International Business

NCERT Solution

Short Answer Type

Question 1: Differentiate between international trade and international business.

Answer: While many people view international trade and international business as synonymous terms; there is marked difference between the two. International trade only involves trade of goods and services between two or more countries. International business; however; encompasses more than just trade in goods and services. International business also involves movement of personnel, capital, technology and various business operations across borders. International business is wider in meaning compared to international trade.


Question 2: Discuss any three advantages of international business.

Answer: Following are the three advantages of international business:

  1. Earning of foreign exchange: By exporting certain products, a country can earn foreign exchange. It is important to remember that foreign exchange is a valuable resource when it comes to importing certain items.
  2. More efficient use of resources: By focusing on international business, the resources of a country can be utilized more efficiently. For example; India has an edge in producing cotton textiles. If Indian companies focus on exporting cotton textiles, they can efficiently utilize their local resources and earn more by exporting the produce.
  3. Improving growth prospects and employment potential: Sometimes, local demand for a product may not be enough to warrant large scale production. This hampers in growth of business. If newer markets are explored, then large scale production can be carried out. This will help in more business and also in employment generation.

Question 3: What is the major reason underlying trade between nations?

Answer: This is a fact that natural resources are not equally distributed across the world. A particular country may have a particular natural resource in abundance but it may lack some other resources. Similarly, other resources for business; like human resources and capital; may not be in proper ratio in all countries. Due to this, every country cannot produce everything efficiently. Hence, a country may have to procure certain items from another country. This is the main reason underlying the trade between nations.

Question 4: Discuss as to why nations trade.

Answer: Specialisation in producing a particular product makes a particular nation a highly efficient producer of that product. This can be understood by a local example. West Bengal has ideal conditions for production of jute and hence it is the leading producer of jute in India. But West Bengal does not produce wheat in large quantity. Hence, West Bengal may be supplying jute to all other states of India but it may be procuring wheat from some other states.

India does not make motherboard and chips which are used in computer manufacturing. It can easily import these components and assemble at home to make computers. This is an economical way of making computers rather than trying to make chips and motherboards at a higher cost.

In a sense, countries behave like business firms while it comes to international trade. Produce what you can produce efficiently and import what others can produce more efficiently than you.

Question 5: Enumerate limitations of contract manufacturing.

Answer: Following are the limitations of contract manufacturing:

  1. Local firms may not adhere to production design and quality standards. This can create a serious issue of quality.
  2. Local manufacturer in a foreign country loses its control on the operations because everything is done strictly on the guidelines of parent company.
  3. The local manufacturer is not free to sell anything it produces. This results in lower profit for the local firm.

Question 6: Why is it said that licensing is an easier way to expand globally?

Answer: A licensor does not have to invest any money or negligible money in a foreign country. Due to this, the licensor does not have to share losses incurred by the licensee. The royalty for the licensor is usually a fixed percentage of turnover and hence, the licensor seldom needs to channelize its resources in marketing and sales in the host country. All the legal and political issues are tackled by the licensee and hence licensor is free from those headaches. Due to these reasons; licensing is said to be an easier way to expand globally.

Question 7: Differentiate between contract manufacturing and setting up wholly owned production subsidiary abroad.

Answer: In case of contract manufacturing, the manufacturing facilities are not owned by the parent company. But in case of wholly owned subsidiary, everything is owned by the parent company. Contract manufacturing does not involve commitment of resources; in terms of machinery, manpower or raw materials. The parent company only has to provide the necessary guidelines for production. On the other hand, in case of wholly owned subsidiary every responsibility related to operations has to be taken by the parent company. Wholly owned subsidiary entails very high investment and long term commitment; which is not the case in contract manufacturing.

Question 8: Distinguish between licensing and franchising.

Answer: Licensing involves manufacturing and marketing of goods, while franchising involves services. Another difference between the two is more stringent quality controls in case of franchising compared to in case of licensing. When a local manufacturer produces and markets a global brand; it is part of a licensing agreement. But when a local firm provides some service and uses a global brand; it is part of a franchising agreement. McDonald is an example of franchising, while any brand of a garment is an example of licensing.


Question 9: List major items of India’s imports.

Answer: Following are the major items being imported in India: Petroleum, oil and lubricants, Pearl, precious and semi-precious stones, Capital goods, Electronic goods, Gold and silver, Chemicals, Coke, coal and briquettes, Metal ferrous ores and metal scraps, Professional equipments and optical goods

Question 10: What are the major items that are exported from India?

Answer: Following are the major items exported from India: Agricultural products, Ores and minerals, Textiles including garments, Gems and jewelry, Engineering goods, Chemicals and related products, Leather products

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

Answer: Following are the major countries which are trading partners of India: USA, UK, Belgium, Germany, Japan, Switzerland, Hong Kong, UAE, China, Singapore, Malaysia



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