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CHAPTER 3

Business in a Borderless world


The Role of International Business
International business refers to the buying, selling, and trading of goods and services
across national boundaries. Falling political barriers and new technology are making it
possible for more and more companies to sell their products overseas as well as at home.
And, as differences among nations continue to narrow, the trend toward the globalization of
business is becoming increasingly important. The Apple Store surpassed $10 billion in app
sales alone in 2013.A total of $1 billion came into the company over a one-month period
shortly after Apple released a new operating system. More than 70 percent of revenues from
Apple stores came from outside of the United States.7 Indeed, most of the world’s population
and two-thirds of its total purchasing power are outside the United States

Why nation trade


Nations and businesses engage in international trade to obtain raw materials and
goods that are otherwise unavailable to them or are available elsewhere at a lower price than
that at which they themselves can produce. A nation, or individuals and organizations from a
nation, sell surplus materials and goods to acquire funds to buy the goods, services, and ideas
its people need. Poland, for example, began trading with Western nations in order to acquire
new technology and techniques. Poland has taken these lessons and revitalized its formerly
communist economy.10 Which goods and services a nation sells depends on what resources it
has available. Such a monopoly, or absolute advantage, 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.
Utility distribution companies are often natural monopolies out of necessity, whether they are
regulated by governments or privately owned. Most international trade is based on
comparative advantage, which occurs when a country specializes in products that it can
supply more effi ciently or at a lower cost than it can produce other items.

Trade between Countries


To obtain needed goods and services and the funds to pay for them, nations trade by
exporting and importing. Exporting is the sale of goods and services to foreign markets. The
United States exported more than $2.3 trillion in goods and servicesin 2013.16 In China,
Tesla Motors Inc. Importing is the purchase of goods and services from foreign sources.
Many of the goods you buy in the United States are likely to be imports or to have some
imported components.
Balance of Trade
You have probably read or heard about the fact that the United States has a trade deficit, but
what is a trade deficit? A nation’s balance of trade is the difference in value between its
exports and imports. Because the United States (and some other nations as well) imports
more products than it exports, it has a negative balance of trade, or trade deficit. The
difference between the fl ow of money into and out of a country is called its balance of
payments.
Economic Barriers
 Economic Development.
 Exchange Rates
Ethical, Legal, and Political Barriers
 Laws and Regulations
 Tariffs and Trade Restrictions
 Political Barriers.
Summarize the different levels of organizational involvement in international trade.
A company may be involved in international trade at several levels, each requiring a
greater commitment of resources andeffort, ranging from importing/exporting tomultinational
corporations. Countertrade agreements occur at the import/export level and involve bartering
products for other products instead of currency. At the next level, a trading company links
buyers and sellers in different countries to foster trade. In licensing and franchising, one
company agrees to allow a foreign company the use of its company name, products, patents,
brands, trademarks,raw materials, and production processes in exchange for a flat fee or
royalty. Contract manufacturing occurs when a company hires a foreign company to produce
a specified volume of the fi rm’s product to specifi cation; the final product carries the
domestic firm’s name. A joint venture is a partnership in which companies from different
countries agree to share the costs and operation of the business. The purchase of overseas
production and marketing facilities is direct investment.Outsourcing, a form of direct
investment, involves transferring manufacturing to countries where labor and supplies are
cheap. Offshoring is the relocation of business processes by a company or subsidiary to
another country; it differs from outsourcing because the company retains control of the
offshored processes. A multinational corporation is one that operates on a worldwide scale,
without signifi cant ties to any one nation or region.
Contrast two basic strategies used in international business.
Companies typically use one of two basic strategies in international business. A
multinational strategy customizes products, promotion, and distribution according to cultural,
technological,regional, and national differences. A global strategy (globalization)
standardizes products (and, as much as possible, their promotion and distribution) for the
whole world, as if it were asingle entity.

CHAPTER 4
Options for Organizing Business

Define and examine the advantages and disadvantages of the sole proprietorship form
of organization.
Sole proprietorships—businesses owned and managed by one person—are the most
common form of organization. Their major advantages are the following: (1) They are
easy and inexpensive to form, (2) they allow a high level of secrecy, (3) all profi ts belong to
the owner, (4) the owner has complete control over the business, (5) government regulation is
minimal, (6) taxes are paid only once, and (7) the business can be closed easily. The
disadvantages include: (1) The owner may have to use personal assets to borrow money, (2)
sources of external funds are diffi cult to fi nd, (3) the owner must have many diverse skills,
(4) the survival of the business is tied to the life of the owner and his or her ability to work,
(5) qualified employees are hard to find, and (6) wealthy sole proprietorspay a higher tax than
they would under the corporate form of business.
Identify two types of partnership and evaluate the advantages and disadvantages of the
partnership form of organization.
A partnership is a business formed by several individuals; a partnership may be
general or limited. Partnerships offer the following advantages: (1) They are easy to organize,
(2) they may have higher credit ratings because the partners possibly have more combined
wealth, (3) partners can specialize, (4) partnerships can make decisions faster than larger
businesses, and (5) government regulations are few. Partnerships also have several
disadvantages: (1) General partners have unlimited liability for the debts of the partnership,
(2) partners are responsible for each other’s decisions, (3) the death or termination of one
partner requires a new partnership agreement to be drawn up, (4) it is difficult to sell a
partnership interest at a fair price, (5) the distribution of profits may not correctly reflect the
amount of work done by each partner, and (6) partnerships cannot find external sources of
funds as easily as can large corporations.
Describe the corporate form of organization and cite the advantages and disadvantages
of corporations.
A corporation is a legal entity created by the state, whose assets and liabilities are
separate from those of its owners. Corporations are chartered by a state through articles of
incorporation. They have a board of directors made up of corporate offi cers or people from
outside the company. Corporations, whether private or public, are owned by stockholders.
Common stockholders have the right to elect the board of directors. Preferred stockholders do
not have a vote but get preferential dividend treatment over common stockholders.
Advantages of the corporate form of business include: (1) The owners have limited liability,
(2) ownership (stock) can be easily transferred, (3) corporations usually last forever, (4)
raising money is easier than for other forms of business, and (5) expansion into new
businesses is simpler because of the ability of the company to enter into contracts.
Corporations also have disadvantages: (1) The company is taxed on its income, and owners
pay a second tax on any profits received as dividends; (2) forming a corporation can be
expensive; (3) keeping trade secrets is difficult because so much information must be made
available to the public and to government agencies; and (4) owners and managers are not
always the same and can have different goals.
Define and debate the advantages and disadvantages of mergers, acquisitions,
and leveraged buyouts.
A merger occurs when two companies (usually corporations) combine to form a new
company. An acquisition occurs when one company buys most of another company’s stock.
In a leveraged buyout, a group of investors borrows money to acquire a company, using the
assets of the purchased company to guarantee the loan. They can help merging fi rms to gain
a larger market share in their industries, acquire valuable assets such as new products or
plants and equipment, and lower their costs.Consequently, they can benefit stockholders by
improving the companie’s market value and stock prices. However, they also can hurt
companies if they force managers to focus on avoiding takeovers at the expense of
productivity and profits. They may lead a company to take on too much debt and can harm
employee morale and productivity.
CHAPTER 5
Small Business,Entrepreneurship,and Franchising

Define entrepreneurship and small business.


An entrepreneur is a person who creates a business or product and manages his or her
resources and takes risks to gain a profit; entrepreneurship is the process of creating and
managing a business to achieve desired objectives. A small business is one that is not
dominant in its competitive area and does not employ more than 500 people. relatively easy
to enter, require relatively low initial fi nancing, and may experience less heavy competition.

Specify the advantages of small-business ownership.


Small-business ownership offers some personal advantages,including independence,
freedom of choice, and the option of working at home. Business advantages include
flexibility, the ability to focus on a few key customers, and the chance to develop a reputation
for quality and service.

Summarize the disadvantages of small-business ownership, and analyze why many


small businesses fail.
Small businesses have many disadvantages for their owners such as expense, physical
and psychological stress, and a high failure rate. Small businesses fail for many reasons:
undercapitalization, management inexperience or incompetence, neglect,disproportionate
burdens imposed by government regulation,and vulnerability to competition from larger
companies.

Describe how you go about starting a small business and what resources are needed.
First, you must have an idea for developing a small business. Next, you need to devise
a business plan to guide planning and development of the business. Then you must decide
what form of business ownership to use: sole proprietorship, partnership, or corporation.
Small-business owners are expected to provide some of the funds required to start their
businesses, butfunds also can be obtained from friends and family, financial institutions,
other businesses in the form of trade credit, investors(venture capitalists), state and local
organizations, and the Small Business Administration. In addition to loans, the Small
Business Administration and other organizations offer counseling, consulting, and training
services. Finally, you must decide whether to start a new business from scratch, buy an
existing one, or buy a franchise operation.