BUS 100 CH. 1-5

Sole Proprietorship

A business owned, and usually managed, by one person.

Dumping

Selling products in a foreign country at lower prices than those charged in the producing country. • Dumping is prohibited in U.S.

Adam Smith and the Creation of Wealth

Smith believed that: - Freedom was vital to any economy's survival. - Freedom to own land or property and the right to keep the profits of a business is essential. - People will work hard if they believe they will be rewarded.

Horizontal merge

The joining of two firms in the same industry. • Mergers between competitors must prove to the Federal Trade Commission (FTC) that the new combined company does not limit competition unfair

Factors Influencing Managerial Ethics

-Individual: Values, work background, family status, personality -Organizational: Top level management philosophy, the firm's reward system, job dimensions -Environmental: Competition, economic conditions, social/cultural institutions

Advantages of LLCs:

1. Limited liability. 2. Choice of taxation. 3. Flexible ownership rules. 4. Flexible distribution of profits and losses. 5. Operating flexibility.

negatives of being an entrepreneur

-the freedom to fail -no paid vacations -no health insurance

cons of free trade

1) domestic workers (particularly in manufacturing based jobs) can lose their jobs due to increased imports or productions shifts to low-wage global markets 2) workers may be forced to accept pay cust from employers, who can threaten to move their jobs to lower-cost global markets 3) moving operations overseas because of intense competitive pressure often means the loss of service jobs and growing numbers of white-collar jobs 4) domestic copmanies can lose their comparative advantage when competitors build advanced production operations in low-wage countries

Government can promote entrepreneurship by:

1. Allowing private ownership of businesses. 2. Minimizing interference with the free exchange of goods and services. 3. Passing laws that enable businesspeople to write enforceable contracts. 4. Establishing a currency that's tradable in world markets. 5. Minimizing corruption.

How to Blow the Whistle

1. Decide carefully and quickly. 2. Make sure you have all allegations filed with the right agencies. 3. File your allegations with as many agencies that are appropriate. 4. Gather your information legally. 5. Stick with the facts — do not exaggerate.

Advantages of Sole Proprietorships

1. Ease of starting and ending the business. 2. Being your own boss. 3. Pride of ownership. 4. Leaving a legacy. 5. Retention of company profits. 6. No special taxes.

Roosevelt's Four Additional Freedoms

1. Freedom of speech and expression 2. Freedom to worship in your own way 3. Freedom from want 4. Freedom from fear

Disadvantages of Franchises

1. Large start-up costs. 2. Shared profit. 3. Management regulation. 4. Coattail effects. 5. Restrictions on selling. 6. Fraudulent franchisors.

Advantages of Franchises

1. Management and marketing assistance. 2. Personal ownership. 3. Nationally recognized name. 4. Financial advice and assistance. 5. Lower failure rate.

• Disadvantages of LLCs:

1. No stock; ownership is nontransferable. 2. Fewer incentives. 3. Taxes. 4. Paperwork.

Free Market Capitalism: Four Basic Rights

1. The right to own private property. 2. The right to own a business and keep all that business's profits. 3. The right to freedom of competition. 4. The right to freedom of choice.

President Kennedy's four basic rights of consumers

1. The right to safety. 2. The right to be informed. 3. The right to choose. 4. The right to be heard.

Six Steps to Improve U.S. Business Ethics

1. Top management must adopt and unconditionally support an explicit corporate code of conduct 2. All employees must understand expectations 3. Management must be trained to follow ethical implications for all business decisions 4. Set up an office for which employees can communicate anonymously (Whistleblowers) 5. Outsiders such as suppliers, subcontractors, distributors, and customers must be told about the ethics program 6. Ethics code must be enforced with timely action if any rules are broken

Disadvantages of Sole Proprietorships

1. Unlimited liability — The responsibility of business owners for all debts of the business. 2. Limited financial resources. 3. Management difficulties. 4. Overwhelming time commitment. 5. Few fringe benefits. 6. Limited growth. 7. Limited life span.

Corporate Social Responsibility (CSR)

A business's concern for the welfare of society. • Based on a commitment to integrity, fairness, and respect. • Some feel this is not a manager's role. • Proponents argue that businesses owe their existence to the societies they serve and cannot exist in societies that fail. Companies with good ethical reputations attract and retain better employees, draw more customers, and enjoy greater employee loyalty

State capitalism

A combination of freer markets and some government control. • China has experienced rapid growth using state capitalism.

Franchising

A contractual agreement whereby someone with a good idea for a business sells others the rights to use the name and sell a product or service in a given territory in a specified manner. • Large and small franchisors can be successful in foreign countries. • Franchisors need to adapt their products to the countries they serve.

Absolute advantage

A country has a monopoly on producing a specific product or is able to produce it more efficiently than all other countries.

Comparative advantage

A country should sell to other countries those products that it produces most efficiently and buy from other countries those products that it cannot produce as effectively or efficiently.

Oligopoly

A few sellers dominate a market. • Initial investment usually very large, like aircraft. • Products from different companies priced about the same.

Contract Manufacturing

A foreign company's production of private-label goods to which a domestic company then attaches its own brand name or trademark; part of the broad category of outsourcing. Can help companies: • Experiment in a new market without incurring heavy start-up costs such as building a manufacturing plant. • Temporarily meet an unexpected increase in orders.

Licensing

A global strategy in which a firm (the licensor) allows a foreign company (the licensee) to produce its product in exchange for a fee (a royalty). Licensing can benefit a firm by: • Gaining revenues it wouldn't have otherwise generated. • Spending little or no money to produce or market their products.

Corporation

A legal entity with authority to act and have liability separate from its owners.

Partnership

A legal form of business with two or more owners.

Import Quota

A limit on the number of products in certain categories that a nation can import.

Strategic alliance

A long-term partnership between two or more companies established to help each company build competitive market advantages. • They don't typically share costs, risks, management, or profits. • Strategic alliances provide broad access to markets, capital, and technical expertise.

Gross output (GO)

A measure of total sales volume at all stages of production.

Joint venture

A partnership in which two or more companies (often from different countries) join to undertake a major project. • Often mandated by countries as a condition of doing business (China). • Can increase a company's footprint and global growth. • Can be used by competing companies to join forces.

Entrepreneur

A person who risks time and money to start and manage a business.

Common Markets

A regional group of countries that have a common external tariff, no internal tariffs, and a coordination of laws to facilitate exchange; also called a trading bloc.

North American Free Trade Agreement (NAFTA)

Agreement that created a free-trade area among the United States, Canada, and Mexico; passed in 1993. • Its attempts to boost job growth, fight poverty, improve environmental controls, and close the wage gap between Mexico and the United States largely failed.

Stakeholders

All the people who stand to gain or lose by the policies and activities of a business and whose concerns the business needs to address. • A primary challenge is to recognize and respond to the needs of stakeholders.

Profit

Amount of money a business earns above and beyond what it spends for salaries and other expenses.

Franchise agreement

An arrangement whereby someone with a good idea for a business (franchisor) sells the rights to use the business name and sell a product or service (franchise) to others (franchisees) in a given territory. • Can be formed as a sole proprietorship, a partnership, or a corporation. • More than 733,000 franchised businesses operate in the U.S., creating 7.6 million jobs.

Leveraged buyout (LBO)

An attempt by employees, management, or a group of private investors to buy out the stockholders in a company. • Range in size from $50 million to $34 billion and involve everything from small family businesses to giant corporations. Business acquisitions are not limited to U.S. buyers.

Ethnocentricity

An attitude that your own culture is superior to other cultures.

Communism

An economic and political system in which the government makes almost all economic decisions and owns almost all the major factors of production. • Prices don't reflect demand, which may lead to shortages of items, including food and clothing. • Most communist countries today suffer severe economic depression.

Socialism

An economic system based on the premise that some, if not most, basic businesses should be owned by the government so that profits can be more evenly distributed among the people. • Entrepreneurs run smaller businesses. • Citizens are highly taxed. • Government is more involved in protecting the environment and the poor.

Capitalism

An economic system in which all or most of the factors of production and distribution are privately owned and operated for profit. - • U.S, England, Australia, Canada.

World Trade Organization (WTO)

An independent entity of 164 member nations whose purpose is to oversee cross-border trade issues and global business practices; headquartered in Geneva.

Producer Price Index (PPI)

An index that measures the change in prices at the wholesale level.

General partner

An owner (partner) who has unlimited liability and is active in managing the firm.

Limited partner

An owner who invests money in the business but does not have any management responsibility or liability for losses beyond the investment.

Benefits and Limitations of Free Markets

Benefits: • Allows for open competition among companies .• Provides opportunities for poor people to work their way out of poverty. Limitations: • Leads to inequality as business owners and managers usually make more money and have more wealth than lower-level workers. • People may start to let greed drive them.

Core inflation

CPI minus food and energy costs.

Cons of Offshore Outsourcing

Cons • Jobs may be lost permanently and wages fall due to low-cost competition offshore. • Offshore outsourcing may reduce product quality and can therefore cause permanent damage to a company's reputation. • Communication among company members, with suppliers, and with customers becomes much more difficult.

Outsourcing

Contracting with other companies (often in other countries) to do some functions of a firm, like production or accounting. • Many foreign companies are opening offices and factories in the United States, called insourcing.

Command Economies

Economic systems in which the government largely decides what goods and services will be produced, who will get them, and how the economy will grow.

Free-market economies

Economic systems in which the market largely determines what goods and services get produced, who gets them, and how the economy grows.

differences of monetary and fiscal policy

Fiscal policy — The federal government's efforts to keep the economy stable by increasing or decreasing taxes or government spending. Monetary policy — The management of the money supply and interest rates by the Federal Reserve Bank. • The Fed's most visible role is raising and lowering of interest rates. • When the economy is booming, the Fed tends to raise interest rates.• When the economy is in a recession, the Fed tends to decrease interest rates.

How a free market works:

Free market — Decisions about what and how much to produce are made by the market. • Consumers send signals about what they like and how they like it. • Price tells companies how much of a product they should produce .• If something is wanted but hard to get, the price will rise until more products are available.

Corporate social initiatives

Include enhanced forms of corporate philanthropy directly related to the company's competencies.

Corporate philanthropy

Includes charitable donations

How is Globalization grown?

Globalization has grown due to efficient distribution systems and communication systems such as the Internet.

Export-trading companies (ETCs).

Help companies with indirect exporting by negotiating and establishing trading relationships

Corporate responsibility

Includes everything from hiring minority workers to making safe products.

Whistleblowers

Insiders who report illegal or unethical behavior.

services

Intangible products (that can't be held in your hand) such as education, health care, insurance, recreation, and travel.

Monopolistic competition

Large number of sellers produce very similar products that buyers nevertheless perceive as different. • Product differentiation is key.

Devaluation

Lowering the value of a nation's currency relative to other currencies.

perfect competition

Many sellers but none is large enough to dictate the price of a product.

Consumer price index (CPI)

Monthly statistics that measure the pace of inflation or deflation.

Listing oligopoly, monopoly, perfect competition, monopolistic competition

Oligopoly— A few sellers dominate a market. •Initial investment usually very large, like aircraft. •Products from different companies priced about the same. Monopoly— One seller controls the total supply of a product or service, and sets the price. •Prohibited in the U.S. Perfect Competition- Many sellers but none is large enough to dictate the price of a product. Monopolistic competition-Large number of sellers produce very similar products that buyers nevertheless perceive as different. • Product differentiation is key.

Acquisition

One company's purchase of the property and obligations of another company.

Monopoly

One seller controls the total supply of a product or service, and sets the price .• Prohibited in the U.S.

What major factor caused people to move from farming to manufacturing and from manufacturing to the service sector?

Progress in the Agricultural and Manufacturing Industries • In the 1800s, the agricultural industry led economic development. • Technology, like the harvester and cotton gin, made large-scale farming successful .• This led to fewer farmers with larger farms. • Industrialization in the 19th and 20th centuries moved jobs from farms to factories. • As technology improved productivity, fewer workers were needed in factories. Progress in Service Industries • Since the mid-19 80s, the service industry generated almost all the increases in employment. • There are more high-paying jobs in service industries

The Pros of Offshore Outsourcing

Pros • Less-strategic tasks can be outsourced globally so that companies can focus on areas in which they can excel and grow. • Outsourced work allows companies to create efficiencies that in fact let them hire more workers. • Consumers benefit from lower prices generated by effective use of global resources and developing nations grow, thus fueling global economic growth.

The Pros of Free Trade

Pros • The global market contains over 7.7 billion potential customers for goods and services. • Productivity grows when countries produce goods and services in which they have a comparative advantage. • Global competition and less-costly imports keep prices down, so inflation does not curtail economic growth. • Free trade inspires innovation for new products and keeps firms competitively challenged. • Uninterrupted flow of capital gives countries access to foreign investments, which help keep interest rates low.

S-corp taxation policy

S Corporations: • A unique government creation that looks like a corporation but is taxed like sole proprietorships and partnerships. • Have shareholders, directors, and employees, plus the benefit of limited liability. • Profits are taxed only as the personal income of the shareholders. the S corporation doesn't pay federal income tax. Qualifications for S corporations: • Have no more than 100 shareholders. • Have shareholders that are individuals or estates, and who (as individuals) are citizens or permanent residents of the U.S. • Have only one class of stock .• Derive no more than 25% of income from passive sources.If an S corporation loses its S status, it may not operate under it again for at least 5 years.

goods

Tangible products such as computers, food, clothing, cars, and appliances.

Standard of living

The amount of goods and services people can buy with the money they have. • The United States has one of the highest standards of living in the world. • Workers in other countries may make more money, but prices for products are higher.

Risk

The chance an entrepreneur takes of losing time and money on a business that may not prove profitable. • Not all enterprises make the same amount of profit. • Businesses take risks, but with big risks could come big profits.

Balance of payments

The difference between money coming into a country (from exports) and money leaving the country (from imports) plus money flows from other factors such as tourism, foreign aid, military expenditures, and foreign investment. • The goal is to have more money flowing into a country than out—a favorable balance .• An unfavorable balance is when more money flows out of a country.

Fiscal policy

The federal government's efforts to keep the economy stable by increasing or decreasing taxes or government spending. Tools of fiscal policy: • Taxation. • Government spending.

Five Factors of Production

The five resources used to create wealth: land, labor, capital, entrepreneurship, knowledge E+K are most important

Quality of life

The general well-being of a society in terms of its political freedom, natural environment, education, health care, safety, amount of leisure, and rewards that add to the satisfaction and joy that other goods and services provide. • High quality of life requires combined efforts of businesses, nonprofits, and government agencies.

Conglomerate merger

The joining of firms in completely unrelated industries.

Vertical merger

The joining of two companies in different stages of related businesses.

Monetary policy

The management of the money supply and interest rates by the Federal Reserve Bank. • The Fed's most visible role is raising and lowering of interest rates. • When the economy is booming, the Fed tends to raise interest rates. • When the economy is in a recession, the Fed tends to decrease interest rates.

Free trade

The movement of goods and services among nations without political or economic barriers.

Microeconomics

The part of economics study that looks at the behavior of people and organizations in particular markets.

Macroeconomics

The part of economics study that looks at the operation of a nation's economy as a whole.

Business cycles

The periodic rises and falls that occur in economies over time. • Four phases of long-term business cycles: 1. Economic boom — Business is booming. 2. Recession — Two or more consecutive quarters of decline in the GDP. 3. Depression — A severe recession, usually accompanied by deflation. 4. Recovery — When the economy stabilizes and starts to grow, eventually leading to an economic boom.

Corporate policy

The position a firm takes on social and political issues.

Invisible Hand

The process that turns self-directed gain into social and economic benefits for all. - As people improve their own situation in life, they help the economy prosper through the production of goods, services, and ideas and charitable donations. - However, poverty rate in U.S. remains high.

• Limited liability

The responsibility of a business's owners for losses only up to the amount they invest; limited partners and shareholders have limited liability.

Merger

The result of two firms forming one company.

Economics

The study of how society chooses to employ resources to produce goods and services and distribute them for consumption among various competing groups and individuals.

Resource development (plus examples to increase resources)

The study of how to increase resources and create conditions that will make better use of those resources. Examples of ways to increase resources: • New energy sources. • New ways of growing foods .• New ways of creating goods and services. • Nanotechnology, 3D printing, 4D technology.

Business Envrionment (5 elements)

The surrounding factors that either help or hinder the development of businesses. Five elements: 1. Economic and legal environment. 2. Technological environment. 3. Competitive environment. 4. Social environment. 5. Global business environment.

Gross domestic product (GDP)

The total value of final goods and services produced in a country in a given year. • As long as a company is within a country's border, their numbers go into the country's GDP (even if they are foreign-owned). • When the G D P changes, businesses feel the effect.

Trade Protectionism

The use of government regulations to limit the import of goods and services. Allows domestic producers to survive, grow, and produce jobs.

Keynesian economic theory

Theory that a government policy of increasing spending and cutting taxes could stimulate the economy in a recession.

Why would the government bail out a company?

To stimulate the economy and avoid a depression.

Revenue

Total amount of money a business takes in during a given period by selling goods and services.

Balance of trade

Total value of a nation's exports compared to its imports over a particular period.

Loss

When a business's expenses are more than its revenues.

Trade surplus (favorable)

When the value of a country's exports exceeds that of its imports.

Trade deficit (unfavorable

When the value of a country's imports exceeds that of its exports.

Business

any activity that seeks to provide goods and services to others while operating at a profit

General Agreement on Tariffs and Trade (GAT T)

— A 1948 agreement that established an international forum for negotiating mutual reductions in trade restrictions.

foreign subsidiary

— A company owned in a foreign country by another company, called the parent company. • Primary advantage: Parent company maintains complete control over its technology or expertise .• Primary disadvantage: Must commit funds and technology within foreign boundaries.

Embargo

— A complete ban on the import or export of a certain product, or the stopping of all trade with a particular country. • Political disagreements can lead to embargos.

Countertrading

— A complex form of bartering in which several countries may be involved, each trading goods for goods or services for services.

• General partnership

— A partnership in which all owners share in operating the business and in assuming liability for the business's debts.

Limited liability partnership (LLP)

— A partnership that limits partners' risk of losing their personal assets to only their own acts and omissions and to the acts and omissions of people under their supervision.

Master limited partnership (M L P)

— A partnership that looks much like a corporation (in that it acts like a corporation and is traded on a stock exchange) but is taxed like a partnership and thus avoids the corporate income tax.

• Limited partnership

— A partnership with one or more general partners and one or more limited partners.

Tariffs

— A tax imposed on imports. • Protective tariffs — Import taxes. • Revenue tariffs — Raise money for government.

Multinational corporation

— An organization that manufactures and markets products in many different countries and has multinational stock ownership and multinational management .• Not all large global businesses are multinational .• Only firms that have manufacturing capacity or some other physical presence in different nations can truly be multinational.

Insider trading

— An unethical activity in which insiders use private company information to further their own fortunes or those of their family and friends. • Unethical behavior does financial damage to a company and investors are cheated .• S E C adopted a new rule called Regulation F D ("fair disclosure").

Sovereign wealth funds (SWFs)

— Investment funds controlled by governments holding large stakes in foreign companies. The size of the funds and government-ownership make some fear they might be used for: • Achieving geopolitical objectives. • Gaining control of strategic natural resources. • Obtaining sensitive technologies.

Outsourcing

— Process whereby one firm contracts with other companies to do some or all of its functions. • U.S. firms have outsourced payroll functions, accounting, and manufacturing for years. • With the growth of global markets, companies have been shifting to offshore outsourcing — outsourcing with other countries. • There are some quality issues.

Ethics

— Standards of moral behavior; that is, behavior accepted by society as right versus wrong. Few Americans have moral absolutes. • Common standards of ethical behavior come from religion; the Golden Rule.

Foreign direct investment (FDI)

— The buying of permanent property and businesses in foreign nations.

Exchange rate

— The value of one nation's currency relative to the currencies of other countries. • High value of the dollar — Dollar is trading for more foreign currency; foreign products become cheaper .• Low value of the dollar — Dollar is trading for less foreign currency; foreign goods become more expensive. • Floating exchange rates — Currencies float in value depending on the supply and demand for them in the global market.

United States-Mexico-Canada Agreement (USMCA)

—New agreement to replace NAFTA; ratified in 2020. • Goals: • Create level playing field for U.S. workers with improved rules. • Modernize and strengthen food and agriculture trade in North America. • Support modern economy. • Introduce new rules on digital trade, anticorruption, and good regulatory practices.

Cooperative (Co-Op)

• A business owned and controlled by the people who use it—producers, consumers, or workers with similar needs who pool their resources for mutual gain. • Serve one billion members worldwide .• Members democratically control the business by electing a board of directors that hires professional management. • Other cooperatives are formed to give members more economic power as a group than they have as individuals, such as a farm cooperative.

Conventional (C) Corporation

• A state-chartered legal entity with authority to act and have liability separate from its owners (its stockholders). • Enables many people to share in ownership.

Social Auditing

• A systematic evaluation of an organization's progress toward implementing socially responsible and responsive programs. • Five types of watchdogs: 1. Socially conscious investors. 2. Socially conscious research organizations. 3. Environmentalists. 4. Union officials. 5. Customers.

S Corporations

• A unique government creation that looks like a corporation but is taxed like sole proprietorships and partnerships. • Have shareholders, directors, and employees, plus the benefit of limited liability. • Profits are taxed only as the personal income of the shareholders.

Written Codes of Ethics

• Compliance-based ethics codes — Emphasize preventing unlawful behavior by increasing control and by penalizing wrongdoers. • Integrity-based ethics codes — Define the organization's guiding values, create an environment that supports ethically sound behavior, and stress a shared accountability among employees.

Corporate Social to Employees

• Create jobs and provide a chance for upward mobility. • Treat employees with respect. • Offer salaries and benefits that help employees reach their personal goals. • Loss of employee commitment, confidence, and trust in the company and its management can be costly.

The Negatives of Socialism

• Few incentives for businesspeople to take risks. • Brain drain — The loss of the best and brightest people to other countries. • Fewer inventions and less innovation because the reward is not as great as in capitalistic countries.

Qualifications for S corporations:

• Have no more than 100 shareholders .• Have shareholders that are individuals or estates, and who (as individuals) are citizens or permanent residents of the U.S. • Have only one class of stock. • Derive no more than 25% of income from passive sources. If an S corporation loses its S status, it may not operate under it again for at least 5 years.

Export Assistance Centers (EACs).

• Help small- and medium-sized businesses with direct exporting by providing exporting assistance and trade-finance support.

Inflation and price indexes.

• Inflation — A general rise in the prices of goods and services over time. • Disinflation — A situation in which price increases are slowing (the inflation rate is declining). • Deflation — A situation in which prices are declining. • Stagflation — A situation when the economy is slowing but prices are going up anyhow.

Disadvantages of Corporations

• Initial cost. • Extensive paperwork. • Double taxation. • Two tax returns. • Size. •Difficulty of termination. • Possible conflict with stockholders and board of directors.

Home-Based Franchises Disadvantages:

• Isolation. • Long hours.

Limited Liability Companies

• LLCs are similar to an S corporation but without the special eligibility requirements. • More than half of new business registrations in some states are LLCs.

Advantages of Corporations

• Limited liability. • Ability to raise more money for investment. • Size. • Perpetual life. • Ease of ownership change. • Ease of attracting talented employees. • Separation of ownership from management.

Advantages of Partnerships

• More financial resources. • Shared management and pooled/complementary skills and knowledge. • Longer survival. • No special taxes.

Home-Based Franchises Advantages:

• Relief from commuting stress .• Extra family time .• Low overhead expenses.

Benefits of joint ventures

• Shared technology and risk. • Shared marketing and management expertise. • Entry into markets where foreign companies are often not allowed unless goods are produced locally.

The Benefits of Socialism

• Social equality. • Free education. • Free health care. • Free child care. • Longer vacations. • Shorter work weeks .• Generous sick leave.

Drawbacks of joint ventures:

• Stolen or obsolete technology. • Becoming too large to be flexible. • One partner might break ties.

Disadvantages of Partnerships

• Unlimited liability. • Division of profits. • Disagreements among partners. • Difficulty of termination.

The Positives to Being an Entrepreneur

•The freedom to succeed •Make your own decisions •Possible wealth