THE NATURE AND SCOPE OF INTERNATIONAL BUSINESS

INTERNATIONAL
UNIT 1 SECTION
BUSINESS
1
Unit 1, section 1: The nature and scope of international business

Dear student, Section 1 of Unit 1 introduces you to the nature and scope of
International Business. International Business simply deals with how goods
and services are produced and exported by international companies or firms
around the globe for acquisition, purchase, and consumption. Thus, a simple
item like a tooth brush, singlet, or a mobile phone may be processed in more
than six countries from the raw material stage until it gets to the final
consumer.

By the end of this Section, the student should be able to:

 explain the nature and scope of international business
 understand some international business terminologies
 identify some international business transactions
 explain the term globalisation
 identify the advantages of globalisation
 pin point some of the disadvantages associated with globalisation

The Nature and Scope of International Business

But for the alarm bell which your Samsung Galaxy mobile phone from
South Korea gave you at 05.30 GMT, you would not have woken up on
time. Because you are so tired from yesterday’s hectic activities, you have
forgotten that you should get to your Course Centre for today’s Quiz at
07.30 GMT. Last night, you forgot to switch off your Sony Wireless set
from Japan, and so the BBC World Service has been blaring the news of
Nelson Mandela’s death in your ears all night long! Is it a shocking news to
you?

Due to time constraint, you know that today you cannot prepare your
favourite local dish of green plantain with nkontomire stew plus the usual
koobi, as your breakfast. Instead, after brushing your teeth with ‘maxima’
tooth paste from Sweden, you will prepare a cup of tea brewed from
Chinese herbs with skimmed milk powder from New Zealand and brown
sugar from Cuba. The T-shirt you have just put up was manufactured in
India, although the cotton was grown in the USA, but the fabrics made in
Spain. The leather which was used in manufacturing your Italian shoes was
prepared in France, even though the hide from the cattle were reared in
Australia.

The Opel Astra taxi cab that you will board to your Course Centre was
manufactured in Germany, but shipped by a Singaporean vessel flying the
Argentinean flag. The ship sailed from Belgium to Togo’s free port at
Lome, for onward transmission through the Aflao border to Accra. The
petrol in the vehicle which was bought from the Shell Filling Station was
imported from Brazil, although the crude oil came from Nigeria. The
Goodyear tyre under the vehicle was manufactured in Malaysia, even
though the rubber is grown in Sierra Leone.

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Whilst you were just about to finish your lectures at 12.00 o’clock on
Saturday, two friends of yours Whatsapped you from Honolulu, USA
[GMT-10]; and Kamchatka, Russia [GMT+12] respectively. The lady from
Honolulu says her time is 02: 00 am at dawn, and she has just finished
sipping a cup of hot Golden Cocoa Chocolate from Switzerland, a product
patented in the UK, even though you know the raw material comes from
your own Ghana. The guy from Kamchatka says his time is 12:00 midnight;
but that just as he was about to retire to bed, CNN was beaming the death of
Nelson Mandela live on his flat screen Sony television.

Now, do you have anything in common with your two friends who
Whatsapped you? Yes, of course! You are all consuming products which
have been designed by some foreign firms, but manufactured by different
foreign companies in different locations around the globe, and transported,
distributed, and marketed by a web of international and domestic
wholesalers and retailers right into your locality for your consumption. This
is what International Business is all about.

Some International Business Terminologies

Dear student, you will agree that every human activity, including athletics,
football, boxing, music, religion, and what have you, have all gotten their
own specialised vocabulary or terminologies. The same thing applies to
International Business. Some of these terminologies include:
 Business Entity
 Foreign national / Expatriate
 Trademarks / Patents / Franchise
 Multinationals / Multi-domestic / Transnational / Conglomerates;
 Home country /Host country
 Foreign Direct Investment
 Foreign Exchange / Convertible currency

A business entity is any sole proprietor, partnership, joint venture, company,

organisation, or setup that is engaged in any form of trade, business,
profession, or vocation. A foreign firm is one which is owned by a foreigner
or foreigners.

Foreigners working in another country are known as expatriates. This means

they are in a certain host country, away from their home country. Foreigners
may invest directly in foreign countries which are referred to as foreign
direct investment, or team up with some local businesses through what is
called copyrights, patents, trademarks, licenses, or franchise.

Firms that are engaged in International Business may be termed as multi-

domestic, multi-nationals, trans-nationals, or conglomerates. These are giant
corporations whose annual turnovers far exceed those of some advanced
economies. On regular basis, these huge corporations repatriate their surplus

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profits back to their home countries after paying both their domestic and
expatriate staff salaries, and the appropriate taxes.

International Business is a relatively new discipline and it is very dynamic.

Hence, definitions of a number of terms vary among users. For instance,
whereas some writers use the words ‘world’ and ‘global’ interchangeably to
describe a business with widespread international operations, others define a
global business as a firm that tries to standardize its activities in all its
operational areas, and also responds to national market deficiencies, when
necessary.

From the definition above, a global firm:

 Searches the world for market opportunities, sources of raw materials,
finance, new process technology, better distribution channels, and
personnel;
 Tries to maintain a dominant position in key markets; and
 Strives to set the benchmark, or become the pace-setter

Using the term global in this manner, a multinational firm may be defined
as a business that has a number of overseas operations with the freedom to
adapt product and marketing strategy to suit the domestic markets. Some
academics consider multinationals to be synonymous with transnational
corporations. However, governments of most developing countries and the
United Nations prefer to use transnational instead of multinational to
describe firms doing business in more than one country. Business gurus on
the other hand define a transnational firm as a business established by a
merger of two firms of the same size that are from two different countries
(e.g. AngloGold Ashanti [South Africa and Ghana], and SG SSB Bank
[France and Ghana]).

More recently, the term global company has taken on a new identity. It is
now seen as a culturally diverse organisation, which is incorporating much
of the technology of current worldwide standardization in its operations than
previously. Utilizing its worldwide assets more efficiently and effectively
against competitors, global firms locate production plants all over the world
to gain the benefit of a skilled workforce and a lower labour cost.

The terminologies above can be summarised as follows:

 Global company refers to a firm that attempts to standardise operations
in all its operational areas.
 Foreign business is a domestic or home company operating in a foreign
or host country.
 International business is a business whose activities cut cross national
frontiers. Included in this definition are firms in the service industry in
such areas as advertising, banking, transportation, construction, tourism,
and communication.

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 Multi-domestic company applies to a company with affiliates in other

countries. Each of the affiliates formulates its own business strategy
depending on actual or potential market differences perceived.
 International company refers to global and multi-domestic firms.

Convertible Currencies
Because of its very nature of involving the whole international community,
not all currencies are acceptable as a medium of exchange in International
Business. Thus, some country’s currencies, such as Ghana’s own cedi, are
not convertible currencies in International Business. Some convertible
currencies include the almighty US dollar, the Euro, the Pound Sterling, the
Japanese Yen, and the Canadian Dollar.

Some International Business Transactions

Advancement in technology and relaxed political barriers has made it
possible for companies to sell their products overseas as well as at home.
And, as differences among nations continue to narrow, the trend toward the
globalization of international business transactions is becoming increasingly
important.

International Business transactions may be private or governmental. In the

case of private transactions, the primary motive may be for profit. However,
governments engage in international business for economic growth and
development of the country as a whole.

International Business transactions will normally include some of the under

listed activities:
 Transactions in primary products such as gold, diamonds, bauxite,
phosphate, crude oil, gas, cocoa, coffee, groundnuts, palm oil, timber,
sea foods, meat and diary products etc.
 Transactions in manufactured or semi-processed goods both for exports
or imports.
 Capital investment in agricultural, extractive, manufacturing,
communication and transportation assets.
 Investment in international services such as banking, advertising,
construction, tourism, hotel industry, land and sea transport etc.
 Transactions involving trademarks, copyrights, patents, franchise, and
other process technology.
 Human resource training and development in the fields of agriculture,
medicine, engineering, communication, law, accounting and finance,
money and banking policing, urban planning, public health and
sanitation.
It must be noted right from the beginning that, essentially, direct portfolio
investment in stocks and bonds of foreign countries is not part and parcel of
international trade or business

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Globalisation
Dear student, as we rightly saw in the Section Introduction, Globalisation is
not a new phenomenon but probably a just modern day terminology to
describe what has always existed with the evolution and progress of
mankind.

Globalisation is merely a paradigm shift toward a more integrated and

interdependent global economy for mankind’s growth and development.
Indeed, the term Globalisation is of very recent origin. It emanated with the
creation of the World Wide Web [www] or the Internet which has now
reduced the sharing of information that occurs at any corner of the globe
instantaneously or real time through the pressing of a button!

To trace the history of Globalisation simply means tracing the history of

mankind through his fruits-gathering days for his survival, through his co-
existence, civilisation and socialization, with foreigners, through agriculture,
the production of goods and services, trade and investment, transportation,
communication, distribution, and consumption.

It can rightly be seen that the main drivers of Globalisation have been the
persistent improvement in human transportation from foot through camels
and donkeys, through to canoes, locomotives and steam engines, cars, ships,
and airplanes. This phenomenon has now led to the real time processing and
consumption of information for instant decision-making, the mass and just-
in-time production of goods and services for immediate distribution and
consumption anywhere around the globe.

The Advantages of Globalisation

Dear student, it will be recalled from the previous Section that Globalisation
has been the result of the shift toward a more integrated and interdependent
global economy. Is this phenomenon called Globalisation an evil, or a good
thing?

Academics, business people, politicians and economist agree that it is a

good thing. They reason that removing barriers to International Trade and
Business lead the global economy to prosperity. They argue further that
increased cross-border trade and investment result in lower prices of goods
and services. This in turn stimulates economic growth, leading to the
creation of jobs, and the consequent increase in income levels globally.

The specific advantages of Globalisation include:

 Mass production of goods and services for human consumption;
 More economic integration of the global economy;
 Constant innovation and improvement of goods and services through
competition

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 Improvements in ICT and the real-time processing of information for

decision-making
 Globalisation has turned the world into a global village

Some Disadvantages of Globalisation

Critics of Globalisation argue that it is double-edged sword. On one hand, it
destroys jobs in the advance economies such as the US, Germany and Japan,
because removing barriers to trade enables the multi-national corporations
or conglomerates to move their operations offshore to countries where
labour costs are cheaper.

On the other hand, the dumping of mass produced goods and their waste
disposal in poor developing countries stifles industrialisation, while
encouraging the brain-drain

In addition, the critics argue that falling trade barriers motivates businesses
in developed countries to relocate their operations to developing countries
that lack adequate regulations to protect labour and the natural environment.
Finally, opponents of Globalisation claim that it undermines the sovereignty
of recipient countries. The critics argue that with economic power moving
away from national governments to international consortiums and
conglomerates, bureaucrats in these organisations are able to impose
policies on democratically elected governments, thereby limiting the ability
of the countries to control its own affairs.

Summary
This Section introduced the concept of Globalisation which has been so
much bandied around that it has now become a term of art rather than a
concept. But Globalisation is not a new phenomenon. It has existed since
the time of Adam because it simply means mankind getting closer together
by means of production, distribution, and consumption of goods and
services across the globe. Globalisation means the trend of the world now
becoming one big global village!

Dear reader, do you now realise that Globalisation is merely the expression
of mankind’s history and progress since the dawn of time? It is the gradual
coming together of mankind into one big global village through
information-sharing, economic integration, trade and investments, and the
production, distribution, and consumption of goods and services.

Please, refer to other texts in the references provided for further information
on the meaning and importance of this topic. Put down any important notes
you come across in the blank sheet provided below for face-to-face
discussions with your course lecturer.

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Now assess your understanding of this Section by answering the following

Self-Assessment Questions [SAQs]. Good luck!

Activity 1.1
 What is International Business?
 Iceland is located in which Time Zone?
 What is the time in Honolulu Island and Kamchatka in Russia when it is
6.00 am in Accra on Monday?
 What is the time in Nuku’alofa in Tonga and Midway in USA when it is
6.00 pm in Tema on Tuesday?
 What differentiate International Business from Domestic Business?
 What is a Conglomerate?
 Who is an Expatriate?
 What is a host country?
 Can you mention any five convertible currencies?
 Is the shipment of cocaine from Caracas to Accra an International
Transaction?
 Is money transfer from Afghanistan to Winneba an International
Transaction?
 What is Globalisation?
 Is Globalisation a new phenomenon?
 What are the main drivers of Globalisation?
 When will Globalisation come to an end?

Did you score all? That’s great! Keep it up.

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