MODULE 3: ORGANIZING FOR INTERNATIONAL BUSINESS

Lesson 5: Structure of International Business

Sole Proprietorship

Business owned by one person.

Advantages of Sole Proprietorship

1. Easy to start

2. full control,

3. keeps all profits,

4. pride of ownership.

Disadvantages of Sole Proprietorship

1. Limited funds,

2. unlimited liability,

3. long hours,

4. limited life.

Corporation

Business owned by shareholders through stock.

Stock

Ownership share in a corporation.

Stockholder/Shareholder

Owner of corporate stock.

Dividend

Share of company profits paid to shareholders.

Board of Directors

Group elected to manage major corporate decisions.

Advantages of Corporation

1. More funds,

2. limited liability,

3. specialized management,

4. unlimited life.

Disadvantages of Corporation

1. Difficult to form,

2. limited owner control,

3. double taxation.

Municipal Corporation

City/town organized to provide public services.

Nonprofit Corporation

Organization created to provide services, not profit.

Cooperative

Business owned and operated for members’ benefit.

Multinational Company (MNC)

Company operating in multiple countries.

Parent Company

Main company located in home country.

Host Country

Country where MNC operates abroad

Worldwide Market View

Seeing the world as one potential market.

Standardized Product

Same product offered across markets.

Culturally-Sensitive Hiring

Hiring practices adapted to local culture.

Global-Local Perspective

Balancing global strategy with local adaptation.

Indirect Exporting

Selling abroad without actively seeking foreign markets.

Direct Exporting

Actively seeking and managing foreign sales.

Management Contract

Selling management skills to a foreign company.

Contract Manufacturing

Foreign company manufactures product for a firm.

Licensing

Allowing foreign company to use brand, trademark, or process for royalty.

Franchising

Granting right to operate business using company name/system.

Royalty

Payment for use of brand or process.

Joint Venture

Partnership between companies from different countries for specific project.

Foreign Direct Investment (FDI)

Buying business assets in another country.

Wholly-Owned Subsidiary

Foreign business fully owned by parent company.

Importing

Buying goods/services from other countries.

Reasons for Importing

1.Consumer demand,
2. lower cost,
3. foreign parts.

Exporting

Selling goods/services to other countries.

Balance of Trade

Difference between exports and imports.

Balance of Payments

Total money flowing in and out of a country.

Favorable Balance of Payments

More money coming in than going out.

Unfavorable Balance of Payments

More money going out than coming in.

Trade Agreement

Agreement between countries to promote trade.

World Trade Organization (WTO)

Organization that promotes free trade and settles disputes.

General Agreement on Tariffs and Trade (GATT)

Agreement created to reduce trade barriers after WWII.

Economic Community

Group of countries acting as one market.

European Union (EU)

Economic and political union in Europe.

Association of Southeast Asian Nations (ASEAN)

Southeast Asian economic cooperation group.

North American Free Trade Agreement (NAFTA)

Trade agreement between US, Canada, and Mexico.

Free-Trade Zone

Area where goods enter duty-free until distributed.

Domestic Market; International Business Competition

Competition within one country.

International Market; International Business Competition

Competition across multiple countries.

Industry; International Business Competition

Group of companies producing similar products.

Pure Competition; International Business Competition

Many sellers offering identical products.

Monopolistic Competition; International Business Competition

Many sellers offering slightly different products.

Oligopoly; International Business Competition

Few large companies control industry.

Monopoly; International Business Competition

One seller controls entire market.