College Business Final 1-4

COLLEGE BUSINESS PRINCIPLES I

CHAPTER 1 – MANAGING WITHIN THE DYNAMIC BUSINESS ENVIRONMENT  

Name: Branden

LEARNING THE LANGUAGE

Listed below are important terms found in the chapter.  Define each term and then choose the correct term for each definition and write it in the space provided.

Business - Any activity that seeks to provide goods and services to others while operating at a profit.

Business environment - The surrounding factors that either help or hinder the development of business 1. Economic and legal environment 2. Technological environment 3. Competitive environment 4. Social environment 5. Global business environment  

Database - An electronic storage file for information

Demography - The statistical study of the human population with regard to its size, density and other characteristics such as age, race, gender, and income

E-commerce - The buying and selling of goods over the internet 1. Business to consumer (B2C) 2. Business to business (B2B)

Empowerment - Giving frontline workers the responsibility, authority, freedom, training, and equipment they need to respond quickly to customer requests 

Entrepreneur - A person who risks time and money to start and manage a business

Factors of production - The five resources used to create wealth: 1. Land (natural resources) 2. Labor (workers) 3. Capital 4. Entrepreneurship 5. Knowledge 

Goods - Tangible products such as computers, food, clothing, cars, and appliances  

Identity theft - The obtaining of individuals personal information, such as social security and credit card numbers, for illegal purposes

Loss - When a business's expenses are more than its revenue 

Nonprofit organization - An organization whose goals do not include making a personal profit for its owners or organizers 

Outsourcing - Contracting with other companies to do some functions of a firm, like production or accounting (often in other countries) 

Productivity - The amount of output you generate given the amount of input

Profit - Amount of money a business earns adobe and beyond what it spends for salaries 

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 satisfaction and joy that other good and services provide 

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

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

Services - Intangible products such as education, health care, insurance, recreation, and travel 

Stakeholders - All the people who stand to gain or lose by the policies and activities of business and whose concerns the business needs to address 

Standard of living - The amount of good and services people can buy with the money they have

Technology - Everything from phones to computers and the various software programs that make business process more effective, efficient, and productive 

Entrepreneurship and Wealth Building

1. What could be the result, for you, of successfully filling a market need? You could make money

2. Describe the difference between revenue and profit. Revenue is the total amount of money made during a given period, and profit is the money a business earns above and beyond what it spends for salaries and other expenses

3. When does a company experience a loss? Over time, what will likely result from business losses? When a company's expenses are more than its revenue. Eventually the company will not be able to afford the losses and go out of business 

4. What is the relationship between risk and profit? Businesses take risks, but with big risks could come big rewards

5. How do the taxes paid by businesses and their employees benefit everyone in their communities?  It increases everyone's standard of living

6. How is it that a person in one country, such as Germany, can buy fewer goods with the same amount of money as a person who lives in the United States, for example?  How does this affect our standard of living? Since they make more money in countries like Germany, it evens out the standard of living

7. Describe the challenges businesses of the 21st century will face with regard to stakeholders and profitability. Businesses need to recognize and respond to the needs of their stakeholders

8. What is “insourcing” and what are the benefits? Insourcing is foreign companies opening offices and factories in the United States

9. How do nonprofits use financial gains? To meet social or educational goals 

10. What are “social entrepreneurs”? Social entrepreneurship is an approach by individuals, groups, start-up companies or entrepreneurs, in which they develop, fund and implement solutions to social, cultural, or environmental issues.

Entrepreneurship Versus Working for Others

11. What are two ways to succeed in business, according to the text? What are the advantages of each way?  Rising through the ranks or becoming an entrepreneur. Rising through the ranks is less risky while being an entrepreneur can be way faster and make more money

12. How have individuals, members of minority groups, and women business owners in the United States participated in entrepreneurship? Entrepreneurs offers the potential for higher earnings and greater control for them and they often don’t get the same opportunities for average jobs so they need to adventure out and think outside the box

13. List the 5 factors of production. 1. Land (natural resources) 2. Labor (workers) 3. Capital 4. Entrepreneurship 5. Knowledge 

14. What combination of the factors of production distinguishes rich countries from poor countries? Entrepreneurship and knowledge 

The Business Environment

15. What are the 5 factors that make up the business environment? 1. The legal and economic environment 2. The technological environment 3. The competitive environment 4. The social environment 5. The global business environment

The Economic and Legal Environment

16. What are six ways governments can reduce the risk of starting businesses and thus increase entrepreneurship? 1. Minimize spending and keep taxing and regulations to a minimum 2. To allow private ownership of business 3. Passing laws that enable business people to write enforceable contracts 4. Establish a currency that's tradable in world markets. 5. Minimize corruption in business and in its own ranks 6. Creating an environment worldwide that allows entrepreneurship to thrive 

The Technological Environment

18. Describe the difference between “effectiveness” and “efficiency”. Effectiveness refers to achieving goals while efficiency focused on resource utilization

19. What are the two major types of e-commerce transactions? Business to consumer and business to business

20. How do businesses make use of bar codes and the resulting databases? To identify products you buy and their size, quantity, and color

21. What are some ways you can prevent identify theft, according to the text? Create a new password for each account, and two-factor authentication

The Competitive Environment

22. What must companies offer in order to stay competitive in today’s world markets? Both high quality products and good value, outstanding service at competitive prices 

23. What is meant by the phrase: “Competing by Exceeding Customer Expectations”?  Delivering exceptional value and service that surpasses what customers anticipate

24. Describe the concept of Competing by Restructuring and Empowerment. Reorganizing a company for greater efficiency and responsiveness whale empowering employees to make decisions

The Social Environment

25. What are three general ways in which the social environment is changing? Diversity, older citizens, single parents

26. How has the meaning of diversity changed? It now means dealing sensitively with with workers and cultures around the world

27. What kinds of business opportunities are presented by the increase in the number of older Americans? Food service, transportation, entertainment, education, lodging

28. What will be the impact of an increasing population of older Americans on Social Security and what are the options for fixing the problem? Less money will be going out for social security unless the government raises taxes, reduces social security benefits, reduces spending elsewhere or borrows on the world market

29. What effect has the growth in single-parent families had on businesses? Implemented programs such as family leave and flextime

The Global Environment

30. Two important global environmental changes have been: The growth of global competition and the increase of free trade among nations

31. Another name for global trade is globalization

32. World trade has grown thanks to: the development of efficient distribution systems and communication advances such as the internet

33. How has world trade affected living standards around the world? It has greatly improved it

34. Describe the effects of war and terrorism on business. Depending on the business, it can greatly benefit or extremely hurt from war. Depending on the service or products they sell 

35. How will these global changes affect you? New jobs will be created 

The Evolution of American Business

36. How has the agricultural industry and farm employment changed in the last century? 33% of people used to be a farmer where it is now below 1%

37. What has been the consequence of increased productivity in the manufacturing sector regarding jobs?  Where have workers found jobs as a result? Many agriculture jobs were lost and the size of the farms are almost 3 times as large. Workers went to work in factories 

38. How important is the services industry to our economy and to job creation? The service industry makes up about 80% of the value in the U.S economy

39. As the service sector era seems to be coming to a close, what is the next new era expected to be? Rapid technological advancements and a shift toward sustainable practices with an emphasis on personalization and resilience 

COLLEGE BUSINESS PRINCIPLES

CHAPTER 2 UNDERSTANDING ECONOMICS AND HOW IT AFFECTS BUSINESS

Name: Branden Edler

LEARNING THE LANGUAGE

Listed below are important terms found in this chapter. Define each and choose the correct term for each definition below and write it in the space provided.

Brain Drain - The loss of the best and brightest people to other countries.

Business cycles - The periodic rises and falls that occur in economies over time.

Capitalism - An economic system in which all or most of the factors of production and distribution are privately owned and operated for profit.

Command economies - Economic systems in which the government largely decides what goods and services will be produced, who will get them, and how the economy will grow.

Communism - An economic and political system in which the government makes almost all economic decisions and owns almost all the major factors of production.

Consumer price index - Monthly statistics that measure the pace of inflation or deflation.

Deflation - A situation in which prices are declining.

Demand - The quantity of products that people are willing to buy at different prices at a specific time.

Depression - A severe recession, usually accompanied by deflation.

Disinflation - A situation in which price increases are slowing (the inflation rate is declining).

Economics - The study of how society chooses to employ resources to produce goods and services and distribute them for consumption among various competing groups and individuals.

Fiscal policy - The federal government’s efforts to keep the economy stable by increasing or decreasing taxes or government spending.

Free market economies - Economic systems in which the market largely determines what goods and services get produced, who gets them, and how the economy grows.

Gross domestic product - The total value of final goods and services produced in a country in a given year.

Inflation - A general rise in the prices of goods and services over time.

Invisible hand - The process that turns self-directed gain into social and economic benefits for all.

Keynesian economic theory - Theory that a government policy of increasing spending and cutting taxes could stimulate the economy in a recession.

Macroeconomics - The part of economics study that looks at the operation of a nation’s economy as a whole.

Market price - The price determined by supply and demand.

Microeconomics - The part of economics study that looks at the behavior of people and organizations in particular markets.

Mixed economies - An economic system combining private and public enterprise.

Monetary policy - The management of the money supply and interest rates by the Federal Reserve Bank.

Monopolistic competition - Large number of sellers produce very similar products that buyers nevertheless perceive as different.

Monopoly - One seller controls the total supply of a product or service, and sets the price.

National debt - The total amount of money that a country's government has borrowed, by various means.

Oligopoly - A few sellers dominate a market.

Perfect competition - Many sellers but none is large enough to dictate the price of a product.

Producer price index - An index that measures the change in prices at the wholesale level.

Recession - Two or more consecutive quarters of decline in the GDP.

Resource development - The study of how to increase resources and to create conditions that will make better use of those resources.

Socialism - An economic system based on the premise that some, if not most, basic businesses should be owned by the government so that profits can be more evenly distributed among the people.

Stagflation - A situation when the economy is slowing but prices are going up anyhow.

Supply - The quantity of products that manufacturers or owners are willing to sell at different prices at a specific time.

Unemployment rate - The number of civilians at least 16 years old who are unemployed and tried to find a job within the prior four weeks.

1. How is macroeconomics different from microeconomics? Macroeconomics examines the economy as a whole while Microeconomics studies the behavior of individuals and organizations within specific markets.

2. How can businesses contribute to an economic system through resource development? By inventing new products and technologies that increase resource availability.

3. What do followers of Thomas Malthus (neo Malthuasians) believe? How do their views differ from other economists? They believe that population growth will outpace the growth of resources, leading to shortages of food and other essential resources. They argue that such imbalances could lead to increased poverty and economic unrest. Neo-Malthusians differ from other economists in that they emphasize the risks of rapid population growth surpassing resource availability. In contrast, other economists might focus on how population growth can be managed or balanced through technological advancements and improved resource utilization, rather than assuming inevitable resource shortages. 

4. What kinds of freedom did Adam Smith believe were vital to the survival of any economy? Why? Adam Smith believed that the freedom to own land or property and to keep the profits from working the land or running a business were vital to the survival of any economy. He argued that such freedoms incentivize people to work hard and invest their efforts, which in turn leads to economic prosperity and the availability of goods and services for everyone. 

5. Describe Adam Smith’s theory of the invisible hand and how wealth would be created. Adam Smith’s theory of the invisible hand suggests that individuals pursuing their own self-interest unintentionally contribute to the economic benefit of society. According to this theory, as people work to improve their own financial situation, they produce goods, services, and wealth that benefit others. For example, farmers seeking to become wealthy will sell their crops, hire workers, and increase food production, which ultimately benefits the wider community.

6. What are the four basic rights of a free market (capitalist) system? The right to own private property, The right to own a business and keep all that business’s profit, The right to freedom of competition, The right to freedom of choice.

7. What is “supply” in economic terms, and what happens to the quantity supplied as price goes up? Supply refers to the quantities of products that manufacturers or owners are willing to sell at different prices at a specific time. As the price goes up, the quantity supplied generally increases because sellers can make more money with a higher price.

8. What is “demand” in economic terms and what happens to demand as price goes up? Demand refers to the quantity of products that people are willing to buy at different prices at a specific time. As the price goes up, the quantity demanded generally decreases because buyers are less willing to purchase at higher prices.

9. The key factor in determining quantity supplied and quantity demanded is: The key factor in determining both quantity supplied and quantity demanded is price. 

10. What is the equilibrium point and what is its relationship to price? The equilibrium point is where the quantity of a product demanded equals the quantity supplied. It is the price at which the amount of the product buyers want to buy is exactly equal to the amount sellers want to sell. 

11. Describe what proponents of a free market system say about government involvement in a free market system. Proponents of a free market system argue that minimal government involvement is ideal. They believe that free market competition forces businesses to provide high-quality products at fair prices and encourages efficiency. They suggest that competition and market incentives drive economic growth and prosperity better than government intervention. 

12. What happens in countries where there is no mechanism, such as a free market, for businesses to determine what and how much to produce? Their inefficiencies can arise in production and distribution. Without market-driven signals to guide businesses, there may be problems such as shortages or surpluses of goods and services, as there is no effective way to balance supply and demand.

13. What has been the benefit of the free market system for industrialized countries? The benefit of the free market system for industrialized countries has been substantial wealth creation. The competitive nature of free markets encourages businesses to offer high-quality products at fair prices, which in turn leads to increased efficiency and innovation. 

14. Describe the major benefits of socialism. The major benefits of socialism include social equality, which aims to reduce income inequality by redistributing wealth from wealthier individuals to poorer ones through government programs. Socialism also provides free education, including college, free healthcare, and free childcare, which enhances the overall welfare of the population. Additionally, workers in socialist countries often enjoy longer vacations, shorter workweeks, and more generous employee benefits, such as sick leave, compared to those in free-market capitalist countries.

15. What are the negative consequences of socialism? Socialism has several negative consequences. High taxes and extensive redistribution can reduce incentives for entrepreneurs and high earners, potentially leading to decreased motivation and productivity. This can result in a brain drain, where talented individuals move to other countries for better opportunities, causing a loss of skilled professionals. Additionally, the reduced financial rewards for innovation and entrepreneurial efforts may lead to fewer new ideas and less overall innovation.

16. In a communist system, how are economic decisions made? In a communist system, economic decisions are made centrally by the government. The government controls almost all economic activity and makes decisions about what to produce and how to distribute goods and services. Unlike in free markets, where prices reflect supply and demand, the government in a communist system must estimate what is needed based on their own assessments, which can lead to inefficiencies.

17. What are two problems associated with communism, and what have been the results? Two major problems associated with communism are inefficient resource allocation and lack of incentives. The government often struggles to accurately determine the needs of the population, resulting in shortages of essential items like food and clothing. Additionally, without adequate incentives, individuals may not work as hard or innovate, leading to economic stagnation. As a result, countries like North Korea and Cuba face severe economic hardships, including food shortages and a lack of basic goods and services.

18. What are three major indicators of economic health? Gross Domestic Product (GDP), The Unemployment Rate, Price Indexes

19. What is one major influence on the growth of GDP? One major influence on the growth of GDP is the productivity of the workforce.

20. What is the difference between inflation and deflation? Inflation is characterized by a general rise in the prices of goods and services over time. Deflation is characterized when prices decline.

21. What is happening during a period of stagflation? During a period of stagflation, the economy experiences both high inflation and slowing economic growth simultaneously.

22. The four phases of long-term business cycles are: An Economic Boom, Recession, Depression, Recovery

23. What is the difference between a “boom” and a recovery? Boom is an economic period where business is thriving and economic activity is at a high level. During a boom, there is strong economic growth, high consumer confidence, and generally increasing employment and production. This phase is marked by rapid expansion and prosperity. Recovery occurs after a recession when the economy stabilizes and starts to grow again. It represents the phase where the economy is emerging from a downturn and gradually improving. 

24. What is meant by the term “national deficit”?  How is the national deficit related to the national debt? National Deficit: The national deficit refers to the amount of money the federal government spends beyond what it collects in taxes for a given fiscal year. It represents the shortfall between government revenues and expenditures during that year. Relation to National Debt: The national deficit contributes to the national debt. The national debt is the total sum of all government deficits accumulated over time. Essentially, each annual deficit adds to the national debt, which is the overall amount the government owes due to past borrowing. 

25. What is the Federal Reserve Bank (The Fed)? The Federal Reserve Bank, commonly known as the Fed, is the central banking system of the United States. It is responsible for implementing monetary policy, regulating financial institutions, and maintaining financial stability.

26. What happens when the Fed raises interest rates? When the Fed raises interest rates, borrowing becomes more expensive, which can slow down economic activity. Higher interest rates generally lead to reduced consumer spending and business investment, as loans and credit become more costly. This action is often taken to curb inflation or cool down an overheating economy.

COLLEGE BUSINESS PRINCIPLES

CHAPTER 3 DOING BUSINESS IN A GLOBAL MARKET

Name: Branden Edler

LEARNING THE LANGUAGE

Listed below are important terms found in this chapter. Define each term and then choose the correct term for each definition and write it in the space provided.

Absolute advantage - A country has a monopoly on producing a specific product or is able to produce it more efficiently than all other countries. 

Balance of payments - The difference between money coming into a country (from exports) and money leaving the country (from imports) plus money flows from other factors such as tourism, foreign aid, military expenditures, and foreign investment.

Balance of trade - Total value of a nation’s exports compared to its imports over a particular period.

Common market - A regional group of countries that have a common external tariff, no internal tariffs, and a coordination of laws to facilitate exchange; also called a trading bloc.

Comparative advantage theory - A country should sell to other countries those products that it produces most efficiently and buy from other countries those products that it cannot produce as effectively or efficiently.

Contract manufacturing - A foreign company’s production of private-label goods to which a domestic company then attaches its own brand name or trademark; part of the broad category of outsourcing.

Countertrading - A complex form of bartering in which several countries may be involved, each trading goods for goods or services for services.

Devaluation - Lowering the value of a nation’s currency relative to other currencies.

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

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

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

Exporting - Buying products from another country.

Foreign direct investment - The buying of permanent property and businesses in foreign nations.

Foreign subsidiary - A company owned in a foreign country by another company, called the parent company.

Free trade - The movement of goods and services among nations without political or economic barriers.

General Agreement on Tariffs and Trade (GATT) - A 1948 agreement that established an international forum for negotiating mutual reductions in trade restrictions.

Importing - Buying products from another country.

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

Joint venture - A partnership in which two or more companies (often from different countries) join to undertake a major project.

Licensing - A global strategy in which a firm (the licensor) allows a foreign company (the licensee) to produce its product in exchange for a fee (a royalty).

Multinational corporation - An organization that manufactures and markets products in many different countries and has multinational stock ownership and multinational management. 

North American Free Trade Agreement (NAFTA) - Agreement that created a free-trade area among the United States, Canada, and Mexico; passed in 1993.

Strategic alliance - A long-term partnership between two or more companies established to help each company build competitive market advantages.

Tariff - A tax imposed on imports.

Trade deficit - When the value of a country’s imports exceeds that of its exports.

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

Trade surplus - When the value of a country’s exports exceeds that of its imports.

World Trade Organization (WTO) - An independent entity of 164 member nations whose purpose is to oversee cross-border trade issues and global business practices; headquartered in Geneva.

The Dynamic Global Market

1. What are three reasons why countries trade with each other? Specialization/Efficiency, Access to Resources, and mutual Benefit 

2. What are the pros and cons of free trade? Pros: Increased Market Access, Lower Prices for Consumers ,and Greater Variety of Goods. Cons: Job Losses, Economic Dependence, Economic DIsplacement

3. How does the comparative advantage theory benefit the United States and its trading partners? It allows each country to specialize in producing goods and services they can produce most efficiently, and trade for those they produce less effectively, leading to more efficient global production and mutually beneficial exchanges.

Getting Involved in Global Trade

4. Where may the real job potential be when evaluating global markets? Small businesses rather than just large multinational corporations. Although only a small percentage of small businesses export, they account for a significant portion of total U.S. exports. This indicates that small businesses can have substantial opportunities in the global marketplace.

5. Explain how many individuals and entrepreneurs have become involved in the global marketplace through importing and exporting. By identifying gaps or opportunities in different markets. For instance, U.S. travelers and students who observe unmet needs or opportunities abroad often take the initiative to start importing or exporting businesses.

6. How would you describe the impact exporting has had on the U.S. economy? Exporting boosts the economy by expanding market opportunities for U.S. businesses, enhancing economic growth, and creating jobs.

Measuring Global Trade

7. What is the difference between a favorable balance of trade and an unfavorable balance of trade? Favorable Balance of Trade occurs when the value of a country’s exports exceeds the value of its imports over a particular period. Unfavorable Balance of Trade occurs when the value of a country’s imports exceeds the value of its exports over a particular period. This means the country is buying more from other countries than it is selling to them, resulting in a negative trade balance.  

8. Why do countries prefer to have a favorable balance of trade?  It indicates that they are exporting more than they are importing. This surplus means that more money is coming into the country from exports, which can be used to purchase other goods and services, invest in development, and strengthen the economy.

9.     Explain the difference between the balance of trade and the balance of payments. What is the goal regarding the balance of    payments? Balance of Trade refers specifically to the difference between the total value of a country’s exports and its imports of goods. Balance of Payments is a broader measure that includes the balance of trade as well as other financial transactions, such as tourism, foreign aid, military expenditures, and foreign investment.

10. Does the United States have a favorable or unfavorable balance of trade? The United States has an unfavorable balance of trade, the U.S. has imported more goods and services than it has exported, resulting in a persistent trade deficit.

11. How can we explain that while the U.S. has an unfavorable balance of trade (trade deficit) the U.S. is still one of the world’s largest exporters? Due to its substantial and diverse export activities. The U.S. exports a wide range of goods and services, including high-value products and technologies, which contribute significantly to its export totals. Additionally, the U.S. economy is large and complex, with strong export sectors that drive its global economic presence, even if overall imports exceed exports.

12. Why do countries use the tactic of dumping?  Countries use the tactic of dumping to sell products in foreign markets at prices lower than those charged domestically. This practice can serve several purposes such as Reduce Surplus, Gain Market Shares, and Predatory Pricing.

Strategies for Reaching Global Markets

13. List six strategies for reaching global markets - Licensing, Exporting, Franchising, Contract Manufacturing, International Joint Ventures, and Foreign Direct Investment

14. What are the advantages and disadvantages of licensing? Advantages: Generates revenue that wouldn't be obtained in the home market. Foreign licensees often purchase start-up supplies and materials from the licensor. Minimal financial risk for the licensor since production and marketing costs are borne by the licensee. Disadvantages: Long-term commitments, often 20 years or more. If the product becomes highly successful, the majority of the profits may go to the licensee. Risk of losing trade secrets if the licensee breaks the agreement and produces a similar product independently.

15. What is an Export Assistance Center? What are export-trading companies? A service provided by the U.S. Department of Commerce that offers hands-on exporting assistance and trade-finance support for small and medium-sized businesses looking to export goods and services. Specialists that assist in negotiating and establishing trading relationships between buyers and sellers from different countries. They handle foreign customs, documentation, and other export-related tasks.

16. When they go global, franchisers must be careful to: Adapt their product or service to fit the tastes and preferences of the local market and ensure that their franchise model accommodates regional cultural and business practices.  

17. Describe the benefits of contract manufacturing. It allows companies to enter new markets with lower start-up costs as they do not need to build manufacturing facilities, provides flexibility to scale production up or down based on demand, enables companies to take advantage of lower labor costs in other countries, and facilitates market entry with relatively low risk if the brand becomes successful.

18. What are the reasons companies enter into international joint ventures? To share technology and risk with a local or international partner, to gain access to local marketing and management expertise, to meet regulatory or market-entry requirements, such as those imposed by foreign governments.

19. What are the benefits and drawbacks of international joint ventures?  Benefits: Shared technology, Shared marketing and management expertise, and market entry. Drawbacks: Technology and knowledge risks, obsolescence, complexity and flexibility issues, and potential for dissolution.

20. What do strategic alliances provide for participating companies?  How is a strategic alliance different from a joint venture? Benefits: Access to market, capital, and expertise and flexibility. Differences: Ownership and profits, and management 

21. How does a foreign subsidiary operate? What is the advantage of a subsidiary? What is the major disadvantage? A company owned by a parent company located in another country. It operates like a domestic firm, managing its own production, distribution, marketing, and pricing functions within the host country. The subsidiary must comply with both the host country’s laws and the parent company’s regulations. The advantage is complete control with the disadvantage of investment risk 

22. Describe sovereign wealth funds. Investment funds owned and controlled by governments. They hold substantial assets and invest in various financial instruments, including stakes in foreign companies. SWFs are used by governments to manage surplus reserves, often generated from natural resources like oil or from trade surpluses.

Forces Affecting Trading in Global Markets

23. Four forces affecting trading in global markets are: Sociocultural, Economic and Financial, Legal and Regulatory, and Physical and Environmental forces  

24. What elements are included in a description of the term “culture”? Values and beliefs, Rules and institutions, Social structures, religion, manners and customs, values and attitudes, language , and personal communications 

25. What is meant by the term “ethnocentricity” and how does it relate to U.S. businesspeople? Ethnocentrism refers to the belief that one’s own culture is superior to others. U.S. businesspeople sometimes display ethnocentricity by assuming that their business practices and cultural norms are universally applicable, which can lead to misunderstandings and inefficiencies in international markets. 

26. Identify two major elements of the socio-cultural environment that have significant impact on business operations, according to the text.  Give examples: Religion: Religious beliefs can affect dietary restrictions and business practices. For example, McDonald’s adjusts its menu in Muslim-majority countries like Saudi Arabia to exclude pork, and in India, it caters to vegetarian preferences due to Hindu dietary restrictions. Workplace Norms: Cultural expectations regarding management and employee relations can differ. For example, a U.S. manager in Peru might find that workers expect decisions to be made by authority figures rather than through democratic processes, affecting employee morale and productivity.

27. A sound philosophy to adopt in global markets is “Never assume what works in one country will work in another”

28. Give examples of how economic conditions will affect consumption of goods that might seem to have great global opportunity. Income Levels: In economically depressed nations like Haiti, consumers may purchase products in small quantities due to low per capita income, which affects how companies like Coca-Cola and L’Oréal market their products. Luxury Goods: In high-income nations like Qatar, luxury items may be more affordable and desirable, while in lower-income countries, such goods may be beyond reach.

29. What is meant by a “high value of the dollar”? What impact does a “high value of the dollar” have on U.S. businesses? A “high value of the dollar” means that the U.S. dollar is strong compared to other currencies. This makes foreign products cheaper for U.S. consumers but makes U.S. goods more expensive for foreign buyers. Consequently, U.S. exporters may face decreased demand for their products abroad due to higher prices. 

30. What is meant by a “low value of the dollar”?  What impact does this have on U.S. businesses? A “low value of the dollar” means that the U.S. dollar is weak compared to other currencies. This makes foreign goods more expensive for U.S. consumers but makes U.S. products cheaper for foreign buyers. As a result, U.S. exporters might benefit from increased demand for their products in international markets.

31. What is a floating exchange rate”? How is supply and demand for currencies created? A system where the value of a currency is determined by market forces of supply and demand relative to other currencies. Supply and demand for currencies are created by global currency traders based on the perceived economic stability and investment potential of a country.

32. Why would a country devalue its currency? To make its exports cheaper and more competitive in the global market, which can boost trade and stimulate economic growth. However, this can also lead to inflation and other economic challenges.

33. When a country has an especially weak currency the only possibility of trade is often through bartering, which is: The exchange of goods or services for other goods or services without using money. It allows countries with weak currencies to trade by exchanging their products directly with other countries in lieu of cash transactions.  

34. What characteristics of legal and regulatory forces make conducting global business so difficult? Inconsistency, Diverse regulations, and compliance challenges 

35. What does the Foreign Corrupt Practices Act prohibit? What is the impact on American firms? It prohibits U.S. businesses from making “questionable” or “dubious” payments to foreign officials to secure business contracts. This can create competitive disadvantages for American firms in countries where bribery is a common practice, making it harder for them to compete.

36. Give some examples in the area of technology that pose challenges for doing business in global markets. Infrasture, Compatibility, and Access

Trade Protectionism

37. According to the text, advocates believe trade protectionism allows domestic producers to survive and grow.

38. Describe the economic philosophy that led governments to impose tariffs. The economic philosophy behind the imposition of tariffs is called mercantilism. It was prevalent in the 17th and 18th centuries and suggested that a nation should sell more goods to other nations than it buys from them, thereby having a favorable balance of trade. This philosophy posited that such a balance would result in a flow of money to the country selling more goods globally, leading governments to implement tariffs to make imported goods more expensive and protect domestic industries. 

39. List five forms of trade protectionism - Tariffs, Import Quotas, Embargoes, Non Tariff Barriers, and Local Content Requirements 

40. Distinguish between a revenue tariff and a protective tariff. Revenue Tariffs are designed to raise money for the government. It is not necessarily aimed at protecting domestic industries but rather at generating revenue. while Protective Tariffs are Intended to raise the retail price of imported products so that domestic goods become more competitively priced. It aims to protect domestic industries from foreign competition, especially for infant industries.

41. What are non-tariff barriers? Provide examples of non-tariff barriers. Trade barriers that are not in the form of tariffs can still restrict international trade. Important licensing, product testing requirements, lengthy customs procedures and local content requirements. 

42. What was the purpose of the GATT? What two areas are covered by the Uruguay round of the GATT, passed in 1994? To provide a global forum for negotiating reductions in trade restrictions and to promote international trade by reducing tariffs and other trade barriers. Lowering tariffs and expanding trade rules 

43. What is the primary task of the WTO?  To mediate trade disputes among nations and oversee cross-border trade issues and global business practices.

44. What are some of the continuing problems and challenges faced by the WTO? Legal and regulatory differences, gap between developing and industrialized nations, and unresolved issues from Doha rounds. 

COLLEGE BUSINESS PRINCIPLES

CHAPTER 4 Demanding Ethical and Socially Responsible Behavior

Name: Branden Edler

BUSINESS VOCABULARY

Listed below are important terms found in the chapter.  Define each term in the space provided.

Compliance-based ethics codes - Emphasize preventing unlawful behavior by increasing control and by penalizing wrongdoers.

Corporate philanthropy - Includes charitable donations 

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

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

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

Corporate social responsibility - A business’s concern for the welfare of society.

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

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

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.

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

Whistleblowers - Insiders who report illegal or unethical behavior.

ETHICS IS MORE THAN LEGALITY

1. What are some things that could be done to restore trust in the free market system and in corporate leaders? Punishing lawbreakers, increasing transparency, and promoting ethical behavior

2. What is the danger in simply writing new laws to correct behavior? People may equate legality with ethicality.

3. What is the difference between being “ethical” and being “legal”? Ethical behavior encompasses a broader spectrum of moral standards, where legal behavior is confined to laws designed to prevent harm.

4. What is meant by the statement “Many Americans today have no moral absolutes.”? Individuals often determine right and wrong based on personal circumstances rather than universal moral principles.

5. How “socially minded” are Americans in general? What information does the text cite to support that claim? Many Americans lack strong moral guidelines.

6. What is an “ethical dilemma”? A situation in which a person must choose between conflicting moral principles.

7. How did teams respond when they were asked about making ethical decisions? They recognize the complexity of situations and the need for discussions around values and principles to guide their choices.

8. What are three questions to ask yourself when faced with an ethical dilemma? Is it legal? Is it fair to all parties involved? How will it make me feel about myself?

9. Organizational ethics begin at the top 

10. What are the reasons to manage ethically? They foster trust, enhance reputation, improves employee morale, and can lead to better business outcomes.

11. Identify the difference between a compliance-based ethics code and an integrity-based ethics code. Compliance-Based focuses on following laws and regulations. Integrity-Based emphasizes ethical values and principles.

12. What are six steps to follow for a long-term improvement of America's business ethics? Assess current ethics policies. develop a code of ethics, train employees on ethical practices, create mechanisms for reporting unethical behavior, enforce policies consistently, and review and improve the ethics program regularly.

13. Corporate social responsibility is based on: The idea that businesses should balance profit-making with social welfare and ethical considerations.

14. Identify the four dimensions of corporate social responsibility. Economic responsibility, legal responsibility, ethical responsibility, philanthropic responsibility

15. Describe the USA Freedom Corps. A program aimed at encouraging volunteer service and civic engagement among Americans.

16. What are four groups that comprise the stakeholders to whom businesses are responsible? Employees, customers, shareholders, community/society

17. President John F. Kennedy proposed these four basic rights of consumers: The right to safety, the right to be informed, the right to choose, the right to be heard

18. What responsibilities do businesses have toward employees? They are responsible for providing a safe and fair workplace, offering competitive wages and benefits, ensuring job security, and providing opportunities for growth and development.

19. How does offering employees good salaries and benefits help companies? It helps companies attract and retain top talent, improves employee satisfaction and morale, reduces turnover, and increases productivity and loyalty.

20. What actions might disgruntled employees take? They might engage in negative actions such as decreased productivity, spreading dissatisfaction among other workers, stealing company assets, committing fraud, or leaking confidential information.

21. Some companies feel responsible for promoting social justice and believe they have a role in giving back. What kinds of social contributions have companies made to go beyond charity? They may engage in social justice by supporting diversity and inclusion, promoting human rights, improving working conditions, supporting education and healthcare, and investing in community development projects.

22. What is a product’s carbon footprint? The total amount of greenhouse gasses, primarily carbon dioxide, emitted during its entire lifecycle, from production to disposal.

23. What is the potential financial impact of environmental strategies? They can reduce costs through energy efficiency, waste reduction, and sustainable resource use. They can also improve brand reputation and customer loyalty, attract investors, and mitigate risks related to environmental regulations.

24. How is a “net social contribution” calculated? It is calculated by subtracting the negative social and environmental impacts of a company’s operations from the positive contributions they make, such as job creation, charitable donations, and community programs. 

25. Describe the four types of “watch-dog” groups that monitor how well companies enforce ethical and social responsibility policies. Governmental agencies enforce regulations related to safety, labor laws, and environmental protection. Consumer advocacy groups protect consumer rights and promote ethical business practices. Non-governmental organizations (NGOs) advocate for social, environmental, and human rights standards. Media investigates and reports on corporate behavior, influencing public perception.

26. What are many American businesses demanding from their international suppliers in terms of social responsibility? They are increasingly demanding that their international suppliers adhere to ethical labor practices, ensure safe working conditions, reduce environmental impact, and respect human rights.