BBA 3rd Year Basics Of International Trade Short Question Answer BBA Notes Study Material Last 3 Year examination papers Solved Unit Wise Study notes Book Code-604
(Short Answer Questions)
Q.1. Discuss various factors which are responsible for growth in international business.
Ans. The past couple of decades have witnessed significant growth in international business. After World War II, there has been a near continuous and extraordinarily rapid growth in world trade. The value of world exports increased from $61 billion in 1950 to $6,180 billion in 2000. The factors leading to the growth in international business are-to expand sales, to acquire resources, to diversify sources of sales and to minimize competitive risk. These factors would have applied in earlier period also. So, what has happened in recent decades to bring about the increased growth in international business? The answer lies in the points given ahead:
1. Liberalisation of Government Policies on Cross Border Movement of Trade and Resources : Every country restricts the movement of goods and services and resources across its borders. Such restrictions make international business more expensive to undertake. The gradual liberalisation of trade restrictions and quotas, reductions in customs tariffs and the vigorous export promotion activities have also contributed to the growth of international business.
2. Advancement of Technology: The past few decades have witnessed rapid advancement in product and technology. Many firms have merged up with innovated products and improved technology. By increasing the demand for new products and services, technology has tremendous impact on international business. As the demand increases and so is the number of international business transactions increases.
3. Growing Entrepreneurship: Well established business houses like Birlas, Tatas have entered in foreign countries like USA, UK etc. New and dynamic entrepreneurs particularly in information technology and telecommunication have emerged in recent years.
4. Increase in Competition : It is the growing competition that has led to the growth of international business in past few decades. Today companies can respond rapidly to many foreign sales opportunities. With increasing competition, firms have preferred not only to source raw material and intermediate goods from the least cost country that minimizes the cost of operations and reduces the financial risk. The growing concept of cost minimization and risk reduction with a view to surviving in a competitive environment has thus led to rapid growth of internationalisation.
Q.2. What are the basic problems of international trade?
Or Describe the main problems which are faced in international trade. (2014)
Ans. The various problems relating to international business in developing countries are:
1. Tariffs. Ouotas and Trade Barriers : The developed countries are having a number of tariffs and quotas restriction on import of products of special interest to developing countries.
2. Foreign Exchange Rate: Currencies of countries depreciate due to imbalances in the balance of payment, political instability and foreign indebtedness. This, in turn leads to instability in the exchange rates of domestic currencies in terms of foreign currencies.
3. Market Inefficiency : The developing countries market intelligence is far from adequate. WTO/UNCTAD has been trying to help them by carrying out studies for the benefit of developing countries. Still they are not able to match marketing network of Japanese trading companies.
4. Corruption : Corruption has become an international phenomenon. The higher rate bribes and kickbacks discourage the foreign investors to expand their operations.
Technological Pirating : Copying the original technology, producing imitative products, imitating other areas of business operations were common in Japan during 1950s and 1960s. This practice invariably alarms the foreign companies against expansion.
Q.3. Give the importance or gains from international trade.
Ans. The gains from trade for each country would depend upon the rate of exchange or terms of trade. There are various gains which international trade brings to participating countries. However, the three most commonly expressed gains are:
1. It allows countries to import goods which they may be unable to produce themselves, in exchange for those that they can produce. For example, Bangladesh may produce amounts of rice, which they can exchange for more luxurious goods such as chocolate.
2. It allows a country to specialise in the production of goods in which it has some form of advantage — possibly from the natural resources available. It is also important to highlight that the specialisation of production will implicate lowered costs as that particular
country is able to invest the necessary funds for roduction.
3. International trade often results in the total world production level increasing which is beneficial for the world economy as currency values are stimulated.
Q.4. Write a detailed note on turnkey project.
Ans. Turnkey refers to something that is ready for immediate use, generally used in the sale or supply of goods or services. The term is common in the construction industry, for instance, in which it refers to the bundling of materials and labour by sub-contractors. A “turnkey” job by a plumber would include the parts (toilets, tub, faucets, pipes etc.) as well as the plumber’s labour, without any contribution by the general contractors.
In turnkey project, the company contracts with a foreign firm to design and build an entire operation. It is a contract under which a firm agrees to fully design, construct and equip a manufacturing/business/service facility and turn the project over to the purchaser when it is ready for operation for a remuneration. The forms of remuneration includes:
1. A fixed price (firm plans to implement the project below the price).
2. Payment on cost plus profit basis (i.e. total cost incurred plus profit).
International turnkey project includes nuclear power plants, airports, oil refinery, national highways, railway lines.etc. Hence, they are large and multiyear projects. International companies involve in such projects include Bechtel, Brown and Root, Hyundai group etc.
Other example, Fiat motors of Italy constructed an automobile plant in the erstwhile Soviet Union under a turnkey project.
Q.5. What is Foreign Direct Investment (FDI) ? Explain.
Ans. A company which wants to have substantial and long-term interest in the foreign market as to establish fully owned manufacturing facilities abroad. This strategy provides the company omplete control over production and quality.
Foreign Direct Investment (FDI) is an investment made by a transnational corporation to crease its international business. When firms become multinational, they undertake FDL It enerally involves the establishment of new production facilities in foreign countries to earn extra turns. The foreign investment decision results from a complex interaction of factors that differ in any ways from that governing the domestic investment decision. Foreign investment is generally otivated by a complex set of strategic, behavioural and economic and financial considerations. The olution process of foreign investments is generally longer, more costly, less accurate and involves re political and foreign exchange risks.
The IMF (International Monetary Fund) defines foreign direct investment as FDI when the investor holds 10% or more of the equity of an enterprise. Foreign investment has been a majo factor in stimulating economic growth and de stimulating economic growth and development in recent times. The contribution that muinational corporations can make as agents of growth, structural change and international integration has made FDI a coveted tool of economic development. FDI is one of the most source of capital. FDI links the host economy with the global markets and fosters economic growth.
Foreign direct investment may be in the form of new plant or in the form of acqua his strategy however requires sufficient financial and managerial resources. Some atries do not permit fully owned enterprises. There may also be problems such as restrictions on technology, non-availability of skilled labour, lack of infrastructure, small size of the market, political risks etc.