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INTERNATIONAL BUSINESS: CONCEPT,

DEFINITION AND MANAGEMENT

MASTER OF BUSINESS ADMINISTRATION(MBA)

SUBMITTED BY:

VIVEK VERMA

03011403910

BPIBS GGSIP UNIVERSITY, NEW DELHI

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AN INTRODUCTION TO INTERNATIONAL BUSINESS

International business is a term used to collectively describe 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 boundary.

Usually, private companies undertake such transactions for profit; governments undertake

them for profit and for political reasons.

It refers to all those business activities which involves cross border transactions of goods,

services, resources between two or more nations. Transaction 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 more than a country. An MNE is often called

multinational corporation (MNC) or transnational company (TNC). Well known MNCs

include fast food companies such as McDonald's and Yum Brands, vehicle manufacturers

such as General Motors, Ford Motor Company and Toyota, consumer electronics companies

like Samsung, LG and Sony, and energy companies such as ExxonMobil, Shell and BP. Most

of the largest corporations operate in multiple national markets.

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 requires significant changes in how individual

business units operate from one country to the next.

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The conduct of international operations depends on companies' objectives and the means

with which they carry them out. The operations affect and are affected by the physical and

societal factors and the competitive environment. 

DEFINITIONS, CONCEPTS AND MANAGEMENT OF INTERNATIONAL BUSINESS

“International business refers to business across countries. It includes any type of business

activity that crosses national boundaries international business involves transfer of goods,

services capital knowledge and information across national boundaries with a view to satisfy

the needs of individuals, organizations and governments.” 

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  Definition 1 

The economic system of exchanging good and services, conducted between individuals and

businesses in multiple countries. 

  Definition 2 

The specific entities, such as multinational corporations (MNCs) and international business

companies (IBCs), which engage in business between multiple countries

IMPORTANCE OF STUDYING MANAGEMENT OF INTERNATIONAL BUSINESS

  Most companies are either international or compete with international companies.

  Modes of operation may differ from those used domestically.

  The best way of conducting business may differ by country. 

  An understanding helps make better career decisions.

  An understanding helps decide what governmental policies to support.

Therefore, managers in international business must understand social science disciplines

and how they affect all functional business fields.

DOMESTIC V/S INTERNATIONAL TRADE

Difference between domestic trade and foreign trade and their peculiar problems Trade, no

doubt, implies exchange of goods between persons, but there are marked differences

between domestic trade and international trade.

The differences and the complications arise therein are as follows

Distance

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The distance involved in export of goods in external trade is generally greater than on the

domestic trade.

Language differences

There are differences in the languages of the nations of the world. The overseas traders

should be very careful in preparing the publicity material in the languages of the trading

country

Cultural difference

A producer should have full knowledge about the market of his products. For exporting

goods particularly a thorough research is undertaken.

DocumentationsIn the home trade there are few documents involved in the exchange of goods.

Payments

In the internal trade, the goods are exchanged in the currency unit of the country. In case of 

foreign trade currencies differ widely throughout the world and those also vary in value.

Transport and insurance cost

The transport and insurance costs are less in case of domestic trade. For the exports, on the

other hand the cost of transport is high and the insurance is complicated.

Technical difference

In the national market the difference in the technical specification for goods and their

requirements is not wide.

Tariff barriers

In the national trade, there are no custom duties, exchange restrictions, fixed quotas or

other tariff barriers.

WHY GO INTERNATIONAL?

  Growth  – The primary reason for initiating an international effort is to gain exposure

to longer term and higher impact projects.

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  Niche Opportunities - Many countries have few, if any, indigenous oil and gas

companies. This can translate into less competition for the type of opportunity that

would fit an independent company’s risk appetite and capital exposure target.

  Exposure - The concessions or acreage positions that are available internationally

generally are far more extensive than domestic offerings. It is possible to acquire

acreage with multiple prospects and multiple play types.

  Higher rate of profits

  Severe competition in home country

  Limited home market

  Political stability/ instability

  Availability of technology and managing competencies

  High cost of transportation

  Nearness to raw material

  Human resources

  Increased market share  Liberalisation/ globalisation policies of the host country 

REASONS FOR RECENT INTERNATIONAL BUSINESS GROWTH 

  Expansion of Technology:

  Transportation, telecommunications;

  Transportation and telecommunications costs are more conducive for

international operations.

  Liberalization of Cross-Border Movements:

  Goods, services, labour, Capital

  Development of Supporting Institutional Arrangements: development by

business and governments of institutions that enable us to effectively apply that

technology.

  Increase in Global Competition:

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  New products become global; Globalization of production

SCOPE OF INTERNATIONAL BUSINESS

(STAGES OF INTERNATIONALISATION)

International business is a generic term used to refer to any business that includes more

than one country. It includes the following types of business.

  Export Business (Domestic Company): Production in home country; Exports

outside.

  International firm: Locates branch in foreign market.

  Multinational firm: An International firm turns into a Multinational firm when it

responds to specific needs of foreign markets in terms of product, price,

promotion and distribution.

  Global firm: A global firm also has business operations in different countries but

there is coordination between different subsidiaries which operate under a

common strategy.

  Transnational firm: A Transnational firm produces, markets, invests and operates

across the globe. It is an integrated global enterprise which “thinks globally but

acts locally.” 

INTERNATIONAL ISSUES TO CONSIDER

  Huge foreign indebtedness

  Political factors

  Exchange instability

  Entry requirement

  Tariffs, quotas and trade barriers

  Corruption

  Bureaucratic practices of the government.

  Technological pirating

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  High costs

CHALLENGES AND LIMITATIONS OF INTERNATIONAL BUSINESS

  Different Currencies

  Varying trade policies

  Different market conditions

  Different languages

  Long distance

  Laws and regulations

Thus, international firms operate in a highly uncertain, ambiguous, complex and dynamic

environment.

INTERNATIONAL TRADE THEORIES

(1)  MERCANTILISM: MID-16TH CENTURY

  A nation’s wealth depends on accumulated treasure 

  Gold and silver are the currency of trade

  Theory says you should have a trade surplus.

  Maximize export through subsidies.

  Minimize imports through tariffs and quotas

Mercantilism-zero-sum game

  David Hume in 1752 pointed out that:

  Increased exports leads to inflation and higher prices

  Increased imports lead to lower prices

  Result: Country A sells less because of high prices and Country B sells more because

of lower prices

  In the long run, no one can keep a trade surplus

(2)  THEORY OF ABSOLUTE ADVANTAGE

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  Adam Smith: Wealth of Nations ( 1776) argued:

  Capability of one country to produce more of a product with the same

amount of input than another country can vary

  A country should produce only goods where it is most efficient, and trade for

those goods where it is not efficient

  Trade between countries is, therefore, beneficial

  Assumes there is an absolute balance among nations

Adam Smith: Wealth of Nations ( 1776) argued:

  Capability of one country to produce more of a product with the same

amount of input than another country can vary

  A country should produce only goods where it is most efficient, and trade for

those goods where it is not efficient

  Trade between countries is, therefore, beneficial

  Assumes there is an absolute balance among nations

(3)  THEORY OF COMPARATIVE ADVANTAGE

  David Ricardo: Principles of Political Economy ( 1817).

  Extends free trade argument

  Efficiency of resource utilization leads to more productivity.

  Should import even if country is more efficient in the product’s production

than country from which it is buying.

  Look to see how much more efficient. If only comparatively efficient, than

import.

  Makes better use of resources

(4)  HECKSCHER (1919)-OLIN (1933) THEORY

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  Export goods that intensively use factor endowments which are locally abundant

  Corollary: import goods made from locally scarce factors

  Note: Factor endowments can be impacted by government policy -

minimum wage

  Patterns of trade are determined by differences in factor endowments - not

productivity

  Remember, focus on relative advantage, not absolute advantage

(5)  PRODUCT LIFE-CYCLE THEORY- R. VERNON,(1966)

  As products mature, both location of sales and optimal production changes

  Affects the direction and flow of imports and exports

  Globalization and integration of the economy makes this theory less valid

(6)  NEW TRADE THEORY

In industries with high fixed costs:

  Specialization increases output, and the ability to enhance economies of scale

increases

  Learning effects are high. These are cost savings that come from “learning by doing” 

New trade theory-applications

  Typically, requires industries with high, fixed costs

  World demand will support few competitors

  Competitors may emerge because of “ First-mover advantage”

  Economies of scale may preclude new entrants

  Role of the government becomes significant

  Some argue that it generates government intervention and strategic trade policy

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LIST OF THE LARGEST TRADING PARTNERS OF INDIA

According to Department of Commerce, the fifteen largest trading partners of 

India represent 62.1% of Indian imports, and 58.1% of Indian exports as of December

2010. These figures do not include services or foreign direct investment, but only trade in

goods.

The largest Indian partners with their total trade (sum of imports and exports) in billions of 

US Dollars for calendar year 2009-2010 are as follows:

Country Exports Imports Total Trade

United Arab Emirates 23.9 19.4 43.4

China 11.6 30.8 42.4

United States 19.5 16.9 36.5

Saudi Arabia 3.9 17.0 21.0

Germany 5.4 10.3 15.7

Switzerland 0.6 14.6 15.2

Singapore 7.5 6.4 14.0

Australia 1.3 12.4 13.7

Iran 1.8 11.5 13.3

Hong Kong 7.8 4.7 12.6

South Korea 3.4 8.5 11.9

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Indonesia 3.0 8.6 11.7

United Kingdom 6.2 4.4 10.6

Japan 3.6 6.7 10.3

Belgium 3.7 6.0 9.7

This list does not include the Gulf Cooperation Council (GCC), which includes two (UAE and

Saudi Arabia) of the above states in a single economic entity. As a single economy the Gulf 

Cooperation Council (GCC) is the largest trading partner of India with almost $100 billion in

total trade.

As a single economy, the EU is the second largest trading partner of India with €27.5 billion

worth of EU goods going to India and €25.4 billion of Indian goods going to the EU as of 

2009, totaling approximately €52.9 billion in total trade. It includes three (Germany, United

Kingdom, and Belgium) of the above states in a single economic entity.

INDIA TAX TREATIES WITH OTHER COUNTRIES

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The Central Government, acting under Section 90 of the Income Tax Act, has been

authorized to enter into Double Tax Avoidance Agreements (tax treaties) with other

countries. The object of such agreements is to evolve an equitable basis for the allocation of 

the right to tax different types of income between the 'source' and 'residence' statesensuring in that process tax neutrality in transactions between residents and non-residents.

A non-resident, under the scheme of income taxation, becomes liable to tax in India in

respect of income arising here by virtue of its being the country of source and then again, in

his own country in respect of the same income by virtue of the inclusion of such income in

the 'total world income' which is the tax base in the country of residence. Tax incidence,

therefore, becomes an important factor influencing the non-residents in deciding about the

location of their investment, services, technology etc.

Tax treaties serve the purpose of providing protection to tax payers against double taxation

and thus preventing the discouragement which taxation may provide in the free flow of 

international trade, international investment and international transfer of technology.

These treaties also aim at preventing discrimination between the tax payers in the

international field and providing a reasonable element of legal and fiscal certainty within a

legal framework. In addition, such treaties contain provisions for mutual exchange of 

information and for reducing litigation by providing for mutual assistance procedure.

Treaties signed with countries for avoidation of double taxation

S.No. Name of the Country Effective from Assessment Year

1 Australia 1993-94

2 Austria 1963-64

3 Bangladesh 1993-94

4 Belgium 1989-90; 1999-2000 (Revised)

5 Brazil 1994-95

6 Belarus 1999-2000

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7 Bulgaria 1997-98

8 Canada 1987-88; 1999-2000 (Revised)

9 China 1996-97

10 Cyprus 1994-95

11 Czechoslovakia 1986-87; 2001-2002 (Revised)

12 Denmark 1991-92

13 Finland 1985-86; 2000-2001 Amending protocol

14 France 1996-97 (Revised)

15 F.R.G 1958-59 (Original)

F.R.G. 1984-85 (Protocol)

D.G.R. 1985-86

F.R.G. 1998-99 (Revised)

16 Greece 1964-65

17 Hungary 1989-90

18 Indonesia 1989-90

19 Israel 1995-96

20 Italy 1997-98 (Revised)

21 Japan 1991-92 (Revised)

22 Jordan 2001-2002

23 Kazakhstan 1999-2000

24 Kenya 1985-86

25 Libya 1983-84

26 Malta 1997-98

27 Malaysia 1973-74

28 Mauritius 1983-84

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29 Mongolia 1995-96

30 Namibia 2000-2001

31 Nepal 1990-91

32 Netherlands 1990-91

33 New Zealand 1988-89

(1999-2000 amending notification) (2001-2002 Supp. Protocol)

34 Norway 1988-89

35 Oman 1999-2000

36 Philippines 1996-97

37 Poland 1991-92

38 Qatar 2001-2002

39 Romania 1989-90

40 Singapore 1995-96

41 South Africa 1999-2000

42 South Korea 1985-86

43 Spain 1997-98

44 Sri Lanka 1981-82

45 Sweden 1990-91; 1999-2000 (Revised)

46 Switzerland 1996-97

47 Syria 1983-84

48 Tanzania 1983-84

49 Thailand 1988-89

50 Trinidad & Tobago 2001-2002

51 Turkmenistan 1999-2000

52 Turkey 1995-96

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53 U.A.E. 1995-96

54 U.A.R. 1970-71

55 U.K. 1995-96 (Revised)

56 U.S.A. 1992-93

57 Russian Federation 2000-2001

58 Uzbekistan 1994-95

59 Vietnam 1997-98

60 Zambia 1979-80

These Agreements follow a near uniform pattern in as much as India has guided itself by the

UN model of double tax avoidance agreements. The agreements allocate jurisdiction

between the source and residence country. Wherever such jurisdiction is given to both the

countries, the agreements prescribe maximum rate of taxation in the source country which

is generally lower than the rate of tax under the domestic laws of that country. The double

taxation in such cases are avoided by the residence country agreeing to give credit for tax

paid in the source country thereby reducing tax payable in the residence country by the

amount of tax paid in the source country.

These agreements give the right of taxation in respect of the income of the nature of 

interest, dividend, royalty and fees for technical services to the country of residence.

However, the source country is also given the right but such taxation in the source country

has to be limited to the rates prescribed in the agreement. The rate of taxation is on gross

receipts without deduction of expenses.

Mode of taxation in different types of income

Capital Gains: 

So far as income from capital gains is concerned, gains arising from transfer of immovable

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properties are taxed in the country where such properties are situated. Gains arising from

the transfer of movable properties forming part of the business property of a 'permanent

establishment 'or the 'fixed base' is taxed in the country where such permanent

establishment or the fixed base is located. Different provisions exist for taxation of capitalgains arising from transfer of shares. In a number of agreements the right to tax is given to

the State of which the company is resident. In some others, the country of residence of the

shareholder has this right and in some others the country of residence of the transferor has

the right if the share holding of the transferor is of a prescribed percentage.

So far as the business income is concerned, the source country gets the right only if there is

a 'permanent establishment' or a 'fixed place of business' there. Taxation of business

income is on net income from business at the rate prescribed in the Finance Acts. Chapter X

may be referred to for a discussion on the subject.

Professional Services:

Income derived by rendering of professional services or other activities of independent

character are taxable in the country of residence except when the person deriving income

from such services has a fixed base in the other country from where such services are

performed. Such income is also taxable in the source country if his stay exceeds 183 days in

that financial year.

Personal Services:

Income from dependent personal services i.e. from employment is taxed in the country of 

residence unless the employment is exercised in the other state. Even if the employment is

exercised in any other state, the remuneration will be taxed in the country of residence if -

I. the recipient is present in the source State for a period not exceeding 183 days; and

ii. The remuneration is paid by a person who is not a resident of that state; and

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iii. The remuneration is not borne by a permanent establishment or a fixed base.

Others:

The agreements also provides for jurisdiction to tax Director's fees, remuneration of persons

in Government service, payments received by students and apprentices, income of 

entertainers and athletes, pensions and social security payments and other incomes. For

taxation of income of artists, entertainers sportsman etc, CBDT circular No. 787 dates

10.2.2000 may be referred to.

Unique clauses of agreement

Agreements also contain clauses for non-discrimination of the national of a contracting

State in the other State vis-a-vis the nationals of that other State. The fact that higher rates

of tax are prescribed for foreign companies in India does not amount to discrimination

against the permanent establishment of the nonresident company. This has been made

explicit in certain agreements such as one with U.K.

Provisions also exist for mutual agreement procedure which authorizes the competent

authorities of the two States to resolve any dispute that may arise in the matter of taxation

without going through the normal process of appeals etc. provided under the domestic law.

Another important feature of some agreements is the existence of a clause providing for

exchange of information between the two contracting States which may be necessary for

carrying out the provisions of the agreement or for effective implementations of domestic

laws concerning taxes covered by the tax treaty. Information about residents getting

payments in other contracting States necessary to be known for proper assessment of total

income of such individual is thus facilitated by such agreements.

Favourable Domestic Law 

It may sometimes happen that owing to reduction in tax rates under the domestic law

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taking place after coming into existence of the treaty, the domestic rates become more

favourable to the non-residents. Since the objects of the tax treaties is to benefit the non-

residents, they have, under such circumstances, the option to be assessed either as per the

provisions of the treaty or the domestic law of the land.

Tax Deducted at Source

In order to avoid any demand or refund consequent to assessment and to facilitate the

process of assessment, it has been provided that tax shall be deducted at source out of 

payments to non-residents at the same rate at which the particular income is made taxable

under the tax treaties. As a result of amendment made by the Finance Act, 1997 exempting

from tax income from dividend declared after 1.6.1997, no deduction is required to be

made in respect of such income.

Countries with which no agreement exists

(1) If any person who is resident in India in any previous year proves that, in respect of his

income which accrued or arose during that previous year outside India (and which is not

deemed to accrue or arise in India), he has paid in any country with which there is no

agreement under section 90 for the relief or avoidance of double taxation, income-tax, by

deduction or otherwise, under the law in force in that country, he shall be entitled to the

deduction from the Indian income-tax payable by him of a sum calculated on such doubly

taxed income at the Indian rate of tax or the rate of tax of the said country, whichever is the

lower, or at the Indian rate of tax if both the rates are equal.

(2) If any person who is resident in India in any previous year proves that in respect of his

income which accrued or arose to him during that previous year in Pakistan he has paid in

that country, by deduction or otherwise, tax payable to the Government under any law for

the time being in force in that country relating to taxation of agricultural income, he shall be

entitled to a deduction from the Indian income-tax payable by him-

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  of the amount of the tax paid in Pakistan under any law aforesaid on such income

which is liable to tax under this Act also; or

  Of a sum calculated on that income at the Indian rate of tax; whichever is less.

(3) If any non-resident person is assessed on his share in the income of a registered firm

assessed as resident in India in any previous year and such share includes any income

accruing or arising outside India during that previous year (and which is not deemed to

accrue or arise in India) in a country with which there is no agreement under section 90 for

the relief or avoidance of double taxation and he proves that he has paid income-tax by

deduction or otherwise under the law in force in that country in respect of the income so

included he shall be entitled to a deduction from the Indian income-tax payable by him of asum calculated on such doubly taxed income so included at the Indian rate of tax or the rate

of tax of the said country, whichever is the lower, or at the Indian rate of tax if both the

rates are equal.

Explanation.-In this section,-

  the expression "Indian income-tax" means income-tax charged in accordance with

the provisions of this Act;

  the expression "Indian rate of tax" means the rate determined by dividing the

amount of Indian income-tax after deduction of any relief due under the provisions

of this Act but before deduction of any relief due under this Chapter , by the total

income;

  the expression "rate of tax of the said country" means income-tax and super-tax

actually paid in the said country in accordance with the corresponding laws in forcein the said country after deduction of all relief due, but before deduction of any

relief due in the said country in respect of double taxation, divided by the whole

amount of the income as assessed in the said country;

  the expression "income-tax" in relation to any country includes any excess profits tax

or business profits tax charged on the profits by the Government of any part of that

country or a local authority in that country.

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THE ECONOMY OF REPUBLIC OF INDIA

Rank  10th (nominal) / 4th (PPP)

Currency 1 Indian Rupee (INR) ( ) = 100 Paise

Fiscal year 1 April – 31 March

Trade

organizations 

WTO, SAFTA, G-20 and others

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Statistics

GDP $1.53 trillion (nominal: 10th; 2010)

$4.06 trillion (PPP: 4th; 2010)

GDP growth 8.5% (2010-11)

GDP per capita  $1,265 (nominal: 138th; 2010)

$3,339 (PPP: 129th; 2010)

GDP by sector Services (55.3%), industry (28.6%), agriculture (16.1%) (2010)

Inflation (CPI) 9.44% (June 2011)

Population

below poverty

line 

37% (2010)

Labour force 478 million (2nd; 2010)

Labour force

by occupation 

Agriculture (52%), industry (14%), services (34%) (2009 est.)

Unemployment  9.4% (2009 –10)

Main industries telecommunications, textiles, chemicals, food processing, steel,

transportation equipment, cement, mining, petroleum, machinery,

information technology, pharmaceuticals

Ease of Doing

Business Rank

134th(2011)

EXTERNAL

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Exports $247.4 billion (2010)

Export goods petroleum products, precious stones, machinery, iron and steel, chemicals,

vehicles, apparel

Main export

partners 

UAE 12.87%, US 12.59%, China 5.59% (2009)

Imports $359.3 billion (2010)

Import goods crude oil, precious stones, machinery, fertilizer, iron and steel, chemicals

Main import

partners 

China 10.94%, US 7.16%, Saudi Arabia 5.36%, UAE 5.18%, Australia 5.02%,

Germany 4.86%, Singapore 4.02% (2009)

FDI stock $35.6 billion (2009-10)

Gross external

debt 

$237.1 billion (31 December 2010 est.)

Public finances

Public debt $758 billion (2010); 55.9% of GDP

Revenues $170.7 billion (2010 est.)

Expenses $268 billion (2010 est.)

Economic aid $2.107 billion (2008)

Credit rating   BBB- (Domestic)

BBB- (Foreign)

BBB+ (T&C Assessment)

Outlook: Stable

(Standard & Poor's) 

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Foreign

reserves 

$319 billion (July 2011)

Until the liberalization of 1991, India was largely and intentionally isolated from the world

markets, to protect its economy and to achieve self-reliance. Foreign trade was subject to

import tariffs, export taxes and quantitative restrictions, while foreign direct

investment (FDI) was restricted by upper-limit equity participation, restrictions on

technology transfer, export obligations and government approvals; these approvals were

needed for nearly 60% of new FDI in the industrial sector. The restrictions ensured that FDI

averaged only around $200 million annually between 1985 and 1991; a large percentage of 

the capital flows consisted of foreign aid, commercial borrowing and deposits of non-

resident Indians. India's exports were stagnant for the first 15 years after independence,

due to general neglect of trade policy by the government of that period. Imports in the

same period, due to industrialization being nascent, consisted predominantly of machinery,

raw materials and consumer goods.

Since liberalization, the value of India's international trade has increased sharply, with the

contribution of total trade in goods and services to the GDP rising from 16% in 1990 –91 to

43% in 2005 –06. India's major trading partners are the European Union, China, the United

States and the United Arab Emirates. In 2006 –07, major export commodities included

engineering goods, petroleum products, chemicals and pharmaceuticals, gems and

 jewellery, textiles and garments, agricultural products, iron ore and other minerals. Major

import commodities included crude oil and related products, machinery, electronic goods,

gold and silver.[103]

 In November 2010, exports increased 22.3% year-on-year to

85,063 crore (US$18.97 billion), while imports were up 7.5% at 125,133 crore (US$27.9

billion). Trade deficit for the same month dropped from 46,865 crore (US$10.45 billion) in

2009 to 40,070 crore (US$8.94 billion) in 2010.[104] 

India is a founding-member of General Agreement on Tariffs and Trade (GATT) since 1947

and its successor, the WTO. While participating actively in its general council meetings, India

has been crucial in voicing the concerns of the developing world. For instance, India has

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continued its opposition to the inclusion of such matters as labour and environment issues

and other trade into the WTO policies.

Cumulative Current Account Balance 1980 –2008 based on IMF data

Since independence, India's balance of payments on its current account has been negative.

Since economic liberalization in the 1990s, precipitated by a balance of payment crisis,

India's exports rose consistently, covering 80.3% of its imports in 2002 –03, up from 66.2% in

1990 –91. However, the global economic slump followed by a general deceleration in world

trade saw the exports as a percentage of imports drop to 61.4% in 2008 –09. India's growing

oil import bill is seen as the main driver behind the large current account deficit, which rose

to $118.7 billion, or 9.7% of GDP, in 2008 –09. Between January and October 2010, India

imported $82.1 billion worth of crude oil.[91] 

Due to the global late-2000s recession, both Indian exports and imports declined by 29.2%

and 39.2% respectively in June 2009. The steep decline was because countries hit hardest by

the global recession, such as United States and members of the European Union, account

for more than 60% of Indian exports. However, since the decline in imports was muchsharper compared to the decline in exports, India's trade deficit reduced to

25,250 crore (US$5.63 billion). As of June 2011, exports and imports have both registered

impressive growth with monthly exports reaching $25.9 billion for the month of May 2011

and monthly imports reaching $40.9 billion for the same month. This represents a year on

year growth of 56.9% for exports and 54.1% for imports.

India's reliance on external assistance and concessional debt has decreased since

liberalization of the economy, and the debt service ratio decreased from 35.3% in 1990 –91

to 4.4% in 2008 –09. In India, External Commercial Borrowings (ECBs), or commercial loans

from non-resident lenders, are being permitted by the Government for providing an

additional source of funds to Indian corporates. The Ministry of Finance monitors and

regulates them through ECB policy guidelines issued by the Reserve Bank of India under

the Foreign Exchange Management Act of 1999.

India's foreign exchange reserves have steadily risen from $5.8 billion in March 1991 to$283.5 billion in December 2009.

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FOREIGN DIRECT INVESTMENT

Share of top five investing countries in FDI inflows.

(2000 – 2010) 

Rank CountryInflows

(million USD)Inflows (%)

1 Mauritius 50,164 42.00

2 Singapore 11,275 9.00

3 USA 8,914 7.00

4 UK 6,158 5.00

5 Netherlands 4,968 4.00

As the fourth-largest economy in the world in PPP terms, India is a preferred destination for

FDI; India has strengths in telecommunication, information technology and other significant

areas such as auto components, chemicals, apparels, pharmaceuticals, and jewellery.

Despite a surge in foreign investments, rigid FDI policies were a significant hindrance.

However, due to positive economic reforms aimed at deregulating the economy and

stimulating foreign investment, India has positioned itself as one of the front-runners of the

rapidly growing Asia-Pacific region. India has a large pool of skilled managerial and technical

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expertise. The size of the middle-class population stands at 300 million and represents a

growing consumer market.

During 2000 –10, the country attracted $178 billion as FDI. The inordinately high investment

from Mauritius is due to routing of international funds through the country given significant

tax advantages; double taxation is avoided due to a tax treaty between India and Mauritius,

and Mauritius is a capital gains tax haven, effectively creating a zero-taxation FDI channel.

India's recently liberalized FDI policy (2005) allows up to a 100% FDI stake in ventures.

Industrial policy reforms have substantially reduced industrial licensing requirements,

removed restrictions on expansion and facilitated easy access to foreign technology and

foreign direct investment FDI. The upward moving growth curve of the real-estate sector

owes some credit to a booming economy and liberalized FDI regime. In March 2005, the

government amended the rules to allow 100% FDI in the construction sector, including built-

up infrastructure and construction development projects comprising housing, commercial

premises, hospitals, educational institutions, recreational facilities, and city- and regional-

level infrastructure. Despite a number of changes in the FDI policy to remove caps in most

sectors, there still remains an unfinished agenda of permitting greater FDI in politically

sensitive areas such as insurance and retailing. The total FDI equity inflow into India in

2008 –09 stood at 122,919 crore (US$27.41 billion), a growth of 25% in rupee terms over

the previous period.

INDIA: FOREIGN TRADE POLICY 

Although India has steadily opened up its economy, its tariffs continue to be high when

compared with other countries, and its investment norms are still restrictive. This leads

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some to see India as a ‘rapid globalizer’ while others still see it as a ‘highly protectionist’

economy.

Till the early 1990s, India was a closed economy: average tariffs exceeded 200

percent, quantitative restrictions on imports were extensive, and there were stringent

restrictions on foreign investment. The country began to cautiously reform in the 1990s,

liberalizing only under conditions of extreme necessity.

Since that time, trade reforms have produced remarkable results. India’s trade to GDP ratio

has increased from 15 percent to 35 percent of GDP between 1990 and 2005, and the

economy is now among the fastest growing in the world.

Average non-agricultural tariffs have fallen below 15 percent, quantitative restrictions on

imports have been eliminated, and foreign investments norms have been relaxed for a

number of sectors.

India however retains its right to protect when need arises. Agricultural tariffs average

between 30-40 percent, anti-dumping measures have been liberally used to protect trade,

and the country is among the few in the world that continue to ban foreign investment in

retail trade. Although this policy has been somewhat relaxed recently, it remains

considerably restrictive.

Nonetheless, in recent years, the government’s stand on trade and investment policy has

displayed a marked shift from protecting ‘producers’ to benefiting ‘consumers’. This is

reflected in its Foreign Trade Policy for 2004/09 which states that, "For India to become a

major player in world trade ...we have also to facilitate those imports which are required tostimulate our economy."

India is now aggressively pushing for a more liberal global trade regime, especially in

services. It has assumed a leadership role among developing nations in global trade

negotiations, and played a critical part in the Doha negotiations.

Regional and Bilateral Trade Agreements 

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India has recently signed trade agreements with its neighbors and is seeking new ones with

the East Asian countries and the United States. Its regional and bilateral trade agreements -

or variants of them - are at different stages of development:

  India-Sri Lanka Free Trade Agreement,

  Trade Agreements with Bangladesh, Bhutan, Sri Lanka, Maldives, China, and South

Korea.

  India-Nepal Trade Treaty,

  Comprehensive Economic Cooperation Agreement (CECA) with Singapore.

  Framework Agreements with the Association of Southeast Asian Nations (ASEAN),

Thailand and Chile.

Preferential Trade Agreements with Afghanistan, Chile, and Mercosur (the latter is a trading

zone between Brazil, Argentina, Uruguay, and Paraguay).

World Bank Involvement 

As a number of research institutions in the country provide the Government with good, just-

in-time, and low-cost analytical advice on trade-related issues, the World Bank has focused

on providing analysis on specialized subjects at the Government’s request. 

In the last three years, the Bank has been working with the Ministry of Commerce in a

participatory manner to help the country develop an informed strategy for domestic reform

and international negotiations.

Given the sensitivity of trade policy and negotiation issues, the Bank’s role has been

confined to providing better information and analysis than was previously available to

India’s policymakers. 

World Bank Reports 

Over the last two years, the World Bank has completed two reports:

Sustaining India’s Services Revolution: Access to Foreign Markets, Domestic Reforms and 

International Negotiation: The study concludes that to sustain the dynamism of India’s

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services sector, the country must address two critical challenges: externally, the problem of 

actual and potential protectionism; and domestically, the persistence of restrictions on

trade and investment, as well as weaknesses in the regulatory environment.

From Competition at Home to Competing Abroad: The Case of Horticulture in India: This

study finds that the competitiveness of India’s horticulture sector depends critically on

efficient logistics, domestic competition, and the ability to comply with international health,

safety and quality standards. The study is based on primary surveys across fifteen Indian

States.

A third study, dealing with barriers to the movement of professionals is under preparation.

The Bank has also held a number of workshops and conferences with a view to providing

different stakeholders with a forum to express their views on trade-related issues.

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BILATERAL INVESTMENT PROMOTION AND PROTECTION AGREEMENTS (BIPA)

As part of the Economic Reforms Programme initiated in 1991, the foreign investment policy of the Government of India was liberalized and

negotiations undertaken with a number of countries to enter into Bilateral Investment Promotion & Protection Agreement (BIPAs) in order to

promote and protect on reciprocal basis investment of the investors. Government of India have, so far, (as on May 2011) signed BIPAs with 80

countries out of which 70 BIPAs have already come into force and the remaining agreements are in the process of being enforced. In addition,

agreements have also been finalised and/ or being negotiated with a number of other countries.

The objective of Bilateral Investment Promotion and Protection Agreement is to promote and protect the interests of investors of either

country in the territory of other country. Such Agreements increase the comfort level of the investors by assuring a minimum standard of 

treatment in all matters and provides for justifiability of disputes with the host country

LIST OF COUNTRIES WITH WHOM BILATERAL INVESTMENT PROMOTION AND PROTECTION AGREEMENTS (BIPA) HAS BEEN SIGNED (AS ON

MAY 2011)

S.N  Country  Date of Agreement  Date of Enforcement 

1. United Kingdom 14th March 1994 6th January 1995

2. Russian Federation 23rd December 1994 5th August 1996

3. Germany 10th July 1995 13th July 1998

4. Malaysia 3rd August 1995 12th April 1997

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5. Denmark 6th September 1995 28th August 1996

6. Turkmenistan 20th September 1995 27th February 2006

7. Netherlands 6th November 1995 1st December 1996

8. Italy 23rd November 1995 26th March 1998

9. Tajikistan 13th December 1995 23rd November 2003

10. Israel 29th January 1996 18th February 1997

11. South Korea 26th February 1996 7th May 1996

12. Poland 7th October 1996 31st December 1997

13. Czech. Republic 11th October 1996 6th February 1998

14. Kazakhstan 9th December 1996 26th July 2001

15. Sri Lanka 22nd January 1997 13th February 1998

16. Vietnam 8th March 1997 1st December 1999

17. Oman 2nd April 1997 13th October 2000

18. Switzerland 4th April 1997 16th February 2000

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19. Egypt 9th April 1997 22nd November 2000

20. Kyrgyz Republic 16th May 1997 12th May 2000

21. France 2nd September 1997 17th May 2000

22. Spain 30th September 1997 16th October 1998

23. Belgium 31st October 1997 8th January 2001

24. Romania 17th November 1997 9th December 1999

25 Mauritius 4th September 1998 20th June 2000

26 Turkey 17th September 1998 18th October 2007

27 Bulgaria 26th October 1998 23rd September 1999

28 Morocco 13th February 1999 22nd February 2001

29 Indonesia 10th February 1999 22nd January 2004

30 Australia 26th February 1999 4th May 2000

31 Qatar 7th April 1999 15th December 1999

32 Uzbekistan 18th May 1999 28th July 2000

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33 Argentina 20th August 1999 12th August 2002

34 Austria 8th November 1999 1st March 2001

35 Philippines 28th January 2000 29th January 2001

36 Portugal 28th June 2000 19th July 2002

37 Sweden 4th July 2000 1st April 2001

38 Thailand 10th July 2000 13th July 2001

39 Lao PDR 9th November 2000 5th January 2003

40 Mongolia 3rd January 2001 29th April 2002

41 Croatia 4th May 2001 19th January 2002

42 Kuwait 27th November 2001 28th June 2003

43 Ukraine 1st December 2001 12th August 2003

44 Cyprus 9th April 2002 12th January 2004

45 Yemen 30th October 2002 10th February 2004

46 Finland 7th November 2002 9th April 2003

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47 Belarus 27th November 2002 23rd November 2003

48 Taiwan 17th October 2002 25th February 2005

49 Serbia (Yugoslavia) 31st January 2003 24th February 2009

50 Armenia 23rd May 2003 30th May 2006

51 Sudan 22nd October 2003 18th October 2010

52 Hungary 3rd November 2003 2nd January 2006

53 Bahrain 13th January 2004 5th December 2007

54 Saudi Arabia 25th January 2006 in New Delhi 20th May 2008

55 Bosnia & Herzegovina 12th September 2006 in New Delhi 14th February 2008

56 Slovak Republic 25th Sept. 2006 in Slovak 16th June 2007

57 China 21st Nov. 2006 in New Delhi 1st August 2007

58 Jordan 1st December 2006 in New Delhi 22nd January 2009

59 Trinidad & Tobago 12th March 2007 in New Delhi 7th September 2007

60 Hellenic Republic (Greece) 26th April 2007 in Athens 12th April 2008

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61 Mexico 21st May 2007 in New Delhi 23rd February 2008

62 Libya 26th May 2007 in Libya 25th March 2009

63 Iceland 29th June 2007 in Iceland 16.12.2008

64 Macedonia 17th March 2008 in Skopje, Macedonia 17th October 2008

65 Brunei Darussalam 22nd May 2008 in New Delhi 15th February 2009

66 Syrian Arab Republic 18th June 2008 in New Delhi 22nd January 2009

67 Myanmar 24th June 2008 in Myanmar 8th February 2009

68 Senegal 3rd July 2008 in Dakar, Senegal 17th October 2009

69 Mozambique 19th February 2009 at New Delhi 23rd September 2009

70 Latvia 18th February 2010 at New Delhi 27th November 2010

71 Djibouti 19th May 2003 -

72 Ethiopia 5th July 2007 -

73 Ghana 5th August 2002 -

74 Uruguay 11th February 2008 -

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75 Zimbabwe 10th February 1999 -

76 Bangladesh 9th February 2009 -

77 Colombia 10th November 2009 -

78 Democratic Republic of Congo 13th April 2010 -

79 Seychelles 2nd June 2010 -

80 Lithuania 31st March 2011 -

81. Bulgaria (Protocol) 12th September 2007 in New Delhi 12th May 2008

82. Romania (Protocol) 16th February 2009 in Bucharest 21st October 20095

83. Czech Republic (Protocol) 10th June 2010 in Prague 24th March 2011 

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CASES

CAFÉ COFFEE DAY

Café Coffee Day is a division of India's largest coffee conglomerate, Amalgamated Bean

Coffee Trading Company Ltd. (ABCTCL). ABCTCL grows coffee in its own estates of 10,000

acres (4047ha). The land value of the plantations is U$250-300 million.] It is the largest

producer of Arabica beans in Asia. Apart from this, the group also sources coffee from

11,000 small growers.

ABCTCL is one of India’s leading coffee exporters with clients across USA, Europe and

Japan.

LOGO

CAFÉ EMPORIO

Café coffee day, in June 2010, acquired Café Emporio- A café chain from Czech Republic.

Cafe Emporio has 11 cafes in Czech Republic- 7 of them in Prague and 1 each in Brno andOlomouc and 2 at Freeport-Hate. Café Emporio runs on 2 formats similar to CCD’s regular

cafés and Lounge & Square set ups. The regular cafes are pure play cafés serving hot and

cold beverages and ready to eat snacks while the lounges and squares come with a broader

menu and elegant layouts.

CAFE COFFEE DAY –BRAND STRATEGY

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 “CCD today has become the largest youth aggregator, and from a marketing stand point,

the success has come by focusing on the 3As: Accessibility, Affordability and 

 Acceptability .” - BidishaNagaraj, the Marketing president of Cafe Coffee Day

“Although demographically, a typical consumer would be male or female between 15-29

years of age, belonging to middle or upper middle class, we call our consumers young or 

young at heart. We are about juke boxes, good and affordable coffee and food. The brand fit 

is with youth or the young at heart. So we often look out for brands that are aspirational in

nature.”   – SudiptaSen Gupta, Marketing head, Café Coffee Day.

CCD –AN ESTABLISHED BRAND IMAGE IN INDIA

Cafe Coffee Day (CCD) has an established brand image in India and ranks No 2 in the Brand

Equity’s Most Trusted Brands 2008 survey  – in the food services category. Rival Barista is at

No 5. CCD has been able to make a connection with the Indian consumers, predominantly

among the youth. CCD is the market leader in India and was awarded the ‘Exclusive Brand

Retailer of the Year’ by ICICI Bank in its Retail Excellence Awards 2005 for the organized

retail sector.

CCD’s wide network –the anytime, anywhere cafe

CCD has been able to make its brand presence felt through the sheer number of stores. CCD

has 620 cafes at present and it has ambitious plans to launch more than 900 cafes by the

end of the current financial year. This means launching one store every other day which is

not surprising from a company which launched a cafe (in 2005) in Vienna, the coffee capital

of the world. CCD also has three cafes in Vienna, and two in Karachi, Pakistan. Lagging

behind CCD in the Indian market, Barista has about 200 cafés, Java Green (around 75 cafés)

and Mocha (around 25 cafés). The Indian organized sector has potential for around 5,000

cafés but fewer than 1,000 cafés exist currently.

Exhibit 1: Total number of stores/cafes of Café Coffee Day and its competitors

  CCD’s vision: To be the only office for dialogue over a cup of coffee

  CCD’s Expansion Strategy: Cafe Coffee Day has around 821 outlets in 115 cities in India.

CCD plans to take the total number of cafes to 1,000 by March 2010 and double it to

2,000 by 2014. In October 2009, CCD announced that it will increase its international

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presence from the current six outlets in Vienna and Pakistan to a total of 50 stores across

Europe and Middle East in two years time.

  International coffee chains in India – Recent entrants in the Indian market includeGloria Jeans, Coffee Bean & Tea Leaf and Illy Café.

  Operating Formats  – Café Coffee Day operates in both regular (Coffee Day Square) and

premium formats (Lounge).

  Highway Cafes: In 2004, CCD began cafes on highways. By 2009, the total number of Café

Coffee Day highway cafes rose to 30 owing to the overwhelming response it received

from travellers.

  CCD’s new brand identity: In October 2009, CCD unveiled a new brand logo, a Dialogue

Box, to weave the concept of ‘Power of Dialogue’. In accordance with this new brand

identity, CCD planned to give all its existing outlets a new look by the end of 2009. Cafés

would be redesigned to suit different environments such as book, music garden and

cyber cafes suitable for corporate offices, university campus or neighborhood. Thechange plan included new smart menu, furniture design, among others.

  Coffee consumption in India is growing at 6% per annum compared to the global 2%

plus. In India, the per capita consumption of coffee is around 85 grams while it is six kgs

in the US.

  Milk production in India  – India is the largest producer and consumer of milk in the

world with 98% of milk being produced in rural India.

  Coffee production in India  – India ranks sixth as a producer of coffee in the world

accounting for 4.5% of the global coffee production. India has about 170,000 coffee

farms cultivating around 900,000 acres of coffee trees.

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  CCD’s International Expansion Strategy  – In June, 2010 Cafe Coffee Day chain acquired

Emporio for Rs 15 crore. Emporio is a Czech Republic-based café chain present at 11

locations. CCD plans to co-brand the chain as Café Coffee Day Emporio and later

transition it to Café Coffee Day. CCD is also present in Vienna. The company wants toexpand in the East European region, West Asia and the Asia-Pacific region.

  Cafe Market in India  – Coffee retailers cover only 170 cities out of 3,000 in India (early

2011 reports). In 2008, according to Technopak Advisors, the Indian food servcies market

 – cafes, full-service restaurants, fast-food outlets/quick-service restaurants was

estimated to be $6 billion (Rs 26,000 crore) with organized players taking 13% of the

market. (By 2014 this number is expected to increase up to 27 %.). According to

Technopak Advisors, the café market in India is estimated at $150 million (Rs 678 crore)

and growing at 40 per cent over the last five years.

  Organized coffee market in India: The organized coffee market in India is about Rs 600

crores. This is approximately 20% of the total domestic coffee consumption (Rs 3,000

crores).

  New Entrants in Indian Coffee Cafe market: In early 2011, Hindustan Unilever, the FMCG

giant planned to open a cafe outlet in Mumbai named ‘Bru World Café‘ to popularize its

in-house coffee brand Bru (HUL’s only coffee brand sold only in India). 

  CCD to double its human resources count: CCD has 6,500 employees (as per Feb 2011

figures) with each cafe requiring about 6 employees. CCD plans to double its employee

count by 2013.

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MAHINDRA REVA ELECTRIC VEHICLES PRIVATE LIMITED

Mahindra Reva Electric Vehicles Private Limited, formerly known as the Reva Electric Car

Company, is an Indian company based in Bangalore, involved in designing and

manufacturing of compact electric vehicles. It is one of the first companies to introduce

electric vehicles worldwide. The company's flagship EV REVAi is the world's best selling

electric vehicle so far. The company has been acquired by Indian conglomerate Mahindra &

Mahindra in May 2010, and now operates as one of its parent's marquees.

HISTORY

The Reva Electric Car Company (RECC) was founded in 1994 by Sudarshan Maini, chairman

of the Maini Group of Bangalore, as a joint venture with Amerigon Electric Vehicle

Technologies (AEVT Inc.) of the USA. The company's sole aim was to develop and produce

an affordable compact electric car. Several other automakers were also aiming to do so, but

in 2001 RECC launched the REVA, its first model, and the world's first mass produced electric

car.

REVAi electric vehicle

RECC joined up with several automotive experts to develop components for REVA. Curtis

Instruments Inc. of USA developed a Motor Controller specifically for the car. The car had a

high-tech power pack for which Tudor India Limited supplied

customized Prestolite batteries. The Charger for Reva was developed byModular Power

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Systems of USA (a division of TDI). Later, RECC started manufacturing the charger

themselves through a technical collaboration agreement between MPS and the Maini

Group.

In 2004 GoinGreen of the UK entered into an agreement with RECC to import REVA cars and

market them under the G-Wiz moniker.

In 2006 Riva received an additional investment of $20 million from Draper Fisher Jurveston

and Global Environment Fund (GEF).

In 2008 a revamped REVA model was launched called the REVAi. The company started

production of a Lithium-ion variant called the REVA L-ion in 2009.

In 2009 at the Frankfurt Motor Show, Reva presented its future models Reva NXR and Reva

NXG. During the event Reva and General Motors India declared a technical collaboration to

develop affordable EV for the Indian market. As a result of this General Motors India

announced an electric version of their hatchback in the New Delhi Auto Expo 2010: named

the e-Spark, Reva was to provide battery technology.

On May 26, 2010, India's largest sports utility vehicles and tractor maker Mahindra &

Mahindra bought a 55.2% controlling stake in Reva. Following the deal, the company was

renamed Mahindra Reva Electric Vehicles Private Limited. Mahindra’s president of 

automotive business, Pawan Goenka, became the new company’s chairman. As a result of 

the ownership change General Motors pulled out of the tie-up with Mahindra Reva that was

to produce the e-spark.

In Feb 2011 GoinGreen, the UK's exclusive importer of the G-Wiz, announced that it would

only sell G-Wiz models until Autumn 2011.