Samacheer Kalvi Class 11 Commerce Solutions Chapter 25 International Business

Samacheer Kalvi 11th Commerce Guide Chapter 25 International Business

11th Commerce Guide International Business Text Book Back Questions and Answers

I. Choose the Correct Answer

Question 1. Movement of goods, services, intellectual property, human assets, technology and so on among the countries.
(a) International Trade
(b) International business
(c) Entrepot Trade
(d) Internal trade
Answer: (a) International Trade
In simple words: This refers to when different countries exchange products, services, knowledge, people's skills, and new technologies with each other. It helps nations get what they need and sell what they have extra.

🎯 Exam Tip: When defining trade, remember to mention the exchange of goods, services, and other resources between different countries.

Question 2. Goods are imported for purpose of re-export to another country is termed as
(a) Import Trade
(b) Export Trade
(c) Entrepot Trade
(d) International trade
Answer: (c) Entrepot Trade
In simple words: Entrepot trade is when goods are brought into one country just to be sent out to another country later on. This usually happens without making big changes to the goods.

🎯 Exam Tip: Distinguish entrepot trade from simple import/export by focusing on the 're-export' intention; goods are not for local consumption.

Question 3. Movement of goods, services among the countries.
(a) International Trade
(b) International business
(c) Entrepot Trade
(d) Internal trade
Answer: (b) International business
In simple words: International business covers all types of business activities that happen between different countries, including buying, selling, and investing. It is a broader concept than just trading goods.

🎯 Exam Tip: International business includes more than just trade, encompassing all commercial activities across borders, like investments and production.

Question 4. Selling of goods from home country to a foreign country is called
(a) Home Trade
(b) Entrepot Trade
(c) Foreign Trade
(d) Joint Venture
Answer: (c) Foreign Trade
In simple words: When a country sells its products to another country, it's called foreign trade. This is a basic way countries interact economically.

🎯 Exam Tip: Remember that foreign trade involves selling goods *to* other countries, which boosts the home country's economy.

II. Very Short Answer Questions

Question 1. What do you mean by international business?
Answer: International business refers to all types of commercial activities that take place across the borders of different countries. It includes not just buying and selling, but also investments and production carried out globally.
In simple words: International business means all money-making activities that happen between different countries.

🎯 Exam Tip: A good definition of international business should highlight activities beyond national borders, encompassing various commercial transactions.

Question 2. What is meant by Export Trade?
Answer: Export trade happens when a company from one country sells its goods and services to a company in another country. It is essentially the process of sending products and services from the home country to a foreign country. For example, India might sell handicrafts or leather products to other nations.
In simple words: Export trade is when a country sells its goods and services to buyers in other countries.

🎯 Exam Tip: When explaining export trade, specify that it involves selling goods *from* the home country *to* a foreign country, often generating revenue.

Question 3. What is meant by Import Trade?
Answer: Import trade occurs when a company in one country buys goods from a company in another country. This means bringing foreign products into one's own country. For instance, a country might import oil or electronics it cannot produce efficiently itself.
In simple words: Import trade is when a country buys goods from another country and brings them into its own country.

🎯 Exam Tip: Make sure to explain that import trade involves purchasing goods *from* a foreign country *into* the home country, often to meet local demand.

Question 4. What is meant by Entrepot Trade?
Answer: Entrepot trade is when a country imports goods with the specific goal of exporting those same goods to another country later. The goods might be slightly changed or refined before re-export, but the main purpose is not for local consumption. For instance, if an Indian company imports crude oil from Iran, refines it into petroleum in India, and then exports that petroleum to Nepal, it is an example of entrepot trade.
In simple words: Entrepot trade is when a country brings in goods just to send them out again to another country, often after a small change.

🎯 Exam Tip: Clearly state that entrepot trade's defining feature is importing for the purpose of *re-export*, distinguishing it from regular import or export.

Question 5. Give any two reasons for International Business.
Answer: There are key reasons why countries engage in international business:
1. **Unequal Distribution of Natural Resources:** Different countries have different natural resources. Some countries have a lot of oil, while others have very little, leading to trade.
2. **Uneven Availability of Factors of Production:** The things needed to produce goods (like labor, capital, and technology) are not spread equally around the world. This makes countries rely on each other. International business helps countries get resources they don't have enough of locally.
In simple words: Countries do international business because they have different natural resources and different amounts of labor or technology.

🎯 Exam Tip: When listing reasons, ensure they are distinct and directly explain why countries need to trade and do business internationally.

III. Short Answer Questions

Question 1. Describe the importance of external trade to an economy;
Answer: External trade is important because it connects different economies around the world. Countries involved in international business operate under diverse conditions, including different laws, policies, money rules, and ways of producing things. This diversity means countries can benefit by trading with each other, accessing resources and markets they wouldn't have otherwise.
In simple words: External trade is important because it lets countries work together, even with different rules and resources.

🎯 Exam Tip: Focus on how external trade integrates economies by highlighting differences in economic environments like legal frameworks and resources.

Question 2. What is the necessity for entrepot trade?
Answer: Entrepot trade becomes necessary for a country when it cannot directly import goods from other nations due to several reasons:

• The country might not have direct trade routes or connections with the exporting country.
• The imported goods might need more processing or finishing before they can be exported again, and the importing country may lack these facilities.
• There might not be a direct trade agreement between the two original countries, making a third country necessary as an intermediary.
• The importer and exporter might not have good business relationships, so an intermediary country facilitates the trade. This ensures goods still move between countries even when direct links are absent or difficult.

🎯 Exam Tip: Explain that entrepot trade acts as a bridge, overcoming logistical, diplomatic, or processing challenges that prevent direct international trade.

Question 3. What are the limitations of international business?
Answer: International business has some limitations:
1. **Economic Dependence:** A country might become too reliant on imports from other countries, which can make its own economy weaker.
2. **Inhibition of Growth of Home Industries:** International business can make it harder for local industries to grow and develop because they have to compete with many foreign goods.
3. **Import of Harmful Goods:** Sometimes, international trade can lead to a country importing luxury, fake, or even dangerous products. Such imports can negatively affect the well-being and safety of the population. These limitations show that while international business has benefits, it also brings challenges that need careful management.
In simple words: International business can make a country too dependent on others, hurt local businesses, and bring in bad products.

🎯 Exam Tip: When listing limitations, clearly link each point to a negative consequence for the economy or society, such as dependence or harm to local industry.

IV. Long Answer Questions

Question 1. List out the advantages of international trade.
Answer: International trade offers many benefits to participating countries:
1. **Geographical Specialization:** Countries tend to focus on producing what they are best at, using their unique natural resources, capital, workforce, and technology. This leads to more efficient production globally.
2. **Optimum Use of Natural Resources:** International business encourages countries to produce efficiently and trade any extra production. This means a country procures what it cannot make efficiently, ensuring resources are used wisely worldwide.
3. **Economic Development:** It significantly helps developing countries grow faster. They can import necessary machinery, equipment, modern technology, and skilled people to boost their economies.
4. **Generation of Employment:** By expanding agricultural and industrial activities, international business creates many new job opportunities both directly and indirectly.
5. **Higher Standard of Living:** Through global trade, people in a country can buy a wider range of goods and services that might not be produced cheaply or at all in their home country. This gives them more choices and improves their quality of life.
6. **Price Equalisation:** International business helps to keep the prices of various goods stable across the world market. This reduces large, sudden changes in prices.
7. **Prospects for Higher Profit:** Businesses that produce more than their home market needs can sell their extra goods to other countries at better prices, leading to higher profits.
8. **Capacity Utilization:** It allows companies to use their production facilities to their fullest capacity by selling goods and services to a larger global market, rather than just the domestic one.
9. **International Peace:** When countries are involved in international business, they become mutually dependent. This interdependence often leads to stronger diplomatic ties and helps in maintaining peace across the world, even though they remain independent in their internal affairs.
In simple words: International trade helps countries specialize, use resources better, grow their economy, create jobs, improve living standards, stabilize prices, increase profits, use factories fully, and promotes world peace.

🎯 Exam Tip: For a comprehensive answer, remember to cover both economic benefits (like development and resource use) and societal benefits (like living standards and peace).

Question 2. Enumerate the disadvantages of international trade:
Answer: While beneficial, international trade also has several disadvantages:
**Economic Dependence:** International trade can make a country too dependent on foreign imports. If a country does not try to produce goods locally and relies only on imports, it might become economically controlled by the exporting country, potentially even leading to a colonial-like situation.
**Inhibition of Growth of Home Industries:** Importing too many goods without restrictions can hurt local industries. When foreign companies sell many products, it becomes hard for local businesses to compete and grow, sometimes even causing them to shut down.
**Import of Harmful Goods:** International business can lead to the import of expensive luxury items, low-quality fake goods, or even dangerous products. Such imports can negatively affect the well-being and safety of the population.
**Shortage of Essential Goods in Home Country:** Sometimes, countries might export too much of their essential goods to earn foreign money. This can create a shortage of these important items in the home country, forcing local people to buy them at very high prices.
**Misuse of Natural Resources:** Excessive export of rare natural resources can quickly use them up in the exporting countries. This rapid depletion can lead to environmental problems or ecological disasters in the long run.
**Political Exploitation:** International business can make countries economically dependent, which might threaten their political freedom. Large international companies (MNCs) can influence government decisions. Historically, powerful trading nations sometimes colonized other countries after first establishing trade.
**Rivalry among the Nations:** Intense competition to export goods can cause disputes between nations. This can sometimes lead to conflicts or even wars.
**Invasion of Culture:** International business can also bring in foreign cultures. Younger generations might start copying foreign lifestyles, buying things they don't really need, just to fit in with richer parts of society. This can change or even ruin a country's traditional way of life.
In simple words: International trade can lead to a country relying too much on others, stop local businesses from growing, bring in bad products, cause shortages at home, overuse natural resources, lead to political problems, create national rivalries, and change a country's culture.

🎯 Exam Tip: When discussing disadvantages, provide clear examples or brief explanations for each point to show a thorough understanding of the negative impacts.

Question 3. Distinguish between internal and international trade:
Answer: Here is a comparison between internal (domestic) and international business:

🎯 Exam Tip: When comparing, always use clear, distinct points for each category. Using a table helps organize the information effectively for such questions.

11th Commerce Guide International Business Additional Important Questions and Answers

I. Choose the Correct Answer

Question 1. IBRD is also known as ...............
(a) EXIM Bank
(b) World Bank
(c) International Monetary Fund
(d) International Bank
Answer: (b) World Bank
In simple words: The International Bank for Reconstruction and Development (IBRD) is more commonly known as the World Bank, which helps countries with development and reconstruction.

🎯 Exam Tip: Remember the full form of IBRD and its common name, World Bank, as this is a key international financial institution.

Question 2. In due course ............... was replaced by on 1st January 1995.
(a) GATO, WTO
(b) WTO, GATT
(c) GATT, WTO
(d) IMF, GATT
Answer: (c) GATT, WTO
In simple words: The General Agreement on Tariffs and Trade (GATT) was replaced by the World Trade Organization (WTO) at the start of 1995. This change created a stronger body to manage global trade rules.

🎯 Exam Tip: Know the transition from GATT to WTO and the significance of the 1995 date for international trade history.

Question 3. Which of the following is not an Indian Multinational Company?
(a) Unilever
(b) Asian Paints
(c) Wipro
(d) Piramal
Answer: (a) Unilever
In simple words: Unilever is a big global company, but it started in Europe (UK and Netherlands), not India. Asian Paints, Wipro, and Piramal are all Indian companies that operate in many countries.

🎯 Exam Tip: Be familiar with major multinational companies and their origins, especially distinguishing between Indian and foreign-origin MNCs.

Question 4. The first step in the internationalization process is ...............
(a) License
(b) Foreign Investment
(c) Sales
(d) Export
Answer: (a) License
In simple words: Often, the very first step for a company to go international is to license its products or services to a foreign company. This allows them to enter new markets with less risk.

🎯 Exam Tip: Understand the different entry modes for international business and their typical sequence, with licensing often being an initial low-risk strategy.

Question 5. WTO stands for ...............
(a) World Technology Association
(b) World Time Organisation
(c) World Trade Organisation
(d) World Tourism organization
Answer: (c) World Trade Organisation
In simple words: WTO is short for World Trade Organisation, which is a global body that handles trade rules between countries.

🎯 Exam Tip: Always know the full forms of important acronyms related to international organizations like WTO.

II. Very Short Answer Questions

Question 1. What do you mean by Contract Manufacturing (or) Outsourcing?
Answer: Contract manufacturing, also known as outsourcing, is a global business strategy where a company makes an agreement with one or more local manufacturers in other countries. These local companies then produce specific parts or entire goods according to the main company's exact instructions and quality requirements. This helps the main company save costs or access specialized skills abroad.
In simple words: Contract manufacturing means hiring a company in another country to make parts or products for you, following your exact plans. It is also called outsourcing.

🎯 Exam Tip: Emphasize that contract manufacturing involves specific instructions from the primary company and that it's a form of outsourcing production.

Question 2. What is a Joint Venture?
Answer: A joint venture is a business agreement where two or more parties decide to work together to create a new company or project. They typically contribute money (equity shares) and other resources, and then jointly manage and control the new business. They also share the profits, expenses, and assets of this new combined effort. It helps partners share risks and resources.
In simple words: A joint venture is when two or more companies team up to start a new business together, sharing control, money, and profits.

🎯 Exam Tip: For joint ventures, remember the key elements: multiple parties, creation of a *new* entity, shared ownership/control, and shared risks/rewards.

Question 3. What is FDI?
Answer: FDI stands for Foreign Direct Investment. This is an investment made by a company or an individual in one country into business interests in another country. It can involve either setting up completely new business operations (like building a new factory) or buying existing business assets (like purchasing a company or a significant share in it) in the foreign country. FDI aims to establish a lasting interest and control.
In simple words: FDI means when a company or person from one country invests directly in businesses or assets in another country.

🎯 Exam Tip: Clearly define FDI as a direct investment (not just buying shares) from one country into another, aiming for control or significant influence over the foreign business.

Question 4. What do you mean by Licensing?
Answer: Licensing is a formal agreement where one company (the licensor) gives permission to another company (the licensee) in a foreign country to use its factories, secret business knowledge (trade secrets), or technology. In return, the licensee pays a fee, often called a royalty. For example, a global food chain might license its brand and recipes to a local operator in another country. The company giving permission is called the Licensor or Franchisor, and the company receiving the license is called the Licensee or Franchisee.
In simple words: Licensing is when a company lets another company in a different country use its products, brand, or technology for a fee.

🎯 Exam Tip: Explain licensing by detailing what is granted (e.g., intellectual property, technology) and what is received in return (a fee/royalty).

III. Short Answer Questions:

Question 1. What are all the routes of International Business before the 18th century?
Answer: Before the 18th century, international business mainly happened through established trade routes. Some important historical routes included:
1. **Salt Route – India to Egypt:** This route was crucial for trading salt, a valuable commodity in ancient times, between India and Egypt.
2. **Silk Route – China to India:** The Silk Route connected China with India and beyond, facilitating the exchange of silk, spices, and other goods.
3. **Spice Route India to Europe:** This maritime route was vital for carrying precious spices from India to European markets, influencing global trade and exploration. These routes show how early civilizations connected and traded over vast distances.
In simple words: Before the 1700s, international business happened through old trade paths like the Salt Route from India to Egypt, the Silk Route from China to India, and the Spice Route from India to Europe.

🎯 Exam Tip: When listing historical trade routes, remember to specify the key goods traded and the regions connected by each route.

Question 2. Define International Business:
Answer: According to John D. Daniels and Fee IF Rade Baugh, "International business includes all private and government business activities that involve two or more countries." This definition highlights that global business involves both private companies and government bodies working across national borders to conduct various transactions. It is a very broad term covering all commercial interaction between nations.
In simple words: International business, as defined by experts, means all business deals, both private and government, that take place between two or more countries.

🎯 Exam Tip: When quoting a definition, ensure accuracy in the wording and mention the author if specified. Briefly explain the core meaning of the definition.

Question 3. What are all the three ways under which a joint venture can take place?
Answer: A joint venture can be formed in three main ways:
1. **Foreign Investors buying an interest in a local company:** This happens when investors from one country buy a share or part-ownership in an existing company in another country.
2. **Local firm acquiring an interest in the existing foreign firm:** In this case, a company from the home country buys a share or ownership in an already established foreign company.
3. **Both the foreign and local firms jointly forming a new enterprise:** This is a common way where both a foreign company and a local company come together to create a brand new business entity from scratch. These different methods allow flexibility in forming international partnerships.
In simple words: A joint venture can happen when foreign people invest in a local company, a local company invests in a foreign company, or when both foreign and local companies start a new business together.

🎯 Exam Tip: When listing ways a joint venture can occur, differentiate clearly between investing in existing companies (foreign or local) and creating a completely new entity together.

IV. Long Answer Questions

Question 1. What are all the features of International Business?
Answer: International business has several key features:
1. **Multiple Countries:** It always involves business deals between two or more different countries. This makes it more complex than local trade.
2. **Foreign Money:** When countries trade, they use different currencies. So, goods and services are exchanged using foreign money, which requires currency conversion.
3. **Strict Rules:** Foreign trade must follow the export and import rules of all involved countries. Governments must approve these deals, making sure all necessary permissions for goods and services are in place.
4. **High Risks:** International business comes with bigger risks because of things like long shipping distances, changes in currency value, products becoming old quickly, and risks from political issues like sanctions or wars.
5. **Much Paperwork:** There are many official forms and documents that parties in international business need to complete to follow all the rules.
6. **Different Environments:** The economic rules, laws, taxes, and resources vary greatly between countries, which impacts how international business operates. Each country has its own unique economic setup.
In simple words: International business happens between different countries, uses foreign money, and has many rules and risks. It also needs a lot of paperwork because each country has different ways of doing things.

🎯 Exam Tip: When listing features, always try to explain each point briefly to show a deeper understanding, rather than just stating the headings.

Question 2. Explain the Types of International Business?
Answer: International business, based on buying and selling goods and services, is mainly divided into three types:
1. **Export Trade:** This is when a business in one country sells its goods and services to a business in another country. For example, an Indian company selling handicrafts or leather items to other nations is an export trade. It brings goods out of the home country.
2. **Import Trade:** This happens when a business in one country buys goods and services from a business in another country. Importing means bringing foreign products into the home country. For instance, an Indian company buying petroleum or machinery from abroad is import trade.
3. **Entrepot Trade:** This type of trade involves importing goods into a country with the plan to export them again to a third country, often after some processing or repacking. For example, if India imports crude oil from Iran, refines it, and then sells the petroleum to Nepal, this is entrepot trade. It acts as a bridge for trade.
In simple words: International business includes export (selling out), import (buying in), and entrepot trade (buying to sell again). These are the main ways countries trade goods and services with each other.

🎯 Exam Tip: Clearly define each type of trade and provide a simple, relevant example to illustrate the concept. This shows comprehensive understanding.