Business chapter 1-5
trading company
-A firm that buys goods in one country and sells them to buyers of another country -Handles all trade activities; similar to export agents but their role is broader
franchising
-A form of licensing in which a company - the franchiser - agrees to provide a franchisee a name, logo, methods of operation, advertising, products and other elements associated with a franchiser's business, in return for a financial commitment and the agreement to conduct business in accord with the franchiser's standard of operation -Allows companies to enter international marketplace without spending a lot
licensing
-A trade agreement in which one company - the licensor - allows another company - the licensee - to use its company name, products, patents, brand, trademarks, raw materials and/or production processes in exchange for a fee or royalty -An attractive alternative to direct investment when political stability is in doubt
why do nations trade
-Absolute Advantage:A monopoly that exists when a country is the only source of an item, the only producer of an item, or the most efficient producer of an item -Comparative Advantage:The basis of most international trade, when a country specializes in products that it can supply more efficiently or at a lower cost than it can produce other items -Outsourcing: The transferring of manufacturing or other tasks - such as data processing - to countries where labor and supplies are less expensive
North American free trade agreement (NAFTA)
-Agreement that eliminates most tariffs and trade restrictions on agricultural and manufactured products to encourage trade among Canada, the U.S. and Mexico
balance of trade
-Balance of Trade:The difference in value between what a nation exports and its imports -Trade Deficit:A nation's negative balance of trade, which exists when that country imports more products than it exports -Balance of Payments: The difference between the flow of money into and out of a country
S corporation
-Corporation taxed as though it were a partnership with restrictions on shareholders -Eliminates double taxation and retains the limited liability benefit -Very popular with entrepreneurs, representing nearly half of all corporate filings
what are some social and cultural barriers?
-Differences in the spoken and written language -Appropriate body language, posture, facial expressions and personal space may vary by nation -Family roles may differ in different societies -Other nations often have a different perception of time -National customs and holidays must be respected -Most nations use the metric system
disadvantages of a corporation
-Double taxation -Expensive to form -Disclosure of information to the government and the public -Owners and managers are not always the same and can have different goals
advantages of partnerships
-Easy to organize -Availability of capital and credit -Combined knowledge and skills -Swift decision making -Government regulations are few
financing options
-Equity financing -Debt Financing
trade between countries
-Exporting:The sale of goods and services to foreign markets-U.S. exports = $2.3 trillion+ -Importing:The purchase of goods and services from foreign markets-U.S. imports = $2.9 trillion+
disadvantage of a franchise
-Fees and profit sharing -Standardized operations -Restrictions on purchasing -Limited product line•Possible market saturation -Less freedom in decisions
focus advantages
-Focus efforts on a precisely defined market niche (a specific group of custom
limited liability company (LLC)
-Form of ownership that provides limited liability and taxation like a partnership but places fewer restrictions on members -Considered a blend of the best characteristics of corporations, partnerships and sole proprietorships
international trade barriers
-Free trade seldom exists:Economic barriers,Ethical, legal and political barriers,Social and cultural barriers,Technological barriers -Some countries have copyright and patent laws that are less strict than those of the U.S., and some countries fail to honor U.S. laws
trade agreements, alliances, and organizations
-General Agreement on Tariffs and Trades (GATT)•Agreement signed by 23 nations in 1947, provided a forum for tariff negotiations and a place where international trade problems could be discussed and resolved -World Trade Organization (WTO)•International organization dealing with the rules of trade between nations, evolved from GATT
minority owned business
-Growing faster than other classifiable firms -Represent almost15% of all small businesses
limited partnership
-Has at least one general partner, who assumes unlimited liability, and at least one limited partner whose liability is limited to his or her investment in the business
High Technology
-High technology describes businesses that depend heavily on advanced scientific and engineering knowledge
creating a corporation
-Incorporators create the corporation -Follow state procedure of chartering the corporation -Incorporators file legal articles of incorporation with the state -State issues a legal corporate charter to the company -Owners establish bylaws and elect board of directors
economic barriers
-Industrialized nations are economically advanced•United States•Japan•Great Britain•Canada -Less-developed countries have low per capita income -Potentially huge, and profitable, untapped market
general partnership
-Involves a complete sharing in both the management and the liability of the business -50/50 share
keys to success in a partnership
-Keep profit sharing equitable based on contributions. -Partners should have different skill sets or resource contributions. -Ethics and compliance are required. -Must maintain effective communication. -Maintain transparency with shareholders. -Be realistic in resource and financial management. -Previous experience related to business is helpful. -Maintain life balance in time spent on business. -Focus on customer satisfaction and product quality. -Maintain resources in line with sales and growth expectations and planning.
articles of partnership
-Legal documents that set forth the basic agreement between partners
advantages of a corporation
-Limited liability -Ease of transfer of ownership•Perpetual life -Securing funding is easier than for other forms of business -Expansion potential
cooperatives or co-ops
-Organizations composed of individuals or small businesses that have banded together to reap the benefits of belonging to a larger organization -Set-up not to make money as an entity but so members can become more profitable or save money
private corporation
-Owned by just one or a few people who are closely involved in managing the business -None of their stock is sold to the public -Private companies are not required to disclose financial information publicly
venture capitalists
-Persons or organizations that agree to provide some funds for a new business in exchange for an ownership interest or stock -hope to purchase the stock of a small business at a low price and then sell the stock for a profit after the business has grown successful -Although this form of equity financing has helped many small businesses, they require that the small-business owner share the profits of the business (and sometimes the control, as well) with the investors
equity financing
-Referred to as equity financing because the owner uses real personal assets rather than borrowing funds from outside sources to get started in a new business -Can also obtain equity financing by finding investors for their operations and selling stock in the business to family members, friends, employees or other investors -not borrowing
women owner business
-Responsible for employing millions of workers -Women own more than 10 million businesses nationwide -growing rapidly
retailing and wholesale
-Retailers acquire goods from producers or wholesalers and sell them to consumers
initial public offering
-Selling a corporation's stock on public markets for the first time -Done when a private corporation wishes to "go public" or to raise additional capital and expand
services
-Service sector includes businesses that do not actually produce tangible goods (80% of U.S. jobs)
stock
-Shares of the corporation that may be bought or sold -Can also be gifted or inherited
flexibility advantages
-Small size allows flexibility to adapt to changing market demands -Usually only one layer of management (the owner) so decisions can be made and executed quickly
advantages of cost
-Spend less money on wages/salaries, rent, utilities, etc. -Use external firms to handle accounting, advertising, and legal counseling -Friends and family volunteer time to work on projects
starting a business
-Start with a concept or general idea -Create a business plan -Devise a strategy for planning and development -Make decisions -Form of ownership -Financing -Acquire existing business or start new? -Buy a franchise?
starting from scratch vs. buying and existing company
-Starting from scratch can be expensive and requires promotional efforts to familiarize customers with the business -Existing businesses have the advantage of a built-in network of customers, suppliers, and distributors -Reduces some of the guesswork inherent in starting a new business -Entrepreneur who buys an existing business also takes on any problems the business already has
technological barriers
-Technological Advances:Are creating global marketing opportunities-Create new challenges and competition -Changing Technologies:New competitors challenging U.S.-Out of the top six PC companies, three are from countries in Asia
infrastructure
-The physical facilities supporting a country's economic activities, such as railroads, highways, ports, airfields, utilities and power plants, schools, hospitals, communication systems and commercial distribution systems -Level of development is determined in part by a country's infrastructure
exchange rate
-The ratio at which one nation's currency can be exchanged for another nation's currency -Exchange rates vary daily and affect the cost of imports and exports -A government may intentionally alter the value of its currency through fiscal policy
advantages of independence
-To do better for themselves than they could do by remaining with their current employer or by changing jobs -To choose whom they work with, the flexibility of where/when to work, and the option to work in a family setting
advantages of franchises
-Training and support -Brand-name appeal -Standardized quality of goods & services -National/local advertising -Financial assistance -Proven products/format -Centralized buying power -Site selection & territorial protection -Greater chance for success
disadvantages of partnerships
-Unlimited liability -Responsible for each others' decisions -A new agreement is needed if the partnership changes -Difficult to sell a partnership interest -Distribution of profits may be uneven -Cannot find external funding as easily as large corporations
disadvantages of a sole proprietorship
-Unlimited liability -Scarce external funding -Owners need diverse skills -Success is tied to the owner -Lack of qualified employees -Higher taxation rate -have a hard time attracting talented employees
ethical legal and political barriers
-When entering the international marketplace, companies must contend with potentially complex relationships -Different laws of its own nation, international laws and the laws of the nation with which it's trading -Various trade restrictions -Changing political climates -Different ethical values
disadvantages Entrepreneur
-high stress levels -high failure rate -undercapitalization (not having enough money) -managerial inexperienced or incompetence -inability to cope with growth
what industries attract small businesses
-retailing and whole sale -services -manufacturing -high technology
dumping
A company may dump its products for several reasons: 1.Permits quick entry into a market 2.When the domestic market for a firm's product is too small to support an efficient level of production 3.Technologically obsolete products that are no longer salable in the country
multinational corporation
A corporation that operates on a worldwide scale, without significant ties to any one nation or region -They often have greater assets than the countries in which they operate -Many MNCs are targeted by antiglobalization activists, including some violent protests -Activists contend the MNCs increase the gap between rich and poor, misuse scarce resources, exploit the labor markets in LDCs and harm natural environments
public corporations
A corporation whose stock anyone may buy, sell, or trade-Two types of public corporations -Quasi-Public -Owned and operated by the government -Provides a service but often operates at a loss -Nonprofit -Focuses on providing a service rather than making a profit -Not owned by the government
laws and regulations
A firm doing business abroad must understand and obey the laws of the host country -Some countries have restrictions on how much local currency can be taken out of its borders -Other countries limit how foreign companies can operate within the country -Some countries fail to honor U.S. laws and/or fail to enforce their own laws -In some parts of the world, copyright and patent laws are less strict than in the U.S.
partnership
A form of business organization defined by the Uniform Partnership Act as "an association of two or more persons who carry on as co-owners of a business for profit" -One way to minimize the disadvantages of sole proprietorship and maximize its advantages is to have more than one owner -Typically larger than sole proprietorships but smaller than corporations
corporation
A legal entity, created by the state, whose assets and liabilities are separate from its owners-Has many of the rights, duties and powers of a person -Can own and transfer property -Can enter into contracts -Can sue and be sued in court-Account for the majority of all U.S. sales and income -Corporations are typically owned by many individuals and organizations who own shares of the business.
franchise
A license to sell another's products or to use another's name in business, or both
multinational strategy
A plan used by international companies that involves customizing products, promotion and distribution according to cultural technological, regional and national differences
the business plan
A precise statement of the business rationale and a step-by-step explanation of how it will achieve its goals -Acts as a guide and reference document -Explanation of the business -Analysis of competition -Income/expense estimates -Establish strategy for acquiring sufficient funds to keep the business going -Revised periodically to ensure the firm's goals and strategies adapt to changes in the environment
small business administration (SBA)
An independent agency of the federal government that offers managerial and financial assistance to small businesses
small business
Any independently owned and operated business that is not dominant in its competitive area -"Smallness" is relative -Employees less than 500 people
reputation advantages
Because of their capacity to focus on narrow niches, can develop enviable reputations for quality and service
sole proprietorship
Businesses owned and operated by one individual; the most common form of business organization in the United States -Many focus on services rather than manufacturing -Typically employ fewer than 50 people -Comprise nearly three-quarters of all U.S. companies -Women business owners less likely to get access to credit
making big businesses act small
Continuing success and competitiveness of small businesses through rapidly changing conditions in the business world have led many large corporations to take a closer look at what makes their smaller rivals tick -Large firms emulate smaller ones to improve bottom line -Downsizing (right-sizing) - To reduce management layers, corporate staff, and work tasks to make the firm more flexible, resourceful, and innovative -Intrapreneurs - Individuals in large firms who take responsibility for the development of innovations within the organizations
small business owners disadvantages
High stress level •High failure rate •Undercapitalization •Managerial inexperience or incompetence •Inability to cope with growth
domestic corporation
If conducting business in the state in which it is chartered
alien corporation
If conducting business outside the nation in which it is incorporated
foreign corporation
If conducting business outside the state in which it is chartered
manufacturing
Manufacturing goods can provide unique opportunities for small businesses (like customizing products for customers)
debt financing
New businesses sometimes borrow more than half of their financial resources -Banks are the main suppliers of external financing $Federal level: the Small Business Administration (SBA) offers financial assistance to qualifying business -Look to family and friends as sources for long-term loans or other assets for an ownership interest in the business •State the agreement clearly in writing before money changes hands
financial resources
Often, the small-business owner has to put up a significant percentage of the necessary capital -Cash money -Obtain capital
partnerships and taxes
Partnerships are quasi-taxable organizations -Partnerships do not pay taxes, but do file a tax return providing information on profitability and distribution of profits -Partners report their share of the profits and pay taxes at the income tax rate for individuals
dividends
Profits of a corporation that are distributed in the form of cash payments to the stockholders
exchange controls
Regulations that restrict the amount of currency that can be bought or sold -Some countries control their foreign trade by forcing businesspeople to buy and sell foreign products through a central bank -When foreign currency is in short supply -Government uses foreign currency to purchase necessities and capital goods and produce other products locally -Limits its need for foreign imports
the role of international business
The buying, selling and trading of goods and services across national boundaries -Most of the world's population and two-thirds of its total purchasing power are outside the U.S. -Global marketing requires balancing global brands with the needs of local consumers
mergers
The combination of two companies (usually corporations) to form a new company Horizontal merger -Firms that make and sell similar products to the same customers merge Vertical merger -Companies operating at different but related levels of an industry merge Conglomerate merger -Firms in unrelated industries merge
franchiser
The company that sells a franchise
Entrepreneurship
The process of creating and managing a business to achieve desired objectives -Entrepreneurship movement is accelerating, and many new small businesses are emerging -Technology is now easier to obtain by a small business -Websites, podcasts, online videos, social media, cellular phones, and expedited delivery services -Growing trend among small businesses is social entrepreneurship -Social entrepreneurs are individuals who use entrepreneurship to address social problems
franchisee
The purchaser of a franchise
strategic alliance
•A partnership formed to create competitive advantage on a worldwide basis •Used when competition is fierce and costs are high •Becoming predominant in the automobile and computer industries
global strategy
•A strategy that involves standardizing products (promotion and distribution) for the whole world as if it were a single entity
import tariff
•A tax levied by a nation on goods imported into the country -Fixed tariff is a specific amount of money levied on each unit of product brought into the country -Ad valorem tariff is based on the value of the item -Countries sometimes levy tariffs for political reasons -Critics of protective tariffs argue that their use inhibits free trade and competition -Supporters of protective tariffs say they insulate domestic industries, particularly new ones, against well-established foreign competitors
outsourcing
•As defined earlier is transferring tasks to other countries where costs are lower •Insourcing, where foreign companies transfer tasks to U.S. companies, happens more often
advantages of sole proprietorships
•Ease and cost of formation •Allow a high level of secrecy •Owner keeps all profits •Flexibility and control of the business •Government regulation is minimal •Taxes paid only once •Can be dissolved easily
small business owners advantages
•Independence •Costs •Flexibility •Focus •Reputation
political barriers
•Political considerations affect international business daily -Seldom in writing & change rapidly -Political unrest may create a hostile or even dangerous environment for foreign business•Cartel -A group of firms or nations that agrees to act as a monopoly and not compete with each other, in order to generate a competitive advantage in world markets -OPEC is an example of a cartel
tariffs and trade restrictions
•Quota-Restriction on the number of units of a particular product that can be imported into a country -Embargo:A prohibition on trade for a particular product -Dumping:The act of a country or business selling products at less than what it costs to produce them
contract manufacturing
•The hiring of a foreign company to produce a specified volume of the initiating company's product to specification; the final product carries the domestic firm's name •For example, Reebok uses contract manufacturers to produce many of its shoes
direct investment
•The ownership of overseas facilities •For companies who want more control and are willing to invest considerable resources •May involve new facilities or the purchase of an existing operation
offshoring
•The relocation of business processes by a company, or subsidiary, to another country •Different from outsourcing: the company retains control by not subcontracting to another company
joint venture
•The sharing of the costs and operation of a business between a foreign company and a local partner •Used in countries forbidding direct investment from foreign companies or when the company lacks resources or expertise
