Foundations in Business - Exam 2

Statutory Close (or closed) corporation key advantages

see exhibit 6.5 p. 92

*Direct Investment*

(or foreign direct investment) *When firms either acquire foreign firms or develop new facilities from the group up in foreign countries.* This in foreign production and marketing facilities represent the deepest level of bilabial involvement. - High cost / high-dollar commitment represent significant risk if the business doesn't go well. - Compares with this have more control over how their business operates in a given country. - Take the form of either acquiring foreign firm or developing new facilities from the ground up. - Another popular approach: strategic alliances or partnerships that allow multiple firms to share risks and resources for mutual benefit.

How does opportunity cost relate to international trade?

When a country produces more of one good, it must produce less of another (assuming recesses are finite). The value of the second-best choice — the value of the production that a country gives up in order to produce the first product — represents the opportunity cost of the first product.

*Franchise*

a licensing arrangement under which a franchisor allows franchisees to use its name, trademark, products, business methods, and other property in exchange for monetary payments and considerations

publicly traded

anyone with the money and inclination to do so can buy shares and anyone who owns shares is free to sell them.

*Partnership*

*A voluntary agreement under which two or more people act as co-owners of a business for profit.* - formal, long-term agreement

*Partnership*

*A voluntary agreement under which two or more people act as co-owners of a business for profit.* - several types of these

*Strategic Alliance*

*An agreement between two or ore firms to jointly pursue a specific opportunity without actually merging their businesses. Strategic alliances typically involve less formal, less encompassing agreements than partnerships.* - less formal, less encompassing agreement

*General Agreement on Tariffs and Trade* (GATT)

*An international trade treaty (accord) designed to encourage worldwide trade among its members.* - Established in 1948 by 23 nations - has undergone a number of revisions

Nonprofit (or not-for-profit) Corporation key advantages

see exhibit 6.5 p. 92

Nonprofit (or not-for-profit) Corporation limitations

see exhibit 6.5 p. 92

*Franchisor*

the business entity in a franchise relationship that allows others to operate its business using resources it supplies in exchange for money and other considerations

*franchisee*

the party in a franchise relationship that pays for the right to sue resources supplied by the franchisor

*divestiture*

the transfer of total or partial ownership of some of a firm's operations to investors or to another company

S Corporation key advantages

see exhibit 6.5 p. 92

S Corporation limitation

see exhibit 6.5 p. 92

Statutory Close (or Closed) Corporation Limitations

see exhibit 6.5 p. 92

*Vertical Merger* Common Objective? Example?

A combination of firms at different stages in the production of a good or service. Creating a "buyer-seller" relationship. Common Objective: - to provide tighter integration of production and increased control over the supply of crucial inputs. Example: Microsoft acquires movie phone manufacture Nokia for $7.2 billion

Key difference between franchising and licensing?

Franchises assume the identity of the franchisor.

Barriers to International Trade: Economic Differences

Key factors to consider include: - population - per capita income - economic growth rate - currency exchange rate - stage of economic development Keep in mind: low scores for any of these measures don't necessarily equal a lack of opportunity - some of the biggest opportunities are in countries with low per capita income

*Protectionism*

National Policies designed to restrict international trade, usually with the goal of protecting domestic businesses.

*Trade Surplus*

Overage that occurs when the total value of a nation's exports is higher than the total value of its imports.

How double taxation reduces earnings for stockholders

Pre-Tax Corporate Earnings | \/ *corporate taex* | \/ after tax corporate earnings | \/ stockholders | \/ * personal income taxes * | \/ stockholder's after-tax income

*Balance of Payments Deficient*

Shortfall that occurs when more money flows out of a nation than into that nation. /more money flows out than in/

*Absolute Advantage*

The benefit a country has in a given industry when it can produce more of a good than other nations using the same amount of resources.

*Opportunity Cost*

The opportunity of giving up the second-best choice when making decision.

*distributorship*

a type of franchising arrangement in which the franchisor makes a product and licenses that franchise to sell it

Key difference between the two types of stick

involves voting rights - common stockholders normally have the right to vote in stockholders' meetings, - preferred stockholders do not.

Key benefit of an effective legal system

it reduces risk for both domestic and foreign businesses

*********** End Chpt 3 ***********

************ Start Chpt 6 *************

*Balance of Trade*

*A basic measure of the difference in value between a nation's exports and imports, including both goods and services. * - incorporates trade with all foreign nations - central role in determining the balance of payments

Key Reasons for International Trade

*-* Access to Factors of Production: International trade offers a valuable opportunity for individual firms to capitalize on factors of production that aren't present in the right amount for the right price in each individual country. *-* Reduced Risk: Global trade reduces dependence on encocony, lowering the economic risk for multinational firms. caution: as national economies continue to integrate, an economic meltdown in one part of the world can have far-reaching impact. *-* Inflow of innovation: international trade can also offer companies an invaluable source of new ideas.

*Horizontal Merger* Common Objective? Example?

*A combination of two firms that are in the same industry* Common Objective: - increase size and market power with industry - improve efficiency by eliminating duplication of facilities and personnel Example: US Airways merges with American Airlines in 2013

*Embargo*

*A complete ban on enter nation trade of a certain item, or a total halt in trade with a particular nation.* The intention of most of these is to pressure the targeted country to change political policies or to protect national securities.

*Infrastructure*

*A country's physical facilities that support economic activity.* Key economic consideration when entering a foreign market. Includes basic systems in each of the following areas: - *transportation* (e.g., roads, airports, railroads, and ports) - *communication* (e.g., TV radio internet, and cell phone coverage) - *Energy* (e.g., utilities and power plants) - *Finance* (e.g., banking, checking, and credit. Levels can vary dramatically among countries.

*Common Market*

*A group of countries that have *eliminated* tariffs and *harmonized* trading rules to facilitate the free flow of goods amount the member nations.* - goes even further than a trading black - 28 countries of the European Union have formed the largest common market

*Trading Bloc*

*A group of countries that have *reduced or even eliminated* tariffs, allowing for the free flow of goods among the member nations.* - major development in the past decade

*Balance of Payments*

*A measure of the total flow of money into or out of a country.* - includes other financial flows such as foreign borrowing and lending, foreign aid payments and receipts, and foreign investments. - typically corresponds to the balance trade because trade is, in general, the largest component.

*Exchange Rate*

*A measurement of the value of one nation's currency relative to the currency of other nations* - does not directly measure global commerce, it has a power influence on how global trade affects individual nations and their trading partners - the exchange rate of a given currency must be expressed in terms of another currency (see table — strong and weak dollar vs. euro — p. 38)

*World Trade Organization* (WTO)

*A permanent global institution to promote international trade and to settle international trade disputes.* - monitors provisions of the GATT agreements - promotes further reduction of trade barriers mediates disputes among members - its decisions are binding, meaning that all parties involved in disputes must comply to maintain good standing in the organization - Ministers of the this meet every two years to address current world trade issues - Controlling rampant piracy of intellectual property is a key concern for developed countries. - for less-developed countries, one central issue is US and European agricultural subsidies, which may unfairly distort agg prices worldwide. - both broader agenda and the individual decisions of this have become increasing controversial over the past ten years.

*World Bank*

*An international cooperative of 188 member countries, working together to reduce poverty in the developing world.* - established n the aftermath of WWII - Influences the global economy by providing financial and technical adviser to the governments of developing countries for projects in a range of areas including infrastructure, communications, health and education - Financial assistance usually comes in the form of low-interest loans - to secure a loan: the borrowing nation must often agree to conditions that can involve rather arduous economic reform

*International Monetary Fund* (IMF)

*An international organization of 188 member nations that promotes international economic cooperation and stable growth.* - best known: lender of last resort to nations in financial trouble - funding comes from the member nations - US contributing more than twice as must as any other country. To achieve goals: - supports stable exchange rates - facilities a smooth system of international payments - encourages member nations to adopt sound economic policies - promotes international trade - lends money to member nations to address economic problems -- recent years - critics accuse it of encourages poor countries to borrow more money than they can ever hope to repay, which actyakky cripples their economies over the long term, creating even deeper poverty.

*Foreign Licensing*

*Authority granted by a domestic firm to a foreign firm for the rights to produce and market its product to use its trademark/patent rights in a defined geographical area.* - the company that offers the rights, or the licensor, receives a fee from the company that buys the rights, or the licensee. - allows firms to expand into foreign markets with little or no investment, and it also helps circumvent government restrictions on importing inclosed markets. - common in the food and beverage industry - can be challenging - licensees may become their competitors, using information that they gain from the licensing agreement.

*Sociocultural Differences*

*Differences among cultures in language, attitudes, and values.* Elements that affect business include: - nonverbal communication - forms of address - attitudes toward punctuality - religious celebrations and customs - business practices - expectations regarding meals and gifts - understanding and responding to these factors are vital for firms that operate in multiple countries. - differences often operate at a subtle level, so they can undermine relationships before anyone is aware that it's happening. - best way to overcome them is to conduct thorough consumer research cultivate fir hand knowledge, and practice extreme sensitivity. - this can give you a sharp competitive edge.

*corporate bylaws*

*the basic rules governing how a corporation is organized and how it conducts it business.*

*articles of incorporation*

*the document filed with a state government to establish the existence of a new corporation.*

*Countertrade*

*International trade that involves the barter of products for products than for currency* - exchanges that don't actually involve money. - as much as 25% of international commerce involves countertrade. - companies typically engage in countertrade to meet the needs of customers that don't have access to hard currency or credit, usually in developing countries. - range from simple barter to a complex web or exchanges that end up meeting the needs of multiple parties. - done well, is a powerful tool for gaining customers and products that would not otherwise be available. - *Barter opportunities tend to increase during economic downfalls*

Market Development Options

*LOWER risk* *HIGHER risk* <<exporting|licensing|franchising|direct investment>> *LESS control* *MORE control* (see p. 39)

*Quotas*

*Limitations on the amount of specific products that may be imported from certain countries during a given time period.*

*Voluntary Export Restraints* (VERs)

*Limitations on the amount of specific products that one nation will export to another nation.* although the government of the exporting country typically imposes these, they usually do so out of fear that the importing country would impose even more onerous restrictions. in result, they often aren't as "voluntary" as the name suggests.

*Balance of Payments Surplus*

*Overage that occurs when more money flows into a nation than out of that nation. * \more money flows in than out\

*Exporting*

*Selling products in foreign nations that have been produced or grown domestically* - most basic level of international market development - producing products domestically and selling them abroad - represents an especially strong opportunity for small and mid-sized companies

*Trade Deficit*

*Shortfall that occurs when the total value of a nation's exports is higher than the total value of its imports* - Signals the wealth of an economy that can afford to buy high amounts of foreign products, a large deficit can be destabilizing. It indicates that as good and services flow into a nation, money flows out — a challenge with regard to long-term economic health.

*Tariffs*

*Taxes levied against imports. * Governments tend to use protective tariffs either to shelter fledging industries that couldn't compete without help or to shelter industries that are crucial to the domestic economy.

*Comparative Advantage*

*The benefit a country has in a given industry if it can make more products at a lower opportunity cost than other countries. * Keep in Mind : comparative advantage seldom remains static. As technology changes and the workforce evolves (through factors such as education and experience), nations may gain or lose comparative advantage in various industries.

*North American Free Trade Agreement* (NAFTA)

*The treaty among the United States, Mexico, and Canada that eliminated trade barriers and investment restrictions over a 15 year period starting 1944.* - took effet in 1994 - gradually eliminating trade barriers and investment restrictions over a 15-year period. - despite dire predictions of american jobs flowing the Mexico, the US economy has grown significantly since the implementation of this. - The Canadian and Mexican economies have thrived as well. (although all three economies have slowed significantly during the global economic crisis). Critics point out: - US trade deficit with both Mexico and Canada has skyrocketed. - While exports to both nations have increased, imports have grown far faster; both countries are among the top ten contractors the the total US trade deficit, threatening the long term health of the American Economy. - increased pollution and worker abuse OVERALL: the full pact of it is tough to evaluate because so many other variables affect all three economies.

*Free Trade*

*The unrestricted movement of goods and services across international borders.* The most dramatic change in the world economy has been the global move toward this. - even though it is not a 'complete' reality, the emergence of regional trading blocks, common markets and international trade agreements has moved the world economy much closer to that goal.

*European Union* (EU)

*The world's largest common market, composed of 28 European nations.* - more than half a billion people - combined GDP of just over $15 trillion GOAL: bolster Europ's trade position and to increase its international political and economic power. to do this: - removed all trade restrictions among member nations and unified internal trade rules, allowing goods and people to move freely among countries. - created standardized policies for import and export between countries and the rest of the world, giving the member nations more clout as a bloc than each would have had on its own. - most economically significant move: introduction of a single currency, the euro - leading-edge approach to environmental protection, quality production, and human rights. - many economists fear that its weaker members could drag the EU overall into deep, damaging recession, and withdraw from using the euro as currency, or both, with devastating financial consequences for both the EU and the world economy.

*Joint Ventures*

*When two or more companies join forces — sharing resources, risks, and profits, but not actually merging companies — to pursue specific opportunities.* - popular, though controversial, means of entering foreign markets. - some suggest that these only make sense in countries that require local political and cultural knowledge as a core element of doing business.

*merger*

*a corporate restricting that occurs when two formerly independent businesses entities combine to form a new organization* - two companies agree to a combination of equals, joining together to forma new company out of the two previously independent firms.

*acquisition*

*a corporate restructuring in which one firm buys another* - occurs when one firm buys another firm. - The firm making the purchase is called the "acquiring firm," and the firm being purchased is called the "target firm - after the acquisition, the target firm ceases to exists as an independent entity while the purchasing firm continues in operation, and its stick is still tried. - "hostile takeover"

*nonprofit corporation* Key Advantages & Limitations

*a corporation that does not seek to earn a profit and differs in several fundamental respects from C corporations* *Key Advantages* - Earnings are expect from federal and state income taxes. - members and directors have limited liability. - individuals who contribute money or property to the nonprofit can take a tax deduction, making it easier for these organizations to raise funds from donations. *Limitations* - it has members (who may pay dies) but cannot have stockholders. - it cannot distribute dividends - it cannot contribute funds to a political campaign - it must keep accurate records and file paperwork to document tax-exempt status.

*statutory close* (or closed) *corporation* Key Advantages & Limitations

*a corporation with a limited number of owners that operates under simpler, less formal rules, than a C corporation* *Key Advantages* - it can operate under simpler arrangements than conventional corporations. For example, it doesn't have to elect a board of directors or hold an annual stockholders' meeting. - all owners can actively participate in management while still having limited liability. *limitations* - the number of stockholders is limited (the number varies among states but it usually no more than 50.) - stockholders normally can't sell their shares to the public with first offering the shares to existing owners. - not all states allow formation of this type of corporation.

*corporation*

*a form of business ownership in which the business is considered a legal entity that is separate and distinct from its owners.* business entity created by: - filing a form (*articles of incorporation*) with appropriate state agency - paying state incorporation fees, - plus other requirements - (requirement specifics vary among states) like an 'artificial person': it can legally engage in virtually any business activity a natural person can pursue. In its own name, it can: - enter into binding contracts - borrow money - own property taxes - initiate legal actions (such as lawsuits) - be a partner in a partnership - be an owner of another corporation - because of a its status as a separate legal entity, the owners of a corporation have *limited liability* - they aren't personally responsible for the debts and obligations of their company

*limited liability company* (LLC)

*a form of business ownership that offers both limited liability to its owners and flexible tax treatment* - a hybrid form of a business ownership that is similar in some respects to a corporation while having other characteristics that are similar to a partnership. like a corporation - considered a legal entity separate from its owners - offers it owners limited liability for the debits of their business. - offers more flexibility than a corporation interns of tax treatment - most interesting characteristic: its owners can elect to have their business taxes either as a corporation or a partnership. - many states even allow individuals to form single-person LLCs that are taxed as if they were sole proprietorships. - relatively new form of ownership in the US. Today, every state has enacted this legislation and it has become a very popular ownership option.

*Sole Proprietorship*

*a form of business ownership with a single owner who usually actively manages the company* an extension of the owner: - company earnings are treated like the owner's income - any debts the company incurs are considered to be the owner's personal debts

*S corporation* Key Advantages & Limitations

*a form of corporation that avoids double taxation by having its income taxed as if it were a partnership* *Key Advantages*: - the IES does not tax earnings of S corporations separately. Earnings pass through the company and are taxes only as income to stockholders, thus avoiding the problem of double taxation associated with C corporations. - Stockholders have limited liability *Limitations*: - It can have no more than 100 stockholders. - With only rare exceptions, each stockholder must be a US citizen or permanent resident of the US (no ownership by foreigners or other corporations.)

*limited liability partnership* (LLP)

*a form of partnership in which all partners have the right to participate in management and have limited liability for company debts.* - Attractive to partners who want to limit their personal risk - it has the advantage of allowing all partners to take an active role in management, while also offering all partners some form of limited liability. - In some states, LLPs offer "full-shield" protection: all partners have limited liability for all claims against their company, except those resulting from their own negligence or malpractice. - Other states, partners in LLps have a lesser "partial shield" protection: each partner has limited liability for the negligence or malpractice of other partners but still has unlimited liability for any other debts. - drawback: some states only allow specific types of professional businesses to form.

*general partnership*

*a partnership in which all partners can take an active role in managing the business and have unlimited liability for any claims against the firm* - most common basic form of a partnership - each partner has the right to share in profits - limited liability for any debts the company incurs

*limited partnership*

*a partnership that includes at least one general partner who actively manages the company and access unlimited liability and one limited partner who gives up the right to actively manage the company in exchange for limited liability.* - General Partners: have the right to participate fully in managing their partnership, but they also assume unlimited personal liability for any of its debts - just like the partners in a general partnership. - Limited partners: *cannot* actively participate in its management, but they have the protection of limited liability. (As long as they do not actively participate in managing the company, their personal wealth is not as risk.)

*institutional investor*

*an organization that pools contributions from investors, clients, or depositors and uses these funds to buy sticks and other securities.* - stockholders don't have to be individuals. - such as mutual funds, insurance companies, pension funds, and endowment funds - pool money from a large number of individuals and use these funds to buy sticks and other securities.

*stockholder*

*an owner of a corporation* ("shareholders") - common stock represents the basic ownership interest in a corporation , but some firms also issue preferred stock. - many large corporations issue billions of shares of stick and have hundreds of thousands - even millions of stockholders.

*Importing*

*buying products domestically that have been produced or grown in foreign nations.* - buying products from overseas that have *already* been produced, rather than contracting with overseas manufactures - don't carry the name of the importer, but they also don't carry as much risk

*board of directors*

*the individuals who are elected by stockholders of a corporation to represent their interests.* - oversee the operation of the company and protect stockholders interests. - establishes the corporations mission and sets its broad objectives. - seldom take an active role in the day-to-day management of their company. - elects CEO and other corporate offers to manage to company on a daily basis. - sets the selves of compensation for these officers and monitors their performance to ensure that thy act in a manner consistent with stockholders interests.

*C corporation*

*the most common type of corporation, which is a legal business entity that offers limited liability to all of its owners, who are called stockholders.* - when people use the term "corporation" they are typically referring to this.

*limited liability*

*when owners are not personally liable for claims against their firm. Owners with limited liability may lose their investment in the company but other personal assets are protected.*

Disadvantages and Limitations of LLCs

- *Complexity of Formation* - *Annual Franchise Tax* - *Foreign Status in Other States* - *Limits on Types of Firms that Can For LLCs* - *Differences in State Laws*

Advantages of General Partnerships

- *ability to pool financial resources*: stronger financial base bc more owners investing. - *ability to share responsibilities and capitalize on complementary skills*: partners can share the burden of running the business, which can ease the workload. tasks and jobs can be divided based on complementary skills, using each partner's talent to best advantage. - *ease of formation*: easy but not that easy - *possible tax advantages*: the earnings of a partnership "pass through" the business - untouched by the Internal Revenue Service (IRS) - and are taxed only as the partners' personal income. The vids the potent; for double taxation endemic to corporations.

Advantages of a sole proprietorship

- *ease of formation*: paperwork and cost are minimal. No specific forms. No special fees must be paid. - *retention of control*: only owner = you're in control. manage your businesses the way you want. - *pride of ownership*: feeling of pride and the personal satisfaction they gain from owning and running their own business. - *retention of profits*: if successful, all profits go to you, minus personal taxes. - *possible tax benefits*: No taxes are levied directly on the earnings of sole proprietorships as a business. Instead the earnings are taxes only as income of the proprietor.

Disadvantages of C Corporations

- *expense and complexity of formation and operation* - *Complications when operating in more than one state*: a corporation must register (or "qualify") as a foreign corporation in order to do business in any state other than the one in which it is incorporated. typically requires additional paperwork, fees, and taxes. Registration as a foreign corporation is only necessary if the company is involved in substantial business actives with the state. - *Double taxation of earnings and additional taxes*: The IRS considers a C corporation to be a separate legal entity and taxes its earnings accordingly. any dividends (earnings the corporation distributes to stockholders) are taxes again as the personal income of the stockholders. (Double Taxation) - takes a chunk out of earnings that are distrusted to shareholders. - *more paperwork, more regulation, and less secrecy*: more closely regulated and are required to file more government paperwork than other forms of business. required to send annual statements to all shareholders and to file detailed quarterly and annual reports with the SEC. All the shared info makes it difficult to keep key corporate information secret from competitors. - *possible conflicts of interests*: Some top executives peruse policies that further their own interests (e.g., prestige, power, job security, high pay, and attractive perks) at the cost of the stockholders.

Advantages of C Corporations

- *limited Liability*: stockholders not personally liable for the debts of their company. - *permanence* : corporations can continue operating as long as they remain financially viable and the marjory of stockholders want the business to continue. Unaffected by the death or withdrawal of an owner. - *ease of transfer of ownership*: Easy for stockholders to publicly traded C corporations to withdraw from ownership - they just sell their shares of stock. - *ability to raise large amounts of financial capital*: corporations can raise large amounts of financial capital by issuing shares of stick or by selling formal IUS called corporate bonds. - *ability to make use of specialized management*: easy to hire highly qualified professional managers than proprietorships and partnerships. they can offer attractive salaries and benefits, and their permanence and potential for growth offer mangers opportunities for career advancement.

Disadvantages of a sole proprietorship

- *limited financial resources*: raising money to finance growth can be tough. With only one owner responsible for a sole proprietorship debs, banks, and other financial institutions are often reluctant to lend it money. Supplies may be unwilling to provide supplies on credit. leaves proprietors dependent on their own wealth plus the money that their firms generate. - *unlimited liability*: the debts of the firm become the owner's personal debts. If someone sues your business and wins, the court can seize your personal possessions (even those that have nothing to do with the business). making it a risky endeavor. - *limited ability to attract and maintain talented employees*: unable to pay the high salaries and substantial perks that highly qualified, experienced employees get when they work of beg, well-established companies. - *heavy workload and responsibilities*: often must perform tasks or make decisions in areas where they lack expertise - *lack of permanence*: If the owner dies, retires, or withdraws from the business for some other reason, the company legally ceases to exist. Even if the company continues to operate under new ownership, in the eyes of the law, it becomes a different firm.

Advantages of LLCs

- *limited liability* - *Tax-Pass through* - *simplicity and Flexibility in management and operation* - *flexible ownership*

Disadvantages of General Partnerships

- *unlimited liability*: not only liable for your own mistakes but for your those of your partners. if the assets invested in the business aren't sufficient to meet claim, the personal assets of the partners are at risk. When someone sues a general partnership, the lawsuit can target *ANY* individual partner or group of partners. If you have more wealth than the other partners, you could lose more than they do even if they were the ones at fault. - *potential for disagreements*: if partners can't agree, conflict can complicate and delay decision making. solution: a well drafted partnership agreement usually species how disputes will be resolved, but disagreements among partners can create friction and hard feelings than harm morale and undermine the cooperation needs to keep the business on track. - *lack of continuity*: if a current partner withdraws, relationships will change, potentially ending the partnership. This creates uncertainty about who long a partnership will remain in business. - *difficulty in withdrawing from a partnership*: a partner who withdraws from a partnership remains personally liable for any debts or obligations the firm had at the time of the withdrawal - even if those obligations were incurred by the actions of other partners.

Barriers to International Trade: Political and Legal Differences *Political Climate*

- Influences whether that nation is attractive to foreign business - Stability is crucial - A country subject to strife from civil way, riots, or other violence create huge additional risk for foreign business - Figuring out how to operate in an unstable environment such as Russia, Bolivia, or the Middle East, can give early movers a real advantage. - Poor enforcement of intellectual property rights across international borders is another tough issue for business.

Barriers to International Trade

- Sociocultural differences - economic differences - political and legal differences

Offshoring

- developing new facilities from scratch. - the most costly form of direct investment. - involves significant risk benefits include complete control over how the facility develops and the potential for high profits - this makes the approach attractive for corporations that can afford it.

Barriers to International Trade: Political and Legal Differences *Laws and Regulations*

- many developing countries change business regulations with little notice and less publicity. - Justice system can pose key challenge, with regard to legal enforcement of ownership and contract rights. - bribery (the payment of money for favorable treatment) & corruption (the solicitation of money for parable treatment) - technically illegal, often accepted as a standard way of doing business.

Formation of general partnerships

- no limit on the number of partners but often just two - formed when partner enter into a voluntary partnership agreement - You can do it on verbal agreement but safer to get everything in writing to prevent misunderstandings. - Typical agreements spells out details, such as the initial financial contributions each partner will make, the specific duties and responsibilities each will assume, how they will share profits (and losses), how they will settle disagreements, and how they will deal with the death or withdrawal of one of the partners.

Reasons to *create* trade restrictions

- protect domestic industry - protect domestic jobs in key industries (but perhaps at the cost of domestic jobs in other industries) - protect national security interests - retaliate against countries who have engaged in unfair trade practices

Reasons to *eliminate* trades restrictions

- reduce prices and increase choices for consumers buy encouraging competition from around the world - increase domestic jobs in industries with a comparative advantages versus other countries - increase jobs — both at home and abroad — from foreign companies - build exporting opportunities through better relationships with other countries - use resources more efficiently on a worldwide basis

Forming a C Corporation

- requires filing articles of incorporation & paying filing gees - requires adoption of corporate bylaws - tends to be more expensive and complex than forming a sole proprietorship or partnership. - requirements vary among states - many large corporations choose to incorporate in states with such factorable environments - even if they internet to do the majority of their business in other states. - Delaware

Quotes, VERs, and embargoes are relatively rare compared to tariffs, and tariffs are falling to new lows. But as Tariffs decrease, some nations are seeking to control imports through nontariff barriers such as:

- requiring red-tape-intensive import licenses for certain categories - establishing nonstandard packaging requirements for certain products - offering less-favorable exchange rates to certain importers - establishing standards on how certain products are produced or grown - promoting a "buy national": consumer attitude among local people non tariff barriers tend to be daily effective because complains about them can be hard to prove and easy to counter.

The vast majority of businesses in the US are owned and organized under one of four forms:

1. *Sole Proprietorship* 2. *Partnership* - *General Partnership* 3. *Corporation* - *Articles of Incorporation* - *Limited Liability* 4. *Limited Liability Company (LLC)*

*Conglomerate merger* Common Objective? Example?

A combination of two firms that are unrelated industries. Common Objective: - Reduce risk by making the firm less vulnerable to adverse conditions in any single market Example: Berkshire Hathaway and 3G Capital buy condiment maker for Heinz for $23 billion .

*Foreign Franchising*

A specialized type of foreign licensing in which a firm expands by offering businesses in other countries the right to produce and market its products according to specific operating requirements. - a firm exam plants through foreign franchising, called a franchisor, offers other businesses, or franchisees, the right to produce and market its products if the franchisee agrees to specific operating requirements - a complete package of how to do business.

Barriers to International Trade: Political and Legal Differences *International Trade Restrictions*

National Governments have the power to react barriers to international business through a variety of international trade restrictions - Most economics find the reasons to eliminate trade restrictions much more compelling than the reasons to create them. Restrictions have a range of motivations, they can take a number of different forms. Arguments for and against trade restrictions (*protectionism*) and the most common trade restrictions: - *Tariffs* - *Quotas* - *Voluntary export restraints (VERs)* - *Embargo* - Quotes, VERs, and embargoes are relatively rare compared to tariffs, and tariffs are falling to new lows. But as Tariffs decrease, some nations are seeking to control imports through non tariff barriers. - non tariff barriers tend to be daily effective because complains about them can be hard to prove and easy to counter.

Barriers to International Trade: Political and Legal Differences

Specific laws and regulations that governments create around business are often less obvious, yet they can still represent a significant barrier to international trade. To compete effectively - and reduce risk - managers must carefully evaluate these factors and make plans to respond to them both now and as they change. *Laws and Regulations*: *Political Climate* *International Trade Restrictions*

*Foreign outsourcing*

[also contract manufacturing] *Contracting with foreign suppliers to produce products, usually at a fraction of the cost of domestic production* lowers cost, but also involves serious risks: - quality control typically requires very detailed specification to ensure that a company gets what it actually needs. - social responsibility: a firm that contracts with foreign producers has obligation to ensure that those factories adhere to ethical standards. deciding wha those standard should be is often quite tricky, given different culture, expectations, and laws in different countries.

*business format franchise*

a broad franchise agreement in which the franchisee pays for the right to sue to name, trademark, and business production methods of the franchisor.