Important Questions for CBSE Class 11 Business Studies Chapter 11 - International Business

Very Short Answer Questions (1 or 2 Marks)

1. By using which mode of entry, does the domestic manufacturer give the right to use its trademark to a manufacturer in a foreign country for a fee?

Ans: Licensing is defined as a contractual arrangement in which one firm (licensor) grants access to its patents, copyrights, trademarks, or technology to another firm in a foreign country for a fee called royalty.

2. Name the term when two businesses mutually agree to share each other trade secrets and technology?

Ans: There is a mutual exchange of knowledge, technology, and/or patents between the firms in the case of cross-licensing.

3. Write a common point between licensing and franchising?

Ans: A common point between licensing and franchising is to make use of the licensor’s/ franchisor's copyrights, patents, and brand names.

4. Whose objective was to reconstruct the war of defeated and underdeveloped countries?

Ans: The Bretton Woods Conference led to the formation of the International Bank for Reconstruction and Development (IBRD), which is also referred to as the World Bank. The main goals were to aid in the reconstruction of Europe's war-torn economies and to aid in the development of the world's disadvantaged nations.

5. State any two necessary documents required in connection with an import transaction.

Ans: Commercial invoice, bill of lading/airway bill are documents required in connection with an import transaction.

6. What is a shipping bill?

Ans: The main document on which the customs office grants export permission is the shipping bill. It is prepared by exporter.

7. What is IEC number?

Ans: IEC Number is Import Export Code Number which is obtained from the Directorate General Foreign Trade (DGFT) or Regional Import Export Licensing Authority. It is a prerequisite to obtaining an export license.

8. XYZ Co. (USA) acquires another company R. Ltd. situated at Geneva by investing 100% in its equity. What will be the R. Ltd. Co. called?

Ans: R. ltd will be called a wholly-owned subsidiary of XYZ Co. This entry mode of international business is preferred by those companies which want to exercise full control over their overseas operations.

9. Identify the mode of entry into an international business when an Indian Company enters into a contract with local manufacturers in foreign countries to get certain components as per its specifications.

Ans: Contract manufacturing is a type of business where a firm or company enters into a contract with one or a few local manufacturers in foreign countries to get goods produced as per the requirement.

10. Name the document containing the guarantee of a bank to honour drafts drawn on it by an exporter’s bank.

Ans: A letter of credit is a guarantee issued by the importer's bank that it will honour payment of export invoices to the exporter's bank up to a specific amount.

11. Who is C&F agent?

Ans: C&F Agent is a Clearing and forwarding agent who is engaged in providing services, directly or indirectly, concerned with clearing and forwarding operations in any manner to any other person and includes a consignment agent. 

The C&F agent surrenders the mates' receipt to the shipping company for computation of freight.

Short Answer Questions (3 or 4 Marks)

1. Differentiate between the contract manufacturing and setting up wholly owned production subsidiary abroad.

Ans: The difference between contract manufacturing and setting up wholly owned production subsidiary is as follows: 

2. It is not just a sale of a trademark for a fee; also it abides the purchaser to follow strictly the rules of serving. Which mode of entry is this? Discuss any two limitations of it.

Ans: Licensing is defined as a contractual arrangement in which one firm (licensor) grants access to its patents, copyrights, trademarks, or technology to another firm in a foreign country for a fee called royalty.

Limitations

• The major risk is that the licensee can start marketing an identical product under a slightly different brand name. If not taken care of, the trade secrets can be passed on to the foreign markets.

• Conflicts over maintenance of accounts, payments of royalty, and non-adherence to norms relating to production of quality products.

3. What is the objective of WTO? What are its benefits?

Ans: Objectives of WTO are as follows:

Objectives

• To ensure that tariffs and other trade barriers imposed by different countries are reduced.

• To engage in activities that improve living standards, create jobs,

• Increase income and effective demand, and facilitate increased production and trade; 

• To facilitate the most efficient use of the world's resources for sustainable development.

• To promote a more integrated, viable, and long lasting trade system.

Benefits

• Aids in the promotion of international peace and the facilitation of international trade.

• All member-nation conflicts are resolved by mutual talks. 

• International trade and ties are made much easier and more predictable by rules.

• Free trade raises people's living standards by raising their income levels.

• Free trade allows for a wide range of high-quality products to be obtained. 

• Because of free trade, economic growth has accelerated.

• The system promotes effective government.

• The World Trade Organization (WTO) aids in the development of poorer countries.

4. Write notes on Bill of lading, Bills of entry, Shipping advice.

Ans:  The explanations are:

• Bill of Lading: The shipping company issues a bill of lading after receiving the freight, which acts as proof that the goods have been accepted for transport to the specified destination. This document is referred to as an airway bill when goods are being shipped by air.

• Bill of Entry: The bill of entry is presented to the port authority by the importer or his representative. The port authority issues the release order after obtaining the relevant charges. It is prepared by a qualified custom clerk or broker, and is examined by the customs authorities for its accuracy and conformity with the tariff and regulation.

• Shipping advice: It is a commercial document which is issued by the exporter, who is the beneficiary of the letter of credit, in order to give shipment details to the importer who has applied for the letter of credit.

5. Give the difference between Internal trade and International trade.

Ans: The difference between Internal trade and International trade is as follows:

6. State the reasons to have international business?

Ans: Reason for international Business

• Unequal Distribution of Natural Resources: Countries cannot manufacture the same level of quality and at the same cost. This is due to the unequal distribution of natural resources and differences in productivity levels among different geographical places.

• Varied Differences: There is a disparity between labour productivity and manufacturing costs. Because of varied socioeconomic, geographical, and political factors, it varies in each country.

• Specialization Advantage: The principle of territorial division of labour can be applied internationally as well. Most developing countries with plenty of labour, for example, specialise in producing and exporting clothing.

• Price Differences: Firms also engage in the export and import of goods due to the difference in prices of products. They import cheaper things from other countries and export goods to other countries where they can fetch better prices for their products.

7. China is a major producer of electronic goods at very low cost as compared to India. Discuss the benefits that India will derive if it enters into a trade agreement with China for electronic goods.

Ans: Benefits to India if it enters into a trade agreement with China are as follows:

• Foreign exchange: International business facilitates foreign exchange within a country that aids in the payment of imported goods expenses, hence India’s foreign exchange would flourish with this trade agreement. 

• Efficient use of resources: Every country is specialised in the production of goods and services, leading to efficient utilisation of resources. 

• Growth: Exporting and flourishing in international trade helps in improving the economic growth of the country and creates opportunities for employment of people. Hence, India’s growth prospects would increase as a result of trade agreement.

• Stability: It also helps in bringing stability in the prices of domestic products of India.

• Better living standards: Due to International business, people in India would be able to consume and enjoy a higher standard of living.

8. List the formalities involved in getting an export license.

Ans: Prerequisites for getting an export license:

• Opening a bank account with any bank that has been approved by the Reserve Bank of India;

• Getting an Import Export Code (IEC) from the Directorate General of Foreign Trade (DGFT) or a Regional Import Export Licensing Authority;

• Creating an account with the right export promotion council. 

• To protect against non-payment risks, you should register with the Export Credit and Guarantee Corporation (ECGC).

• A company must submit an exporter/importer profile, a bank receipt for the required fee, a certificate from the banker, two copies of photographs attested by the banker, details of non-resident interest, and a declaration about the application to obtain an IEC number to the Director General for Foreign Trade (DGFT).

• It is a legal requirement for all exporters to register with the proper export promotion council.

• To secure international payments from political and commercial interference, you must register with the ECGC.

9. Explain the following documents used in International trade:

 (i) Mate’s Receipt.

Ans: A mate receipt is a 

• Receipt that is provided by the ship's commanding officer when the cargo is loaded on board. 

• The receipt contains information such as the vessel's name, berth, date of shipping, package description, marks and numbers, cargo condition at the moment of receipt on board the ship, and so on.

• The port superintendent gives the C&F agent the mate's receipt after receiving the port dues.

(ii) Letter of credit.

Ans: A letter of credit is a guarantee issued by the importer's bank that it will honour payment of export invoices to the exporter's bank up to a specific amount. A  letter of credit is asked from the importer to reduce the extent of risk. The importer should get the letter of credit from its bank and send it to the overseas supplier.

(iii) Certificate of origin.

Ans: To avail the   trade  concessions  and  other  benefits,  the  importer  has to  ask  the  exporter  to send  a  certificate  of  origin. The certificate of origin issued by the importer acts as a proof that the goods are manufactured in the country from where the export is taking place.

10. List the codal formalities to obtain IEC No.

Ans: For obtaining the IEC number, a firm has to apply to the Director General for Foreign Trade (DGFT) with documents such as:

• Exporter/importer profile

• Bank receipt for requisite fee

• Certificate from the banker on the prescribed form

• Two banker-attested copies of photos

• Details of the non-resident interest

• Statement of the applicant's non-association with the businesses on the caution list

Long Answer Questions (5 or 6 Marks)

1. What is WTO? Write its objectives and Functions?

Ans: One of the key achievements of GATT negotiations was the decision to set up a permanent institution for looking after the promotion of free and fair trade amongst nations. The GATT was transformed into the World Trade Organization (WTO) with effect from 1 January 1995. Its headquarters are in Geneva, Switzerland. 

It regulates not just products but also services and intellectual property rights. It is, moreover, a member-driven rule-based organization in the sense that all the decisions are taken by the member governments on the basis of a general consensus. India is the founding member of the World Trade Organisation.

Objectives

• To ensure that tariffs and other trade barriers imposed by different countries are reduced.

• To engage in activities that improve living standards, create jobs,

• Increase income and effective demand, and facilitate increased production and trade; 

• To facilitate the most efficient use of the world's resources for sustainable development.

• To promote a more integrated, viable, and long lasting trade system.

Functions

• Establishing a commonly accepted code of behaviour with the goal of reducing trade obstacles, such as tariffs, and eradicating discrimination in international trade relations by encouraging its member countries to come forward to the WTO to resolve their problems.

• Acting as a dispute resolution body.

• Ensuring that all of the Act's rules and regulations are obeyed.

• Holding consultations to improve understanding and cooperation in global economic policymaking.

2. In what ways exporting/importing is better than setting up wholly owned subsidiaries abroad.

Ans: Exporting/Importing: Exporting refers to sending of goods and services from the home country to a foreign country. Whereas, Importing is defined as the purchase of foreign products and bringing them into one's home country.

Wholly Owned Subsidiary: Those companies which want to exercise full control over their overseas operations, set up a wholly owned subsidiary in an overseas country.

Benefits of Exporting/Importing over Wholly Owned Subsidiary:

• Ease of entry: Exporting is the easiest way of gaining entry into international markets as compared with wholly-owned subsidiaries.

• Investment: Business firms are not required to invest that much time and money in exporting whereas in the case of wholly-owned subsidiaries, it is not suitable for small and medium size firms as they do not have enough funds with them to invest abroad.

• Risk: Because exporting and importing do not necessitate a large amount of foreign investment, the risk of foreign investment is negligible or very low.  In the case of wholly owned subsidiaries, they face greater political risks and are responsible for all damages resulting from the failure of their international activities.

• Government Interference: There are high political risks in the case of wholly owned subsidiaries as against exporting.

• Profit/Loss Risk: 100% equity is invested in case of wholly owned subsidiaries, making it riskier in comparison to exporting/importing.

• Complexity: The degree of complexity is higher in case of wholly owned subsidiaries as compared to exporting/importing.

3. ABS Garment Company has received an order to export 2000 men’s trouser to XYZ Imports Ltd. located in Australia. Discuss the procedure that abs would need to go through for executing the export order.

Ans: ABS should follow the export procedure given below:

1. Receipt  of  enquiry  and  sending  quotation

• Exporters can be notified of a request for information even if the importer places an advertisement in the press.

• The exporter responds to the inquiry with a quotation, often known as a proforma invoice.

• The proforma invoice comprises information about the price at which the exporter is willing to sell the goods, as well as information about the quality, grade, size, weight, mode of delivery, packing type, and payment terms.

2. Receipt  of  order  or  indent 

• It sets an order for the items to be sent if the export price and other terms and conditions are acceptable.

• Also referred to as indent, contains  the details of the goods ordered, and other information in respect to price, delivery, packing, marking etc.

3. Determining the creditworthiness of the importer and obtaining a payment guarantee

• The importer's creditworthiness is investigated by the exporter.

• A  letter of credit is asked from the importer to reduce the extent of risk. 

• A letter of credit is a guarantee issued by the importer's bank that it will honour payment of export invoices to the exporter's bank up to a specific amount.

4. Obtaining  export  licence 

• In India, exporting commodities is governed by customs laws, which require that an export firm obtain an export licence before proceeding with exports.

• Prerequisites  for  getting  an  export  licence: 

• Opening a bank account with any bank that has been approved by the Reserve Bank of India;

• Getting an Import Export Code (IEC) from the Directorate General of Foreign Trade (DGFT) or a Regional Import Export Licensing Authority;

• Creating an account with the right export promotion council. 

• To protect against non-payment risks, you should register with the Export Credit and Guarantee Corporation (ECGC).

• A company must submit an exporter/importer profile, a bank receipt for the required fee, a certificate from the banker on the prescribed form, two copies of photographs attested by the banker, details of non-resident interest, and a declaration about the application to obtain an IEC number to the Director General for Foreign Trade (DGFT).

• It is a legal requirement for all exporters to register with the proper export promotion council.

• To secure international payments from political and commercial interference, you must register with the ECGC.

5. Obtaining  pre-shipment  finance 

• To begin pre-production, the exporter asks his banker for pre-shipment financing.

• Pre-shipment finance is the funding required by an exporter to purchase raw materials and other components, process items, and transport goods to the port of shipment.

6. Production or procurement of goods

• The exporter then gets the goods ready according to the importer's specifications.

• Either the company produces the commodities itself or it purchases them from the market.

7. Pre-shipment Inspection

• Inspection of some products by a competent agency recognised by the government is required.

• For this aim, the government created the Export Quality Control and Inspection Function in 1963 and authorised specific entities to act as inspection agencies.

• At the time of export, the pre-shipment inspection report is required to be submitted along with other export paperwork.

8. Excise Clearance

• The materials used to make the items are subject to excise duty.

• The exporter must submit an invoice to the relevant Excise Commissioner in the region.

• The Excise Commissioner issues the Excise clearance if he is satisfied with the invoice.

• The refund of an excise duty is known as a duty drawback.

• This scheme of duty drawback is administered by the Directorate of drawback under the ministry of finance which fixes the rates of drawback for different products.

9. Obtaining certificate of origin

• To avail the   trade  concessions  and  other  benefits,  the  importer  has to  ask  the  exporter  to send  a  certificate  of  origin.

• The certificate of origin issued by the importer acts as a proof that the goods are manufactured in the country from where the export is taking place.

10. Reservation of shipping space

• The exporting company submits a request for shipping space to the shipping company. 

• It must specify the types of commodities to be exported, the expected shipment date, and the final destination port. 

• The shipping business issues a shipping order after accepting the application for shipping.

11. Packing and forwarding

• The items are then properly packed and labelled with relevant information such as the importer's name and address, gross and net weight, shipping port and destination, country of origin, and so on.

• The exporter then arranges for the transportation of the goods to the port.

• The railway authorities issue a "railway receipt" when commodities are loaded into a railway waggon, which serves as a title to the items.

• To enable his agent to take delivery of goods at the port of shipping, the exporter endorses the railway receipt in his favour.

12. Insurance of goods

• During transit, items are covered for loss with an insurance company to safeguard against the danger of loss or damage due to the perils of the sea.

13. Custom clearance

• Before the products can be loaded into the ship, they must first be cleared from customs.

• The exporter prepares the shipping bill in order to gain custom clearance.

• The main document on which the customs office grants export permission is the shipping bill.

• Five copies of the shipping bill are subsequently presented to the Customs Appraiser at the Customs House, together with the following documents:

• Export Contract or Export Order

• Letter of Credit

• Commercial Invoice

• Certificate of Origin

• Certificate of Inspection

• Marine Insurance Policy 

• Following the submission of these documents, the Superintendent of the relevant port trust is contacted to acquire a carting order. 

• The command to the workers at the port's gate to allow the goods to enter the dock is known as a carting order.

14. Obtaining mates receipt

• A mate receipt is a receipt that is provided by the ship's commanding officer when the cargo is loaded on board. 

• The receipt contains information such as the vessel's name, berth, date of shipping, package description, marks and numbers, cargo condition at the moment of receipt on board the ship, and so on.

• The port superintendent gives the C&F agent the mate's receipt after receiving the port dues.

15. Payment of freight and bill of lading

• The C&F agent hands along the mate's receipt to the shipping business for freight calculation.

• The shipping company issues a bill of lading after receiving the freight, which acts as proof that the goods have been accepted for transport to the specified destination.

• This document is referred to as an airway bill when goods are being shipped by air.

16. Preparation of invoice 

• The invoice specifies the quantity of products shipped as well as the money due from the importer. 

• The C&F representative arranges for it to be duly authenticated by customs.

17. Securing payment

• The importer will require a variety of documentation in order to claim ownership of goods upon their arrival in his or her nation and get them customs cleared.

• In this case, a certified copy of the invoice, a bill of lading, a packing list, an insurance policy, a certificate of origin, and a letter of credit is needed.

• The submission of necessary documents to the bank for the purpose of receiving payment from the bank is referred to as "document negotiation."

• When the bill of exchange is received, the importer either releases the money in the event of a sight draught or accepts the usance draught for payment on the bill of exchange's maturity date. 

• The payment is collected by the exporter's bank through the importer's bank and credited to the exporter's account. 

• The exporter can receive immediate payment from his/her bank upon submission of documentation by signing a letter of indemnity.

4. What is the World Bank? Discuss the various objectives and role of its affiliated agencies.

Ans: The Bretton Woods Conference led to the formation of the International Bank for Reconstruction and Development (IBRD), which is also referred to as the World Bank.

• The main goals were to aid in the reconstruction of Europe's war-torn economies and to aid in the development of the world's disadvantaged nations.

• After achieving success, it shifted its focus to the development of undeveloped countries.

• It realised that by investing more in these countries, particularly in social sectors such as health and education, it might help them achieve the requisite social and economic transformation.

Objectives and role of its affiliated agencies:

• The International Development Association (IDA): The International Development Association (IDA), an affiliate of the World Bank was established with the goal of providing loans on favourable terms and circumstances to countries with per capita incomes below a crucial level. IDA thus offers poor countries with interest-free long-term loans. 

• The International Finance Corporation: The International Finance Corporation, or IFC, was established in 1956 as a separate legal body with the mission of providing financing to the private sector in developing countries. Despite being a World Bank affiliate, the IFC has its own funds and functions that are controlled independently. 

• MIGA (Multinational Investment Guarantee Agency): MIGA, or the Multinational Investment Guarantee Agency, was founded in April 1988 with the goal of stimulating foreign direct investment in developing countries. It also provides advising services and insures investors against political and noncommercial hazards.

5. What is IMF? Write its objective and functions.

Ans: The IMF was established with the primary goal of developing an orderly international monetary system, which includes facilitating international payments and adjusting exchange rates between national currencies.

Objectives

• Facilitate the expansion of balanced international commerce and contribute to the promotion, maintenance of a high level of employment through the establishment of a permanent institution.

• Assist in the construction of a multilateral system of payments for current transactions between members to enhance exchange stability and preserve orderly exchange arrangements among member nations.

Functions

• Acting as a short-term credit institution.

• Providing machinery for the orderly adjustment of exchange rates Acting as a short-term credit institution.

• Provision of necessary facilities to ensure that the exchange rates are adjusted timely and orderly

• Acting as a repository for all member countries' currencies.

• Acting as a foreign currency and current transaction lending institution Determining the value of a country's currency and altering it.

• Providing machinery for international consultations.

6. What incentives and schemes are provided by government for country export?

Ans:  The following are schemes and measures of promotion foreign trade:

1. Duty drawback scheme 

• Duties paid on export products are repaid to exporters upon presentation of proof of these commodities' exports to the appropriate authorities. Duty drawbacks are the term for such returns.

• Refund of excise duties paid on items intended for export, as well as refund of customs duties paid on raw materials and machines imported for export manufacturing, are some of the key duty drawbacks. The latter is also referred to as a "customs drawback."

2. Export manufacturing under bond schemes

• This facility allows businesses to make goods without having to pay excise and other taxes.

• Firms wishing to use this service must provide an assurance (i.e., a bond) that they are making items for export.

3. Exemption from payment of sales taxes

• Sales tax does not apply to goods intended for export.

• For certain years, this benefit of income tax exemption is only available to 100% Export Oriented Units (100% EOUs) and units established in Export Processing Zones (EPZs)/Special Economic Zones (SEZs).

4. Advance license scheme

• The exporter is permitted duty-free access to domestic and imported inputs for the production of export goods.

• As a result, the exporter is exempt from paying customs tax on goods imported for the purpose of making export goods.

• Advance licences are accessible to both regular and irregular exporters.

5. Export Promotion Capital Goods Scheme (EPCG)

• Allows export enterprises to import capital goods with no or low customs taxes, subject to real user conditions and the fulfilment of specific export obligations.

• This scheme is especially useful to industrial units looking to modernise and upgrade their existing plant and machinery.

6. Scheme of recognising the export firms and trading houses. 

• The government provides the designation of Export House to a firm that has achieved a stipulated average export performance in previous select years, with the goal of promoting established exporters and assisting them in marketing their products in foreign markets. 

• Apart from achieving a minimum of previous average export performance, such export enterprises must also meet other requirements outlined in the import-export policy.

7. Export of services

• The goal is to increase service exports.

• The service houses are set up and awarded based on the service providers' export performance.

• Service Export House, International Service Export House, and International Star Service Export House are some of the terms used to describe them.

8. Export finance

• Exporters require funds to manufacture their goods.

• Authorized banks make two types of export financing available to exporters.

• Pre-shipment finance: Also known as packing credit is money given to an exporter to help them finance the acquisition, processing, manufacturing, or packaging of products for export.

• Post-shipment finance: Under this plan, funds are made available to the exporter from the time the loan is extended until the items are delivered to the destination country.

9. Export processing zones

• Export Processing Zones are industrial estates that emerge from the Domestic Tariff Areas (DTA) to form enclaves .

• They're generally found around airports or ports.

• They're designed to provide a low-cost, internationally competitive duty-free environment for export production.

• EPZs have recently been upgraded to Special Economic Zones (SEZs), which are a more advanced version of export processing zones. All laws and regulations controlling imports and exports are waived in these SEZs.

10. 100 percent Export Oriented Units (100 percent EOUs)

• EOUs were created with the goal of increasing export production capacity by providing an adequate policy framework, operational flexibility, and incentives.

• It follows the same production process as before, but it gives you more options for where you want to make your product.

7. Identify the documents highlighted in the following statements:

(i) This document is issued by the commanding officer of the ship to the exporter after cargo is loaded on the ship.

Ans: Mate receipt: It is a receipt provided by the ship's commanding officer when the cargo is loaded on board, and it contains information such as the vessel's name, berth, date of shipping, package description, marks and numbers, cargo condition at the moment of receipt on board the ship, and so on.

(ii) This document is prepared by shipping company to acknowledge the receipt of goods on ship and gives an undertaking to carry them to the port of destination.

Ans: Bill of lading: After receipt of the freight, the shipping company issues a bill of lading which serves as an evidence that the shipping company has accepted the goods for carrying to the designated destination.

(iii) This document is the most appropriate and secure method of payment to settle international transactions.

Ans: Bill of exchange: When the bill of exchange is received, the importer either releases the money in the event of a sight draught or accepts the usance draught for payment on the bill of exchange's maturity date. The money is received by the exporter's bank via the importer's bank and credited to the exporter's account. By signing a letter of indemnity, the exporter might receive quick money from his or her bank upon submission of paperwork.

(iv) On the basis of this document, the customs office grants permission for the export.

Ans: Shipping bill: It is the main document on the basis of which the customs office permits to export.The exporter prepares the shipping bill in order to gain custom clearance.

(v) This document is prepared by the importer and it shows the details of goods imported.

Ans: Import order: This document is generated by the importer and contains the following information on the products imported: The import order includes information on the price, amount, size, grade, and quality of the items ordered, as well as packing, shipping, ports of shipment and destination, delivery date, insurance, and payment methods.

(vi) On the basis of this document imported goods are unloaded from the carrier. 

Ans: Import manifest:  Imported items are unloaded from the container using this document:He supplies an import general manifest paper. An import general manifest is a document that contains information on the products being imported.

8. Mr. Manchanda is a business man in Gurgaon he manufactures scooters. His son after doing an MBA in the USA returns to India and suggests that they should set up a fully owned factory in Bangkok for supplying to customers in the South East Area and Middle East. Mr. Manchanda however does not agree to his proposal and wants to set this unit in South India. They are having a debate on this. In your opinion with whom you agree. Give reasons to support your answer.

Ans: I would agree to set up a wholly-owned factory i.e. wholly-owned subsidiary in Bangkok for supplying customers in the South East area and the Middle East area.

Companies that desire complete control over their overseas activities prefer a wholly owned subsidiary as an entrance route into international company.

It can be determined in two ways:

• Setting up a new firm.

• Acquiring an already settled and established firm in the foreign country and further using it to manufacture as well as promote the products within the host country. This allows it to maintain complete control over the company's activities. 

Benefits of doing business Internationally are:

• Cost of transportation from India will be reduced by setting up a production plant overseas.

• It will make the Manchadas more closer and nearer to their overseas customers.

• Business firms can earn more profits by selling their products in countries with high pricing when local prices are lower.

• The company can exercise full control over its operations.

• Making use of excess production capacity in order to increase operational profitability.

• When demand in the home country dries up, the corporation might look to developing countries for expansion opportunities.

• When domestic market competition is fierce, internationalisation appears to be the only way to grow significantly.

• The desire to become more international stems from a want to expand, a desire to become more competitive, a desire to diversify, and a desire to reap the strategic benefits of internationalisation.