INTERNATIONAL BUSINESS
International business comprises all commercial transactions
(private and governmental, sales, investments, logistics, and transportation)
that take place between two or more regions, countries and nations beyond their
political boundaries. Usually, private companies undertake transactions for
profit; governments undertake them for profit and for political reasons. The
term "international business" refers to all those business activities
which involve cross-border transactions of goods, services, resources between
two or more nations. Transactions of economic resources include capital,
skills, people etc. for international production of physical goods and services
such as finance, banking, insurance, construction etc.
A multinational enterprise (MNE) is a company that has a
worldwide approach to markets and production or one with operations in several
countries.Well-known MNEs include fast-food companies such as McDonald's and
Yum Brands, vehicle manufacturers such as General Motors, Ford Motor Company
and Toyota, consumer-electronics producers like Samsung, LG and Sony, and
energy companies such as ExxonMobil, Shell and BP. As shown, multinational
enterprises can make business in different types of market.
Areas of study within this topic include differences in
legal systems, political systems, economic policy, language, accounting
standards, labor standards, living standards, environmental standards, local
culture, corporate culture, foreign-exchange market, tariffs, import and export
regulations, trade agreements, climate, education and many more topics. Each of
these factors may require changes in how individual business units operate from
one country to the next.
TYPES OF OPERATIONS
Exports and imports of merchandise:
Service exports and imports
Merchandise exports: goods exported, not including services.
Merchandise imports: The import goods are the ones brought
into a country.
Service exports and imports are no product purchasing. It
only about services. Services exports and imports can be divided into three
most important categories
"Tourism and transportation, service performance, asset
use".
Exports and Imports of products, goods or services are
usually a country’s most important international economic transactions.
IMPORTS
"Imports" consist of transactions in goods and
services to a resident of a jurisdiction (such as a nation) from non-residents.
The exact definition of imports in national accounts includes and excludes
specific "borderline" cases. A general delimitation of imports in
national accounts is given below:
An import of a good occurs when there is a change of
ownership from a non-resident to a resident; this does not necessarily imply
that the good in question physically crosses the frontier. However, in specific
cases national accounts impute changes of ownership even though in legal terms
no change of ownership takes place (e.g. cross border financial leasing, cross
border deliveries between affiliates of the same enterprise, goods crossing the
border for significant processing to order or repair). Also smuggled goods must
be included in the import measurement.
Imports of services consist of all services rendered by
non-residents to residents. In national accounts any direct purchases by
residents outside the economic territory of a country are recorded as imports
of services; therefore all expenditure by tourists in the economic territory of
another country are considered part of the imports of services. Also
international flows of illegal services must be included.
Basic trade statistics often differ in terms of definition
and coverage from the requirements in the national accounts:
Data on international trade in goods are mostly obtained
through declarations to custom services. If a country applies the general trade
system, all goods entering the country are recorded as imports. If the special
trade system (e.g. extra-EU trade statistics) is applied goods which are
received into customs warehouses are not recorded in external trade statistics
unless they subsequently go into free circulation of the importing country.
A special case is the intra-EU trade statistics. Since goods
move freely between the member states of the EU without customs controls,
statistics on trade in goods between the member states must be obtained through
surveys. To reduce the statistical burden on the respondents small scale
traders are excluded from the reporting obligation.
Statistical recording of trade in services is based on
declarations by banks to their central banks or by surveys of the main
operators. In a globalized economy where services can be rendered via
electronic means (e.g. internet) the related international flows of services
are difficult to identify.
Basic statistics on international trade normally do not
record smuggled goods or international flows of illegal services. A small
fraction of the smuggled goods and illegal services may nevertheless be
included in official trade statistics through dummy shipments or dummy
declarations that serve to conceal the illegal nature of the activities.
EXPORT
The term export means shipping in the goods and services out
of the jurisdiction of a country. The seller of such goods and services is
referred to as an "exporter" and is based in the country of export
whereas the overseas based buyer is referred to as an "importer". In
international trade, "exports" refers to selling goods and services
produced in the home country to other markets.
Export of commercial quantities of goods normally requires
involvement of the customs authorities in both the country of export and the
country of import. The advent of small trades over the internet such as through
Amazon and eBay have largely bypassed the involvement of Customs in many
countries because of the low individual values of these trades. Nonetheless, these small exports are still subject to legal
restrictions applied by the country of export. An export's counterpart is an
import.
LIST OF DOCUMENTATION NEEDED IN EXPORT BUSINESS
Commercial Documents:
1. Commercial Invoice:
This is the first basic and the only complete document in an
export transaction. It is, in fact, a document of contents containing
information about goods. Harmonized System Nomenclature (HSN), price charged,
the terms of shipment and marks and numbers on the packages containing the
merchandise.
The exporter needs this document for other purposes also
such as:
(i) Obtaining export inspection certificate
(ii) Getting excise clearance
(iii) Getting customs clearance and
(iv) Securing such incentives as cash compensatory support
(CCS) and import license.
This document is prepared at both the pre-shipment and
post-shipment stages.
Besides commercial invoice, there is a proforma invoice
also. It is a temporary commercial invoice which is sent by the exporter to the
importer. It covers contemplated shipment which may or may not be made in
future.
The importer requires this document for obtaining an import
license and opening a letter of credit in favour of the exporter. With such
obvious importance of proforma invoice, the exporter should cultivate a habit
of sending proforma invoice to the importer, even if the same is not demanded.
2. Bill of Lading:
Bill of lading (B/L) is a document which is issued by the
shipping company acknowledging that the goods mentioned therein are either
being shipped or have been shipped. This is also an undertaking that the goods
in like order and condition as received will be delivered to the consignee,
provided that the freight specified therein has been duly paid.
Bill of lading serves three distinct functions:
(i) It is an evidence of the contract of affreightment
(transport).
(ii) It is a receipt given by the shipping company for cargo
received by it.
(iii) It is a document of title to the goods shipped.
The bill of lading gives the details about the exporter,
carrying vessel, goods shipped, port of shipment, destination, consignee and
the party to be notified on arrival of the goods at destination. Bill of
ladings is made the sets.
3. Airway Bill:
In air carriage, the transport document is known as the
airway bill. This document performs three functions of a forwarding note for
the goods, receipt for the goods tendered, and authority to obtain delivery of
goods. Since it is non-negotiable, so it does not carry the same validity as a
bill of lading for sea transport carries.
4. Bill of Exchange (B/E):
Bill of exchange is an instrument or draft used for the
payment in international / export business. It is an instrument in writing containing
an unconditional order, signed by the marker, directing a certain person to pay
a certain sum of money only to or to the order of a person or to the bearer of
the instrument. The person to whom the bill of exchange is addressed is to pay
either on demand or at a fixed or a determinable future.
There are three parties involved in a bill of exchange:
(i) The Drawer (Exporter):
The person who makes and executes the B/E or say, the person
to whom payment is due.
(ii) The Drawee (Importer):
The person on whom the B/E is drawn and who is required to
meet the terms of the document.
(iii) The Payee (Exporter or Exporter’s Bank):
The party to receive the payment.
5. Letter of Credit:
It is a written instrument issued by the buyer’s
(importer’s) bank, authorising the seller (exporter) to draw in accordance with
certain terms and stipulating in a legal form that all such bills (drafts) will
be honoured. Letter of credit provides the exporter with more security than
open accounts or bills of exchange.
A commercial letter of credit involves the following three
parties:
(i) The opener or importer – the buyer who opens the credit
(ii) The issuer – the bank that issues the letter of credit.
(iii) The beneficiary – the seller in whose favour the
credit is opened.
Based on differing conditions, letters of credit may be of
the following types:
(a) Revocable and Irrevocable:
In case of revocable letter of credit, the buyer or issuer
can cancel or change an obligation at any time prior to payment without prior
notice to the exporter or seller. When the letter is irrevocable, the buyer
cannot cancel or change obligation without the exporter’s permission.
(b) Confirmed and Unconfirmed:
In case of confirmed letter of credit, the payment is
guaranteed by the issuing bank. When the letter is unconfirmed, no such
guarantee is given by the bank.
(c) With and Without Recourse:
With recourse means if the buyer fails to pay the bank after
a specified period, the bank can have recourse on the exporter. There is no
such provision in the letter of credit without recourse.
Regulatory Documents:
1. Legal Documents for Export from India:
There are two types of regulatory documents:
(i) Documents needed for registration, and
(ii) Documents needed for shipment.
The first category documents include applications and other
supporting documents for obtaining:
(i) Code number from the Reserve Bank of India (RBI),
(ii) Importers and exporters’ code numbers from the Chief
Controller of Imports and Exports,
(iii) Registration-cum-membership certificate (RCMC), etc.
The documents needed for shipment of goods include the
following:
(i) GR Form:
It is required to be filled in duplicate for all exports
other than by post. Both of the copies have to be submitted to the customs
authorities at the port of shipment. They will retain the original copy to be
sent to the Reserve Bank of India directly.
They will return the duplicate copy which is submitted to
the negotiating bank along with other documents after shipment of goods. The
negotiating bank sends the duplicate copy to the RBI after the export proceeds
have been realised.
(ii) PP Form:
Exports to all countries by parcel post (PP), except when
made on ‘value payable’ or ‘cash on delivery’ basis should be declared on PP
forms.
(iii) VP/COD Form:
It is required to be filled in one copy for exports to all
countries by post parcel under arrangements to realise proceeds through postal
channels on ‘value payable’ or ‘cash on delivery’ basis.
(iv) EP Form:
Shipment to Afghanistan and Pakistan other than by post
should be declared on EP forms.
(v) SOFTEX Form:
It is required to be prepared in triplicate for export of
computer software in non-physical form.
2. Shipping Bill:
The shipping bill is the main document on the basis of which
the custom’s permission for export is given. Post parcel consignment requires
customs declaration form to be filled in. There are three types of shipping
bills available with the customs authorities.
These are:
(i) Free Shipping Bill:
It is used for export of goods for which there is no export
duty.
(ii) Dutiable Shipping Bill:
Printed on yellow paper, it is used in case of goods which
are subject to export duty/cess.
(iii) Drawback Shipping Bill:
It is usually printed on green paper and is used for export
of goods entitled to duty drawback.
3. Marine Insurance Policy:
It is the basic instrument in marine insurance. A marine
policy is a contract and a legal document which serves as evidence of the
agreement between the insurer and the assured. The policy must be produced to
press a claim in a court of law. An exporter must also put up the marine
insurance policy as a collateral security when he gets an advance against his
bank Credit.
Exports Assistance Documents:
For availing of a number of incentives and assistance, an
exporter is required to fill in a number of documents.
Some of the important ones of these are discussed here:
1. Application Form for Registration:
Exporters desirous of availing themselves of the benefits of
the import policy are required to register themselves with the appropriate
registering authority such as Export Promotion Councils (EPC), Commodity Boards
and Chief Controller of Imports and Exports (CCIE), New Delhi.
The application for registration should be accompanied by a
certificate from the exporter’s bankers in regard to his financial soundness.
In case of a firm having branches, the application for registration shall be
submitted only by the Head Office.
2. Allotment of Indigenous Raw Materials on Priority Basis:
Manufacturer- exporters may apply to the Director of Export
Promotion, Ministry of Commerce, for replenishment of the indigenous materials
used in the manufacture of goods for export.
3. Duty Drawback:
For claiming this incentive, the main document is the
customs attested drawback copy of shipping bill. This is to be accompanied by
other documents such as drawback payment order, final commercial invoice and a
copy of bill of lading or airway bill, as the case may be.
4. REP License and CCS:
For claiming REP license and cash compensatory support
(CCS), the exporter is required to prepare and file a number of documents.
The main documents in this regard are:
(i) Application in the prescribed form
(ii) Acknowledgement slip
(iii) Bank challan issued by the treasury for the
application fee paid.
(iv) Advance receipt for cash assistance amount
(v) A duly certified copy of shipping bill.
(vi) Non-negotiable copy of bill of lading/airway bill.
Documents required by importing Countries:
In case of export business, the importing countries need
some documents because of the legal necessity. These documents are obtained by
the exporter and are sent to the importer.
Some of the well-known documents are as follows:
1. Consular Invoice:
It is usually issued on the specified form by the consulate
of the importing country situated in the exporting country. It gives a
declaration about the true value of goods shipped. The customs authorities of
importing company charge valorem based on the value mentioned on consular
invoice.
2. Certificate of Origin:
This certificate is issued by the independent bodies like
chamber of commerce or export promotion council in the exporting country. This
is a certification that the goods being exported were actually produced in that
particular country.
3. GSP Certificate of Origin:
Goods which get the benefit preferential import-duty
treatment in countries which implement the Generalised System of Preferences
(GSP) should be accompanied by the GSP certificate of origin. This certificate
is given on the forms prescribed by the importing countries.
4. Customs Invoices:
It is also made out on a specified form prescribed by the
customs authority of the importing country. The details given on the document
will enable the customs authority of the importing country to levy and charge
import duty.
5. Certified Invoice:
This is the self-certified invoice by the exporter about the
origin of the goods.
