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SAI INTERNATIONAL SCHOOL
CLASS-XI

Sub: Business Studies
Chapter 10: International Trade
Topic: Scope and Merits of International Business

(LESSON NOTES - 48)
Scope of International Business

As pointed out earlier, international business is much broader than international trade. It includes not
only international trade (i.e., export and import of goods and services), but also a wide variety of other
ways in which the firms operate internationally. Major forms of business operations that constitute
international business are as follows.

(i) Merchandise exports and imports: Merchandise means goods that are tangible, i.e., those that can
be seen and touched. When viewed from this perceptive, it is clear that while merchandise exports
means sending tangible goods abroad, merchandise imports means bringing tangible goods from a
foreign country to one’s own country. Merchandise exports and imports, also known as trade in goods,
include only tangible goods and exclude trade in services.

(ii) Service exports and imports: Service exports and imports involve trade in intangibles. It is because of
the intangible aspect of services that trade in services is also known as invisible trade. A wide variety of
services are traded internationally and these include: tourism and travel, boarding and lodging (hotel
and restaurants), entertainment and recreation, transportation, professional services (such as training,
recruitment, consultancy and research), communication (postal, telephone, fax, courier and other
audio-visual services), construction and engineering, marketing (e.g., wholesaling, retailing, advertising,
marketing research and warehousing), educational and financial services (such as banking and
insurance). Of these, tourism, transportation and business services are major constituents of world
trade in services.

(iii) Licensing and franchising: Permitting another party in a foreign country to produce and sell goods
under your trademarks, patents or copy rights in lieu of some fee is another way of entering into
international business. It is under the licensing system that Pepsi and Coca Cola are produced and sold
all over the world by local bottlers in foreign countries. Franchising is similar to licensing, but it is a term
used in connection with the provision of services. McDonalds, for instance, operates fast food
restaurants the world over through its franchising system.

(iv) Foreign investments: Foreign investment is another important form of international business.
Foreign investment involves investments of funds abroad in exchange for financial return. Foreign
investment can be of two types: direct and portfolio investments.

Direct investment takes place when a company directly invests in properties such as plant and
machinery in foreign countries with a view to undertaking production and marketing of goods and
services in those countries. Direct investment provides the investor a controlling interest in a foreign