:
* To implement the Exim Policy or Foreign Trade Policy of India by introducing various schemes and
guidelines through its network of dgft regional offices thought-out the country. DGFT perform its functions in
coordination with state governments and all the other departments of Ministry of Commerce and Industry,
Government of India.
 To Grant Exporter Importer Code Number to Indian Exporter and Importers. IEC Number is a unique
10 digit code required by the traders or manufacturers for the purpose of import and export in India.
DGFT IEC Codes are mandatory for carrying out import export trade operations and enable
companies to acquire benefits on their imports/exports, indian customs, export promotion councils
council etc in India.
 DGFT permits or regulates Transit of Goods from India or to countries adjacent to India in accordance
with the bilateral treaties between India and other countries.
 To promote trade with neighboring countries like China, Nepal, Myanmar and Bhutan.

 Any changes or formulation or addition of new codes in ITC-HS Codes are also carried out by DGFT
(Directorate General of Foreign Trade).
 DGFT also acts as a trade facilitator. It also deals with the quality complaints of the foreign buyers
and Officials.
 DGFT works in close coordination with other related economic offices like Customs office, Central
Excise/ GST authorities and Enforcement Directorate.
 DGFT provides Open general License (OGL) for private importers and exporters without which they
can neither import nor export any commodities.
Export promotional Councils (EPC)
The basic objective of Export Promotion Councils is to promote and develop the exports of the country. Each
Council is responsible for the promotion of a particular group of products, projects and services. The EPCs are
non-profit organizations registered under the Companies Act or the Societies Registration Act.
The main role of the EPCs is to project India's image abroad as a reliable supplier of high quality goods and
services. In particular, the EPCs shall encourage and monitor the observance of international standards and
specifications by exporters. The EPCs shall keep abreast of the trends and opportunities in international
markets for goods and services and assist their members in taking advantage of such opportunities in order
to expand and diversify exports in various countries and also access new markets.
Role of EPC in Export promotion, guidance and counseling:
 Promoting Government Schemes: Export Promotional Council (EPC) helps and promotes the
exporters by making them aware of the government schemes and other benefits.
 Sending trade delegations: EPC makes arrangements for sending trade delegations and study teams
to one or more countries for promoting the export of specific products and circulates the reports of
specific products and helps exporters in diversifying to new products.
 EPC also plays various roles at the policy level to promote and grow the industry.
 EPC are very vital players in boosting first time exporters.
 Export promotional councils provide various benefits to the registered exporters. And hence plays a
significant role for any exporter in India.
 To provide commercially useful information and assistance to their members in developing and
increasing their exports
 To offer professional advice to their members in areas such as technology up-gradation, quality and
design improvement, standards and specifications, product development, innovation, etc.
 To organize participation in trade fairs, exhibitions and buyer-seller meets in India and abroad
 To promote interaction between the exporting community and the Government both at the Central
and State levels

 To build a statistical base and provide data on the exports and imports of the country, exports and
imports of their members, as well as other relevant international trade data.
Following are the export promotion councils : Project Exports Promotion Council of India (PEPC), Basic
Chemicals, Cosmetics and Dyes Export Promotion Council (Chemexcil), Chemicals and Allied Products Export
Promotion Council (CAPEXIL), Council for Leather Exports, Sports Goods Export Promotion Council, Gem and
Jewelers Export Promotion Council, Cashew Export Promotion Council of India, The Plastics Export Promotion
Council, Pharmaceutical Export Promotion Council, Indian Oil Seeds And Produce Export Promotion Council
(IOPEPC), Services Export Promotion Council, Export Promotion Council for EOUs &SEZs.
Niti Aayog, the government’s premier think tank, in collaboration with the commerce ministry, evaluates the
export promotion councils. At present, there are 14 EPCs under the department of commerce and 11 under
the textiles ministry. Besides promoting and developing Indian exports, these councils are also the registering
authorities for exporters in India and small exporters in handicraft are largely benefited
Q2. Examine the importance of SEZs and EOUs in boosting foreign trade of India.
Ans:
EOU and its role in export promotion:
Introduced in 1981, the Export Oriented Units (EOU) scheme aims to increase exports from India, to thereby
increase foreign exchange earnings and create employment. This scheme also complements other schemes
such as Free Trade Zone (FTZ) and Export Processing Zone (EPZ). The provisions of Chapter 6 of the Foreign
Trade Policy and its procedures are applicable to EOU, as well as to Electronics Hardware Technology Parks
(EHTPs), Software Technology Parks (STPs) and Bio-Technology Parks (BTPs). In common parlance,
EOU/STP/EHTP/BTP are together called the EOU scheme. Units registered under the EOU scheme are
required to export 100% of their products unless they sell a portion of it to Domestic Tariff Area (DTA).
Objectives of the EOU scheme
The EOU scheme provides units with an ecosystem that is conducive for them. They are given various waivers
and preferences in compliance and taxation matters, making it easier for them to conduct business. Exports
lead to an inflow of foreign exchange, whichhelps the nation to improve its economic position. By
encouraging export-oriented businesses, the scheme also aims to generate additional employment through
the export sector. EOUs were also expected to improve the supply chain starting with the procurement of
raw materials to the supply of finished products to the DTA. Export also means an eventual upgrade in the
quality and service, so the EOU scheme was also expected to inspire technological advancements and skill
development in the nation.
Benefits of Export Oriented Units

• They can procure raw materials and capital goods through domestic sources or import without
paying any duty on the purchase
• They can claim reimbursement on GST amounts they pay
• In case they have paid duty on the purchase of fuel from domestic oil companies, they can claim a
refund on the same
• EOUs are allowed to claim an input tax credit on goods and services
• EOUs enjoy priority-basis clearance facilities
• Although both EOUs and SEZs, were initiated to boost exports, there are differences between the
two. An EOU can be set up anywhere in the country, provided it meets the scheme’s criteria. On the
other hand, an SEZ is a specially demarcated enclave that is deemed to be outside the Customs
jurisdiction and therefore, a foreign territory. Thus, any sale made from within an SEZ to DTA is
considered export while any sale made by an EOU to DTA is regarded as deemed exports. Sale from
SEZs to DTAs are more common, compared to sales from EOUs to DTAs.
• Being a clearly demarcated area, there is substantial control over the physical movement of goods to
and from SEZs, but the same cannot be said about EOUs. In terms of taxability, an SEZ based
establishment is not required to pay tax, while an EOU has to pay tax which it can claim as a refund
later.
Impact of EOUs on Exports
The positive effect of the EOU scheme was prominent in the first two decades of its existence until the
floating of the SEZ scheme. Fast forward another decade and its share in overall exports dipped, turning
negative. This was in 2011-12, around the time the tax benefits under the Income Tax Act was withdrawn.
EOUs gave exporters the freedom of setting up an export business in places of their choice, unlike Free Trade
Zones and Export Processing Zones, which had specific locational restrictions. It has also given exporters a
wide range of industrial sectors to choose from while setting up their export-oriented units.
SEZ and its importance in export trade promotion:
A special economic zone (SEZ) is an area in which the business and trade laws are different from the rest of
the country. SEZs are located within a country's national borders, and their aims include increased trade
balance, employment, increased investment, job creation and effective administration. To encourage
businesses to set up in the zone, financial policies are introduced. These policies typically encompass
investing, taxation, trading, quotas, customs and labour regulations. Additionally, companies may be offered
tax holidays, where upon establishing themselves in a zone, they are granted a period of lower taxation.
With India poised to be the third-largest global economy by 2030, a key policy of the country’s Ministry of
Commerce and Industry is establishing special economic zones (SEZs). These zones, part of India’s reform
agenda, are geographic regions with more liberal regulations than in the rest of the country. The broad

category of SEZs encompasses several more specific zone types, such as free trade zones (FTZs), export
processing zones (EPZs), free zones, industrial estates, free ports and urban enterprise zones.
SEZs were established to attract foreign direct investment, create employment opportunities, develop
infrastructure, and facilitate transfer of technology and access to global markets. However, their main
objective is to provide an internationally competitive and hassle-free environment to encourage exports.
With this goal, the government of India announced its SEZ policy in 2000, with objectives including making
available goods and services free of taxes and duties, creating integrated infrastructure for export
production, enabling expeditious and single-window approval mechanisms, and offering a package of
incentives to attract foreign and domestic investment to promote export-led growth.
Investments in India’s SEZs have increased over the last decade, leading to increased trade and investment,
job creation and more effective governance. Investment in SEZs was $590 million in 2006, and had grown to
$69.3 billion as of 2018. India had 223 operational SEZs as on March 31, 2018. Employment in SEZs stood at
100,000 in February 2006, and had increased to 1.9 million by March 2018.
To encourage participation in SEZs, companies are provided with certain benefits and incentives such as tax
holidays and income tax exemptions. For instance, units in SEZs enjoy a 100 percent income tax exemption
on export income for the first five years, 50 percent for the next five years, and 50 percent of the ploughed
back export profit for another five years. Furthermore, there is duty-free import/domestic procurement of
goods for development, operation and maintenance of SEZ units—among other incentives.
Since the SEZs offer a variety of benefits to exporters, exports from SEZs rose 18 percent in 2017-18 due to
progress in terms of clearance and facilities. India’s SEZs contribute over $87 billion to the country’s export
basket. Data compiled by the Export Promotion Council of India for export-oriented units and SEZs (EPCES)
reported total merchandise and software exports of $80 billion in fiscal year 2018, up from $68 billion the
previous year. From the period April 2017 through February 2018, the major SEZ zones that witnessed
significant growth in product exports were FALTA, Cochin, Vizag, Kandla, DC SEEPZ, MEPZ and Noida. SEZs
export a wide range of products and services: computer/electronic software, chemicals and pharmaceuticals,
gems and jewelry, textiles, garments, plastics, rubber products and more.
For any foreign investor looking for 500 acres or even more to set up a plant, an SEZ can allot the land
quickly—without any encumbrance, litigation or disruption. A single-window clearance helps the investor
start construction in four to six weeks. Investors from other countries may choose to locate their production
facilities for export to other countries or to sell in domestic markets, based upon their preference. This is a
boon for anyone looking to get into production mode very quickly. The ease of doing business, coupled with
the availability of clean and dependable power, water and other resources, as well as educated and trained
personnel, are available across SEZs in India. This will definitely help in boosting export trade and raise FDI in
India.

Q3. Examine and elaborate the role of various Government institutions in India which support
International trade.
Ans:
Various Government Institutes supporting foreign trade are DGFT, Export Promotion Council, ECGC, SEZs,
EPZs and EOUs, EXIM Bank and RBI (FEMA).
DGFT
Directorate General of Foreign Trade is a government organization in India responsible for the formulation of
exim guidelines and principles for indian importers and indian exporters of the country. Before 1991, DGFT
was known as the Chief Controller of Imports & Exports (CCI&E).
Some of the major functions of DGFT and its regional offices throughout the country are as follows:
1. To implement the Exim Policy or Foreign Trade Policy of India by introducing various schemes and
guidelines through its network of DGFT regional offices thought-out the country. DGFT perform its
functions in coordination with state governments and all the other departments of Ministry of
Commerce and Industry, Government of India.
2. To Grant Exporter Importer Code Number to Indian Exporter and Importers. IEC Number is a unique
10 digit code required by the traders or manufacturers for the purpose of import and export in India
mandatorily.
3. DGFT permits or regulate Transit of Goods from India or to countries adjacent to India in accordance
with the bilateral treaties between India and other countries.
4. To promote trade with neighbouring countries.
5. To grant the permission of free export in Export Policy Schedule 2.
6. DGFT also play an important role in controlling DEPB Rates.
7. Setting standard input-output norms is also controlled by the DGFT.
EPC (Export promotion Council)
Presently, there are fourteen Export Promotion Councils under the administrative control of the Department
of Commerce. Names and addresses of these Councils are given in Annexure 1.2. These Councils are
registered as non-profit organizations under the Companies Act/ Societies Registration Act. The Councils
perform both advisory and executive functions. The role and functions of these Councils are guided by the
Foreign Trade Policy, 2009-14. These Councils are also the registering authorities for exporters under the
Foreign Trade Policy 2009-14.
EPC plays following important role in foreign trade

1. Providing information: To assist exporters to understand, interpret and implement the export policies
and export assistance schemes of Government.
2. Providing assistance: To provide assistance in export promotional activities such as external publicity,
participation in fairs and exhibitions, promotion of exclusive exhibitions and trade fairs of specific
products.
3. Collecting data: To collect complete data on export growth, the problems faced by exporters, the
specific help needed by the manufacturers and present the same to the Government in order to
enable it to evolve appropriate export policies.
4. Sending trade delegations: To make arrangements for sending trade delegations and study teams to
one or more countries for promoting the export of specific products and to circulate the reports of
specific products and diversifying to new products.
5. Settling disputes: To help the member in settling their trade disputes through peaceful negotiations.
6. Concessions: To assist members in getting freight and other concessions for shipping conferences.
7. Issuing certificate of origin: To issue certificate of origin to Indian exporters certifying the origin of
goods.
ECGC
Formerly known as Export Credit Guarantee Corporation of India Ltd. is a wholly owned by Government of
India, was set up in 1957 with the objective of promoting exports from he country by providing credit risk
insurance and related services for exports. Over the years it has designed different export credit risk
insurance products to suit the requirements of Indian exporters. ECGC is essentially an export promotion
organization, seeking to improve the competitiveness of the Indian exports by providing them with credit
insurance covers.
Role of ECGC in doing International Business
1. Provides a range of credit risk insurance covers to exporters against loss in export of goods and
services as well.
2. Offers guarantees to banks and financial institutions to enable exporters to obtain better facilities
from them.
3. Provides Overseas Investment Insurance to Indian companies investing in joint ventures abroad in
the form of equity or loan and advances
4. Offers insurance protection to exporters against payment risks
5. Provides guidance in export-related activities
6. Makes available information on different countries with its own credit ratings

7. Makes it easy to obtain export finance from banks/financial institutions
8. Assists exporters in recovering bad debt
9. Provides information on credit-worthiness of overseas buyers
SEZ
Special Economic Zones (SEZs) Scheme in India was conceived by the Commerce andIndustries Minister
during a visit to Special Economic Zones in China in 1999.The scheme was announced at the time of annual
review of EXIM Policy effective from1.4.2000. The basic idea is to establish the zones as areas where export
production could takeplace free from all roles and regulations governing imports and exports and to give
themoperational flexibility. Special Economic Zone (SEZ) is a specifically delineated duty freeenclave, which
shall be deemed to be a foreign territory for the purposes of trade operations andduties and tariffs.
Role played of SEZ in terms of following Advantages
1. 10-year tax holiday in a block of the first 20 years
2. Exemption from duties on all imports for project development
3. Exemption from excise / VAT on domestic sourcing of capital goods for project development
4. Freedom to develop township in to the SEZ with residential areas, markets, play grounds, clubs and
recreation centers without any restrictions on foreign ownership
5. Income tax holidays on business income
6. Exemption from import duty, VAT and other Taxes
7. 10% FDI allowed through the automatic route for all manufacturing activities
EPZ
The main objectives of setting up Export Processing Zones in India are to promote foreign exchange earnings
and exports. EPZs in India are supported by world-class efficient and modern infrastructure, non-fiscal and
fiscal concessions, and a business environment that is free from corruption.
The role of Export Processing Zones is as follows:
1. To encourage foreign direct investments in order to strengthen Indian economy
2. To channelize the sources of foreign exchange within the economic system
3. To support the establishment and development of industrial enterprises within thespecified zones
4. To promote economic growth by encouraging economic activities through foreigninvestments for the
development of the zones

5. To channelize the foreign exchange earnings for the further development of these zonesand explore
new areas for the development of Indian exports
EOU
Export Oriented Units (EOU) scheme was introduced to boost exports, increase foreign earnings and created
employment in India. The EOU scheme is complementary to the scheme for Free Trade Zone, Export
Processing Zone. Units that are undertaking to export their entire production of goods are allowed to setup
as a EOU.
1. Formulation of policy for Export Oriented Units (EOUs).
2. Compilation of statistics pertaining to EOUs with the assistance of Special Economic Zones.
3. To service Board of Approval (BoA) for proposals relating to EOUs.
4. To service BoA for proposals relating to grant of Industrial Licence for EOUs and units in Special
Economic Zones.
5. Coordinating with other Departments/ Ministries for redressal of grievances of EOUs.
6. The work relating to release of funds for reimbursement of Central Sales Tax/ Duty Drawback
(CST/DBK), etc.
7. Handling Court Cases, RTI applications, Parliament Questions, Audit Paras, MP/VIP/PMO references
relating to EoU.
EXIM Bank
The Export-Import Bank (Exim bank) was set up on January 1, 1982 to take over the operations of
international finance wing of the IDBI and to provide financial assistance to exporters and importers and to
function as a head financial institution for coordinating the working of other institutions engaged in financing
of exports and imports of goods and services.
Following is the role of Exim Bank
1. It provides direct financial assistance to exporters of plant, machinery and related service in the form
of medium-term credit.
2. Underwriting the issue of shares, stocks, bonds, debentures of any company engaged in exports.
3. It provides rediscount of export bills for a period not exceeding 90 days against short-term usance
export bills discounted by commercial banks.
4. The bank gives overseas buyers credit to foreign importers for import of Indian capital goods and
related services.
5. Developing and financing export oriented industries.

6. Collecting and compiling the market and credit information about foreign trade.
RBI (FEMA)
Foreign Exchange Management Act (“FEMA”) envisages that Reserve Bank of India (“RBI”) will have a key role
in management of foreign exchange.
The main functions of RBI under FEMA are as follows:
1. Controlling dealings in foreign exchange by giving general or special permission for dealing in foreign
exchange, excluding those cases where specific provisions have been made in Act, Rules or
Regulations – Section 3.
2. RBI cannot impose any restrictions on current account transactions. These can be imposed only by
Central Government in consultation with RBI – Section 5. However, in certain cases, prior approval of
RBI is required for current account transactions as provided in Foreign Exchange Management
(Current Account Transactions) Rules, 2000.
3. Specifying conditions for payment in respect of capital account transaction – Section 6(2).
4. Regulate/prohibit/restrict the following, by issuing Regulations:
a) Transfer or issue of foreign security to resident and Indian security to non-resident;
b) Borrowing and lending in foreign exchange or to a foreign person;
c) Export/import of currency or currency notes;
d) Transfer of immovable property outside India;
e) Giving guarantee or surety where foreign exchange transaction is involved – Section 6(3)
Q4. Examine the role of State Government in setting up Special Economic Zones (SEZs)
Ans:
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.
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.
Incentives for SEZ
Attractive incentive and great investment opportunities have attractive many business tycoons to step into
the SEZ all over the country. The first step was taken by the Mahindra World City at Chennai. The SEZ was
promoted by Mahindra & Mahindra Ltd and later on by the Tamil Nadu Industrial Development Corporation.
Mahindra & Mahindra Ltd holds 89% equity in the same. Later on, Reliance Industries also signed a pact with
the Haryana government for setting up of the Rs. 25,000 crore multi products SEZ near Gurgaon in 2006.
Obligations under SEZ Unit
It is compulsory for every SEZ units in India to achieve positive net foreign exchange earning as per the
formula given in paragraph Appendix 14-II (para 12.1) of Handbook of Procedures, Vol.1. For this particular
purpose, a legal undertaking is required which has to be executed by a separate unit of the Development
Commissioner. The is responsible for providing periodic reports to the Development Commissioner and Zone
Customs as provided in Appendix 14-I F of the Handbook of Procedures, Vol.1
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.
The world first known instance of SEZ have been found in an industrial park set up in Puerto Rico in 1947. In
the 1960s, Ireland and Taiwan followed suit, but in the 1980s China made the SEZs gain global currency with
its largest SEZ being the metropolis of Shenzhen.
From 1965 onwards, India experimented with the concept of such units in the form of Export Processing
Zones (EPZ). But a revolution came in 2000, when Murasoli Maran, then Commerce Minister, made a tour to
the southern provinces of China. After returning from the visit, he incorporated the SEZs into the Exim Policy
of India. Five year later, SEZ Act (2005) was also introduced and in 2006 SEZ Rules were formulated.
Terms & Conditions for setting up of SEZ
Only units approved under SEZ scheme would be permitted to be located in SEZ.
1. The SEZ units shall abide by local laws, rules, regulations or laws in regard to area planning, sewerage
disposal, pollution control and the like. They shall also comply with industrial and labour laws as may
be locally applicable.
2. Such SEZ shall make security arrangements to fulfill all the requirements of the laws, rules and
procedures applicable to such SEZ.
3. The SEZ should have a minimum area of 1000 hectares and at least 35 % of the area is to be
earmarked for developing industrial area for setting up of processing units.
4. Minimum area of 1000 hectares will not be applicable to product specific and port/airport based
SEZs.
5. Wherever the SEZs are landlocked, an Inland Container Depot (ICD) will be an integral part of SEZs.
6. Detailed guidelines on setting up of SEZ in the Private/Joint/State Sector is given in Appendix 14-II.N
of Handbook of Procedures Volume
Advantages & Dis-Advantages of a 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 of SEZ
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.
1. Allowed to carry forward losses

2. No license required for import made under SEZ units.

3. Duty free import or domestic procurement of goods for setting up of the SEZ units.
4. Goods imported/procured locally are duty free and could be utilized over the approval period of 5
years.
5. Exemption from customs duty on import of capital goods, raw materials, consumables, spares, etc.
6. Exemption from Central Excise duty on the procurement of capital goods, raw materials, and
consumable spares, etc. from the domestic market.
7. Exemption from payment of Central Sales Tax on the sale or purchase of goods, provided that, the
goods are meant for undertaking authorized operations.
8. Exemption from payment of Service Tax.
9. 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.
10. 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.
11. “Write-off” of unrealized export bills is permitted up to an annual limit of 5% of their average annual
realization.
12. No routine examination by Customs officials of export and import cargo.
13. Setting up Off-shore Banking Units (OBU) allowed in SEZs.
14. OBU's allowed 100% income tax exemption on profit earned for three years and 50 % for next two
years.
15. Exemption from requirement of domicile in India for 12 months prior to appointment as Director.
16. 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.
17. The Government has exempted SEZ Units from the payment of stamp duty and registration fees on
the lease/license of plots.
18. External Commercial Borrowings up to $ 500 million a year allowed without any maturity restrictions.
19. Enhanced limit of Rs. 2.40 crores per annum allowed for managerial remuneration.
Disadvantages of SEZ
1. Revenue losses because of the various tax exemptions and incentives.

2. Many traders are interested in SEZ, so that they can acquire at cheap rates and create a land bank for
themselves.
3. 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.

Procedure to Set up an SEZ
A SEZ unit can be set up any where in India after fulfilling the following requirements.
According to SEZ Act 2005, a Special Economic Zone can be established either jointly or severally by the
Central Government, State Government, or any other person involve in the manufacturing of goods. Even a
foreign company can also set up SEZ in India.
After identifying the proper area a person wishing to establish a SEZ unit may make a proposal to the State
Government
Notwithstanding anything contained in sub-section (2), any person, who intends to set up a Special Economic
Zone, may, after identifying the area, at his option, make a proposal directly to the Board for the purpose of
setting up the Special Economic Zone:
In case, a State Government intends to set up a Special Economic Zone, it may after choosing the area,
forward the proposal directly to the Board of Approval for the purpose of setting up the Special Economic
Zone:
Every proposal under sub-sections (2) to (4) shall be made in such form and manner containing such
particulars as may be prescribed.
The State Government may, on receipt of the proposal made under sub-section (2), forward the same
together with its recommendations to the Board within a fix period as may be prescribed.
Without prejudice to the provisions contained in subsection (8), the Board may, after receipt of the proposal
under sub-section (2) to (4), approve the proposal subject to such terms and conditions as it may deem fit to
impose, or modify or reject the proposal.
The Central Government may prescribe the following requirement for establishment of a Special Economic
Zone, namely:-
1. The minimum area of land and other terms and conditions subject to which the Board shall approve,
modify or reject any proposal received by it under sub-section (2) to (4) ; and
2. The terms and conditions, subject to which the Developer shall undertake the authorized operations and
his obligations and entitlements.
3. Provided that different minimum are of land and other terms and conditions referred to in clause (a) may
be prescribed by the Central Government for a class or classes of Special Economic Zones.
If the Board,-
1. Approves without any modification, the proposal received under sub-section (2) to (4), it shall
communicate the same to the Central Government;

2. Approves with modifications the proposal received under sub-section (2) to (4), it shall, communicate such
modifications to the person or the State Government concerned and if such modifications have been
accepted by such person or the State Government, the Board shall communicate the approval to the Central
Government;
3. Rejects the proposal, received under sub-section (2) to (4), it shall record the reasons therefore and
communicate the rejection to the Central Government which shall intimate to the State Government or the
person concerned.
The Central Government shall, on receipt of communication under clause (a) or clause (b) of sub-section (9),
grant, within such time as may be prescribed, a letter of approval on such terms and conditions and
obligations and entitlements as may be approved by the Board, to the Developer, being the person or the
State Government concerned:
Provided that the Central Government may, on the basis of approval of the Board, approve more than one
Developer in a Special Economic Zone in cases where one Developer does not have in his possession the
minimum area of contiguous land, as may be prescribed, for setting up a Special Economic Zone and in such
cases, each Developer shall be considered as a Developer in respect of the land in his possession.
Any person who, or a State Government which, intends to provide any infrastructure facilities in the
identified area referred to in sub-section (2) to (4), or undertake any authorized operation may, after
entering into an agreement with the Developer referred to in sub-section (10), make a proposal for the same
to the Board for its approval and the provisions of sub-section (5) and sub-sections (7) to (10) shall, as far as
may be, apply to the said proposal made by such person or State Government.
Every person or a State Government referred to in subsection (11), whose proposal has been approved by the
Board and who, or which, has been granted letter of approval by the Central Government, shall be
considered as a Co-Developer of the Special Economic Zone.
Subject to the provisions of this section and the letter of approval granted to a Developer, the Developer may
allocate space or built up area or provide infrastructure services to the approved units in accordance with the
agreement entered into by him with the entrepreneurs of such Units.
Documents Submission
Following necessary document are required before making the final proposal for the SEZ units-
15 copies of the application shall be submitted to the Chief Secretary of the State, which shall indicate:
 Name and address of the applicant

 Status of the promoter (whether private/public or joint sector/ NRIs or state government)
 Project report
The documents for establishment of SEZ shall be submitted with the following details: -

 Location of the proposed Zone with details of existing infrastructure and that proposed to be
established,
 Area of the proposed SEZ and its distance from the nearest Sea Port/Airport/Rail/Road head etc.
 Financial details and mode of financing the project and viability of the project.
 Details of foreign equity, if any
 Whether the zone will allow only certain specific industries or will be a multi-product zone.
State Government Approval
The State Government shall, forward it along with their commitment to the following to the Department of
Commerce, Government of India:
 That the area proposed under Special Economic Zone shall be free from any environmental
restrictions;
 Water, electricity and other services would be provided as required;
 Full exemption shall be given in electricity duty and tax on sale of electricity for self generated and
purchased power;
 Exemption from State Sales Tax, octroi, mandi tax, turnover tax and taxes, duty, Cess, levies on
supply of goods from Domestic Tariff Area to SEZ units;
 That single point clearances system and minimum inspections requirement under State Laws/Rules
would be provided.
 Generation, transmission and distribution of power shall be allowed within the SEZ;
 The Zone will be declared as a Public Utility Service under the Industrial Disputes Act;
All powers under Industrial Dispute Act, 1947 shall be delegated to Development Commissioner.
Section 11(1) of Special Economic Zones Act, 2005 provides that "the Central Government may appoint any of
its officers not below the rank of Deputy Secretary to the Government of India as the Development
Commissioner of one or more Special Economic Zones"
Government of India after considering the above proposals may grant in-principle approval for setting up of
SEZs. The in-principle approval shall be valid for a period of one year. However, this validity period may be
extended by the Department of Commerce, as it may thinks fit.
According to Section 3(7) of Special economic Zones Act, 2005, the Board of Approval may accept, modify or
reject the proposal depending upon various circumstances. In case of acceptance, approval is valid for a
period of 3 years within which time effective steps shall be taken by the developer to implement the project.
Although, this time period can be extended the Department of Commerce depending upon various
circumstances.

Q5. Examine the roles and various functions of Export Promotion Councils. Why exporters need to register
with Export Promotion Council? What are the functions of Export promotion councils in India?
Ans:
Export promotion councils are to promote exporters to earn foreign exchange from overseas. Most of the
countries have export promotion councils in their own countries to boost overseas market of products
manufactured in their country.
Many export promotion councils are in international trade. Most of them are on product-wise organizations.
If you are manufacturer exporter, you need to obtain Registration-cum-Membership Certificate to claim
benefits under FTP.
Export promotional Councils (EPC) are authorities which are basically promoting, supporting and assisting
firms in entering the International markets and realizing their optimum potential from given resources. They
also provide guidance and assistance to the exporters.
In legal terms, export promotional councils are non-profit organisation registered as a company or society.
Each Export promotional council is responsible for his particular group of products
The Export Promotion Councils are non-profitable organizations, registered under the Indian Companies Act
or the Societies Registration Act. They are supported by financial assistance from the Government of India.
The role of the EPCs is to project country’s image abroad as a council of reliable suppliers of high quality
goods and services. The EPCs encourage and monitor the observance of international standards and
specifications by exporters. The EPCs keep abreast of the trends and opportunities in international markets
for goods and services and assist their members in taking advantage of such opportunities in order to expand
and diversify exports.
Some of the export promotion councils are Council for Leather exports (leather and related products),
Engineering export promotion council (for engineering goods), Gem and jewelers export promotion council
(for gem and jewelry), cashew export promotion council (for cashew) etc.
You can register with the export promotion council which your product is handled. The said export promotion
council supports its members in many ways to boost the exports to earn foreign currency.
The office details of export promotion councils in India with product wise has been mentioned in a separate
article in this web blog. You may read same also to have a clear idea on export promotion councils.
WHAT ROLE DOES EPC PLAYS IN EXPORT IMPORT INDUSTRY
1. Promoting Government Schemes: Export Promotional Council (EPC) helps and promotes the
exporters by making them aware of the government schemes and other benefits.

2. Collect and restoring data: Export Promotional Council (EPC) further promotes and collects the
export data to compare the industry growth and solve any hurdle in between.
3. Sending trade delegations: To make arrangements for sending trade delegations and study teams to
one or more countries for promoting the export of specific products and to circulate the reports of
specific products and diversifying to new products.
4. Other roles: EPC also plays various roles at the policy level to promote and grow the industry.
WHY EXPORT PROMOTIONAL COUNCILS ARE USEFUL FOR FIRST TIME EXPORTER
As per the Foreign trade policy of India, any person who either wants to acquire any license to import export
restricted or other similar categories of goods or to avail any export related benefit or scheme is liable to
register for Registration Cum Membership Certificate (RCMC).
Export promotional councils provide various benefits to the registered exporters. Hence it plays a significant
role for any exporter in India.
HOW TO REGISTER WITH EXPORT PROMOTIONAL COUNCILS
There are currently 36 export councils and nine commodity board of India. All of these export promotional
councils promote a specific set of the product. Hence, the exporter should register under the concerned
Export Promotional Councils as per their line of products.
E.g. if you are an exporter of coconut, then you should register under Coconut Board of India.
Export Promotion Councils/Commodity Boards/Export Development Authorities (Export Promotion

Organisations) in India
Presently, there are twenty six Export Promotion Councils under the administrative control of the
Department of Commerce. Names and addresses of these Councils are given in Annexure 1.2. These Councils
are registered as non-profit organizations under the Companies Act/ Societies Registration Act. The Councils
perform both advisory and executive functions. The role and functions of these Councils are guided by the
Foreign Trade Policy, 2009-14. These Councils are also the registering authorities for exporters under the
Foreign Trade Policy 2009-14.
1) Agricultural and Processed Food Products Export Development Authority
2) Apparel Export Promotion Council
3) Basic Chemicals Pharmaceuticals & Cosmetic Export Promotion Council
4) Carpet Export Promotion Council

5) Cashew Export Promotion Council of India
6) Chemicals and Allied Products Export Promotion Council
7) Coffee Board
8) Coir Board
9) Coconut Development Board
10) Cotton Textiles Export Promotion Council
11) Council for Leather Exports
12) Engineering Export Promotion Council
13) Export Promotion Council for EOUs and SEZ Units
14) Electronics & Computer Software Export Promotion Council
15) Export Promotion Council for Handicrafts
16) Gem & Jewellery Export Promotion Council
17) Handloom Export Promotion Council
18) Indian Silk Export Promotion Council
19) Indian Oilseeds & Produce Exporters Association EPC (IOPEA)
20) Jute Products Development and Export Promotion Council - (JPDEPC)
21) Marine Products Export Development Authority
22) Project Exports Promotion Council of India
23) The Plastics Export Promotion Council
24) Powerloom Dev. and Export Promotion Council
25) Pharmaceutical Export Promotion Council
26) Rubber Board
27) Service Export Promotion Council
28) Shellac Export Promotion Council
29) Spices Board
30) Sports Goods Export Promotion Council
31) Synthetic & Rayon Textiles Export Promotion Council
32) Tea Board

33) Telecom Equipment and Services Export Promotion Council (TEPC)
34) Tobacco Board
35) Wool and Woolen Export Promotion Council
36) Wool Industry Export Promotion Council
Hint(write only few in the exams)
Q6. Elaborate the promotional measures initiated by the Government of India to increase exports. Examine
the role of DGFT, Exim Bank & SEZ’s in export promotion.
Ans:
A number of institutions have been set up by the government of India to promote exports. The export and
import functions are looked after by the Ministry of Commerce. The Government formulates the export-
import policies and programmes that give direction to the exports.
Export promotion measures are public policy measures taken by the government of a country to potentially
enhance the exporting activities and employment of that country.
The government provides duty drawbacks, income tax exemption and excise duty rebate on exports of
certain to encourage exporters to export from the country. The Ministry of Commerce and Federation
of Indian Export Organization (FERO) help exporters in development of overseas markets, by
identifying export potential.
Various export promotion schemes offered by government in order to promote export from the country to
list here few are:
 Market Development Assistance Scheme

 Export Oriented Unit (EOU) Scheme
 Market Access Initiative (MAI) Scheme
 Software Technology Park (STP) Scheme
 Services Exports from India Scheme (SEIS)
 The Merchandise Exports from India Scheme (MEIS)
Export promotion means total activities of the government and state institutions, which have a positive
impact on the export performance of the economy. ... indirect – informational support, technical
assistance, promotion of domestic exporters and their products abroad.
Export promotion leads to expansion of goods for the foreign market. These goods earn foreign exchange
that can be used to facilitate development. Export promotion industries have a wide market for their produce
for both domestic and foreign markets. ... This will lead to lower production costs.

With the major objective of export promotion, the Export-Import Bank of India, set up in 1982 for the
purpose of financing, facilitating and promoting foreign trade in India, is the principal financial institution in
the country for coordinating working of institutions engaged in financing exports and imports. In addition to
this Export Promotion Councils were set up presently, there are fourteen Export Promotion Councils under
the administrative control of the Department of Commerce.
The aim of such development should be the promotion of economic efficiency, diversification of production
and better utilization of skilled and unskilled manpower. The development of the economy's export sector
has a vital role to play in the achievement of the Plan's social and economic goals.
The Directorate General of Foreign Trade (DGFT) is the agency of the Ministry of Commerce and Industry
of the Government of India responsible for administering laws regarding foreign trade and foreign
investment in India.
DGFT Digital Signature Certificate is basically a Class 2 Digital Signature specially for EXIM Organizations who
are having Import Export Code(IEC) in India. IEC Code is mandatory to obtain a DGFT Digital
Signature Certificate.
DGFT has played a crucial role in launching several export promotion schemes such as MEIS, SEIS, Advance
Authorization Scheme, Duty Free Import Authorization Scheme, Export Promotion of Capital Goods Scheme
(EPCG), Export Oriented Units (EOU) Scheme, Deemed Exports etc.
Important Roles and Functions of DGFT are
 Implement EXIM Policy/Foreign Trade Policy

 Implement Foreign Trade Procedures
 Issue IEC Code to Exporters and Importers
 Document and Mantain Classifications of ITC-HS Codes
 Platform for updating eBRC
 Inform about Goods which can or cannot be exported freely under Export Policy Schedule 2
 Grant Export Licenses for Restricted Items
 Promote Trade
 Control DEPB Rates
 Regulate Transit of Goods
The Export-Import Bank of India, commonly known as the EXIM bank, was set up on January 1, 1982 to take
over the operations of the international finance wing of the IDBI and to provide financial assistance
to exporters and importers to promote India's foreign trade.
For providing financial assistance to exporters and importers, and for functioning as the principal financial
institution for co-coordinating the working of institutions engaged in financing.

The important functions of the EXIM Bank are as follows :
1. Financing of export and import of goods and services both of India and of outside India.
2. Providing finance for joint ventures in foreign countries.
3. Undertaking merchant banking functions of companies engaged in foreign trade.
4. Providing technical and administrative assistance to the parties engaged in export and import
business.
5. Offering buyers’ credit and lines of credit to the foreign governments and banks.
6. Providing advance information and business advisory services to Indian exports in respect of
multilaterally funded projects overseas.
The objectives of the SEZ Policy include making available goods and services free of taxes and duties
supported by integrated infrastructure for export production, expeditious and single-window approval
mechanism and a package of incentives to attract foreign and domestic investments for promoting export-led
growth.
A special economic zone (SEZ) is an area in which the business and trade laws are different from the rest of
the country. SEZs are located within a country's nationalborders, and their aims include increased trade
balance, employment, increased investment, job creation and effective administration.
Role of SEZ is as under:
1. Exemption on duties on Indian capital goods and inputs are offered as per the requirements of the
approved business activity.
2. Taxes are either exempted or waived and even reimbursed in case they are paid in advanced to the
concerned authority.
3. Duty-free imports of spares, raw materials, capital goods, and consumables are offered as per the
requirements of the approved business activity.
4. Facilitated to retain 100 % in foreign currency in EEFC account of the said trade
Sale to direct tariff agreement is subject to mandatory requirement of registration for pharmaceutical
products and inclusive of bulk drugs. And many more.
Q7. Examine the role and functions of DGFT, ECGC, Export promotion council and EXIM Bank. Which of
these is most successful in supporting International trade for Indian exporters? Elaborate.
Ans:
A. Directorate General of foreign Trade (DGFT)

The Directorate General of foreign Trade (DGFT) is the agency of the Ministry of Commerce and Industry of
the Government of India, responsible for execution of the import and export Policies of India. It was earlier
known as Chief Controller of Imports & Exports (CCI&E) till 1991. DGFT plays a very important role in the
development of trading relations with various other nations and thus help in improving not only the
economic growth but also provides a certain impetus needed in the trade industry. For promoting exports
and imports DGFT establish its regional offices across the country.
Directorate General of Foreign Trade is an attached office of the Department of Commerce, Ministry of
Commerce and Industry. It’s headquartered in Udyog Bhavan, New Delhi. Under its jurisdiction, there are
four Zonal Offices at Delhi, Mumbai, Kolkata and Chennai headed by Zonal Joint Director General of Foreign
Trade. There are 35 Regional Authorities all over the country.
# Functions and responsibilities of DGFT:
1. DGFT entrusted with the responsibility of implementing various policies regarding trade for example,
Foreign Trade Policy.
2. DGFT is the licensing authority for exporters, importers, and export and import business.
3. DGFT can prohibit, restrict and regulate exports and imports.
4. DGFT has important role to issue Notifications, Public notices, Circulars, etc.
5. DGFT grant 10 digit IEC (Importer Exporter Code), which is a primary requirement to Import Export.
6. DGFT introduces different schemes from time to time regarding trade benefits throughout the
country.
7. DGFT has introduced ITC (HS CODE) schedule-1 for import items in India and Schedule-2 for Export
items from India.
B. EXPORT IMPORT BANK
Export Import bank of India is the premier export finance institution in India, established in 1982 under
Export- Import Bank of India Act 1981.
Since its inception, Exim Bank of India has been both a catalyst and a key player in the promotion of cross
border trade and investment.
Exim bank of India, over the period, evolved into an institution that plays an important role in partnering
Indian industries, particularly the Small and Medium Enterprises
Headquarters :- Mumbai, India

 ORIGIN OF EXIM BANK
1. Post WTO era resulted in dismantling of protective barriers to trade and investment
2. Increase in trade opportunities in global markets
3. Need for the country to enhance their domestic competitiveness
4. Absence of any specialised institution to enhance foreign trade in country
 OBJECTIVES
For providing financial assistance to exporters and for functioning as the principal financial institution for
coordinating the working of institutions engaged in financing export and import of goods and services with a
view to promote the country’s international trade.
 # Functions of EXIM Bank
1. Corporate Banking Group :- This group handles variety of financing programmes for Export Oriented
Units (EOU’s), Importers, and overseas investment by Indian companies.
2. Project Finance/ Trade Finance :- This group handles the entire range of export credit services such as
suppliers credit, pre-shipment Agri-business Group etc. The group handles projects and export
transactions in the agricultural sector for financing.
3. Export Services Group :- This group offers variety of advisory and value-added information services
aimed at investment promotion.
4. Export Marketing Group :- This group offers assistance to Indian companies, to enable them to
establish their products in overseas markets.
5. Support Services Group :- The services which are rendered by this group includes the Areas of
research and planning, Corporate Finance, Loan Recovery, Internal Audit etc.
C. Export Credit and Guarantee Corporation (ECGC) of India
The Export Credit and Guarantee Corporation were set up as a Government undertaking in 1964 on the
recommendation of a study group on export finance. It works on ‘no profit no loss’ basis.
The main functions of the corporation are to provide insurance to export risks and to finance exports.
E.C.G.C. helps exporters by furnishing guarantees to the financial banks in order to enable them to provide
sufficient credit facilities.
It further insures the exporter’s credit risks against both commercial and political conditions and guarantees
payment to the exporters. The corporation provides various types of insurance covers to suit the varying
needs of customers. These may be classified into four groups:

1. Standard policies which protect the exporters against overseas credit risks.
2. Services and construction works policies.
3. Financial guarantees.
4. Special policies.
 The commercial risks which may be covered include:
(a) Insolvency of the buyer
(b) Non-acceptance of goods by the buyer
(c) Default by the buyer to pay for the goods accepted by him within six months.
 The political risks which may be covered are:
(a) Government action blocking or delaying payment to the exporter
(b) War, revolution, civil disturbance etc. in the buyer’s country
(c) Imposition of new import restrictions or Cancellation of import licence.
(d) Cancellation of export licence
(e) War between India and other countries etc.
 However E.C.G.C. does not cover the following risks:
(a) Loss due to fluctuations in exchange rates
(b) Failure of the buyer to obtain import authorisation or exchange
(c) Default of an exporter or his agent
(d) Losses arising due to dispute in quality; and
(e) Risk inherent in the nature of goods.
 The corporation provides six types of guarantee:
(a) Packing credit guarantee
(b) Post shipment export credit guarantee
(c) Export finance guarantee
(d) Export production finance guarantee
(e) Export performance guarantee
(f) Transfer guarantee.

The export credit and guarantee corporation has proved to be very useful to the exporters. It pays 80% to
90% of the loss incurred by exporters. The exporters have to bear the remaining 10% to 20% of the loss only.
D. Export Promotion Councils of India-
The Export Promotion Councils are non-profit organisations registered under the IndianCompanies Act or the
Societies Registration Act, as the case may be. They are supported byfinancial assistance from the
Government of India.
 Role
The main role of the EPCs is to project India's image abroad as a reliable supplier of highquality goods and
services. In particular, the EPCs encourage and monitor the observance of international standards and
specifications by exporters. The EPCs keep abreast of the trendsand opportunities in international markets
for goods and services and assist their members intaking advantage of such opportunities in order to expand
and diversify exports.
 FUNCTIONS
The major functions of the EPCs are as follows:
1. To provide commercially useful information and assistance to their members in developing and
increasing their exports.
2. To offer professional advice to their members in areas such as technology upgradation, quality and
design improvement, standards and specifications, product development and innovation etc.
3. To organise visits of delegations of its members abroad to explore overseas market opportunities.
4. To organise participation in trade fairs, exhibitions and buyer-seller meets in India andabroad.
5. To promote interaction between the exporting community and the Government both at the Central
and State levels.
6. To build a statistical base and provide data on the exports and imports of the country, exports and
imports of their members, as well as other relevant international trade data.
 supporting International trade for Indian exporters
As we know that Directorate General of foreign Trade (DGFT) is the agency of the Ministry of Commerce and
Industry of the Government of India, responsible for execution of the import and export Policies of India. Also
the other government institution is plays a very important role and they are doing good to support exporter
and helps to boost export.
1. What does ECGC do on default of payment of any overseas buyer?

Export Credit Guarantee Corporation is a central government undertaking body to provide credit guarantee
on the default of payments by the buyer. It works as an insurance firm who guarantees export payment, if
the buyer defaults in making payment. Above we have seen that the default of payment by overseas buyer
and insurance coverage by ECGC. Export Credit Guarantee corporation reimburse the export proceeds, if
overseas buyer not paid the amount of export proceeds to exporter, if such transaction has been insured by
ECGC.
Now after reimbursement to exporter, what does ECGC do? Will ECGC keep quite? No, Export Credit
Guarantee Corporation, with their network of connections, finds out actual cause of default. If ECGC’s
investigation report is not satisfactory, such firm will be black listed. ECGC circulates this default of payment
with all their international contacts and take up the matter legally with higher legal levels. Also this overseas
buyer will be black listed by Export Credit Guarantee Corporation and circulated with all their associates’
counterparts.

Module 5: Drivers of FDI, Flow of FDI in India , EXIM Policy of India Direction of India’s Foreign Trade
(imports and exports scenario), Role of RBI in exchange rate management
CO 5: Students should be able to perceive the concepts in recent EXIM policy of India and relate it to the
flow of FDI as well as direction of Indian foreign trade.
Q1. Explain the features of recent EXIM Policy of India. What are the noticeable changes and how do they
impact India’s foreign trade profile?
Ans:
India is becoming the major player in world trade. In India, the Government of India, Ministry of Commerce
and Industry announce the export-import policy, which is called as EXIM policy or foreign trade policy. It is
announced after every five years and updated on 31st of March every year. The EXIM policy (export-import
policy) aims at regulating and managing imports and promoting and maintaining exports. It does not allow
exporting the goods that are scarce and needed within the country.
Its main objectives are as follows:
a. Deriving maximum benefits from expanding opportunities in the global market

b. Stimulating economic growth by providing essential raw materials, components, and capital
goods for production
c. Enhancing the efficiency of agriculture and service sector and improving their competitiveness
d. Generating new employment
e. Encouraging the attainment of internationally accepted standards of quality
f. Providing quality products at reasonable prices
EXIM policy 2015-20 is pro-business and has led to GDP growth helping India reach $2.93 trillion by 2019 due
to which India has emerged as 5th largest economy in th world. Export has a contribution of 19.1% to the
GDP of India.
According to directions of EXIM policy India’s import partners are changing. Now the major partners are Arab
League (19.8%), China(13.7%) , ASEAN (11.5%) making the imports cheaper. 22% of India’s GDP is spent on
imports.
Major Export partners of India are Arab League, European Union, United States of America and ASEAN.
Noticeable changes in EXIM policy 2015-20
Strong focus on FDI leads to $386 billion of FDI and increase in foreign reserves of India to $453 billion as of
December 2019.

Earlier in FTP 2009-14, there were 5 different schemes for export promotion which are now merged in to one
scheme named Merchandise Export from India Scheme (MEIS).
Focus is shifted to markets like Africa, Latin America, ASEAN and CIS countries. This helped in curtailing
import values by $80 billion from 2014 to 2018 and reducing trade deficit from $-143 billion in 2014 to $-108
billion in 2018.
In this policy, more focus is on Make in India, Skill India and Digital India.
This policy is more focused on ease of doing business and supports new exporters. But despite of this, value
of exports reduced by $43 billion in last 5 years. Only 50% of the target exports is achieved till 2019.
From above observations one can conclude that this EXIM policy 2015-20 is quite successful in reducing
import burden and eventually the trade deficit. However it has not succeeded in increasing import cover as
exports have declined. In the coming EXIM policy 2020-25, India needs to focus more on boosting exports
and in turn increase its international presence.
Q2. Relate how India’s current EXIM policy influences the direction of Indian foreign trade.
Ans:
The direction of foreign trade of India means the countries, groups or trade blocks with which we have our
trade relationships. It is essential to understand the changing directions of foreign trade of India because it
indicates our drivers for future growth, new tie-ups, emerging networks and savings we estimate in import
trade.
India’s foreign trade is divided majorly in four groups:
1. OECD countries: Organization for Economic Co-operation and Development is an intergovernmental

economic organisation with 36 member countries. It consists of European countries (EU), North
America, etc.
India is maintaining steady and continuous growth in both export and import tardes with OECD
countries. Since 2012-13 to 2017-18, India’s Export with OECD has increased by 10% and import by
9%. India’s developed trade relations with North America are very visible and have reflected in 22%
growth in both imports and exports .
2. OPEC Countries: This is Organization of the Petroleum Exporting Countries is an intergovernmental

organization of 14 nations. It comprises of Saudi Arabia, Iran, Indonesia, Venezuela, Iraq, Nigeria,etc.
India has reduced its trade relations with OPEC countries and shifted to Asian countries. Exports with
OPEC have reduced by 20% and Imports by 33%.

3. Eastern European counties: It includes the countries like Bulgaria, Czech Republic, Hungary, Poland,
Romania, Russian Federation, and Slovakia, as well as the republics of Belarus, Moldova, and Ukraine.
Overall trade with Eastern European countries is hardly 1 to 3% of the total foreign trade. Hence this
is a negligible contribution. Even if there is 63% growth in imports, it does not make any major impact
in export import trade profile of India.
4. Developing Countries: These are Asian countries, SAARC , Africa and Latin American countries.
In developing countries, India’s trade relations with other SAARC countries have improved drastically.
There is 31% rise in exports and 29% in imports.
Maximum import of India is from OECD and Developing countries while maximum import is from
developing countries (44%) followed by OECD and OPEC. IT clearly shows tat India’s trade profile ,
specifically for imports is changing from OECD and OPEC to developing countries including SAARC
nations.
Foreign trade accounted for 48.8% of India's GDP in 2017. India was the eighth largest exporter of
commercial services in the world in 2016, accounting for 3.4% of global trade in services. India recorded a
5.7% growth in services trade in 2016–17. India is presently known as one of the most important players in
the global economic landscape. Its trade policies, government reforms and inherent economic strengths have
attributed to its standing as one of the most sought-after destinations for foreign investments in the world.
Also, technological and infrastructural developments being carried out throughout the country augur well for
the trade and economic sector in the years to come.
Major impact on changing directions of foreign trade of India is due to cetain important measures taken in
Exim policy 2014-19. Focus in this policy is on trade facilitation and ease of doing business. Due to the efforts
and initiatives of Government, Ease of doing business index of India raised from 142nd rank in 2014 to 63rd
rank in 2020. There are new schemes like Niryat Bandhu - Hand Holding Scheme for new export/ import
entrepreneurs, issue of Electronic-Importer Exporter Code (E-IEC code) , formation of national committee of
trade facilitation (NCTF) , development of Towns of Export Excellence (TEE) , ‘Authorized Economic Operator
(AEO) program ’ has been developed by Indian Customs to enable business involved in the international
trade, Single Window Interface for Facilitating trade (SWIFT), etc. Prohibition on Trade with the ISIL, Al
Nusrah Front [ANF] and other individuals, groups, undertakings and entities associated with Al Qaida is
specifically mentioned in the section 2.16A of chapter 2 of the foreign Trade policy. Due to this India’s trade
with OPEC countries has also reduced in large extent.
Thus the Exim policy of India has a noticeable influence on direction of foreign trade of India.

Q3. Discuss the Indian Foreign Trade Policy 2015-20. Describe the relationship between EXIM policy and
FDI.
Ans:
The Foreign Trade Policy (FTP) 2015-20 was unveiled by Minister of State for Commerce & Industry
(Independent Charge), Government of India on April 1, 2015.
Following are the highlights of the FTP:
1. FTP 2015-20 provides a framework for increasing exports of goods and services as well as generation
of employment and increasing value addition in the country, in line with the ‘Make in India’
programme.
2. The Policy aims to enable India to respond to the challenges of the external environment, keeping in
step with a rapidly evolving international trading architecture and make trade a major contributor to
the country’s economic growth and development.
3. FTP 2015-20 introduces two new schemes, namely ‘Merchandise Exports from India Scheme (MEIS)’
for export of specified goods to specified markets and ‘Services Exports from India Scheme (SEIS)’ for
increasing exports of notified services.
4. Duty credit scrips issued under MEIS and SEIS and the goods imported against these scrips are fully
transferable.
5. For grant of rewards under MEIS, the countries have been categorized into 3 Groups, whereas the
rates of rewards under MEIS range from 2 per cent to 5 per cent. Under SEIS the selected Services
would be rewarded at the rates of 3 per cent and 5 per cent.
6. Measures have been adopted to nudge procurement of capital goods from indigenous manufacturers
under the EPCG scheme by reducing specific export obligation to 75per cent of the normal export
obligation.
7. Measures have been taken to give a boost to exports of defense and hi-tech items.
8. E-Commerce exports of handloom products, books/periodicals, leather footwear, toys and

customised fashion garments through courier or foreign post office would also be able to get benefit
of MEIS (for values up to INR 25,000).
9. Manufacturers, who are also status holders, will now be able to self-certify their manufactured goods
in phases, as originating from India with a view to qualifying for preferential treatment under various
forms of bilateral and regional trade agreements. This ‘Approved Exporter System’ will help
manufacturer exporters considerably in getting fast access to international markets.

10. A number of steps have been taken for encouraging manufacturing and exports under 100 per cent
EOU/EHTP/STPI/BTP Schemes. The steps include a fast track clearance facility for these units,
permitting them to share infrastructure facilities, permitting inter unit transfer of goods and services,
permitting them to set up warehouses near the port of export and to use duty free equipment for
training purposes.
11. 108 MSME clusters have been identified for focused interventions to boost exports. Accordingly,
‘NiryatBandhu Scheme’ has been galvanised and repositioned to achieve the objectives of ‘Skill India’.
12. Trade facilitation and enhancing the ease of doing business are the other major focus areas in this
new FTP. One of the major objective of new FTP is to move towards paperless working in 24x7
environment.
Description of the relationship between FTP and FDI
Enthused by a record foreign investment inflow, India is optimistic of continuing to be one of the world's
favourite FDI destinations in 2020 on the back of the then government's liberalised norms and a significant
jump in the ease of doing business ranking.
Despite a slowdown in the global economy, inflows of foreign investment into the country have not been
impacted. India received a USD 27.2-billion foreign investment in the first half of 2019 and the pace is said to
have sustained thereafter.
The healthy growth in the overseas investments is proving that there is a lot of optimism and enthusiasm
about India as a foreign investment destination. All the ministries, departments and states are working to
address issues and providing stable policies to facilitate entry of foreign companies.
Although, the FDI is allowed through automatic route in most of the sectors, certain areas such as defence,
telecom, media, pharmaceuticals and insurance, government approval is required for foreign investors.
Under the government route, the foreign investor has to take prior approval of the respective
ministry/department. Through the automatic approval route, the investor just has to inform the RBI after the
investment is made. There are nine sectors where FDI is prohibited and that includes lottery business,
gambling and betting, chit funds, Nidhi company, real estate business, and manufacturing of cigars, cheroots,
cigarillos and cigarettes using tobacco.
During 2019-20, the government has relaxed FDI norms in several sectors like single-brand retail trading,
contract manufacturing, coal mining, and digital media. In the Year, the sectors that received maximum FDI
include services, computer hardware and software, construction development, trading, automobile,
pharmaceuticals, chemicals, and power.
FDI is important as India would require huge investments in the coming years to overhaul its infrastructure
sector to boost growth. Healthy growth in foreign inflows helps maintain the balance of payments and the
value of the rupee.
Taking into consideration the above impact of FTP on the FDI inflows and outflows the necessary
improvement should be done in the subsequent FTP.
Q4. Explain the salient features of India's Foreign Trade Policy.How are the FDI flows influenced by SEZs?
Ans:
India’s foreign trade policy is formulated and implemented mainly by the Ministry of Commerce and Industry,
but also in consultation with other concerned ministries, such as Finance, Agriculture, and Textiles, and the
RBI. DGFT under the Department of Commerce is responsible for the execution of the Foreign Trade Policy.
India's Foreign Trade Policy is published in four volumes:
 Foreign Trade Policy
 Handbook of Procedures Volume I
 Handbook of Procedures Volume II
 (Schedule of DEPB Rates)
 ITC (HS) Classification of Export and Import Items
Prohibitions of Export under India's Foreign Trade Policy
Under the foreign trade policy, export prohibitions are maintained for environmental, food security,
marketing, pricing and domestic supply reasons, and to comply with international treaties. Restrictions on
exports on account of security concern through multilateral agreements are contained in the SCOMET list.
Schemes For Duty Free & Various Concessions Granted for Imports
In order to reduce or remove the anti-export bias inherent in the system of indirect taxation and to
encourage exports, several schemes allows importers to benefit from tariff exemptions, especially on inputs.
EPCG Scheme : The scheme aims to reduce the incidence of high capital cost on export prices so as to make
exports competitive in the international markets by way of reduced import duty on capital goods.
It enables import of capital goods at concessional rate of duty subject to an appropriate export obligation
accepted by the exporter.
Duty Exemption Schemes : Such schemes enables duty-free import of inputs required for export production.
Advance Authorization: It allows duty-free import of physical inputs incorporated in exports products after
making normal allowance in wastage. In addition, consumables, such as fuel, oil, energy, catalysts, etc., are
also allowed under the scheme.
Advance authorization can be issued for:

1. Physical exports (including exports to SEZs)
2. Intermediate supplies, and
3. Deemed exports
Input-Output & Value Addition Norms
The Standard Input Output Norms (SION) published in volume II of the Handbook of Procedures are used for
determination of proportion of various inputs which are physically used and consumed for export production
and the packaging material.
Duty Free Import Authorization Scheme (DFIA) : Launched on May 1, 2006, it replaced the Duty Free
Replenishment Certificate (DFRC) Scheme which allows duty free import of inputs, for production of export
products to manufacturer exporters or merchant exporters tied up with the manufacturer for the import of
inputs used in the manufacture of exports.
It offers exemptions in respect of customs duty, additional duty, education cess, and anti-dumping or
safeguard duties in force for inputs used in export production.
Duty Remission Scheme : These schemes enable post-export replenishment of duty on inputs used for export
production under various schemes, such as duty entitlement passbook scheme, duty drawback, incentives for
deemed exports, and the gems and jewellery sector.
Duty Entitlement Pass Book (DEPB) Scheme: Under the scheme, merchant or manufacturer exporters are
entitled to duty-free import (basic customs duty component only) of inputs used in manufacture of goods, as
a specified percentage of f.o.b. value of exports made in freely convertible currency.
Schemes For Duty Free & Various Concessions Granted for Exports
Deemed Exports : Transactions in which goods supplied do not leave the country and payments for such
supplies is received either in Indian rupees or in free foreign exchange as specified in the trade policy, which
are eligible for a number of benefits such as:
• Supply of goods against advance authorization or DFIA
• Deemed export drawback
Exemption from terminal excise duty where supplies are made against International Competitive Bidding
(ICB).
Duty Drawbacks : The rebate of duty chargeable on any imported or excisable material used in the
manufacture of goods exported from India.
Duty Drawback is admissible under Customs Act, 1962 for re-exports of goods on which import duty has paid
and for imported material used in the manufacture of exports .

Export Oriented Units (EOUs) : Introduced in 1981, the EOU scheme is complementary to EPZ scheme. It
offers the same production regime but an EOU can be located anywhere in India.
Software Technology Parks (STPs)/Electronic Hardware Technology parks (EHTPs) : In order to facilitate
export-oriented production of computer software and hardware, units can be set up under the STPs/ EHTPs
schemes, respectively.
Bio-Technology parks (BTPs) : In order to promote bio-technology exports, the DGFT notifies Bio-Technology
Parks on the recommendation of the Department of Biotechnology.
Free Trade Zones (FTZs) & Export Processing Zones (EPZs) : The FTZs and EPZs, set up as special enclaves,
separated from the Domestic Tariff Areas (DTA) by fiscal barriers, are intended to provide an internationally
competitive duty-free environment for export production, at low costs which enables their products to be
competitive in the international market. Since May 1994, the government has permitted development of
EPZs by private, state or the joint sector.
Special Economic Zones (SEZs) : Introduced in April, 2000, the scheme aims to provide an internationally
competitive and hassle-free trade environment for export production. An SEZ is designated duty-free enclave
to be treated as foreign territory for trade operations and duties and tariffs. Units for manufacture of goods
and rendering of services may be set up in SEZs.
Agri-Export Zones (AEZs) : The concept of the AEZs was floated with a view to promote agricultural exports
from India and providing remunerative returns to the farming community in a sustained manner. State
governments are required to identify AEZs and also evolve a comprehensive package of services provided by
all state government agencies, state agriculture universities and all institutions and agencies of the Union
Government for intensive delivery in these zones.
Role of SEZs in promoting the FDI need to be elaborated
Q5. What is Foreign Direct Investment? Explain the flow of FDI in India.
Ans:
Foreign Direct Investment is a self-explanatory term. FDI is when an investor from another country (foreign
country) makes an investment in a business situated in the country. Now such an investor can be an
individual, firm, company, etc.
Generally, the investor will acquire assets of the business or establishes business operations to get a
controlling interest in the business in a foreign country. This is distinctly separate than buying the equity of
foreign companies, i.e. portfolio investment
Now, there are mainly three types of Foreign Direct Investments – horizontal, vertical and conglomerate. A
horizontal investment would entail opening up the same business in a foreign country.

And a vertical investment is when a slightly differentiated business is established in a foreign country. And
conglomerate is when the investment is made even if the business is unrelated to its existing business.
Foreign Direct Investment (FDI) flows record the value of cross-border transactions related to direct
investment during a given period of time, usually a quarter or a year. Financial flows consist of equity
transactions, reinvestment of earnings, and intercompany debt transactions.
Outward flows represent transactions that increase the investment that investors in the reporting economy
have in enterprises in a foreign economy, such as through purchases of equity or reinvestment of earnings,
less any transactions that decrease the investment that investors in the reporting economy have in
enterprises in a foreign economy, such as sales of equity or borrowing by the resident investor from the
foreign enterprise.
Inward flows represent transactions that increase the investment that foreign investors have in enterprises
resident in the reporting economy less transactions that decrease the investment of foreign investors in
resident enterprises. FDI flows are measured in USD and as a share of GDP. FDI creates stable and long-lasting
links between economies.
Policies to attract FDI investment in the country are:
1. Attractive rates of corporate tax
2. Subsidies, Tax Reliefs, soft Loans
3. Trade and Investment agreements
4. Flexible labour markets, and skilling of workers
5. Creation and facilities of special Economic Zones
6. High quality infrastructure
7. Attractive low cost of labours
8. Open capital markets to allow remitted profits
FDI in India
Post the economic reforms of 1991, the FDI route to India became easier. Also, for a developing country
sometimes domestic sources may not be enough. Hence, foreign capital can help fill the gaps between
domestic savings and investment requirements.
FDI is one of the important tools of economic growth for a developing nation like India. So to boost the flow
of foreign investment the process of liberalization is undertaken. However, liberalization of an economy
always comes with regulations.

Routes for FDI
Basically, there are two routes for FDI in India. There is the Automatic Route, where no approval or authority
is required by the private foreign investor. He can invest in any company it wishes with no need for
government approval.
And then there is the Government Route. In this route, there is no investment without the prior approval of
the Government of India.
1. Automatic Route
Under the Automatic Route, the non-resident investor or the Indian company does not require any approval
from Government of India for the investment.
2. Government Route
Under the Government Route, prior to investment, approval from the Government of India is required.
Proposals for foreign investment under Government route, are considered by respective Administrative
Ministry/ Department.
Foreign Direct Investment in India does not have a uniform rate. Some industries allow 100% FDI, i.e. the
entire funds of the business can be from foreign direct investment. The percentages vary from 26% to 49% to
51%. There are a few industries where FDI is strictly prohibited under any route. These industries are
1) Atomic Energy Generation
2) Any Gambling or Betting businesses
3) Lotteries (online, private, government, etc)
4) Investment in Chit Funds
5) Nidhi Company
6) Agricultural or Plantation Activities (although there are many exceptions like horticulture, fisheries,
tea plantations, Pisciculture, animal husbandry, etc)
7) Housing and Real Estate (except townships, commercial projects, etc)
8) Trading in TDR’s
9) Cigars, Cigarettes, or any related tobacco industry
There has always been opposing views about FDI in some sensitive industries like defence, insurance, media,
etc. Because of the integrity of our democracy and the safety of our nation are at stake. So, for many such
industries, the FDI limits are there. For example, defence industry allows only 49% FDI.
Investment climate in India has improved considerably since the opening up of the economy in 1991.

This is largely attributed to ease in FDI norms across sectors of the economy. India, today is a part of top 100
club on Ease of Doing Business (EoDB) and globally ranks 1st in the greenfield FDI ranking. India received the
record FDI of $ 60.1 bn in 2016-17.
India slipped a rank to end at tenth place in the latest ranking of top foreign direct investment receiving
countries for the year 2018, according to the latest edition of the World Investment Report of the United
Nations Conference on Trade and Development (UNCTAD).
China, which retained the number two position, received the highest foreign inflows among the developing
countries at all time high of $139 billion, a growth of 4%.
Manufacturing, communication and financial services – were the top three recipients of inflows in India.
Growth in cross-border M&As to $33 billion in 2018 from $23 billion in 2017 was primarily due to
transactions in retail trade, which includes e-commerce, and telecommunication, it said.
The report mentioned the acquisition of Flipkart, country's biggest e-commerce platform, by Walmart and
telecommunication deals involving Vodafone and American Tower amounting to $2 billion. It highlighted the
changes to the FDI policy introduced for the ecommerce sector terming the changes restrictive. “In February
2019, India introduced several restrictive changes in its FDI policy for e-commerce in order to safeguard the
interests of domestic offline retailers,” the report said.

FOR DETAILS FACTS ANF FIGURES VISIT:
https://dipp.gov.in/sites/default/files/FDI_Factsheet_September2019_01January2019.pdf
Q6. Relate various policy instruments used by Government of India to regulate foreign trade in foreign
trade policy 2015-20.
Ans:
Exim policies OR Foreign trade policy aim at export assistance such as export credit, cash assistance, import
replenishment, licensing, free trade zones, development of ports, quality control and pre-shipment
inspection, and guidance to Indian entrepreneurs to set up ventures abroad.
Objectives of Exim Policy :
 To facilitate sustained growth in exports from India and import in India.
 To stimulate sustained economic growth by providing access to essential raw materials,

intermediates, components, consumables and capital goods scheme required for augmenting
production and providing services
 To enhance the technological strength and efficiency of Industry Agriculture industry and services,
thereby improving their competitive strength while generating new employment opportunities, and
to encourage the attainment of internationally accepted standards of quality.
 To provide clients with high-quality goods and services at globally competitive rates. Canalization is
an important feature of Exim Policy under which certain goods can be imported only by designated
agencies. For an example, an item like gold, in bulk, can be imported only by specified banks like SBI
and some foreign banks or designated agencies.
Highlights of the Foreign Trade Policy (Exim Policy) 2015-20

Export from India Schemes:
1. Merchandise Exports from India Scheme (MEIS)
2. Service Exports from India Scheme (SEIS)
3. Chapter -3 Incentives (MEIS & SEIS) to be available for SEZs
4. Duty credit scrips to be freely transferable and usable for payment of custom duty, excise duty and
service tax.
5. Boost to "MAKE IN INDIA"
6. Reduced Export Obligation (EO) for domestic procurement under EPCG scheme
7. Higher level of rewards under MEIS for export items with high domestic content and value addition.
8. Online filing of documents/ applications and Paperless trade in 24x7 environment:
9. Online inter-ministerial consultations
10. Simplification of procedures/processes, digitization and e-governance
11. Forthcoming e-Governance Initiatives
12. New initiatives for EOUs, EHTPs and STPs
13. Facilitating & Encouraging Export of dual use items (SCOMET).
14. e-Commerce Exports
15. Duty Exemption
16. Additional Ports allowed for Export and import
17. Duty Free Tariff Preference (DFTP) Scheme
18. Quality complaints and Trade Disputes
19. Vishakhapatnam and Bhimavaram added as Towns of Export Excellence
For e.g. Merchandise Export from India Scheme. The Government of India has introduced Merchandise
Exports from India Scheme (MEIS) through the Foreign Trade Policy (FTP) 2015-20 w.e.f. April 1, 2015. It
seeks to promote export of notified goods manufactured/ produced in India.
Nature of Rewards
Duty Credit Scrips shall be granted as rewards under MEIS. The Duty Credit Scrips and goods imported /
domestically procured against them shall be freely transferable. The Duty Credit Scrips can be used for the
following requirements:
i. Payment of Customs Duties for import of inputs or goods, except items listed in Appendix 3A.

ii. Payment of excise duties on domestic procurement of inputs or goods, including capital goods as per
DoR notification.
iii. Payment of service tax on procurement of services as per DoR notification.
iv. Payment of Customs Duty and fee as per paragraph 3.18 of this Policy
All above are the policy instruments used by Government of India to regulate foreign trade in foreign trade
policy 2015-20.
Q7. Elaborate Foreign Direct Investment (FDI)? Discuss the various drivers of FDI?
Ans:
 Introduction:
Foreign Direct Investment (FDI) is a kind of investment which takes place when a country or business entity
which is incorporated in one nation makes an investment in another company or business entity which is
located in a different nation.
 Types of FDI
FDI are of two types:
1. Horizontal FDI
2. Vertical FDI
1. Horizontal FDI: This is the type of FDI where the goods nad services produced by the company in the
foreign country are very similar to those being manufactured in its own country.
2. Vertical FDI: When the multinational distributes its processes across geographies and markets, then
it refers to vertical FDI.
 Drivers of FDI
This is the very important part where business entity needs to understand and study the various drivers of
FDI before entering into the investment part. The drivers of FDI are given below:
1. Economic distance: The investor is likely to go in for a horizontal FDI strategy in which exports are to
be submitted by local manufacturer if cost of transportation between two countries is too high.
2. Size of the Host market: The greater thus size of the host country , the greater there is scope for
economies of scale. There is thus greater opportunity for lowering per unit fixed cost.
3. Agglomeration Effects: It means the condition of the infrastructure, level of industrialization and past
FDi done of the host country. The net impact of agglomeration effect on FDI is positive.

4. Factor Cost:- If the factor cost of the host nation is less, vertical FDI is directly impact favourably.
5. Fiscal Incentives: The locational advantage for the host nation for both kinds of FDI can be increased
by the fiscal incentives in the host nation.
6. Investment Climate: The cost of doing business can be minimized by the favourable investment and
business climate in the host country. In this way both horizontal as well as vertical FDI gets
benefitted.
7. Trade Barriers: As the economy of the host country becomes more open it reduces the probabilities
for horizontal FDI, on the other hand the vertical FDI is encouraged.

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MBA SEM – II QUESTION BANK: INTERNATIONAL BUSINESS

MBA SEM – II (OUTCOME BASED SYLLABUS) : INTERNATIONAL BUSINESS

Tariff and non-tariff barriers:

Major tariff barriers:

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A trade bloc is a type of intergovernmental agreement, often part of a regional intergovernmental

MBA OUTCOME BASED SYLLABUS 2019 - RTMNU Page 4

MBA OUTCOME BASED SYLLABUS 2019 - RTMNU Page 5

MBA OUTCOME BASED SYLLABUS 2019 - RTMNU Page 6

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Let us discuss the issue faced by European Union , named as “Grexit”.

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There can sometimes be misunderstandings in international negotiations due to different interpretations of

MBA OUTCOME BASED SYLLABUS 2019 - RTMNU Page 9

MBA OUTCOME BASED SYLLABUS 2019 - RTMNU Page 10

The following is the main importance of imports for Indian economy

The importance of exports in Indian economy is as follows

Instruments of Trade Policy

MBA OUTCOME BASED SYLLABUS 2019 - RTMNU Page 11

 On the basis of direction of trade: import vs. exports tariffs

Why Are Tariffs and Trade Barriers Imposed?

MBA OUTCOME BASED SYLLABUS 2019 - RTMNU Page 12

Common Types of Tariffs

MBA OUTCOME BASED SYLLABUS 2019 - RTMNU Page 13

Who Benefits from Tariffs?

MBA OUTCOME BASED SYLLABUS 2019 - RTMNU Page 14

Major Non-Tariff Policy Instruments:

 Government participation in trade

Benefits of International Business

MBA OUTCOME BASED SYLLABUS 2019 - RTMNU Page 16

1. It implies a reduction or elimination of barriers to trade, and

MBA OUTCOME BASED SYLLABUS 2019 - RTMNU Page 17

TYPES OF REGIONAL TRADE BLOCKS:

MBA OUTCOME BASED SYLLABUS 2019 - RTMNU Page 18

Major regional trade blocks/groups:

1. European Union (EU):

2. North American Free Trade Agreement :( NAFTA):

3. South Asian Association for Regional Cooperation (SAARC):

4. SAARC Preferential Trading Arrangement (SAPTA):

5. South Asian Free Trade Area (SAFTA):

6. Association of South-East Asian Nations (ASEAN):

7. ASEAN Free Trade Area (AFTA):

The major objectives of the AFTA are:

MBA OUTCOME BASED SYLLABUS 2019 - RTMNU Page 19

1. Establishment of a free trade zone,

2. A common external tariff (a customs union), and

3. Free movement of capital, labor, and services.

9. Asia Pacific Economic Cooperation (APEC):

10. European Free Trade Association: (EFTA)

11. Latin American Integration Association: (LAIA)

i) East: Cook Islands

MBA OUTCOME BASED SYLLABUS 2019 - RTMNU Page 20

14. Central American Common Market and CARRICOM:

Forms of economic integration are:

MBA OUTCOME BASED SYLLABUS 2019 - RTMNU Page 21

Different types of regional integrations are: