Intro To Business CH.3 - CH.4

International Business

Buying, selling, and trade of goods and services across national boundaries.

Comparative Advantage

When a country specializes in products that it can supply more efficiently or at a lower cost than other items.

Outsourcing

Transferring manufacturing and other tasks to countries where labor and supplies are less expensive.

Exporting

The sale of goods and services to foreign markets.

Importing

The purchase of goods and services from foreign sources.

Balance of Trade

The difference in value between a nation’s exports and imports.

Trade deficit

When a nation imports more than it exports.

Trade surplus

When a nation exports more than it imports.

Balance of payments

The difference between the flow of money in and out of a country

Infrastructure

The physical facilities that support a country’s economic activities.

Exchange Rates

The ratio of which a nation’s currency can be exchanged for another’s

Import tariff

A tax levied by a nation on goods imported into the country.

Exchange controls

Restricts the amount of currency that can be bought or sold

Quota

Limits how much of a product can be imported into a country.

Embargo

Prohibits trade in a particular product.

Dumping

When a country or business sells products at less than what it costs to produce

Cartel

A group of firms or nations that agrees to act as a monopoly and gain a competitive advantage in world markets

General Agreement of Tariffs and Trade (GATT)

A place where countries meet to discuss and solve trade problems and negotiate tariffs.

World Trade Organization (WTO)

An international organization dealing with rules of trade between nations

Countertrade agreements

Bartering products for other products instead of currency

Licensing

A trade arrangement where one company lets another company use its name, products, etc in exchange for a fee.

Franchising

A deal where a company lets someone use its name and brand in exchange for money and following its rules.

Contract manufacturing

When a company hires a foreign company to produce a specified volume of the firm’s product to specification.

Offshoring

The relocation of a business process by a company to another country.

Joint venture

A partnership established for a specific project or for a limited time

Trading company

Buys goods in one country and sells to buyers in another country.

Strategic alliance

A partnership formed to create competitive advantage on a worldwide basis.

Direct investment

Ownership of overseas facilities

Multinational corporation (MNC)

A corporation that operates on a worldwide scale without significant ties to any one nation

Sole proprietorship

Business owned and operated by one individual

Advantages of Sole Proprietorships?

Ease and cost of formation; secrecy; distribution and use of profits, flexibility and control of business, freedom from government regulation

Disadvantages of Sole Proprietorships?

Unlimited liability, limited sources of funds, limited skills, lack of continuity, taxation.

Partnership

Two or more individuals who act as co-owners of a business for profit

General Partnership

A complete sharing in both management and liability of the business

Limited partnership

A business with one general partner who has full liability and at least one partner whose liability is limited to their investment.

Articles of partnership

Legal documents that set forth the basic agreement between partners

Advantages of Partnerships

Ease of organization, availability of capital, combined knowledge and skills, decision making, fewer regulatory controls

Disadvantages of Partnerships

Unlimited liability, shared business responsibility, limited longevity, distribution of profits, limited sources of funds.

Taxation of Partnerships

Partnerships do not pay taxes when submitting partnership tax return.

Corporations

A legal entity, created by the state, whose assets and liabilities are separate from its owners.

Stock

Shares of a corporation that may be bought or sold

Dividends

Profits of a corporation that are distributed in the form of cash payments to stockholders

Private corporation

A corporation owned by just one or a few people who are closely involved in managing the business.

Public corporation

A corporation whose stock anyone may buy, sell, or trade.

Initial Public Offering (IPO)

Selling a corporation’s stock on public markets for the first time.

Quasi-Public Corporations

Corporations owned and operated by the federal, state, or local government

Nonprofit corporations

Corporations focused on providing a service instead of earning a profit but are not owned by a government.

Board of Directors

A group chosen by stockholders to manage the company and set its long-term goals.

Preferred Stock

A type of stock where owners get profits first but dont have a say in running the company.

Common Stock

Stock whose owners can vote in the company but don’t get special treatment for profits.

Advantages of Corporations

Limited liability, ease of transfer of ownership, perpetual life, external sources of funds, expansion potential.

Disadvantages of Corporations

Double taxation, expensive to form, mandated disclosure of information.

S corporation

Corporation taxed as though it were a partnership with restrictions on shareholders

Limited Liability Company (LLC)

Form of ownership, providing limited liability and taxation like a partnership but places fewer restrictions on members

Cooperative (Co-op)

A group of people or small businesses that join together to get the advantages of a bigger organization.

Merger

Two companies combining to form a new company

Acquisition

The purchase of one company by another, usually by buying its stock.

Horizontal merger

When firms that make and sell similar products merge.

Vertical merger

When companies operating at different but related levels of an industry merge

Conglomerate merger

When two firms in unrelated industries merge

Corporate raider

When a company or individual wants to acquire or take over another company.

Poison pill

When a firm allows stockholders to buy more shares of stock at prices lower than the current market value.

Shark repellant

When management requires a large majority of stockholders to approve the takeover.

White knight

A more acceptable firm that is willing to acquire the threatened company

Leveraged buyout (LBO)

A group of investors borrowing money from banks to acquire a company