Business Dynamics Midterm

business

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

revenue, profit, loss

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

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

loss- When a business’s expenses are more than its revenues.

risk

The chance an entrepreneur takes of losing time and money on a business that may not prove profitable.

standard of living

The amount of goods and services people can buy with the money they have.

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.

stakeholder

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

5 factors of production

land, labor, capital, entrepreneurship, knowledge (what makes rich countries rich today is entrepreneurship and knowledge)

5 business environment elements

economic and legal, tech, competitive, social, global business

e-commerce

buying and selling of goods over the internet

the social environment and citizens

increase in number of older citizens, increase in number of single parent families, rise of gen z’s economic influence- they will be the largest group of consumers in the world

progress in agriculture and manufacturing industries

Industrialization in the 19th and 20th centuries moved jobs from farms to factories

progress in service industry

Since the mid-1980s, the service industry generated almost all the increases in employment.

ethics

Standards of moral behavior; that is, behavior accepted by society as right versus wrong.

ethics start at the top, managers can help instill corporate values in employees

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.

6 steps to improve us business ethics

top management must adopt code of conduct

employees must understand management expects them to act ethically

managers/others must be trained to consider ethical implications of business decisions

ethics office where employees can communicate anonymously. whistleblowers are insiders who report illegal or unethical behavior

involve outsiders such as suppliers and customers

the ethics code must be enforced with timely action if any rules are broken

corporate social responsibility

the concern businesses have for the welfare of society, not just for their owners - multiple stakeholder groups

Based on commitment to integrity, fairness, and respect

Csr defenders believe businesses owe their existence to the societies they serve

dimensions of company’s social performance

Corporate philanthropy — Includes charitable donations.

Corporate social initiatives — Include enhanced forms of corporate philanthropy directly related to the company’s competencies.

Corporate responsibility — Includes everything from hiring minority workers to making safe products.

Corporate policy — The position a firm takes on social and political issues.

president kennedy’s 4 basic rights of consumers

right to safety, right to be informed, right to choose, right to be heard

insider trading

An unethical activity in which insiders use private company information to further their own fortunes or those of their family and friends.

responsibility to employees

create jobs and provide a chance for upward mobility, treat 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

social auditing

A systematic evaluation of an organization’s progress toward implementing socially responsible and responsive programs.

importing and exporting

importing- buying products from another country

exporting- selling products to another country

free trade

The 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 a particular period.

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.

dumping

Selling products in a foreign country at lower prices than those charged in the producing country

culture

Set of values, beliefs, rules, and institutions held by a specific group of people.

exchange rate

The value of one nation’s currency relative to the currencies of other countries.

high/ low value of the dollar

high- Dollar is trading for more foreign currency; foreign products become cheaper

low- Dollar is trading for less foreign currency; foreign goods become more expensive.

devaluation

(Government Intervention) Lowering the value of a nation’s currency relative to other currencies.

legal and regulatory forces

theres no global system of laws, laws may be inconsistent, US businesses must follow US laws while conducting global business

trade protectionism

The use of government regulations to limit the import of goods and services.

Allows domestic producers to survive, grow, and produce jobs.

tariffs

a tax imposed on imports

import quota

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

embargo

A complete ban on the import or export of a certain product, or the stopping of all trade with a particular country.

outsourcing

Process whereby one firm contracts with other companies to do some or all of its functions.

With the growth of global markets, companies have been shifting to offshore outsourcing — outsourcing with other countries.

pros of offshore outsourcing

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.

cons of offshore outsourcing

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.

3 basic forms of business ownership

Sole proprietorship — A business owned, and usually managed, by one person.

Partnership — A legal form of business with two or more owners.

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

advantages of sole proprietorship

Ease of starting and ending the business.

Being your own boss.

Pride of ownership.

Leaving a legacy.

Retention of company profits.

No special taxes.

disadvantages of sole proprietorship

Unlimited liability — The responsibility of business owners for all debts of the business.

Limited financial resources.

Management difficulties.

Overwhelming time commitment.

Few fringe benefits.

Limited growth.

Limited life span.

advantages of partnerships

More financial resources.

Shared management and pooled/complementary skills and knowledge.

Longer survival.

No special taxes.

disadvantages of partnerships

Unlimited liability.

Division of profits.

Disagreements among partners.

Difficulty of termination.

conventional 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.

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.

disadvantages of corporations

Initial cost.

Extensive paperwork.

Double taxation.

Two tax returns.

Size.

Difficulty of termination.

Possible conflict with stockholders and board of directors.

individuals can incorporate …

anyone- truckers, doctors, plumbers, athletes, and small business owners—can incorporate.

Stock is normally not issued to outsiders when individuals incorporate, so they do not share the advantages and disadvantages of large corporations.

Major advantages are limited liability and possible tax benefits.

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.

If an S corporation loses its S status, it may not operate under it again for at least 5 years.

Limited Liability Companies

similar to an s corporation but without the special elegibility requirements. more than half of new business registrations in some states are llcs

megrer

The result of two firms forming one company

acquisition

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

types of mergers

vertical, horizontal, conglomerate

vertical merger

The joining of two companies in different stages of related businesses. AT&T + Time Warner

horizontal merger

The joining of two firms in the same industry.

conglomerate merger

The joining of firms in completely unrelated industries.

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.

advantages of franchising

Management and marketing assistance.

Personal ownership.

Nationally recognized name.

Financial advice and assistance.

Lower failure rate.

Disadvantages of Franchises

Large start-up costs.

Shared profit.

Management regulation.

Coattail effects.

Restrictions on selling.

Fraudulent franchisors.

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.

Comparative advantage theory

states a country should sell to other countries those products it produces most effectively and efficiently and buy from other countries those it cannot (US has comp adv in things like software development but not in growing coffee)

Absolute advantage

a country is said to have this if it can produce a product more efficiently than all other countries

Licensing

allowing a foreign firm the right to manufacture a product or use its trademark for a fee

Joint venture

partnership in which 2 or more companies often from different countries join to undertake a major product

Benefits of international joint ventures shared technology and risk, shared marketing and management expertise, entry to markets where foreign companies are often not allowed unless goods are produced locally

Strategic alliance

a long term partnership between 2 or more companies established to help each company build competitive market advantages

partnerships

general- all owners share in operating the business and in assuming liability for the business’s debts

Limited partnership- one or more general partners and one or more limited partners

Master limited partnership- looks like a corporation but is taxed like a partnership and thus avoids income tax- limited to oil, gas, and real estate

Limited liability partnership- limits partners risk of losing their personal assets to the outcomes of only their own acts and omissions and those of people under their supervision

managers today…

Tend to be collaborative.

Emphasize teams and team building.

Guide, train, support, motivate, and coach employees.

Need to be skilled communicators and team players.

Need to be globally prepared.

management

process used to accomplish organizational goals through planning, organizing, leading and controlling

planning

setting the orgs vision, goals, and objectives

vision

More than a goal; an encompassing explanation of why the organization exists and where it’s trying to go.

goals

The broad, long-term accomplishments an organization wishes to attain.

objectives

Specific, short-term statements detailing how to achieve the organization’s goals.

mission statement

An outline of the fundamental purposes of an organization, including:

The organization’s self-concept.

Its philosophy.

Its long-term survival needs.

Its customer needs.

Its social responsibility.

The nature of its product or service.

swot analysis- strength, weakness, opportunities, threats

A planning tool used to analyze an organization’s strengths, weaknesses, opportunities, and threats.

top management

Highest level, consisting of the president and other key company executives who develop strategic plans.

CEO, COO, CFO, CIO.

middle management

Includes general managers, division managers, and branch and plant managers who are responsible for tactical planning and controlling.

supervisory management

Those directly responsible for supervising workers and evaluating their daily performance.

skills for each of the levels of management

top managers, mainly conceptual

middle managers- even split of technical, human relations, and conceptual

first line- mainly technical, then human relation, then conceptual

autocratic leadership

Make managerial decisions without consulting others. Effective in emergencies or with new, unskilled workers.

Participative or democratic leadership

Managers and employees work together to make decisions.

Usually increases job satisfaction.

Free-rein leadership

Managers set objectives and employees are relatively free to do whatever it takes to accomplish those objectives.

Most successful when supervising professionals.

human resource management

The process of determining human resource needs and then recruiting, selecting, developing, motivating, evaluating, compensating, and scheduling employees to achieve organizational goals.

HRM’s role has grown because of:

Increased recognition of employees as a resource.

Changes in law that rewrote old workplace practices.

compensation

A main tool companies use to attract qualified employees, and one of their largest operating costs. Compensation is not just “salary.”

fringe benefits

Benefits such as sick-leave pay, vacation pay, pension plans, and health plans that represent additional compensation to employees beyond base wages.

Fringe benefits include incentives like company cars, paid and unpaid sabbaticals, day care and elder care services, student loan debt payment, etc.

Soft benefits include on-site haircuts, free meals at work, concierge services, etc.

cafeteria style fringe benefits

Fringe benefit plan that allows employees to choose the benefits they want up to a certain dollar amount

flextime plans

Gives employees some freedom to choose which hours to work. Most flextime plans require core time, the period when all employees are expected to be at their job stations.

Flextime is difficult to incorporate into shift work, and managers have to work longer hours.

home based work

44 percent of Americans work from home at least once per week or more.

Allows employees to choose their own hours, interrupt work for child care or other tasks, and take time out for personal reasons.

Employers benefit because it can limit absences, increase productivity, and save money.

Companies also offer “hot-desking,” or sharing a desk with other employees who work at different times.

marketing

The activity, set of institutions and processes for creating, communicating, delivering, and exchanging offerings with value for customers, clients, partners, and society at large.

evolution of marketing

production era- produce as much as you can

selling era- Most companies emphasized selling and advertising in an effort to persuade consumers to buy existing products.

marketing concept era- 3 part business philosophy of customer orientation, service orientation, and profit orientation

customer relationship era- Key is to learn as much as possible about customers and doing everything you can to satisfy or exceed their expectations.

marketing mix (4 ps)

product, price, place and promotion

marketing research

is the analysis of markets to determine opportunities and challenges, and to find the information needed to make good decisions.

secondary data

Information that has already been compiled by others and published in journals and books or made available online

primary data

data you gather yourself

key benefits of marketing research

Analyze customer needs and satisfaction.

Analyze current markets and opportunities.

Analyze the effectiveness of marketing strategies.

Analyze marketing process and tactics currently used.

Analyze the reasons for goal achievement or failure.

market segmentation

Dividing the total market into groups whose members have similar characteristics

target marketing

Marketing directed toward those groups (market segments) an organization decides it can serve profitably.

Different segmentation

Geographic, demographic, psychographic (Dividing the market using the group’s values, attitudes, and interests), benefit (Dividing the market by determining which benefits of the product to talk about) , and volume or usage- Dividing the market by usage (volume of use)

niche marketing

Finding small but profitable market segments and designing or finding products for them

one to one marketing

Developing a unique mix of goods and services for each individual consumer.