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International Business Management full notes

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International Business Management full notes

  1. 1. INTERNATIONAL BUSINESS MANAGEMENT UNIT I Versatile Business School, Egmore, Chennai - 600 008
  2. 2.  Africa  Antarctica  Asia  Europe  North America  South America Versatile Business School, Egmore, Chennai - 600 008
  3. 3. EVOLUTION OF INTERNATIONAL BUSINESS  First phase of globalization in 1870  Ended with World war I driven by Industrial Revolution  ‘A vast game of beggar-my-neighbour’  Felt need for International Cooperation IMF IBRD Versatile Business School, Egmore, Chennai - 600 008
  4. 4. EVOLUTION OF INTERNATIONAL BUSINESS  Prolonged recession before world war II  GATT by 23 countries  GATT WTO  International trade International Marketing  International Marketing International Business Versatile Business School, Egmore, Chennai - 600 008
  5. 5. CHARACTERISTICS/FEATURES OF INTERNATIONAL BUSINESS  Regional Integration  Declining Trade Barriers  Declining Investment Barriers  Growth in FDI  Strides in Technology  Growth of MNCs Versatile Business School, Egmore, Chennai - 600 008
  6. 6. Stages Influence • Domestic Social and Cultural • International Technological • Multinational Economic • Global Political • Transnational Domestic Business International Business Approaches Influence • Ethnocentric Export • Polycentric Direct Investment • Regiocentric Licensing • Geocentric Franchising Turnkey Projects Joint Venture Mergers and Acquisition Goals • Market Share • High Profit • Risk Avoidance • Resource Acquisition • Expand Business Capacities Advantages • Low Price • Variety of Goods • High Living Standards • Economic Growth • Competitive Advantages Problems • Political risk • Foreign Debt • Exchange Instability • High Cost INTERNATIONAL BUSINESS MODEL Versatile Business School, Egmore, Chennai - 600 008
  7. 7. INFLUENCES  Accurate Information e.g. Bata  Timely Information e.g. Coca Cola  Size of the Business  Market Segmentation  Potentiality of Markets  Inter-Country comparative study  Host Country’s Monetary System  National Security Policies e.g.: USA  Cultural Factors e.g. : Fiji  Language  Nationalism and Business Policy e.g.: USA ‘s Be American, Buy American Made Versatile Business School, Egmore, Chennai - 600 008
  8. 8. STAGES OF INTERNATIONALIZATION  Domestic Company  Limits operation, Vision, Mission to National political boundaries  International Company  Focus on domestic practices but extend wings to foreign countries (Mere export-import)  Multinational Company  Different strategy for different market  Global Company  Either produce in one country and market globally or produce globally and market domestically  Transnational Company  Produces, markets, invests and operates across the world Versatile Business School, Egmore, Chennai - 600 008
  9. 9. APPROACHES TO INTL. BUSINESS Ethnocentric Domestic companies view foreign markets as an extension to domestic markets Polycentric Companies establish foreign subsidiaries and empowers its executives Regiocentric Subsidiaries consider regional environment for policy/strategy formulation Geocentric Companies view the entire world as a single unit Versatile Business School, Egmore, Chennai - 600 008
  10. 10. MODES OF ENTRY Indirect Exporting Joint VenturesDirect Exporting Turn Key ProjectsMergers and Acquisition Direct Investment Licensing arrangements with foreign companies Franchising arrangements with foreign companies Management Contracts Contract Manufacturing Versatile Business School, Egmore, Chennai - 600 008
  11. 11. GOALS OF INTERNATIONAL BUSINESS  To achieve higher rates of profits  Expanding production capacity  Severe competition in home country  Limited home market  Political stability vs. instability  Availability of technology and human resources  High cost of transportation  Nearness to raw material  Liberalization and Globalization  To increase market share  Higher rate of economic growth  Tariffs and import quotas Versatile Business School, Egmore, Chennai - 600 008
  12. 12. ADVANTAGES OF INTL BUSINESS  High living standards  Increased socio-economic welfare  Wider market  Reduced effects of business cycles  Reduced risks  Large-scale economies  Potential Untapped markets Versatile Business School, Egmore, Chennai - 600 008
  13. 13. ADVANTAGES OF INTL BUSINESS  Opportunity for challenge to domestic business  Division of labour and specialization  Economic growth of the world  Optimum and proper utilization of world resources  Cultural transformation  Knitting the world into a traditional village Versatile Business School, Egmore, Chennai - 600 008
  14. 14. PROBLEMS OF INTL BUSINESS  Political factors  Huge foreign indebtedness  Exchange instability  Entry requirements  Tariffs, quotas and trade barriers  Corruption  Bureaucratic practices of Govt  Technological pirating  Quality Maintenance Versatile Business School, Egmore, Chennai - 600 008
  15. 15. UNIT II Versatile Business School, Egmore, Chennai - 600 008
  16. 16. GLOBALIZATION  IMF defines globalization as, “the growing economic interdependence of countries worldwide through increasing volume and variety of cross border transactions in goods and services and of international capital flows and also through the more rapid and widespread diffusion of technology” Versatile Business School, Egmore, Chennai - 600 008
  17. 17. COMPONENTS OF GLOBALISATION Globalization of Markets Globalization of Technology Globalization of Production Globalization of Investment Versatile Business School, Egmore, Chennai - 600 008
  18. 18. GLOBALIZATION OF MARKETS  Globalization of markets refers to the process of integrating and merging of the distinct world markets into a single market  EXAMPLE: Coca-Cola, Pepsi, McDonald’s burgers, Levis Jeans etc., FEATURES:  Size of the company need not be too large  Distinction of national markets still prevail  Most of the foreign markets are markets for non-consumer goods Versatile Business School, Egmore, Chennai - 600 008
  19. 19. REASONS FOR GLOBALIZATION OF MARKETS  Large scale industrialization enabled mass production  Risk reduction by diversification  Increase profits and achieve goals  Adverse business environment in home country  Demand for their products in foreign markets  Failure of domestic companies to cater the needs of customers Versatile Business School, Egmore, Chennai - 600 008
  20. 20. GLOBALIZATION OF PRODUCTION  Globalization of production is locating the manufacturing facilities in a number of locations around the globe. EXAMPLE: Jet airlines Boeing 777 and Swan opticals REASONS:  Impositions of imports by the foreign country  Availability of high quality raw materials and components  Availability of inputs at low cost  Skilled human resource at low cost  Liberal labour laws  To reduce cost of transport  To cater to varying tastes of customers Versatile Business School, Egmore, Chennai - 600 008
  21. 21. GLOBALIZATION OF PRODUCTION  Globalization of investment refers to investment of capital by a global company in any part of the world. REASONS:  Increase in volume of global trade  Limitations of exporting and importing  Liberalization  Avoid restrictions Versatile Business School, Egmore, Chennai - 600 008
  22. 22. MODES OF GLOBALIZATION OF PRODUCTION  Acquisition  Joint ventures  Long term loans  Issuing equity, shares, debentures, bonds’  Global deposit receipt Versatile Business School, Egmore, Chennai - 600 008
  23. 23. GLOBALIZATION OF TECHNOLOGY  Latest technology and distinctive competencies  Technological collaboration  Usage of technology by paying royalty Versatile Business School, Egmore, Chennai - 600 008
  24. 24. GLOBALIZATION ADVANTAGES  Free flow of capital, technology  Industrialization  Production facilities throughout the world  Increase in production and consumption  Lower prices and high quality  Jobs and Incomes  Higher standard of living  Balanced Human development  Welfare and prosperity DISADVANTAGES  Kills domestic business  Exploits human resource  Unemployment and underemployment  Widening gap between rich and poor  Transfer of natural resources  National sovereignty at stake  Commercial and political colonialism Versatile Business School, Egmore, Chennai - 600 008
  25. 25. INTERNATIONAL BUSINESS ENVIRONMENT INTERNAL EXTERNAL Organisational Structure R&DHRMarketingProduction Finance External Micro Environment External Macro Environment Shareholders Creditors Bankers & Financial Institutions Competitors Suppliers Customers Social &Cultural Factors Technological Factors Economic Political International Factors Natural Factors Organisational Structure R&DHRMarketingProduction Finance External Micro Environment External Macro Environment Market & Intermediary Versatile Business School, Egmore, Chennai - 600 008
  26. 26. SOCIAL AND CULTURAL ENVIRONMENT CULTURE  Prescriptive  Socially Shared  Learned  Subjective  Cumulative  Dynamic Versatile Business School, Egmore, Chennai - 600 008
  27. 27. SOCIAL AND CULTURAL ENVIRONMENT  Food habits and International business  Dressing habits and International business  Cross-Cultural communication process and Negotiations  Low-context cultures  High-context culture  Monochromic  Polychromic Versatile Business School, Egmore, Chennai - 600 008
  28. 28. SOCIAL AND CULTURAL ENVIRONMENT  Cultural Universals  Communication  Time and Culture  Space and Culture  Culture and agreement  Culture of friendship  Culture and negotiation  Culture and superstition  Culture and gifts Versatile Business School, Egmore, Chennai - 600 008
  29. 29. ECONOMIC SYSTEM  Economic system: It is an organization of institution to satisfy human needs/wants  Economic systems are based on resource allocation  There are three types of economic system  Capitalism: under this system, customer allocates resources  This economic system provides for economic democracy, thus giving the customer, his choice for products  Communism: In this, economic system, private property and property rights to income are abolished  Mixed: Under this system, major factor of production and distribution are owned, managed and controlled by the state Versatile Business School, Egmore, Chennai - 600 008
  30. 30.  Countries classified by income  Low income countries – US$ 755 or less  India, Pakistan and Bangladesh  Lower middle income countries – US$756 to US$2,995  China, Indonesia and Sir Lanka  Upper middle income countries – US$ 2996 to US$ 9265  Brazil, Hungary, Malaysia, Mexico and Saudi Arabia  Higher income countries – US$9266 or more  USA, UK, Japan, Italy Australia  World bank refers to low and lower middle income countries as developing countries  Higher – income countries are referred to developed countries Versatile Business School, Egmore, Chennai - 600 008
  31. 31. POLITICAL ENVIRONMENT  Political ideology is the body of complex ideas, theories and objectives  Political ideology of the people in the same country vary widely due to the variation in culture, ethnic group, tribal, community, religious and economic groups  Democracy : Pure democracy aims that all citizens should be equal politically and legally and should enjoy freedom  Totalitarianism is extreme to democracy Versatile Business School, Egmore, Chennai - 600 008
  32. 32.  Types of political systems  Appraisal of political systems helps us in having and idea of political systems and their impact on international business  Government may be parliamentary or absolutist  Parliamentary is open  Absolutist is closed  Government may be classified into  Two party system  Multi party system  Single party system  One party dominated system Versatile Business School, Egmore, Chennai - 600 008
  33. 33. GLOBALIZATION OF BUSINESS  Globalization is the shift towards a more integrated and interdependent world economy  Globalization implies integration of the economy of the country with the rest of the world economy and opening up of the economy for foreign direct investment by liberalizing the rules and regulation and by creating favorable socio-economic and political climate for global business Versatile Business School, Egmore, Chennai - 600 008
  34. 34. FEATURES OF GLOBALIZATION  Operating and planning to expand business throughout the world  Erasing the difference between domestic and foreign markets  Buying and selling goods and services from any country to any country in the world  Establishing manufacturing and distribution facilities in any part of the world based on the feasibility and viability rather than national consideration  product planning and development are based on market consideration of the entire world  Sourcing the factors of production and inputs like raw materials, machinery, finance, human resources , technology and managerial skills from entire world  Global orientation in strategies, organizational structure, organizational culture and managerial expertise  Setting the mind and attitude to view the entire globe as a single market Versatile Business School, Egmore, Chennai - 600 008
  35. 35. PROCESS OF GLOBALIZATION  Domestic company export to foreign countries through the dealers or distributors of the home country  The domestic company exports to foreign countries directly on its own  The domestic company becomes an international company by establishing production and marketing operations in various key foreign countires  The company replicates a foreign company in the foregin country by having all the facilities including r&d, full fledged human resource  The company becomes a true foreign company by serving the needs of foreign customer just like the home country company serves Versatile Business School, Egmore, Chennai - 600 008
  36. 36. Components of globalization Globalization of markets Globalization of production Globalization of investment Globalization of technology Versatile Business School, Egmore, Chennai - 600 008
  37. 37. GLOBALIZATION OF MARKETS  Globalization of markets refers to the process of integrating and merging of the distinct world markets into a single market  This process involves the identification of some common norms, values, taste, preference and convenience and slowly enables the cultural shift towards the use of a common products or services  A number of consumer products have global acceptance. Eg coca- cola, pepsi, sony and kfc Versatile Business School, Egmore, Chennai - 600 008
  38. 38. FEATURES OF GLOBALIZATION OF MARKETS  The size of the company should be large to create a global market  The difference require the companies to formulate different strategies for each market Eg coca cola, levis jeans employ separate strategies for each country  Most of the foreign markets are the marketers for non-consumer goods like industrial products, machinery, computers, software, financial products  The global business firms compete with each other frequently in different national markets including their home markets Versatile Business School, Egmore, Chennai - 600 008
  39. 39. REASONS FOR GLOBALIZATION OF MARKETS  Large scale industries enable mass production  Companies in order to reduce the risk  Companies globalize markets in order to increase their profits and achieve company goals  To cater the demand for their products in the foreign markets  The failure of the domestic companies in catering the needs of their customer pulled the foreign countries to market their product Versatile Business School, Egmore, Chennai - 600 008
  40. 40. GLOBALIZATION OF PRODUCTION  Factors influencing the location of manufacturing facilities vary from one country to another  They may be more favorable in foreign countries rather than in the home country  Eg cheap lab our in developing countries, availability of high quality and cheap raw materials in other countries enable the companies to produce the products of high quality and low cost in various foreign markets Versatile Business School, Egmore, Chennai - 600 008
  41. 41. REASONS FOR GLOBALIZATION OF PRODUCTION  Availability of high quality raw materials and components in other countries  Availability of skilled human resources at low cost  Availability of inputs at low cost in foreign countries  Liberal lab our laws in the foreign countries  To reduce the cost of transportation and easy logistics management  To design and produce the product as per the varying tastes of customers in foreign countries Versatile Business School, Egmore, Chennai - 600 008
  42. 42. GLOBALIZATION OF INVESTMENT  Globalization of investment refers to investment of capital by a global company in any part of the world  Before 1930 many countries created barriers relating to export and imports. After GATT the reduction in trade was implemented  After WTO the eliminated the investment barriers  India has allowed 51% foreign direct investment in Indian companies Versatile Business School, Egmore, Chennai - 600 008
  43. 43. REASONS FOR GLOBALIZATION OF INVESTMENT  Many countries provided more congenial environment for attracting direct investment  Significant amount of FDI is directed to the developing countries in Asia and Eastern Europe  Small and medium companies have started investing in foreign countries  Limitation of exporting and licensing force the domestic companies to enter foreign countries  Sourcing funds globally: The Indian government has allowed Indian companies to procured investment from foreign companies  Eg reliance, Dr. reddy lab and sat yam computers Versatile Business School, Egmore, Chennai - 600 008
  44. 44. GLOBALIZATION OF TECHNOLOGY  Technological changes is improved after 1950  The revolution in telecommunication, IT and transportation have made many company go into globalization  Methods of globalization technology  Companies with latest technology acquire distinctive competencies and gain the advantages of producing high quality products at low cost  Companies may have technological collaboration with foreign companies through which technology spreads from country to country  The foreign companies allow the companies of various other countries adopt their technologies on royally payment basis Versatile Business School, Egmore, Chennai - 600 008
  45. 45. ADVANTAGES AND DISADVANTAGES OF GLOBALIZATION  Free flow of capital  Free flow of technology  Increase industrialization  Balanced development of world economics  Increase in production and consumption  Commodities at lower prices with high quality  Increase in jobs and income  Higher standards of living  Balanced human development  Increase in welfare and prosperity  Globalization kills domestic business  Exploits human resources  Leads to unemployment and underemployment  Decline in demand for domestic products  Decline in income  Widening gap between rich and poor  Transfer of natural resources Versatile Business School, Egmore, Chennai - 600 008
  46. 46. MODE OF GLOBALIZATION  Acquisition of foreign companies  Joint ventures  Long term loans  Issuing equity shares, debentures and bonds  Global deposits receipts Versatile Business School, Egmore, Chennai - 600 008
  47. 47. DRIVERS OF GLOBALIZATION  Establishment of the world trade organization:  Government of the member countries of general agreement on trade and tariff(GATT) concluded the Uruguay round negotiation on the 15th December 1994. according to uruguay meeting they came with a political support “ strengthen the world economy and lead to more trade, investment, employment and income growth throughout the world” WTO was established on 1st Jan 1995. This is to facilitate the implementation, administration and operation and further the objectives of this agreement and on the multinational trade agreement Versatile Business School, Egmore, Chennai - 600 008
  48. 48.  Declining trade barriers:  International trade occurs when the goods flow across the countries. Government used to impose trade barriers like quotas and tariffs in order to protect domestic business from the competition of international business. Advanced countries after world war 2 agreed to reduce tariffs in order to encourage free flow of goods. Thus reduction of tariffs and other trade barriers contributed for the growth of global trade  Declining investment barriers:  Global business firm invest in order to establish manufacturing and other facilities in foreign country. Foreign government impose barriers on foreign investment in order to protect domestic industry.  Various countries have been removing these barriers on foreign direct investment Versatile Business School, Egmore, Chennai - 600 008
  49. 49.  Growth in foreign direct investment:  There are number of reasons for the growth of FDI. Which is also a drivers of globalization  Strides in technology:  Technological changes has dramatically diverged global company to globalization  Microprocessors and telecommunications  The internet and world wide web  On-line globalization  Transportation technology  Growth of multinational companies  Growth of multinational and transactional company are spreading their operation in manufacturing, finance and other functional areas. Which are been the drivers of globalization Versatile Business School, Egmore, Chennai - 600 008
  50. 50. TRADE LIBERALIZATION  Integration of the economy of a country with the rest of the world economy is called globalization.  Indian government globalised economy by announcing economic liberalization in 1991.  Integrated global economy were sown as early as 1940’s when steps were taken to establish  International Monetary Fund  International Bank for Reconstruction and Development  General Agreement on Tariffs and Trade Versatile Business School, Egmore, Chennai - 600 008
  51. 51. INTRODUCTION TO GATT  There were many barrier for free trade were laid down to support the government expenditure  After II world war several international measures were undertaken to liberalize trade and payment between nations  International monetary funds and international bank for reconstruction and development were set up  International trade organization to deal with international trade was sough to be set up  GATT (general agreement for trade and tariff)was set to liberalize the trade and reduce the tariff amount Versatile Business School, Egmore, Chennai - 600 008
  52. 52. GATT  The General Agreement on Tariffs and Trade (GATT) was originally created by the Bretton Woods Conference as part of a larger plan for economic recovery after World War II.  The GATT’s main purpose was to reduce barriers to international trade.  This was achieved through the reduction of tariff barriers, quantitative restrictions and subsidies on trade through a series of different agreements.  The GATT was an agreement, not an organization.  Originally, the GATT was supposed to become a full international organization like the World Bank or IMF called the International Trade Organization  The agreement was not ratified, so the GATT remained simply an agreement.  The functions of the GATT have been replaced by the World Trade Organization. Versatile Business School, Egmore, Chennai - 600 008
  53. 53.  GATT trade rounds  Geneva Round – 1947 The first round’s duration was 7 months. 23 countries took part in the round. The main focus was Tariffs Signing of GATT, 45,000 tariff concessions affecting $10 billion of trade.  Annecy Round – 1949 The second round took place in 1949 in Annecy, France. 13 countries took part in the round. The main focus of the talks was more tariff reductions.  Torquay Round – 1951 The third round occurred in Torquay, England in 1950. 38 countries took part in the round. 8,700 tariff concessions were made totaling the remaining amount of tariffs to ¾ of the tariffs which were in effect in 1948. Versatile Business School, Egmore, Chennai - 600 008
  54. 54.  Geneva Round - 1955-1956 The fourth round returned to Geneva in 1955 and lasted until May 1956. Twenty-six countries took part in the round. $2.5 billion in tariffs were eliminated or reduced.  Dillon Round - 1960-1962 The fifth round occurred once more in Geneva and lasted from 1960-1962. The talks were named after U.S. Treasury Secretary and former Under Secretary of State, Douglas Dillion, who first proposed the talks. 26 countries took part in the round. Along with reducing over $4.9 billion in tariffs, it also yielded discussion relating to the creation of the European Economic Community (EEC). Versatile Business School, Egmore, Chennai - 600 008
  55. 55.  Kennedy - 1964 The sixth round’s duration was 37 months. 62 countries took part in the round and the main focus was Tariffs, Anti-dumping. Its achievement was Tariff concessions worth $40 billion of world trade  Tokyo Round - 1973-1979 Reduced tariffs and established new regulations aimed at controlling the proliferation of non-tariff barriers and voluntary export restrictions. 102 countries took part in the round. Concessions were made on $190 billion worth. Versatile Business School, Egmore, Chennai - 600 008
  56. 56.  Uruguay Round - 1986-1994 The Uruguay Round began in 1986. It was the most ambitious round to date, hoping to expand the competence of the GATT to important new areas such as service, capital, intellectual property, textiles, and agriculture. 123 countries took part in the round. The Uruguay Round was also the first set of multilateral trade negotiations in which developing countries had played an active role Versatile Business School, Egmore, Chennai - 600 008
  57. 57. OBJECTIVES OF GATT  To raise standard of living  To ensure full employment and a large and steadily growing volume of real income and effective demand  To develop the full use of the resource of the world  To expand production and international trade Versatile Business School, Egmore, Chennai - 600 008
  58. 58. ACTIVITIES OF GATT  Tariff bargaining  Bargaining on non- tariff trade barriers  Elimination of quantum restriction  Settlement of disputes between contracting parties Versatile Business School, Egmore, Chennai - 600 008
  59. 59. WORLD TRADE ORGANIZATION  WTO was established on January 1, 1995  WTO is the embodiment of the Uruguay Round results and the successor to GATT  Government became member of the WTO on its first day  As of December 2000 there are 142 members of the WTO and 34 countries have an observer status  28 members are there in waiting list Versatile Business School, Egmore, Chennai - 600 008
  60. 60. Functions of WTO  Administering and implementing the multilateral and plurilateral trade agreements which together make up WTO  Acting as a forum for multilateral trade negotiation  Seeking to resolve trade disputes  Overseeing national trade policies  Cooperating with other international institution involved in global policy making Versatile Business School, Egmore, Chennai - 600 008
  61. 61. Ministerial conference General council Disputes settlement body council Director general trade policy review body committees Council For Trade In goods Council For Trade In services Council For trade Related Aspects of Intellectua l rights Secretaria t Of the WTO Committee On trade And developme nt Committe e On Balance Of Payment restrcitio n Committe e On‘ Budget Finance And admin Structure of WTO Versatile Business School, Egmore, Chennai - 600 008
  62. 62.  Ministerial conference: ministerial conference is the highest hierarchical level in the organizational structure.  All the member countries of WTO are the representative of the ministerial conference  The ministerial conference has the authority to make decision on all matters relating to multilateral trade agreements  General council: General council is the executives body of the WTO  General council reports its decision and activities to the ministerial conference  There are forms of general council Dispute settlement body Trade policy review body Versatile Business School, Egmore, Chennai - 600 008
  63. 63.  Council: The third level in the hierarchy is council  Council for trade in goods: This council supervise the implementation and functioning of all agreement relating to trade in goods  Council for trade in service: This council overseas the implementation of all the agreement relating to trade in services  Council for trade related aspects of intellectual property rights: This council overseas the implementation  Committees: Various councils specified earlier, constitute committee for administering the arrangement  Committees on trade and development: This committee is concerned with the issues concerning developing countries and particularly least developed countries  Committee on balance of payments: some WTO members countries resort to trade restrictive measures with a view to cope with their balance of payments problems  Committee on budget, finance and admin: this committee deals with the issues relating to the budget, finance and administration of WTO Versatile Business School, Egmore, Chennai - 600 008
  64. 64.  Management bodies: plurilateral agreement of the WTO have their management bodies. These management bodies report to the general council WTO provides a more powerful mechanism to solve disputes over trade among the members countries Versatile Business School, Egmore, Chennai - 600 008
  65. 65. Difference between GATT and WTO  It is a set of rules and multilateral agreement  It was designed with an attempt to establish International Trade Organization  It was applied on a provisional basis  Its rules are applicable to trade in merchandise goods  GATT was originally a multilateral instrument, but plurilateral agreement were added at a later stage  Its disputes settlement system was not faster and automatic  It is a permanent institution  It is established to serve its own purpose  Its activities are full and permanent  Its rules are applicable to trade in merchandise and trade in services and trade in related aspects of intellectual property  Its agreements are almost multilateral  Its disputes settlement systems is fast and automatic Versatile Business School, Egmore, Chennai - 600 008
  66. 66. Multinational corporation Versatile Business School, Egmore, Chennai - 600 008
  67. 67. Multinational corporation/company  Multinational corporation/company is an organization doing business in more than one country.  It is integrated global enterprise which links global resources with global markets at profit  These companies have sales offices or manufacturing facilities in many countries  Mnc’s have worldwide involvement and a global perspective in its management and decision making Versatile Business School, Egmore, Chennai - 600 008
  68. 68. Features of MNC’s • MNC,s consider opportunities throughout the globe though they do the business in the countries • MNC,s invest considerable portion of their assets internationally • MNC,s engage in international production and operate plants in a number of countries • MNC,s take managerial decisions based on a global perspective. • The international operations are integrated into the cooperation’s overall business Versatile Business School, Egmore, Chennai - 600 008
  69. 69. WHY COMPANIES BECOME MNCS  Protection  Tap global  Increase market share  Reduce cost  Overcome tariffs  Technological advantages Versatile Business School, Egmore, Chennai - 600 008
  70. 70. Growth of MNC  Expansion of market territory  Market superiorities  Financial superiorities  Technological superiorities  Product innovation Versatile Business School, Egmore, Chennai - 600 008
  71. 71. Classification of MNC • Global corporation: global corporation produces in home country or in a single country and focuses on marketing these products globally • International corporation: international corporation conduct the operations in one or more foreign countries, but with domestic orientation • Multinational corporation: MNC,s operates in more than one country, but operates like domestic company of the product concerned • Transnational corporation: Transnational corporation produces, market, invest and operates across the world Versatile Business School, Egmore, Chennai - 600 008
  72. 72. Advantages and Disadvantages of MNC  Creates the demand for the home country products  Boost up the industrial activity of the home country  Create unemployment for home country people  Earns foreign exchange for the home country and contributes for the balance of payment  Get the benefits of foreign culture  Produces the product required by the domestic consumer in foreign countries with foreign resources  Saves the domestic country from environmental pollution  Get the customer for the country’s out dated technology  Transfer capital to other countries ad cause unfavorable balance of payment  May not create employment opportunities to domestic people by following geocentric approaches or outsourcing business operations in various counties like USA software companies outsourcing business operation in India  May neglect the industrial development of the home country as the transnational companies follow the secular approaches  May cause erosion of the domestic culture  May exploit the natural resources resulting in excessive exploitation of natural resources Versatile Business School, Egmore, Chennai - 600 008
  73. 73. Role of MNC in developing countries  Industrializations is in a backward state in developing countries  Resource available in developing countries are insufficient to develop the technology and thereby industrialization  Developing countries are rich in mineral and natural resource  Local manpower, materials, capital etc cannot be optimally utilized by the developing countries on their own  Developing countries would be requires to import raw materials, capital equipment, technology on their own, thus they need large foreign exchange resources  Developing countries, though they produces goods and services on their own by importing technology and materials, they fail in marketing the product due to severe competitions Versatile Business School, Egmore, Chennai - 600 008
  74. 74. Conflict mostly arises • Host country’s companies • Host country’s government • Host country’s customer • Host country’s society • Home country’s companies • Home country’s government • Home country’s customer • Home country’s society Versatile Business School, Egmore, Chennai - 600 008
  75. 75. Conflict in MNC • Macro economic area • Production area • Marketing area • Finance area • Human resource area • Social and ethical area • Environmental issues • Competing Versatile Business School, Egmore, Chennai - 600 008
  76. 76. UNIT IV IBM Versatile Business School, Egmore, Chennai - 600 008
  77. 77. KINDS OF ECONOMIC INTEGRATION  Free Trade Area: Group of countries agreeing to abolish all trade restrictions  Customs Union: (i) Member countries abolish all restrictions (ii) They adopt a uniform commercial policy of barriers and restrictions  Common Market: (i) Member countries abolish all restrictions (ii) They adopt a uniform commercial policy of barriers and restrictions (iii) They allow free movement of human resource and capital  Economic Union: i) Member countries abolish all restrictions (ii) They adopt a uniform commercial policy of barriers and restrictions (iii) They allow free movement of human resource and capital (iv)Achieve uniformity in monetary and fiscal policy Versatile Business School, Egmore, Chennai - 600 008
  78. 78. EUROPEAN UNION Evolutionary stages  European coal and steel community  European common market/European economic community  European economic union Versatile Business School, Egmore, Chennai - 600 008
  79. 79. ACTIVITIES OF EU Elimination of customs duties, quantitative restrictions with regard to exports and imports of goods among member countries.  Establishment/formulation of a common custom tariff and common commercial policy with regard to non-member countries  Abolition of all obstacles for movement of persons, services and capital among member countries.  Common policy in agriculture and transport  Programmes to coordinate the economic policies and disequilibrium in balance of payments of member countries.  Establishment of European Social fund  Establishment of European Investment Bank. Versatile Business School, Egmore, Chennai - 600 008
  80. 80. ORGANISATION OF EU  European council is the administrative body of the EU.  Each member country is represented by a minister in this council  Each member country holds presidency for 6 months on rotation basis.  The committee of permanent representatives called ‘Corper’ acts as secretariat of the council. Versatile Business School, Egmore, Chennai - 600 008
  81. 81. ORGANISATION OF EU Court of Justice (Adjudicates Disputes) •Agriculture •Social Security •Completion of Policy Court of Auditors •EEC Budget •Monitoring expenditure European Commission (Commissioners and Assistants) European Parliament •Consultants •Approvals Advisory Committees •Economic and social •Monetary •Coal & Steel Industry Versatile Business School, Egmore, Chennai - 600 008
  82. 82. NORTH AMERICAN FREE TRADE AGREEMENT-NAFTA  NAFTA came into being on January 1,1994.  USA, Canada and Mexico together formed NAFTA  Initial agreement was between USA and Canada in 1989 which was later extended to Mexico. Versatile Business School, Egmore, Chennai - 600 008
  83. 83. OBJECTIVES OF NAFTA  To create new business opportunities particularly in Mexico  Enhance competitive advantage of companies operating in USA, Canada and Mexico.  Reduce price of products and services  Enhance industrial development  To provide stable and predictable environment for investors  To develop industries in Mexico, thereby reducing migration from Mexico to USA  Improve and consolidate political relationship among member countries Versatile Business School, Egmore, Chennai - 600 008
  84. 84. MEASURES AS PER AGREEMENT OF NAFTA  Opening up of government procurement markets in member countries  Protection of IP rights of NAFTA members  Simplification and harmonization of product standards in member countries  Free flow of employees and business people among member countries  Pollution control among USA-Mexico border Versatile Business School, Egmore, Chennai - 600 008
  85. 85. ASEAN-ASSOCIATION OF SOUTH EAST ASIAN NATIONS A group of 6 members viz singapore, Brunei, Malaysia, Philippines, Thailand and Indonesia in 1992 to establish a Common Effective Preferential Tariffs(CEPT) plan which resulted in creation of ASEAN.  Organisation structure includes ASEAN economic ministers, ASEAN foreign ministers, ASEAN secretariat, Fixed committees and rotating committees. Versatile Business School, Egmore, Chennai - 600 008
  86. 86. INDIAAND ASEAN  India became a sectoral dialogue partner of ASEAN in 1992. The sectors were trade, investment, tourism and science and technology  India became a full dialogue partner of ASEAN during fifth ASEAN summit in Bangkok in 1995 Versatile Business School, Egmore, Chennai - 600 008
  87. 87. AFTA-Asian Free Trade Area  AFTA was formed in September 1994.  AFTA was formed to develop ASEAN trade OBJECTIVES  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 Versatile Business School, Egmore, Chennai - 600 008
  88. 88. SAARC  SAARC stands for South Asian Association for Regional Co-operation  India, Bangladesh, Bhutan, Pakistan, the Maldives, Nepal and Sri Lanka established SAARC on Dec 8, 1985.  Afghanistan joined SAARC in April 2007. Versatile Business School, Egmore, Chennai - 600 008
  89. 89. OBJECTIVES OF SAARC  To improve the quality of life and welfare of people  To develop region economically, socially, culturally  To provide opportunity for the people to live in dignity  To enhance self-reliance of members  To extend co-operation to other trade blocks  To enhance co-operation with developing countries  To have unity among member countries Versatile Business School, Egmore, Chennai - 600 008
  90. 90. ORGANIZATION STRUCTURE  The council of SAARC is the highest policy making body  The council is represented by the heads of the Government of the member countries  The Council meets once in two years  This council is assisted by council of ministers  The council of ministers is represented by foreign ministers of member countries  The council of ministers are assisted by standing committee which consists of foreign secretaries of member countries Versatile Business School, Egmore, Chennai - 600 008
  91. 91. STANDING COMMITTEE  Monitoring and co-ordinating the programmes  Determining inter-sectoral priorities  Mobilizing co-operation within and outside the region  Standing committee is assisted by Programming committee Versatile Business School, Egmore, Chennai - 600 008
  92. 92. PROGRAMMING COMMITTEE  This includes the senior officials of the member countries. The functions are  Scrutinising budget of the secretariat  Finalising annual schedule of the secretariat  Carrying out the activities assigned by the standing committee  Analysing reports of technical committees and SAARC regional centres and submitting them to the standing committee. Versatile Business School, Egmore, Chennai - 600 008
  93. 93. TECHNICAL COMMITTEE  This consists of representative of all member countries FUNCTIONS  Formulating projects and programmes in their respective areas  Monitoring and implementing projects  Submitting the reports to the standing committee through the program committee Versatile Business School, Egmore, Chennai - 600 008
  94. 94. TECHNICAL COMMITTEE  The technical committees of SAARC includes  Agriculture  Environment  Rural Development  Tourism and transport  Communications  Health and population activity  Science and technology Versatile Business School, Egmore, Chennai - 600 008
  95. 95.  The Secretarial work is done by SAARC secretariat located in Nepal.  The secretary-General is the chief of the secretariat  Ahmed Salim of Maldives is the oresent Secretary General of SAARC Versatile Business School, Egmore, Chennai - 600 008
  96. 96. ESCAP  Economic and Social commission for Asia and The Pacific  ESCAP has 48 members countries  The original name of ESCAP was Economic commission for Asia and far east  ESCAP’s geographical area is as follows: East: Cook Island West: Azerbaijan North: Mangolia South: Australia and New Zealand Versatile Business School, Egmore, Chennai - 600 008
  97. 97. APEC  APEC stands for Asia Pacific Economic co-operation  It looks for facilitating economic growth, co-operation, trade and investment in Asia Pacific region.  APEC has 21 members referred as ‘Member Economies’ which accounts for more than a third of the world’s population(2.6 billion people), approximately 60% of world’s GDP and about 47% of world trade.  It is the most economically dynamic region in the world Versatile Business School, Egmore, Chennai - 600 008
  98. 98. PURPOSE AND GOALS  To enhance the economic growth and prosperity of Asia- pacific region  To reduce tariff and trade barriers  Creation of an environment for safe and efficient movement of goods, services and people across borders Versatile Business School, Egmore, Chennai - 600 008
  99. 99. OPERATION OF APEC  Every year one of the 21 APEC member economies play host to APEC meetings and serves as the APEC Chair.  The APEC host economy is responsible for chairing the Annul meetings of APEC.  APEC is not a donor organization. It’s activities are centrally funded by small annual contributions from APEC members economies. Versatile Business School, Egmore, Chennai - 600 008
  100. 100. MERCOSUR  The treaty signed by Argentina, Brazil, Paraguay and Uruguay on March 26, 1991 created Mercosur.  Mercosur is South America’s largest trade block. OBJECTIVES  Free transit of transportation goods, services and factors between the member states.  Fixing of a common external tariff and adopting common trade policy  Co-ordination of macro-economic and sectoral policies of member states in areas of foreign trade, agriculture, transport and communications etc., Versatile Business School, Egmore, Chennai - 600 008
  101. 101. INTERNATIONAL CAPITAL MARKET  Network of people, firms, financial institutions, and governments borrowing and investing internationally Borrowers  Expands money supply  Reduces cost of money Lenders  Spread / reduce risk  Offset gains / losses Versatile Business School, Egmore, Chennai - 600 008
  102. 102. INTERNATIONAL FINANCIAL MARKET  Few of the International financial markets are as follows: Foreign exchange market Eurocurrency market Eurocredit market Eurobond market International stock markets Versatile Business School, Egmore, Chennai - 600 008
  103. 103. FOREIGN EXCHANGE MARKET  The foreign exchange market allows currencies to be exchanged in order to facilitate international trade or financial transactions.  The foreign exchange market assists international trade and investment by enabling currency conversion. For example, it permits a business in the United States to import goods from the European Union member states  The system for establishing exchange rates has evolved over time.  From 1876 to 1913, each currency was convertible into gold at a specified rate  This was followed by a period of instability, as World War I began and the Great Depression followed.  The 1944 Bretton Woods Agreement called for fixed currency exchange rates. Versatile Business School, Egmore, Chennai - 600 008
  104. 104. FOREIGN EXCHANGE MARKET  There is no specific building or location where traders exchange currencies. Trading also occurs around the clock.  The market for immediate exchange is known as the spot market.  The forward market enables an MNC to lock in the exchange rate at which it will buy or sell a certain quantity of currency on a specified future date. Versatile Business School, Egmore, Chennai - 600 008
  105. 105. EUROCURRENCY MARKET  The Eurocurrency market consists of banks (called Eurobanks) that accept deposits and make loans in foreign currencies  A Eurocurrency is a freely convertible currency deposited in a bank located in a country which is not the native country of the currency  The deposit can be placed in a foreign bank or in the foreign branch of a domestic bank  In the 1960s and 70s, the Eurodollar market, or what is now referred to as the Eurocurrency market, grew to accommodate increasing international business. Versatile Business School, Egmore, Chennai - 600 008
  106. 106. EUROCURRENCY MARKET  The Eurocurrency market is made up of several large banks called Eurobanks that accept deposits and provide loans in various currencies.  For example, the Eurocurrency market has historically recycled the oil revenues (petrodollars) from oil-exporting (OPEC) countries to other countries. Versatile Business School, Egmore, Chennai - 600 008
  107. 107. EUROCURRENCY MARKET  The Eurocurrency market in Asia is sometimes referred to separately as the Asian dollar market.  The primary function of banks in the Asian dollar market is to channel funds from depositors to borrowers.  Another function is interbank lending and borrowing. Versatile Business School, Egmore, Chennai - 600 008
  108. 108. EURO CREDIT MARKET  Loans of one year or longer are extended by Eurobanks to MNCs or government agencies in the Eurocredit market. These loans are known as Eurocredit loans.  Floating rates are commonly used in Eurocredit Market Versatile Business School, Egmore, Chennai - 600 008
  109. 109. EUROBOND MARKET In finance, a bond is an instrument of indebtedness of the bond issuer to the holders. It is a debt security, under which the issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay them interest (the coupon) and/or to repay the principal at a later date, termed the maturity There are two types of international bonds.  Bonds denominated in the currency of the country where they are placed but issued by borrowers foreign to the country are called foreign bonds or parallel bonds.  Bonds that are sold in countries other than the country represented by the currency denominating them are called Eurobonds. Versatile Business School, Egmore, Chennai - 600 008
  110. 110. INTERNATIONAL STOCK MARKETS  In addition to issuing stock locally, MNCs can also obtain funds by issuing stock in international markets.  This will enhance the firm’s image and name recognition, and diversify the shareholder base. The stocks may also be more easily digested.  Note that market competition should increase the efficiency of new issues. Versatile Business School, Egmore, Chennai - 600 008
  111. 111.  A stock exchange is an entity that provides "trading" facilities for stock brokers and traders, to trade stocks, bonds, and other securities. Versatile Business School, Egmore, Chennai - 600 008
  112. 112. NASDAC  The NASDAQ Stock Market commonly known as the NASDAQ, is an American stock exchange. "NASDAQ" originally stood for National Association of Securities Dealers Automated Quotations.  It is the second-largest stock market comparing to official stock exchanges by market capitalization in the world, after the New York Stock Exchange.  The exchange platform is owned by NASDAQ OMX Group, which also owns the OMX stock market network. Versatile Business School, Egmore, Chennai - 600 008
  113. 113. HISTORY  When the NASDAQ stock exchange began trading on February 8, 1971, it was the world's first electronic stock market.  NASDAQ was the successor to the over-the-counter (OTC) system of trading  NASDAQ was also the first stock market in the United States to start trading online, highlighting NASDAQ-traded companies  In 1992, it joined with the London Stock Exchange to form the first intercontinental linkage of securities markets  In 2006 NASDAQ changed from stock market to licensed national exchange. Versatile Business School, Egmore, Chennai - 600 008
  114. 114. NASDAC  The NASDAQ-100 is a stock market index of 100 of the largest non-financial companies listed on the NASDAQ]  The NASDAQ has over the years put in place a series of stringent standards that companies must meet before being included in the index. Those standards include the following:  Being listed exclusively on NASDAQ in either the Global Select or Global Market tiers.  Being publicly offered on an established American market for three months.  Having average daily volume of 200,000 shares.  Being current in regards to quarterly and annual reports.  Not being in bankruptcy proceedings. Versatile Business School, Egmore, Chennai - 600 008
  115. 115. NASDAC-OPERATIONS  The Nasdaq, on the other hand, is located not on a physical trading floor but on a telecommunications network  Instead, trading takes place directly between investors and their buyers or sellers, through an elaborate system of companies electronically connected to one another. Versatile Business School, Egmore, Chennai - 600 008
  116. 116. NASDAQ 100  21st Century Fox (FOXA)  Amazon.com, Inc. (AMZN)  Apple Inc. (AAPL)  Cognizant Technology Solutions Corporation (CTSH)  Dell Inc. (DELL)  Google Inc. (GOOG)  Vodafone Group, plc. (VOD)  Yahoo! Inc. (YHOO) Versatile Business School, Egmore, Chennai - 600 008
  117. 117. EXIM BANK  Export-Import Bank of India is the premier export finance institution of the country, established in 1982 under the Export-Import Bank of India Act 1981.  Government of India launched the institution with a mandate, not just to enhance exports from India, but to integrate the country’s foreign trade and investment with the overall economic growth. Versatile Business School, Egmore, Chennai - 600 008
  118. 118. EXIM BANK-ORGANIZATION  Exim Bank is managed by a Board of Directors, which has representatives from the Government, Reserve Bank of India, Export Credit Guarantee Corporation of India, a financial institution, public sector banks, and the business community. Versatile Business School, Egmore, Chennai - 600 008
  119. 119. EXIM-FUNCTIONS The Bank's functions are segmented into several operating groups including:  Corporate Banking Group which handles a variety of financing programmes for Export Oriented Units (EOUs), Importers, and overseas investment by Indian companies.  Project Finance / Trade Finance Group handles the entire range of export credit services such as supplier's credit, pre-shipment Agri Business Group, to spearhead the initiative to promote and support Agri-exports. The Group handles projects and export transactions in the agricultural sector for financing.  Small and Medium Enterprise: The group handles credit proposals from SMEs under various lending programmes of the Bank. Versatile Business School, Egmore, Chennai - 600 008
  120. 120. EXIM-FUNCTIONS  Export Services Group offers variety of advisory and value- added information services aimed at investment promotion.  Export Marketing Services Bank offers assistance to Indian companies, to enable them establish their products in overseas markets.  The idea behind this service is to promote Indian export. Export Marketing Services covers wide range of export oriented companies and organizations. Versatile Business School, Egmore, Chennai - 600 008
  121. 121. EXIM-FUNCTIONS  Besides these, the Support Services groups, which include: Research & Planning, Treasury and Accounts, Loan Administration, Internal Audit, Management Information Services, Information Technology, Legal, Human Resources Management and Corporate Communications. Versatile Business School, Egmore, Chennai - 600 008
  122. 122. ECGC  The Export Credit Guarantee Corporation of India Limited (ECGC) is a company wholly owned by the Government of India based in Mumbai, Maharashtra  It is controlled by the Ministry of Commerce. Government of India.  It was transformed into Export Credit and Guarantee Corporation Limited (ECGC) in 1964 and to Export Credit Guarantee Corporation of India in 1983. Versatile Business School, Egmore, Chennai - 600 008
  123. 123. ECGC  ECGC of India Ltd, was established in July, 1957 to strengthen the export promotion by covering the risk of exporting on credit  It is managed by a Board of Directors comprising representatives of the Government, Reserve Bank of India, banking, insurance and exporting community.  ECGC is the fifth largest credit insurer of the world in terms of coverage of national exports. Versatile Business School, Egmore, Chennai - 600 008
  124. 124. NEED FOR EXPORT CREDIT INSURANCE  An outbreak of war or civil war may block or delay payment for goods exported.  Economic difficulties or balance of payment problems may lead a country to impose restrictions on either import of certain goods or on transfer of payments for goods imported.  The commercial risks of a foreign buyer going bankrupt or losing his capacity to pay Versatile Business School, Egmore, Chennai - 600 008
  125. 125. FUNCTIONS OF ECGC  Provides a range of credit risk insurance covers to exporters against loss in export of goods and services.  Offers guarantees to banks and financial institutions to enable exporters to obtain better facilities from them.  Provides Overseas Investment Insurance to Indian companies investing in joint ventures abroad in the form of equity or loan. Versatile Business School, Egmore, Chennai - 600 008
  126. 126. FUNCTIONS OF ECGC  Offers insurance protection to exporters against payment risks  Provides guidance in export-related activities  Makes available information on different countries with its own credit ratings  Makes it easy to obtain export finance from banks/financial institutions  Assists exporters in recovering bad debts  Provides information on credit-worthiness of overseas buyers Versatile Business School, Egmore, Chennai - 600 008
  127. 127. IBM UNIT V Versatile Business School, Egmore, Chennai - 600 008
  128. 128. EXPORT PROCEDURES Preliminaries Offer and Receipt of confirmed orders Production and clearance of the products for exports Shipment Negotiation of Documents and realization of export proceeds Obtaining various export incentives Versatile Business School, Egmore, Chennai - 600 008
  129. 129. PRELIMINARIES  Importer-Exporter Code Number (IEC Number): License to be obtained from regional licensing authorities.  Membership in certain bodies: Membership in bodies like Export promotion councils, India trade promotion organization etc.,  Registration: Register with Export promotion councils (EPC), Sales tax authorities etc., Versatile Business School, Egmore, Chennai - 600 008
  130. 130. INQUIRY,OFFER AND RECEIPT OF CONFIRMED ORDERS  Inquiry is the request made by a prospective importer regarding his wish to import certain goods.  Offer is a proposal submitted by a exporter expressing his intention to export certain goods.  Exporter makes an offer in the form of ‘Proforma Invoice’ Versatile Business School, Egmore, Chennai - 600 008
  131. 131. PROFORMA INVOICE Proforma Invoice includes the following:  Name of the buyer: Complete details of buyer/importer  Description of goods: Technical, chemical and physical features of goods.  Price: Unit wise and total price of the goods in internationally accepted currencies or mutually agreed currencies.  The forms used should be f.o.b., c and c.i.f ., f (Cost, Insurance and Freight (CIF) vs. Free On Board (FOB)) or internationally accepted form. Versatile Business School, Egmore, Chennai - 600 008
  132. 132. PROFORMA INVOICE Conditions of Sale:  Validity: The period for which the invoice is valid  Escalation Clause: Prices may increase before delivery of the goods due to increase in cost of inputs. Hence, seller may include escalation clause  Delivery Schedule: Realistic delivery schedule should be indicated.  Inspection: Authority who will conduct inspection should be indicated. Versatile Business School, Egmore, Chennai - 600 008
  133. 133. PROFORMA INVOICE Payment Terms: Letter of credit, bill of exchange should be included. Other obligations:  Post sales service to be provided  Providing spare parts  Warranty/guarantee for equipment/technology Confirmed Order: The buyer sends the confirmed order to the exporter by signing the duplicate copy of the invoice which becomes the confirmed order Versatile Business School, Egmore, Chennai - 600 008
  134. 134. PROFORMA INVOICE Export License: The exporter has to obtain the export license from the authorities concerned if the items to be exported requires license. Procuring Finance: If the exporter does not have the required finance then he should arrange it from various sources. Versatile Business School, Egmore, Chennai - 600 008
  135. 135. PRODUCTION/PROCUREMENT OF GOODS  The exporting house after receiving the order should produce the goods as specified in the order. Packing and Marketing:  The exporter should arrange for packing and marking of goods as per International standards.  Bureau of Indian Standards  British Standard Packing Code  Exporters Encyclopedia  International Cargo-Handling Co-ordination Association. Versatile Business School, Egmore, Chennai - 600 008
  136. 136. PRODUCTION/PROCUREMENT OF GOODS Quality control and pre-shipment inspection:  Quality and pre-shipment inspection by Export Inspection Council Excise Duty Rebates:  Goods meant for export are exempted from imposition of excise duty. Rebate on duty is provided on submission of the following forms:  AR-4 forms Versatile Business School, Egmore, Chennai - 600 008
  137. 137. SHIPMENT  Exporter has to contact shipping companies for space after getting the order confirmed.  Shipping advise refers to mere information about availability of space and there is no obligation to accept the cargo  Shipping order issuance creates obligation to accept the cargo Versatile Business School, Egmore, Chennai - 600 008
  138. 138. CUSTOMS CLEARANCE  The exporter has to get custom clearance of the goods before they are loaded on the ship. The list of documents to be furnished includes the following:  Proforma Invoice  GR-I Form (Duplicate)  AR-4 Form (Duplicate)  Export License  Letter of credit covering export order, export contract or order in original  Certificate of Inspection Versatile Business School, Egmore, Chennai - 600 008
  139. 139. CUSTOMS CLEARANCE Form of Declaration (in duplicate) Shipping bill (Five copies) Quality control Inspection certificate(If required) Original contract wherever available Packing list Letter of registration certificate (If applicable) Versatile Business School, Egmore, Chennai - 600 008
  140. 140. CUSTOMS CLEARANCE  GR-I Form:  Exchange control document  Proceeds of sale to be realized in 180 days from date of shipment.  Not necessary in case of export to Bhutan and Nepal  AR-4 Form:  Every manufacturer for clearance of excisable goods files an application AR-4 from his factory for export  The clearances can be 'under claim for rebate of duty' or 'under bond.'  The goods can be examined and sealed at the factory by a central excise officer having jurisdiction over the factory. After shipment of goods, the customs officer endorses AR-4 form Versatile Business School, Egmore, Chennai - 600 008
  141. 141. CUSTOMS CLEARANCE  Export License: The exporter has to obtain the export license from the authorities concerned if the items to be exported requires license.  Letter of Credit:A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase. Versatile Business School, Egmore, Chennai - 600 008
  142. 142. CUSTOMS CLEARANCE  Certificate of Inspection: Certifying or non certifying about the fulfillment of National export standards  Form of Declaration: Customs form completed and submitted by an exporter at the port of export (1) to provide information on amount, nature, and value of exports to the statistical office for compilation of foreign trade data, Versatile Business School, Egmore, Chennai - 600 008
  143. 143. CUSTOMS CLEARANCE  Shipping bill: The bill contains the following Name of the exporter Description and Quantity of goods Value of goods Number of packages and markings on them Amount of drawback claimed Port of Destination Names of the ship and its agentVersatile Business School, Egmore, Chennai - 600 008 Versatile Business School, Egmore, Chennai - 600 008
  144. 144. CUSTOMS CLEARANCE  Carting Order: Once the good for exports is ready and shipping order is available, the superintendent of the concerned port trust gives permission for physical movement of goods into port.  Customs Examination of Cargo at Dock: Checking of products to be exported at the dock by Customs Appraiser  Let Ship:  Let ship order authorizes shipping company to accept the cargo  Issued by the preventive officer of the customs department before loading takes place. Versatile Business School, Egmore, Chennai - 600 008
  145. 145. CUSTOMS CLEARANCE  Mate’s Receipt: The captain of the ship certifies the loading of the cargo by issuing document called ‘Mate’s Receipt’ to the Port Superintendent.  Port Trust Dues: Port trust authorities issues ‘Bill of Lading’ to the exporter after receiving ‘Mate’s receipt’ from the captain.  Bill of Lading: Agent collects ‘Mate’s Receipt’ and gives to port trust authorities and in turn collects ‘Bill of Lading’. Versatile Business School, Egmore, Chennai - 600 008
  146. 146. CUSTOMS CLEARANCE  Exporter’s agent provides the following documents in the final stage: Copy of Invoice attested by customs Copy of Shipping bill Export promotion copy of shipping bill Bill of lading Original letter of credit Customer's order or contract Duplicate copy of AR-4 Form Versatile Business School, Egmore, Chennai - 600 008
  147. 147. NEGOTIATION OF DOCUMENTS AND REALIZATION OF EXPORT PROCEEDS  The exporter submits relevant documents to his banker for getting payment of goods exported.  Submission of documents and process of getting payment through bank is called ‘Negotiating the Documents’.  These documents are called as ‘Negotiable set of documents’  Documents include:  Bill of lading  Commercial Invoice with packing slip and bill of exchange  Certificate of origin  GR-I Form  Marine Insurance Policy  Letter of Credit Versatile Business School, Egmore, Chennai - 600 008
  148. 148. NEGOTIATION OF DOCUMENTS AND REALIZATION OF EXPORT PROCEEDS  Government of India appointed a committee to recommend on the documentation in export. Standardized documents suggested are as follows and the system is called as ‘Aligned Documentation System’ Invoice Exchange control Declaration (GR Form) Shipping Bill Bill of Lading Versatile Business School, Egmore, Chennai - 600 008
  149. 149. EXPORT DOCUMENTATION Export incentives include,  Duty Drawback: Eligible to get back excise duty paid on all raw materials, components and consumables used in production of goods exported.  Excise Duty Refund: Eligible for refund of paid at the beginning. Bonds can also be executed without making payment. Versatile Business School, Egmore, Chennai - 600 008
  150. 150. SHIPPING BY OTHER MODES OF TRANSPORT Shipping By Air Mostly perishable goods and goods of very less weight Shipping by Post Goods of less weight are exported. Shipping by Land Similar to Export by sea Versatile Business School, Egmore, Chennai - 600 008

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