1st PUC Business Studies Question Bank Chapter 11 International Business – I

Karnataka 1st PUC Business Studies Question Bank Chapter 11 International Business – I

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1st PUC Business Studies International Business – I Textual Questions and Answers

1st PUC Business Studies International Business – I Multiple Choice Questions

Question 1.
In which of the following modes of entry, does the domestic manufacturer give the right to use intellectual property such as patent and trademark to a manufacturer in a foreign country for a fee
a. Licensing
b. Contract manufacturing
c. Joint venture
d. None of these
Answer:
a. Licensing

Question 2.
Outsourcing a part of or entire production and concentrating on marketing operations in international business is known as
a. Licensing
b. Franchising
c. Contract manufacturing
d. Joint venture
Answer:
c. Contract manufacturing

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Question 3.
When two or more firms come together to create a new business entity that is legally separate and extinct from its parents it is known as
a. Contract manufacturing
b. Franchising
c. Joint ventures
d. Licensing
Answer:
c. Joint ventures

Question 4.
Which of the following is not an advantage of exporting?
a. Easier way to enter into international markets
b. Comparatively lower risks.
c. Limited presence in foreign market
d. Less investment requirements
Answer:
c. Limited presence in foreign market

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Question 5.
Which one of the following modes of entry requires higher level of risks?
a. Licensing
b. Franchising
c. Contract manufacturing
d. Joint venture
Answer:
d. Joint venture

Question 6.
Which one of the following modes of entry permits greatest degree of control over overseas operations?
a. Licensing/franchising
b. Wholly owned subsidiary
c. Contract manufacturing
d. Joint venture
Answer:
b. Wholly owned subsidiary

Question 7.
Which one of the following modes of entry brings the firm closer to international markets?
a. Licensing
b. Franchising
c. Contract manufacturing
d. Joint venture
Answer:
d. Joint venture

Question 8.
Which one of the following is not, amongst India’s major export items?
a. Textiles and garments
b. Gems and jewellery
c. Oil and petroleum products
d. Basmati rice
Answer:
c. Oil and petroleum products

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Question 9.
Which one of the following is not amongst India’s major import items?
a. Ayurvedic medicines products
b. Oil and petroleum
c. Pearls and precious stones
d. Machinery
Answer:
a. Ayurvedic medicines products

Question 10.
Which one of the following is not amongst India’s major trading partners?
a. USA
b. UK
c. Germany
d. New Zealand
Answer:
d. New Zealand

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1st PUC Business Studies International Business – I Short Answer Questions

Question 1.
Differentiate between international trade and international business.
Answer:

SI. No. International Trade International Business
(i) International trade means movements of goods only. Business transaction that takes place between two or more countries is known as international business.
(ii) It involves only the movements of goods and international currency is used for dealing. It involves not only the international movements of goods and services but also capital, personnel, technology and intellectual property like trademarks, patents.
(iii) International trade is a narrow term. International business is much broader than international trade.

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Question 2.
Discuss any three advantages of international business.
Answer:
For Nations: Three advantages of international business to the nations are:

  1. International business helps a country to earn foreign exchange which it can later use for meeting its imports of capital goods, technology, petroleum products, etc.
  2. International trade allows a country to produce what a country can produce more efficiently, and trade the surplus production so generated with other countries to procure what they can produce more efficiently.
  3. International business helps the countries in improving their growth prospects and creates employment opportunities.

For Firms: Three advantages of international business to the firms are:

  1. International business can be more profitable than the domestic business, as business firms can earn more profits by selling their products in countries where prices are high.
  2. International business leads to fuller utilization of production capacity as a result these firms get benefits of large economies of scale and reduction in the cost of production.
  3. Companies get strategic and technical advantages by going international.

Question 3.
What is the major reason underlying trade between nations?
Answer:
The major reason behind international business is that the countries have unequal distribution of natural resources among them or have differences in their productivity levels because of which they cannot produce all that they need equally well or at equal ‘ costs. Trade between nations allows a country to produce what a country can produce more efficiently, and trade the surplus production so generated with other countries to procure what they can produce more efficiently.

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Question 4.
Discuss as to why nations trade.
Answer:
The countries have unequal distribution of natural resources among them or have differences in their productivity levels because of which they cannot produce all that they need equally well or at equal costs. Availability of various factors of production such as labour, capital and raw materials that are required for producing different goods and services differ among nations.

Moreover, labour productivity and production costs differ among nations due to. various socio-economic, geographical and political reasons. Due to these differences each country finds it advantageous to produce those select goods and services that it can produce more efficiently at home, and procuring the rest through trade with other countries which the other countries can produce at lower costs. This is precisely the reason as to why countries trade with others.

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Question 5.
Enumerate limitations of contract manufacturing.
Answer: Following are the limitations of contract manufacturing:

(i) Local firms might not adhere to production design and quality standards, thus causing serious product quality problems to the international firm.

(ii) Local manufacturers in the foreign country looses his control over the manufacturing process because goods are produced strictly as per the terms and specifications of the contract.

(iii) The profitability of local firms producing under contract manufacturing is low as it is not free to sell the contracted output as per its will. It has to sell the goods to the international company at prices agreed upon under the contract which may be lower than the open market prices.

Question 6.
Why is it said that licensing is an easier way to expand globally?
Answer:
Licensing is considered to be the easier way of expanding globally due to following advantages:

(i) Under the licensing system, it is the licensor who sets up the business unit and invests his/her own money in the business and the licensor has to virtually make no investments abroad. Licensing is, therefore, considered a less expensive mode of entering into international business.

(ii) Licensor is paid by the licensee by way of fees fixed in advance as a percentage of production or sales turnover and licensor does not bear risk of losses.

(iii) Since the business in the foreign country is managed by the licensee who is a local person, there are lower risks of business takeovers or government interventions.

(iv) Licensee being a local person has greater market knowledge and contacts which can prove quite helpful to the licensor in successfully conducting its marketing operations.

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Question 7.
Differentiate between contract manufacturing and setting up wholly owned production subsidiary abroad.
Answer:
Contract manufacturing refers to a type of international business where a firm enters into a contract with one or a few local manufacturers in foreign countries to get certain components or goods produced as per its specifications while in a wholly owned subsidiary the parent company acquires full control over the foreign company by making 100% investment in its equity capital.

Question 8.
Distinguish between licensing and franchising.
Answer:
(i) Licensing is an agreement between licensor and licensee whereas franchising is an agreement between franchisee and franchiser.

(ii) Licensing means permitting other party in a foreign country to produce and sell goods under trademark, patents whereas franchising means sell or distribute the branded products in a specific geographical area, e.g., through its franchising system Me Donald’s operates fast food restaurants in the whole world.

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Question 9.
List major items of India’s exports.
Answer:
Major items of India’s exports are:
(i) Primary Products.
(a) Agricultured and allied products.
(b) Ores and minerals
(ii) Manufactured Goods.
(a) Textiles including garments
(b) Gems and jewellery
(c) Engineering goods
(d) Chemicals and related products
(e) Leather

Question 10.
What are the major items that are exported from India?
Answer:
The major items that are exported from India include:
(i) Primary Products
(a) Agricultured products
(b) Ores and minerals

(ii) Manufactured Goods
(a) Textiles including garments
(b) Gems and jewellery
(c) Engineering goods
(d) Chemicals and related products
(e) Leather and manufactures

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Question 11.
List the major countries with whom India trades.
Answer:
Following are the major countries with whom India trades:

  1. USA
  2. UK
  3. Belgium
  4. Germany
  5. Japan
  6. Switzerland
  7. Hong Kong
  8. UAE
  9. China
  10. Singapore
  11. Malaysia

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1st PUC Business Studies International Business – I Long Answer Questions

Question 1.
What is international business? How is it different from domestic business?
Answer:
Manufacturing and trade beyond the boundaries of one’s own country is known as international business. International business is defined as those business activities that take place across the national frontiers. It involves not only the international movements of goods and services, but also of capital, personnel, technology and intellectual property like patents, trademarks, know-how and copyrights. Domestic and international businesses differ from each other in the following aspects:

(i) Nationality of Buyers and Sellers
In the case of domestic business, both the buyers and sellers are from the same country but in international business buyers and sellers come from different countries and their languages, attitudes, social customs and business goals and practices are not identical as in case of domestic business. This makes relatively more difficult for them to interact with one another and finalize business transactions.

(ii) Nationality of Other Stakeholders
The other stakeholders such as employees, suppliers, shareholders/partners and general public associated with firms doing international business have different nationalities while in the case of domestic business all such factors belong to one country. Therefore, decision making in international business becomes much more complex due to wider set of values and aspirations of the stakeholders belonging to different nations.

(iii) Mobility of Factors of Production
The degree of mobility of factors like labour and capital is generally less between countries than within a country due to legal restrictions and variations in socio-cultural environments, geographic influences and economic conditions.

(iv) Customer Heterogeneity Across Markets
Since buyers in international markets hail from different countries, they differ in their socio-cultural background. Differences in their tastes, fashions, languages, beliefs and customs, attitudes and product preferences cause variations in not only their demand for different products and services, but also in variations in their communication patterns and purchase behaviors. Such variations greatly complicate the task of designing products and evolving strategies appropriate for customers in different countries.

(v) Differences in Business Systems and Practices
The differences in business systems and practices are considerably higher among countries than within a country as countries differ from one another in terms of their socio-economic development, availability, cost and efficiency of economic infrastructure and market support services, etc which make it necessary for firms interested in international business to adapt their production, finance, human resource and marketing plans as per. the conditions prevailing in the international markets.

(vi) Political System and Risks
Political factors such as the type of government, political party system, political ideology, political risks, etc, have an impact on business operations. International business firms need to monitor political changes in the concerned countries and devise strategies to deal with diverse political risks. These firms also face discrimination as nations tend to favor products and services originating in their own countries to those ’coming from other countries while this is not a problem for business firms operating domestically.

(vii) Differences in Business Regulations and Policies
Every country has its own set of business laws and regulations. These laws, regulation and economic policies are more or less uniformly applicable within a country but they differ widely among nations. Tariff and taxation policies, import quota system, subsidies and other controls adopted by a nation are not the same as in other countries and often discriminate against foreign products, services and capital.

(viii) Difference in Currency
International business involves the use of different currencies while in domestic business all transactions are done in the same currency. International business firms have to keep exchange rate fluctuations into consideration in fixing prices of their products and hedging against foreign exchange risks.

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Question 2.
“International business is more than international trade”. Comment.
Answer:
International trade comprises of exports and imports of goods and forms an important component of international business. But the scope of international business is substantially wider than that of international trade. International business includes international exchange of services such as international travel and tourism, transportation, communication, banking, warehousing, distribution and advertising.

It also covers foreign investments and overseas production of goods and services. Multinational companies have started making investments into foreign countries and undertaking production of goods and services in foreign countries to explore foreign markets and produce at lower costs. All these activities form part of international business. To conclude, we can say that international business is a much broader term and is comprised of both the trade and production of goods and services across frontiers.

International trade is done through exporting of goods while international business modes include licensing, franchising, contract manufacturing, joint ventures and establishment of wholly owned subsidiaries apart from exporting.

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Question 3.
What benefits do firms derive by entering into international business?
Answer:
Firms derive the following benefits by entering into international business:

(i) Prospects for Higher Profits
International business can be more profitable than the domestic business as business firms can earn more profits by selling their products in countries where price are high when the domestic prices are lower.

(ii) Increased Capacity Utilization
Firms can make use of their surplus production capacities and also improving the profitability of their operations by going for overseas expansion and procuring orders from foreign customers. 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 can improve prospects of their growth by entering into overseas markets » when demand for their products starts getting saturated in the domestic market.

(iv) Way out from Intense Competition in Domestic Market Internationalization is the only way to achieve significant growth when competition in the domestic market is very intense. A highly competitive domestic market induces many companies to go international in search of markets for their products.

(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.

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Question 4.
In what ways is exporting a better way of entering into international markets than setting up wholly owned subsidiaries abroad?
Answer:
Exporting is a better way of entering into international markets than setting up wholly owned subsidiaries abroad in the following ways:

  1. 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.
  2. Exporting involves lesser time and effort as business firms are not required to invest that much time and money as it is needed when they set up manufacturing plants and facilities as wholly owned subsidiary in host countries.
  3. Since exporting does not require much of investment in foreign countries, exposure to foreign investment risks is nil or much lower than that in establishing wholly owned subsidiary.

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Question 5.
Discuss briefly the factors that govern the choice of mode of entry into international business.
Answer:
The following factors govern the choice of mode of entry into international business:

(i) Ease of Entry
Some modes of entry into international business like exporting involve lesser formalities than others such as going for joint ventures, franchising or wholly owned subsidiaries. Thus, initially exporting is the mode generally adopted for the entry in to international markets.

(ii) Associated Risk .
Risk of international exposure is higher in joint ventures and wholly owned subsidiaries more investment is involved and socio-economic conditions of the host country along with political and regulatory concerns become more important. Therefore, some other mode like licensing or contract manufacturing might be chosen to reduce risk.

(iii) Efforts Involved
Time and effort one-needs to put in’ is another factor which determines the mode international business. Mode like exporting, licensing and franchising involve lesser effort than joint venture or wholly owned subsidiary.

(iv) Degree of Control
If a firm wants to exercise full control over the operations in foreign countries; it goes for wholly owned subsidiary. Similarly, degree of control is higher in franchising as compared to licensing and so on.

(v) Nature of Business
If the business requires the firm to be in close contact with the customers in the foreign markets, wholly, owned subsidiary or joint venture’ is more suitable while if the products can be supplied from a distance, modes like exporting can suffice. The nature of products being manufactured and availability of raw material also determine the mode of entry into international business.

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Question 6.
Discuss the major trends in India’s foreign trade. Also list the major products that India trades with other countries.
Answer:
India’s share in world trade in 2003 was very low i.e., just 0.8% as compared to those of other developing countries such as China (5.9%), Hong Kong (3.0%), South Korea (2.6%), Malaysia (1.3%), Singapore (1.9%), and Thailand (1.1%). India’s share in world merchandise exports started rising fast since 2004, reached 1.3% in 2009 and 1.5% in 2010. It increased to 1.9% in the first half of 2011, mainly due to the relatively higher Indian export growth of 55% compared to the 23.1% export growth of the world.

Trends in India’s Foreign Trade in Goods Volume of Trade Share of foreign trade in the country’s Gross Domestic Product (GDP) has considerably increased from 14.6% in 1990-91 to 24,1% in 2003-04. India’s total merchandise exports were Rs. 606 crore in 1950-51 which increased to Rs. 293367 corers in 2003-04, representing an increase of over 480 times over the last five decades.

During the last decade, India’s exports and imports registered a five to seven fold increase from US $ 44.6billion and US $ 50.5 billion respectively in 2000- 01 to US $ 251.1 billion and US $ 369.8 billion in 2010-11 respectively. While the Compound Annual Growth Rates (CAGR) of India’s exports and imports (in US dollar terms) were 8.2% and 8.4% respectively in the 1990s, they increased to 19.5% and 25.1% during 2000-01 to 2008- 09. Total imports.

which stood at Rs. 608 crore in 1950-51 increased to Rs. 359108 corers in 2003-04, thus registering a growth of about 590 times during the same period. Composition of Trade Composition wise, textiles and garments, gems and jewellery, engineering, products and chemicals and related products and agricultural and allied products are India’s major items of India’s exports. Great changes in the sectoral composition of India’s export basket were seen in the 2000s decade.

The share of petroleum crude and products increased by 11.8 percentage points during the 10-year period from 2000-1 to 2009-10, and further increased by 4.8 percentage points from 2009-10 to the first half of 2011-12. The share of the other two sectors, i. e., manufactures aildirrinidiy products fell -abnest-proportionately by 11.6 and 1.1 percentage points respectively during 2000-1 to 2009-10.

Although in overall terms India accounts for just above 1% of world exports, in many individual product items such as tea, pearls, precious and semi-precious stones, medicinal and pharmaceutical products, rice, spices, iron ore and concentrates, leather and leather manufactures, textile yarns fabrics, garments , and tobacco, its share is much higher and ranges between 3% to 13%.

India even holds the distinct position of being the largest exporter in the world in select commodities such as basmati rice, tea, and ayurvedic products. As far as imports are concerned, products like crude oil and petroleum products, capital goods (i.e., machinery), electronic goods, pearl, precious and semi-precious stones, gold, silver and chemicals constitute major items of India’s imports. India’s trade in services has also grown manifold over the years.

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Question 7.
What is invisible trade? Discuss salient aspects of India’s trade in services.
Answer:
Invisible trade refers to trade in services. Service exports and imports involve trade in intangibles because of which trade in services is also known as invisible trade. Trade in services includes trade in tourism and travel, boarding and lodging, entertainment and recreation, transportation, professional services, communication, construction and engineering, marketing, educational and financial services.

India’s trade in services has increased substantially over the years. Both the exports and imports of services relating to foreign travel, transportation and insurance have increased at a high rate during the last four decades. Software and other miscellaneous services (including professional technical and business services) have emerged as the- main categories of India’s exports of services. While the relative share of travel and transportation has declined from 64.3% in 1995-96 to 29.6%. In 2003-2004, the share of software exports has gone up from 10.2% to around 49% in the corresponding

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1st PUC Business Studies International Business – I Additional Questions And Answers

1st PUC Business Studies International Business – I Multiple Choice Questions

Question 1.
Which trade theory holds that nations can increase their economic well-being by specializing in the production of goods they produce more efficiently than anyone else?
a. The factor endowment theory.
b. The theory of absolute advantage.
c. The theory of comparative advantage.
d. The international product life cycle theory.
Answer:
b. The theory of absolute advantage.

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Question 2.
Which theory holds that nations should produce those goods for which it has the greatest relative advantage?
a. The factor endowment theory.
b. The theory of relative advantage,
c. The theory of absolute advantage.
d. None of the above.
Answer:
d. None of the above.

Question 3.
Which of the following holds that a government can improve the economic well-being of a country by encouraging exports and discouraging imports without a reliance on previous metals?
a. Neo-mercantilism.
b. The Leontief paradox.
c. Quotas.
d. Mercantilism.
Answer:
a. Neo-mercantilism.

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Question 4.
In country A, it takes 10 labor hours to produce cloth and 20 labor hours to produce grain. In country B, it takes 20 labor hours to produce cloth and 10 labor hours to produce grain. Which country should produce grain?
a. No country should produce grain.
b. Both A and B should produce grain.
c. A
d. B.
Answer:
d. B.

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Question 5.
In North, it takes 50 labor hours to produce cloth and 100 hours to produce grain. In South, it takes 200 labor hours to produce cloth and 200 hours to produce grain. Which of the following statements is true?
a. South has an absolute advantage in the production of grain.
b. North has a comparative advantage in the production of cloth.
c. South has an absolute advantage in the production of both cloth and grain.
d. North should produce grain.
Answer:
b. North has a comparative advantage in the production of cloth.

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Question 6.
In country X, it takes 50 labor hours to produce cloth and 100 hours to produce grain. In country Y, it takes 200 labor hours to produce cloth and 200 hours to produce grain. At what price would X start to be willing to trade with Y?
a. More than half a unit of grain per unit of cloth.
b. More than half a unit of cloth per unit of grain.
c. More than a quarter unit of grain per unit of cloth.
d. More than a quarter unit of cloth per unit of grain.
Answer:
a. More than half a unit of grain per unit of cloth.

Question 7.
Which of the following theories holds that countries will produce and export products that use large amounts of production factors that they have in abundance?
a. Mercantilism.
b. The theory of absolute advantage.
c. The factor endowment theory.
d. None of the above.
Answer:
c. The factor endowment theory.

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Question 8.
Vernon’s international product life cycle theory :
a. helps explain the movement from absolute advantage to comparative advantage.
b. shows why the United States, surprisingly, exports relatively more labor-intensive goods and imports capital-intensive goods.
c. extends the concept of comparative advantage by bringing into consideration the endowment and cost of factors of production.
d. helps explain why a product that begins as a nation export often ends up becoming an import.
Answer:
d. helps explain why a product that begins as a nation export often ends up becoming an import.

Question 9.
Which of the following products have moved through the IPLC and are now in the standardized product stage?
a. Computer memory cards.
b. Televisions.
c. DVD players.
d. All of the above.
Answer:
d. All of the above.

Question 10.
Which of the following factors influence trade?
a. The stage of development of a product.
b. Government.
c. The relative price of factors of productions.
d. All of the above.
Answer:
d. All of the above.

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Question 11.
If the price of the Japanese Yen declines considerably against the British Pound:
a. British goods are relatively cheaper for Japanese consumers.
b. it is always because of British government interference.
c. Japanese goods are relatively cheaper for British consumers.
d. it is always because of Japanese government interference.
Answer:
c. Japanese goods are relatively cheaper for British consumers.

Question 12.
If a Japanese firm sold $10 billion of machinery in US and the US dollar declined against the Japanese currency:
a. the Japanese company will make sure that the difference is paid back to its affiliate.
b. the Japanese company will move funds to the home country.
c. the Japanese firm will report more revenue (in terms of Yen) than if the US dollar had remained stable.
d. the Japanese firm will report less revenue (in terms of Yen) than if the US dollar had remained stable.
Answer:
d. the Japanese firm will report less revenue (in terms of Yen) than if the US dollar had remained stable.

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Question 13.
Which of the following is not a reason to erect trade barriers?
a. Protect local jobs.
b. Encourage local production.
c. Promote import activity.
d. Reduce reliance on foreign suppliers.
Answer:
c. Promote import activity.

Question 14.
Which of the following countries is not a member of OPEC?
a. Iran.
b. Venezuela.
c. Iraq.
d. Afghanistan.
Answer:
d. Afghanistan.

Question 15.
A company of the US has excess products that it does not want to sell into the US market because it will bring down the domestic price and instead sells it at another country at below the cost of production. What is this called?
a. Countervailing.
b. Dumping,
c. International trade
d. None of the above.
Answer:
a. Countervailing.

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1st PUC Business Studies International Business – I Short Answer Questions

Question 1.
What is international business?
Answer:
International business refers to business that takes place across the national boundaries, i. e., between countries. It includes business activities like manufacturing, trade and services beyond the geographical boundaries of a country.

Question 2.
What is the basis for international business?
Answer:
International business arises because of geographical specialization among countries. Different countries of the world are endowed with different natural resources due to geographical factors like physical features, climatic conditions, socials, etc.

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Question 3.
What is contract manufacturing?
Answer:
Contract manufacturing is a mode of entry into international business under which a business firm in a country enters into a contract with local manufacturer in the foreign country to get certain goods produced or services rendered as per its specification. However, the firm retains with itself the responsibility of marketing the goods.

Question 4.
What is licensing?
Answer:
Licensing is a contract arrangement in which a firm in a country allows a firm in a foreign country to use its patent or. trademarks or technology for a consideration known as royalty.

Question 5.
What is franchising?
Answer:
Franchising is very much similar to licensing. The patent company which gives the franchise for a fee is called the franchiser, and the other company is called the franchisee. Franchising covers the business of restaurant, hotel, travel agency, wholesale trade, retail trade, etc.

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Question 6.
What is joint venture?
Answer:
Joint venture is a business jointly owned by two or more firms located in two different countries.

Question 7.
State one difference between international trade and international business.
Answer:
The one difference between international trade and international business: International trades produces the goods cheaply, but international business cannot produce the goods cheaply.

Question 8.
State one difference between licensing and franchising.
Answer:
The one difference between licensing and franchising.
Licensing is used in connection with marketing of products, whereas franchising is used in connection with marketing of services.

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Question 9.
Distinguish between domestic business and international business.
Answer:
The two differences between domestic and international business are:

Basis of difference Domestic Business International business
1. Territorial limits Domestic business takes place between the geographical boundaries of a nation. In other words, domestic business takes place between buyers and sellers of the same nation. International business takes place between different nations. In other words, the buyers and sellers in international business belong to different nations.
2. Homogeneity or heterogeneity of markets Domestic markets are relatively more homogeneous in nature. International markets are heterogeneous in nature.

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Question 10.
Explain the scope of international business.
Answer:
The scope of international business is quite wide. It includes not only exports and, imports of goods abut also exports and imports of services. It includes even licensing franchising and foreign.investment.

The various activities which constitute the scope of international business are:

  1. Exports and imports of merchandise
  2. Exports and imports of services
  3. Licensing and franchising
  4. Foreign investments.

Question 11.
State the advantages and disadvantages of contract manufacturing.
Answer:
Advantage of contract manufacturing:

  • There is no investment risk in this strategy, as there is no investment in production facilities in the foreign country.

Disadvantage of contract manufacturing:

  • This mode is not suitable in cases involving high tech products and technical secrets.

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Question 12.
State the advantages and disadvantages of licensing and franchising.
Answer:

Advantage of licensing and franchising:

  • There is lesser risk of Government interference on the turnover of business in licensing or franchising, because the business in managed by local persons.

Disadvantage of licensing and franchising:

  • There is danger that the licensee or franchisee may star an identical business, slightly different from the one licensed or franchised.

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Question 13.
State the advantages and disadvantages of joint venture.
Answer:
Advantage of Joint Venture:

  • Joint venture facilitates easy entry into international business.

Disadvantage of Joint Venture:

  • There is the risk of leakage of technology and trade secrets in case of joint venture.

Question 14.
State the advantages and disadvantages wholly-owned subsidiary.
Answer:
Advantage of wholly-owned subsidiary:

  • Under this strategy, the parent company enjoys full control over its operations in the foreign country.

Disadvantage wholly-owned subsidiary:

  • The parent company, being the sole owner, has to bear all the losses of the subsidiary company.

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1st PUC Business Studies International Business – I Long Answer Questions

Question 1.
Discuss the various modes of entry into international business.
Answer:
There are various ways of entering into international business. They are:

1. Exporting and Importing: Exporting means selling or sending goods and services form the home county to foreign country.
Importing means purchasing goods and services from a foreign country or bringing them to the home county.

2. Contract Manufacturing: Contract manufacturing is a mode of entry into ‘ international business under which a business firm in a country enters into a contract with local manufacturer in the foreign country to get certain goods produced or services rendered as per its specification! However, the firm retains with itself the responsibility of marketing the goods.

3. Licensing and Franchising: Licensing is a contract arrangement in which a firm in a country allows a firm in a foreign country to use its patent or trademarks or technology for a consideration known as royalty. Franchising is very much similar to licensing. The patent company which gives the franchise for a fed is called the franchiser, and the other company is called the franchisee. Franchising covers the business of restaurant, hotel, travel agency, wholesale trade, retail trade, etc.

1. Joint venture: Joint venture is a business jointly owned by two or more firms located in two different countries.

2. Wholly-owned Subsidiary: A wholly-owned subsidiary is subsidiary company which is owned by a parent company or holding company. In other words, a wholly-owned subsidiary is a subsidiary company in whose equity capital, 100% investment is made by the parent or holding company.

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Question 2.
Explain the benefits of international business.
Answer:
The advantages or benefits of international business can be classified into:

  1. Advantages or benefits to the trading nations.
  2. Advantages or benefits to the participating firms.

Advantages Or Benefits To The Trading Nations

1. Regional Specialisation: International business contributes to territorial or regional specialisation or division of labour.

2. Fuller and More Efficient Utilisation of Available Resources: By enabling a country to concentrate on the production of those goods for which its resources are best suited, international business facilitated fuller and better utilization of the available resources.

3. Expansion of Domestic Industries: By widening the markets for goods, international business contributes to the expansion of domestic industries of a country.

Advantages Or Benefits To The Participating Firms

  1. Growth of Business: International business contributes to the growth of business of participating firms by encouraging large-scale production and large-scale international business.
  2. Improved business Vision: International business helps business firms to have improved business vision and become increased export business.
  3. Higher Profits to Participating Firms: International business offer better prospects for higher profits to firms participating in international business through wider markets and better prices.

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Question 3.
Explain the demerits of international business!
Answer:
The dements of international business are:

1. Excessive Dependence on other countries: International business, by making a country concentrate on the production of only those goods for which it is best suited, makes a county depend on other-countries even for essential products. Such dependence creates serious difficulties for a country, especially in times of war when international business becomes impossible.

2. Foreign competition: International business gives rise to foreign competition to a country. Foreign competition may ruin domestic industries, especially small and cottage industries which are unable to face such competition.

3. One-side development: International business may lead to one-sided development of a nation’s economy. Because of the specialisation resulting from international business, a country may develop a certain sector of her economy, neglecting other sectors. This dependence on one sector is not good for the overall growth of a country.

4. Balance of Payment Problem: International business may cause serious balance of payment problem. The balance payment problem may force a country to borrow from international sources. Huge foreign debt may impair a country’s capacity to import goods.

5. Import of Luxury and Other Unwanted Goods: International business may encourage the import of luxury and other unwanted goods which are not necessary for the masses. Such imports may ruin the economy of country.

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