Since 1991, with the announcement of New Economic Policy, 1991 India also embarks on the path of globalisation. India was facing a severe financial crisis. It approached International Monetary Fund and World Bank for help. IMF agreed to led money to India on the condition that India will introduce structural changes in its economy. As a result, India announced the policy of LPG i.e. Liberalisation, Privatisation and Globalisation. Then on 1 January, 1995 WTO was formed. India became founder member of WTO and thereby was under a compulsion to follow rules and regulations of WTO. Therefore, it had to open up its economy for rest of the world and they also allowed India to enter their markets. Though the process of reforms has somewhat slowed down, India is very much on the path of globalisation.

Major limitations of contract manufacturing are discussed below:
(a) Non adherence to quality standards:
Local firms may not adhere to quality standards or product design. It may cause serious quality problems for international firm.
(b) No control on production by local producer:
Local producer has no control on manufacturing as goods are manufactured strictly as per the terms and specifications by international firm.
(c) Zero control over sales:
Local producer can't sell the output to customers directly. He needs to sell to the international firm at a pre-determined price. It reduces profits of local firm.

Nations trade because of following reasons:
(a) Unequal distribution of natural resources:
Resources are unequally distributed in natural resources. Some countries are abundant in one commodity and scarce in other while opposite is true for some other country. It makes a case for international trade and exchanging abundant commodity with scarce commodity by nations.
(b) Unequal availability of factors of production:
Different nations are endowed with different factors of production which includes land, labour, capital and entrepreneurship. For example, India is a labour abundant country. Therefore, it is advisable for India to produce such commodities which use labour intensive methods and exchange it for those which use capital-intensive methods. USA is a capital abundant country. Therefore, nations need to trade.
(c) Theory of Comparative Cost Advantage:
Due to these factors, some countries are in an advantageous position in producing selected goods and services which other countries cannot produce that effectively and efficiently and vice-versa. Consequently, each country finds it advantageous to produce those selected goods and services that it can produce more effectively at home and importing those goods in which other nations have a comparative cost advantage.
(d) Geographical Specialisation:
The international business as it exists today is the result of geographical specialisation. Even within a country, each state specialises in those goods for which it is geographically more suitable. Similarly, each nation specialises in those goods in which it is specialised as per availability of resources and exchanges it for other goods and services in foreign market.
(e) Cost minimization principle of firms:
Firms get involved in international business to minimise their costs and maximise their profits.

The major reason behind international business is that the countries cannot produce equally well or cheaply all the commodities. This is called theory of comparative cost advantage. It is so because resources are unequally distributed in natural resources. Some countries are abundant in one commodity and scarce in others while opposite is true for some other country. It makes a case for international trade and exchanging abundant commodity with scarce commodity by nations. Different nations are endowed with different factors of production which includes land, labour, capital and entrepreneurship. For example, India is a labour abundant country. Therefore, it is advisable for India to produce such commodities which use labour-intensive methods and exchange it for those which use capital-intensive methods. USA is a capital abundant country. Therefore, nations need to trade. Due to these reasons one country has a comparative advantage in production of particular goods as compared to other countries. Consequently, each country fins it advantageous to produce those selected goods and services that it can produce more effectively at home and importing those goods in which other nations have a comparative cost advantage.

The following are some of the advantages of foreign trade:
1. Optimum use of resources:
Foreign trade helps in the optimum use of natural resources and avoids wastages of resources. It ensures the presence of stable price by avoiding wide fluctuations in prices. It tries to equalise the world price.
2. Increased standard of living:
It ensures more production to meet the demand of the people of different countries. By increased production, it becomes possible to increase income and the standard of living of its people. It also increases the standard of living by increasing more employment opportunities. It enables a country to import those goods which it cannot produce.
3. Large scale production:
It ensures large production because the production is carried on to meet the demand of its people as well as world market. Large scale production also ensures a great deal of internal economies which reduces the cost of production.

Difference between international trade and international business is similar to difference between trade and business.
1. The scope of international business is much wider than international trade. International trade means exports and imports of goods which is an important component of international business but international business includes much more than this.
2. International trade in services like travel and tourism, transportation, communication, banking, warehousing, distribution and advertising is a part of international business.
3. International business also includes foreign direct investments, contract manufacturing, and setting up wholly owned subsidiaries etc. which are not included in international trade.

A small business should consider following factors in selecting mode of entering into international business.
(a) Ease of entry:
First and foremost factor that determines the choice of mode of entry into international business is ease of entry. A businessman wants to adopt such mode of entry into international business which is easy and less formalities requiring. Exporting, importing, licensing and franchising are better ways from this perspective.
(b) Cost:
Second determining factor is cost involved. For example, very less cost is involved in exporting, importing, licensing, franchising and contract manufacturing as compared to joint ventures and setting wholly owned subsidiaries.
(c) Control over production:
If the foreign company or producer wants full control over production activities in local country, he will prefer franchising, wholly owned subsidiary or joint venture with majority share holding. If it is not so important, he will prefer exporting, importing, contract manufacturing licensing etc.
(d) Sharing of Technology:
If the company has no problem in sharing of technology then it may choose joint venture or franchising. But if it does not want to share its technology and trade secrets, it will prefer wholly owned subsidiary or exporting.
(e) Risk Involved:
If a firm is ready to take risk, it may choose wholly owned subsidiary or joint ventures but if it is willing to minimise its loss then it should choose exporting, licensing, franchising or contract manufacturing.
In my opinion, being a small businessman he will prefer exporting or licensing, franchising to other modes of business as it is easy, less costly, gives greater control over production and involves lesser risk.

The benefits of international business to nations are as follows:
(a) Earning of Foreign exchange:
International business helps a country to earn foreign exchange. It can use it for meeting its payments abroad.
(b) Better utilization of resources:
It is based on the principle of comparative cost advantage. It implies that produces what your country can produce more efficiently, and trade the surplus production so generated with other countries to procure what they can produce more efficiently. When countries produce on these principles, it increases their resource utilization.
(c) Improving Growth Prospects and Employment Potentials:
Producing solely for the purpose of domestic consumption severely restricts a country's prospects for growth and employment.
(d) Increased Standard of Living:
In the absence of international trade of goods and services, it would not have been possible to enjoy the standard of living it is enjoying now.
The benefits of international business to firms are as follows:
(a) Prospects for higher profits:
International business proves more profitable as compared to domestic business. When prices in domestic market are lower, business firms can earn higher profits by selling their products in foreign countries.
(b) Increased Capacity Utilization:
Many firms set up production capacities for their products which are in excess of demand in the domestic market by planning overseas expansion and procuring orders from foreign customers. It allows them to make better use of their surplus capacity.
(c) Prospects for growth:
Business firms find it very irritating when there is fall in demand or saturation point comes in domestic market. Such firms can grow considerable prospects of their growth by entering into international business.
(d) Way out to intense competition in domestic market:
When competition in domestic market is very intense, internationalization seems to be the only way for significant growth. Highly competitive domestic market motivates many firms to enter into international business.
(e) Improved Business Vision:
The growth of international business of many companies is important for their survival and goodwill. Vision to become international is expression of urge to grow and the need to diversify and to take benefit of strategic advantages of internationalisation.

Trade in services is called invisible trade. Since services are invisible, export and import of services has been named as invisible trade. In absolute terms, there has been significant increase in India's foreign trade in services. Export and import of foreign travel, transportation and insurance has largely increased during last four decades. There has been a change in composition of services exports. Software and other miscellaneous services have emerged as the main categories of India's export of services. Share of travel and transportation has declined to 29.6 % in 2003-04 from 64.3 % in 1995 - 96 while the share of software exports has increased from 10.2 % in 1995-96 to 49 % in 2003 - 04.
Table showing Percentage share of major services to total services exports

The composition of India's external trade has been changing. During 1950s and 60s exports were mainly of primary goods. Over time, the role of engineering goods has been increasing. Overall manufactured goods constitute 66 % of total exports, of which engineering goods are 27%. Textiles and textile products, garments and leather products make around 10 % of India's exports.
In nutshell, we can say that the role of the external or internationally traded goods sector has been growing steadily in Indian economy. At present imports and exports together account for upto 49 %of India's GDP which was 18 % in 1990s. In India there is greater share of exports of services which are IT software services, called ITenabled services CITES). It contributed more than 20 % of India's export earnings. India accounts for about 45 % of the world's BPO services. The major Indian IT companies, TCS, Infosys and Wipro, initiated and perfected the Global Services Delivery (GSD) model. It is because India has a vast pool of software engineers and an even bigger pool of English-knowing staff. With growing competition in the market for such services, Indian companies have moved from BPO to Knowledge Process Outsourcing (KPO), which involves providing services for R and D and to high-end consulting.

Royalty.

Indirect exporting

Licensing is used for goods and franchising is used for services.

Comparative cost advantage in production of some goods.

International business.