Foreign trade is not free from difficulties. The following are some of the important difficulties of foreign trade:
(i) It is a long distance trade and as such it becomes difficult to maintain close relationship between the buyer and the seller.
(ii) Each country has its own language. As foreign trade involves trade between two or more countries, there is diversity of languages. This difference in language creates problem in foreign trade.
(iii) Foreign trade involves preparation of a number of documents which also creates difficulties in the way of foreign trade.
(iv) Some restrictions are imposed on export and import of commodities. These restrictions stand on the progress of foreign trade.
(v) Foreign trade involves a great deal of risks because trade takes place over a long distance. Though the risks are covered through insurance, it involves extra cost of production because insurance cost is added to cost.

Merits of Joint Venture
1. Less Expensive:
It is financially less expensive as local producer also makes some contribution in equity capital. Half of the capital is contributed by local producer. It reduces the burden for foreign investor.
2. Beneficial for projects requiring Large Scale Investment:
It is beneficial for projects requiring large capital investments like construction of metro. In such projects it is generally difficult for a single investor to invest.
3. Knowledge about host country:
Local producers provide knowledge about host country. It helps the foreign investor to establish its foot in host country.
4. Less risky:
Risk gets reduced by involving local manufacturer. First, he makes 50% equity and thereby shares losses and other risks. Secondly, he has an understanding oftaste and preferences of customers in host country, laws and culture of host country.
Disadvantages of Joint Venture
1. Sharing of Technology:
In joint venture, foreign firm shares technology with the local producer. It is risky. He may start a business of his own once he gets acquainted with the technology.
2. Conflicts:
There may be conflicts in managerial decisions as there is dual ownership arrangement.

There has been a phenomenal increase in foreign capital inflow and outflow. Inward foreign investments have increased from 201 crores in 1990 - 91 to 151406 crores in 2003 - 04. India's investment in foreign countries has increased from 19 crores in 1990 - 91 to 83616 crores in 2003 - 04.
Inward foreign investments have grown more than 750 times while India's investment abroad have increased 4927 times. Table showing inflow and outflow of foreign capital in and from India:

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.

A joint venture refers to establishing a firm which is jointly owned by two or more independent firms. It can be entered into three ways:
(a) A foreign investor may buy interest in a local company
(b) Local firm may acquire an interest in an existing foreign firm.
(c) Both local and foreign firms jointly establish a new enterprise.

According to Roger Beneett, "International business involves commercial activities that cross national frontiers."
In the words of John D Daniels and Lee H Radebough, "International business is all about business transactions-private and governmental that involve two or more countries. Private companies undertake such transactions for profits; government may or may not do the same in their transactions."
According to Michael R Czinkota, "International business consists of transactions that are devised and carried out across national borders to satisfy the objectives of the individuals, companies and organizations. These transactions take on various forms which are often correlated."

India's major items of exports include textiles, garments, gems and jewellery, engineering products and chemicals, agriculture and allied products.

India's major items of imports include crude oil and petroleum products, capital goods, electronic goods, pearls, precious and semi-precious stones, gold, silver and chemicals.

The difference between contract manufacturing and wholly owned subsidiary is discussed below:

It is said that licensing is an easier way to expand globally because of its advantages over other modes of international business.
(a) Less Expensive:
Under the licensing, it is the licensee who sets up the business unit. Therefore, licensor has to invest no money. Therefore, it is considered as a cheaper way of entering into international business.
(b) Zero Risk of Loss:
Licensor need not take pain of risk of profits and loss. He is paid a pre-determined fees called royalty by the licensee. As long as licensor continues to produce under the license, licensor keeps on getting his fees irrespective of whether licensee is making profits or incurring losses.
(c) Less risk of government intervention or takeovers:
A local person handles the business in foreign country. Therefore, there are lesser chances of government intervention or takeovers.
(d) Better knowledge of local needs: Since licensee is the local person, he has better understanding of local needs, marketing strategies and business environment.
(e) Safety of Intellectual Property Rights:
As per the terms of the licensing, only licensee can make use of licensor's copyrights, patents and brand names in foreign countries. Therefore, there is lesser risk of these intellectual property rights being missed by other local firms.

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.