Business dynamics midterm

business

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

goods

tangible products (food, clothing cars)

services

intangible products (education, healthcare, insurance)

revenue

total amount of money a business takes in

profit

the amount of money a business earns after what it spends on salaries and other expenses

loss

expenses are greater than the revenue

standard of living

the amount of goods/services people can buy with the money they have

quality of life

general well being of a society (politics, education, safety) that add to the satisfaction that other goods and services provide

stakeholders

people who stand to gain/lose by the policies of a business 

stockholders, customers, surrounding community, environmentalists, dealers, retailers, employees, government leaders, suppliers, media, bankers

outsourcing

contracting with other companies to do some or all functions of a firm

insourcing

foreign companies set up design and production facilities in the United States.

5 factors of production

land, labor, capital, entrepreneurship, knowledge

business environment

surrounding factors that help or hinder development of the business

e-commerce

buying and selling goods online

empowerment

giving workers responsibility, freedom, training, and equipment to make decisions 

intellectual capital

employee knowledge/skills to create new products, customers and profits

productivity

The amount of output you generate given the amount of input

importing

buying products from another country

exporting

selling products to another country

free trade

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

comparative advantage theory 

countries should sell things that they can make effectively/efficiently

countries should buy things that they cannot product effectively/efficiently 

absolute advantage

when a specific country produces something more effectively/efficiently than all other countries

monopoloy

free trade pros

large market, high productivity, keeps prices down (good for economic growth), lowers interest rates

free trade cons

domestic workers lose jobs, pay cuts for workers, less service jobs

balance of trade

total value of a nation’s exports compared to imports

trade surplus

exports > imports

(selling more than buying)

trade deficit

imports > exports

(buying more than selling)

balance of payments

money coming into the country (exports) minus money leaving the country (imports) plus money flows from tourism, foreign aid, military expenditures, and foreign investment

dumping

selling products in a foreign country at lower prices than those charged in the producing country (unfair trade practice)

licensing

a firm (the licensor) allows a foreign company (the licensee) the license to produce its product in exchange for a fee (royalty)

franchising

someone sells to others the rights to use the business name and sell a product or service

contract manufactoring

a foreign company produces private-label goods to which a domestic company attaches its brand name

joint venture

partnership where two or more companies join to undertake a major project

strategic alliance

long term partnership but they don’t share profits/costs

foreign direct investment

buying of permanent property/business in foreign nations

foreign subsidary

a company owned in a foreign country by another company (parent company)

sovereign wealth funds

investment funds controlled by governments holding large stakes in foreign companies

least risky to most risky global business strategies

licensing, exporting, franchising, contract manufacturing, joint ventures, foreign direct investment

difficulties of global business

sociocultural, economic/financial, legal, environmental

exchange rate

value of one nation’s currency compared to other countries

they float according to supply/demand

countertrading

bartering with several countries

ethnocentricity

thinking your nation is superior to others

trade protectionism

government regulations to limit imports of good/services (tariffs)

tariff

tax on imported goods

protective tariffs

import taxes (saves domestic jobs)

revenue tariffs

raise money for governments

import quota

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

embargo

ban on the import/export of a product

general agreement on tariffs and trade (GATT)

negotiating mutual reductions in trade restrictions

world trade organization (WTO)

replaced GAT, mediates trade disputes among nations

common market/trading bloc

regional group of countries than have a common external tariff, no internal tariff, and coordination of laws (EU)

north american free trade agreement (NAFTA)

free trade area among us, canada, mexico

central american free trade agreement (CAFTA)

free trade area among central american countries

offshore outsourcing

contracting with other companies aborad to so some or all functions of a firm like production or accounting

(loss of jobs, lower quality of products)

ethics

standards of moral behavior that society thinks is right or wrong

relationships with one another

legality

narrow laws

questions to ask in an ethical dilemna

is my proposed action legal

is it balanced (fair)

how will it make me feel about myself

compliance based ethics codes

ethical standards that emphasize preventing unlawful behavior by increasing control and penalizing wrongdoers

integrity based ethics codes

ethical standards that define the organization’s guiding values and create an environment that supports ethically sound behavior accountability among employees

whistleblowers

insiders who report illegal/unethical behavior

6 steps to improve business ethics

1) top management must have a code of conduct

2) employees must understand ethical expectations

3) managers must be trained to consider ethical implications of business decisions

4) ethics office always open for communication

5) outsiders must know about the ethics program

6) ethics code must be enforced

corporate social responsibility

a business’s concern for the welfare of society - integrity, fairness, respect

corporate philanthropy

charitable donations to nonprofits

corporate social incentives

enhanced forms of corporate philanthropy directly related to the company’s competencies (ability to do something efficiently) (offering benefits for employee service)

a company donates what it does best to help make a situation better.

corporate responsiblity

acting responsibly in society (from hiring minorities to making safe products)

corporate policy

the position a firm takes on social and political issues

insider trading

using private company information to further your own fortunes

regulation fair disclosure

you must release information to everyone

social audit 

a systematic evaluation of an organizations progress towards making socially responsible programs

5 groups that monitor how well companies are enforcing ethics

1) socially conscious investors

2) socially conscious research organizations

3) environmentalists

4) union officials (hunt down violators)

5) customers

How are U.S. businesses demanding socially responsible behavior from their international suppliers

they demand that international suppliers do not violate U.S. human rights and environmental standards.

will there be international ethical rules in the future

prob not

sole prorpietorship

business owned and managed by one person

partnership

business with two or more owners

corporations

legal entity with authority to act and have liability separate from its owners

advantages of sole proprietorships

• ease of starting/ending the business

• be your own boss

• pride of ownership

• leaving a legacy

• retention of company profit

  • no special taxes

disadvantages of sole proprietorship

• unlimited liability

• limited financial resources

• management difficulties (getting qualified workers)

• overwhelming time commitment

• few benefits

• limited growth

• limited life span

general partnership

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 more more limited partner

general partner

unlimited liability and is active in managing the firm

limited partner

limited liability. invests money into the business but has no management responsibility or liability for losses

limited liability

The responsibility of a business’s owners for losses only up to the amount they invest

limited partners and shareholders

master limited partnership (MLP)

looks like a corporation (publicly traded) but is taxed like a partnership and avoids corporate income tax

limited liability partnership (LLP)

each partner risks losing their own assets only from their own acts or people under their supervision

advantages of partnerships

• more financial resources

• shared management

• pooled skills/knowledge

• longer survival

  • no special taxes

disadvantages of partnerships

• unlimited liability for each partner

• division of profits

• disagreements among partners

  • difficulty of termination of company

conventional corporation

state chartered legal entity with authority to act or have liability separate from its owners

many people share ownership

advantages of corporations

• limited liability

• raise more money for investment

• size

• long 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 (ending the corp)

• conflict with stockholders/board of directors

who can incorporate

anyone, small business workers

no stocks

+limited liability and tax benefits

-double taxation

s corporation

government creation that looks like a corporation but is taxed like sole proprietorships and partnerships

limited liability company (LLC)

similar to an S corporation but without the special eligibility requirements

LLC advantages

• limited liability

• choice of taxation

• flexible ownership rules

• flexible distribution of profit/losses

• operating flexibility

LLC disadvantages

• no stock

• fewer incentives

• taxes

• paperwork

merger

2 firms joining 1 company

acquisition

1 company’s purchase of property of another company

vertical merger

joining of two companies in different stages of related businesses (soft drink and artificial sweetener company)

horizontal merger

joining of 2 firms in the same industry (soft drink and water companies)

conglomerate merger

joining of firms in completely unrelated industries (soft drink and chips companies)

leveraged buyout

attempt by employees, management, or group of investors to purchase an organization