Business Dynamics Exam 1

Stakeholders

All the people who stand to gain or lose by the policies and activities of a business

Five factors of production (Drucker)

Land, labor, capital, entrepreneurship, knowledge. Knowledge is the most important.

Effectiveness

Producing the desired result

Efficiency

Producing goods and services using the least amount of resources

Productivity

The amount of output you generate given the amount of input

Entrepreneur

Someone who accepts the risk of starting and running a business

Ways government promotes business

Low taxes and regulation, private ownership, free exchange of goods, enforceable contracts, tradable currency, minimal corruption

Major trends in U.S. business

Rising productivity, shift from manufacturing to services, information technology, women in the workforce

Importing

Buying products from another country

Exporting

Selling products to another country

U.S. trade ranking

Largest importer, third largest exporter (behind China and Germany)

Free trade

Movement of goods and services among nations without political or economic barriers

Balance of trade

Total value of a nation's exports compared to its imports over time

Balance of payments

Money coming into a country minus money leaving, plus other money flows

Licensing

Firm (licensor) lets a foreign company (licensee) make its product or use its trademark for a fee (royalty)

Export-trading company

Helps companies with indirect exporting by setting up trading relationships

Contract manufacturing

Foreign company makes private-label goods that a domestic company brands as its own. A form of outsourcing.

Joint venture

Two or more companies join to do a major project. Share technology, risk, marketing, and management.

Strategic alliance

Long-term partnership to build competitive advantage. Usually does NOT share costs, risks, management, or profits.

Foreign direct investment (FDI)

Buying permanent property and businesses in foreign nations

Foreign subsidiary

Company owned in a foreign country by a parent company. Most common FDI. Full control, but funds committed abroad.

Multinational corporation

Makes and markets products in many countries with multinational stock ownership and management

Sovereign wealth funds

Government-controlled investment funds holding large stakes in foreign companies

Four forces affecting global trade

Socio-cultural, economic and financial, legal and regulatory, physical and environmental

Ethnocentricity

Feeling your own culture is superior to others

Exchange rate

Value of one nation's currency relative to other currencies

High value of the dollar

Dollar buys more foreign currency, so foreign goods are cheaper

Low value of the dollar

Dollar buys less foreign currency, so foreign goods are more expensive

Devaluation

Lowering the value of a nation's currency relative to others

Trade protectionism

Using government regulations to limit imports

Tariff

Tax on imports. Either protective or revenue-generating.

Import quota

Limit on the number of products in a category that can be imported

Embargo

Complete ban on importing or exporting a product

Ethics

Standards of moral behavior accepted by society as right versus wrong

Compliance-based ethics code

Prevents unlawful behavior through control and penalties for wrongdoers

Integrity-based ethics code

Defines guiding values, supports ethical behavior, stresses shared accountability

Six steps to improve business ethics

Top management supports a code, employees know ethics is expected, train managers, anonymous ethics office, involve outsiders, enforce the code

Corporate social responsibility (CSR)

The concern businesses have for the welfare of society

Friedman's view on CSR

The social responsibility of business is to increase its profits

J.S. Mill (consequentialism)

Ends justify the means. Greatest good for the greatest number. Cost-benefit analysis.

Kant (deontology)

Duty regardless of consequences. Universalize your behavior. Treat people as ends, not means.

Aristotle (virtue ethics)

Focus on character. Right character leads to ethical actions. Learn by emulating good behavior.

J&J Tylenol case

Proactive. Recalled 31 million bottles for about $100M. Guided by its Credo. Focus on consumer safety.

Ford Pinto case

Reactive. Skipped a $6.65 fix based on cost-benefit analysis. Later forced to recall 1.9M cars.

Sole proprietorship

Business owned and usually managed by one person

Advantages of sole proprietorship

Easy to start and end, be your own boss, pride, legacy, keep profits, no special taxes

Disadvantages of sole proprietorship

Unlimited liability, limited money, management difficulty, time commitment, few benefits, limited growth and life span

Partnership

Two or more people legally agree to co-own a business

General partner

Owner with unlimited liability who actively manages the firm

Limited partner

Owner who invests money but has limited liability and does not manage

General partnership

All owners share operations and liability for debts

Limited partnership

One or more general partners plus one or more limited partners

Master limited partnership (MLP)

Looks like a corporation but is taxed like a partnership

Limited liability partnership (LLP)

Partners only liable for their own acts and those of people they supervise

Corporation

Legal entity with authority to act and have liability apart from its owners

Advantages of corporations

Limited liability, more money, size, perpetual life, easy ownership change, attracts talent, separation of ownership from management

Disadvantages of corporations

Initial cost, paperwork, double taxation, two tax returns, size, hard to end, conflict with stockholders and board

Alien corporation

Does business in the U.S. but chartered in another country

Domestic corporation

Does business in the state where it is chartered

Foreign corporation

Does business in one state but chartered in another (often Delaware)

Closed (private) corporation

Stock held by a few people and not sold to the public

Open (public) corporation

Sells stock to the general public

Quasi-public corporation

Government-chartered approved monopoly serving the public, like a utility

Professional corporation

Owners offer professional services, like doctors or lawyers. Shares not publicly traded.

S corporation

Looks like a corporation but taxed like a partnership. Has limited liability.

S corporation requirements

Max 100 shareholders, U.S. citizens or residents, one class of stock, max 25% passive income. Lose status and wait 5 years.

Limited liability company (LLC)

Like an S corp without the eligibility rules. Started in Wyoming in 1977.

Disadvantages of LLCs

No stock, limited life span, fewer incentives, taxes, paperwork

Merger

Two firms join to form one company

Vertical merger

Joins two firms at different stages of related business

Horizontal merger

Joins two firms in the same industry

Conglomerate merger

Joins firms in unrelated industries to diversify

Acquisition

One company buys the property and obligations of another

Franchise agreement

Franchisor sells franchisees the right to use the business name and sell its product in a territory

Advantages of franchising

Management and marketing help, personal ownership, known name, financial help, lower failure rate

Disadvantages of franchising

Large start-up costs, shared profit, management rules, coattail effects, selling restrictions, fraud

Cooperative

Business owned and controlled by the people who use it. Members elect the board.

Micropreneur

Entrepreneur who keeps the business small for a balanced lifestyle

Intrapreneur

Creative person who acts as an entrepreneur inside a corporation (Art Fry, Post-it, 3M)

Investor visas

Created by the 1990 Immigration Act to attract entrepreneurs to the U.S.

Enterprise zones

Areas where governments attract business with lower taxes and other support

Incubators

Offer new businesses low-cost offices with basic services

Small business

Independently owned, not dominant in its field, meets size standards

Why small business failure rates look high

Closing to start another business, changing ownership form, and retiring all count as failures

Business plan

Written statement describing the business, target market, competitive advantages, and owner's resources and qualifications

Venture capitalists

Invest in new businesses in exchange for partial ownership

Small Business Administration (SBA)

Government agency giving small businesses training and financial advice. Microloan program started 1991.

Small Business Investment Company (SBIC)

Private company licensed by the SBA to lend to small businesses. Min $5M capital, can borrow $2 from SBA per $1.

Small business advantages in global trade

Buyers like dealing with individuals, ship faster, many suppliers, more personal service

Management

Accomplishing goals through planning, organizing, leading, and controlling

Four functions of management

Planning, organizing, leading, controlling

Vision

Broad explanation of why the organization exists and where it is going

Mission statement

Outlines the organization's fundamental purposes

Goals

Broad, long-term accomplishments

Objectives

Specific, short-term statements detailing how to reach goals

SWOT analysis

Strengths and weaknesses are internal. Opportunities and threats are external.

Reitman's problem anatomy

A problem is the gap between the current state and the desired state

Simon's decision stages

Intelligence, design, choice. Sequential and looping.

Technical skills

Ability to perform tasks in a specific discipline. Most important for lower managers.

Human relations skills

Communication and motivation. Important at all levels.