Midterm 3 Flashcards
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 obstruction
Comparative advantage theory
Country should sell to other countries those products that it produces most effectively and efficiently and should buy from other countries that can produce as effectively
Absolute advantage
a country is able to produce a specific product more efficiently that other countries
Balance of trade
total value of a nations exports compared to its imports means period
Trade surplus
exists when the value of a nation imports measured over a particular period
Trade deficit
unfavorable balance of trade, it occurs when the value of a count of its exports
Balance of payments
difference between money coming into a country from leaving the country for imports plus money flows from other factors such as tourism, expenditures, and foreign inv.
Dumping
practice of selling products in a foreign country at lower prices than those charged in the producing country
Licensing
a firm allows a foreign company to produce its products in exchange for a fee
Contract manufacturing
involves a foreign country’s production of private label goods to which a domestic brand name or trademark
Joint venture
partnership in which two of more companies join to undertake a major project
Strategic alliance
long term partnership between two or more companies est. to help each company build competitive market advantages
Foreign direct investment
buying permanent property and business in foreign nations
Foreign subsidiary
company owned in a foreign country by another company
Multinational corporation
organization that manufactures and markets products in many different countries and has multinational stock ownership and multinational management
Exchange rate
value of one nations currency relative to the currencies of other countries
Devaluation
lowering the value of a nation’s currency relative to other currencies
Counter-trading
complex form of bartering in which several nations may be involved, each trading goods and services
Trade protectionism
use of government regulations to limit the import of goods and services
Tariff
tax on imports making imported goods more expensive
Import quota
limit on the number of products in certain categories that a nation can import
Embargo
complete ban on the import or export of a certain product or stopping all trade with that particular country
General agreement on tariffs and trade (GATT)
1948 agreement that est. mutual reductions in trade restrictions
World trade organization (WTO)
international org. that replaced the general agreement on trade and tariffs and was assigned the duty of mediating trade disputes.
Common market
regional group of countries that have a common external tariff, no internal tariffs and the coordination of laws among member countries
North american free trade agreement (NAFTA)
agreement that created free trade area among the US, Canada and Mexico
Entrepreneurship
accepting the risk of starting and running a business
Entrepreneural team
group of experienced people from different areas of business who join together to form a managerial team with the skills to develop, make and market a new prod.
Intrapreneurs
creative people who work as entrepreneurs within corporations
Micropreneurs
entrepreneurs willing to accept the risk of starting and managing the type of business that remains small
Entreprise zones
specific geographic areas to which governments try to attract private business investment by offering lower Gv and other gov. support
Incubators
centers that offer lowcost offices with basic business services
Small business
independently owned and operated, not dominate in its field of operation and meets certain standards of size
Business plan
detailed written statement that describes the nature of the business, target market, advantages the business will have in relation to competition and resources and qualifications of the owners
Venture capitalists
ind. or companies that invest in new businesses in exchange for partial ownership of those businesses.
Small business investment company program
program through which private investment companies licensed by the small business adm lend money to small businesses.
Market
consists of people with unsatisfied wants and needs who have both the resources and the willingness to buy
Service corps of retired executives
SBA office with volunteers from industry, trade associations, and education who counsel small businesses at no cost
Judiciary
branch of the government chosen to oversee the legal system through the court system
Business law
rules, statues, codes, and regulations that are est. to provide a legal framework within which business may be conducted and that are enforceable by court action
Statutory law
state and federal const. legislative enactments, treaties of the federal gov and ordinances, written law
Common law
body of the law that comes from decision handed down by judges, unwritten law
Precedent
involves decisions judges have made in earlier cases that guide the handling of new cases
Tort
wrongful act that causes injury to another person’s body, property, or reputation
Intentional tort
willful act purposely inflicted that results in injury
Negligence
behavior that causes unintentional harm or injury
Product liability
part of tort law that holds businesses liable for harm that results from production, design, sale, or use of products it markets
Strict product liability
legal responsibility for harm or injury caused by product regardless of fault
Patent
document that gives inventors exclusive rights to their inventions for 20 yrs
Copyright
document that protects a creator’s rights to materials such as books, articles, photos, and cartoons
Uniform commercial code
commercial law adopted by every state that covers sales laws and other commercial laws
Express warranties
special representations by the seller that buyers rely on regarding the goods they purchase
Implied warranties
guarantees legally imposed on the seller
negotiable instruments
forms of commercial paper that are transferable among businesses and ind. and represent a promise to pay a specific amount
Contract
legally enforceable agreement
Contract law
set of laws that specify what constitutes a legally enforceable agreement
Consideration
something of value, it is one of the requirements of a legal contract
Breach of contract
one party fails to follow the terms of the contract
Payment of damages
monetary settlement awarded to a person who is injured by a breach of contract
Consumerism
seeks to increase and strengthen the rights and powers of buyers in relation to sellers
Taxes
how gov. raises money
Bankruptcy
person, business, or gov. entity is unable to meet finical obligations is relieved of those by court that divides any assets among creditors, allowing them to get part of their money
Voluntary bankruptcy
legal procedures initiated by a debtor
Involuntary bankruptcy
procedures filed by a debtor’s creditors
Deregulation
gov. withdrawal of certain laws and regulations that seem to hinder competition
Court system
US is org. at the federal, state and local levels
Trial courts
hear cases involving criminal and civil law
Criminal law
defines crimes, est. punishment and regulates prosecution
Civil law
involves legal proceedings that do not involve criminal acts
Appellate courts
hear appeals of trial court decisions
Strict liability
caused serious problems for manufactures of some products
Tort reform
businesses and insurance companies have called for this from huge losses in strict product liability suits
Legally protecting ideas
patents, copyrights and trademarks
Penalties
violating a patent can be severe
Submarine patent
intentionally delaying a patent application and waiting for others to develop the technology
Library of congress
copyrights are filled there
Exclusive copyright
the holder of that may charge a fee to anyone who wishes to use the material
Article 2 of UCC
warranties
Article 3 of UCC
negotiable instruments
Full warranty
seller to replace or repair a product at no charge if the product is defective
Limited warranties
limit the defects or mechanical problems that are covered
Negotiable inst. requirements
written and signed by the maker, payable on demand, payable to the bearer and unconditional promise
Endorsement
checks or other forms of negotiable inst. are transferred when the payee signs the back of a check
Legally binding
offer is made, voluntary acceptance, consideration, competent, legal and proper form
Consequences of breached contract
specific performance, payment of damages and discharge of obligation
Payment of damages
person violating contract may be required to live up to the agreement if no monetary award is adequate
Discharge of obligation
agreeing to drop the matter
Contract should
writing, specify mutual consideration, clearly offered and accepted
Exclusive dealing
selling goods with the condition that the buyer will not buy goods from a competitor
Tying contract
buyer to purchase unwanted items in order to purchase desired items
Interlocking directorate
board of directors includes members of the board of competing corporations
Wheeler lea amendment
gave the FTC additional jurisdiction over false or misleading advertising
Microsoft’s competitive practices
have been criticized as being unfair competition, hindering competition in its dealings with computer manufactures
Gov use taxes to
fund gov operations, discourage citizens from doing harmful things and encourage businesses to hire new employees by offering a tax credit
Bankruptcy amendments of 1984
allow a person who is bankrupt to keep part of the equity in a house
2005 bankruptcy legislation
makes it more difficult for people to escape debt from credit cards, medical bills, student loans or other unsecured loans
Importance of international markets
many customers, US buys a ton from China and companies like UPS or Starbucks operate overseas
Third largest exporting nation
US
Competition is intense
the US must compete against aggressive global competitors
Why trade with other nations
no nation can produce all the products someone needs, meet new people
Mutually beneficial exchange
some nations have abundant natural resources and lack technological know how, others have sophisticated tech. but not a lot of resources, enable countries to produce what they can and buy the rest in a mutually beneficial exchange
small businesses
are the real potential in a global market, and generate about 30% of exports but only 1% of them take part
Exporting creates
great opportunities and boost the US economy
Favorable balance of payments
more money is flowing out of the country
Unfavorable balance of payments
more money is leaving than coming into the country
Since 1975 the US has run a
trade deficit
The US exports
a lower percentage of its products than other countries do
Advantages of licensing
company can gain additional revenues from a product, firm can sell start up supplies, materials and consulting services, spends little to no money to produce the product
Problems of licensing
firm must grant licensing rights to its product for an extended period, if a product has growth in foreign market the bulk of the revenue goes to licensee and if they learn the tech it may break the agreement and produce less
Export assistance centers
provide hands on exporting assistance and trade finance support for small and medium sized businesses
Export trading companies
match buyers and sellers from different countries
Franchising
contractual arrangement where someone with a idea for a business sells the rights to use its name
The use of contract manufacturing can cause a company to experiment in a new market
without heavy start up costs
Use contract manufacturing to temporary
meet an unexpected increase in orders
Benefits of joint venture
shared tech. and risk, shared marketing and management expertise and entry into markets where foreign companies are not allowed unless their goods produce local
Drawbacks of joint venture
- partner can learn tech and practices of the other and leave to become a competitor
- shared tech. may become absolute
- partnership may be too large to be as flexible as needed
Legal requirements of both parent and foreign countries
must be observed
Advantage of foreign subsidiaries
company maintains complete control over any tech. or expertise it may possess
Shortcoming of foreign subsidiaries
firms assets could be expropriated, taken by foreign gov if the host country fails
Sovereign wealth funds
fastest growing forms of foreign direct investment , investment funds controlled by gov. holding large stakes in foreign companies
Ethnocentricity
attitude that our culture is superior to all others
Religion
have an impact on business operations (misunderstandings about someone culture)
Social-cultural differences
impact business decisions involving human resource management
High value of dollar
products of foreign producers would be cheaper but US produced goods would be expensive
Low value of dollar
foreign goods become more expensive because it takes more dollars to buy them
Floating exchange rate
currencies float according to supply and demand in global market for currency
Bartering
trading merchandise for merchandise with no money involved
Global markets are governed by a myriad of
laws and regulations that are often inconsistent
Business people are bound to follow
US laws and regulations in conducting business globally
Organization for economic cooperation and development and transparency international
led the effort to fight corruption and bribery in foreign markets
Physical and environmental forces
- tech constraints may make it difficult to build a large global market
- developing nations have primitive trans and storage systems that make distribution ineffective
- certain tech. differences affect exportable products
Mercantilism
selling more goods to other nations than you bought from them, to have a favorable balance of trade
Protective tariffs
imported taxes designed to raise the price of imported products so that domestic products can be more competitively priced
Revenue tariffs
raise money for the gov
Non-tariff barriers
not as specific as tariffs but can still be detrimental to free trade
1986 Uruguay round of gatt talks
were convened to deal with the renegotiation of trade agreements
European union
group of 28 nations in western Europe
Association of southeast asian nations
creates economic cooperation among its five org. members
COMESA
19 member African trading bloc with a GPD of 658 bill. and pop. of 494 mill.
Objections of NAFTA
eliminate trade barriers, promote cond of fair competition, increase investment opp. provide effective protection of intellectual property rights
Central American free trade agreement
free trade zone with central american nations
Outsourcing
purchase of goods and services from sources outside a firm rather than providing them within the company
Offshore outsourcing
shifting functions to markets outside the US is more controversial
Good accountant
decide whether to buy or lease, provide tax planning and financial forecasting, choose sources of financing
Small business development centers
funded by the gov and ind states help evaluate the feasibility of you idea, develop your plan and complete your funding app.
Community development financial inst.
source of funding
Individual investors
primary source of capital for most entrepreneurs
Angel investors
private ind. who invest their own money in new businesses with potential
Functions of a business
planning, financing, knowing, managing and keeping records
Computer tech.
allows home based businesses to look and act as big corporations
Entrepreneural attributes
self direct, self nurturing, action oriented, highly energetic and tolerant of uncertainty
Ethics
standards of moral behavior that is accepted by society as right versus wrong
Relationship between workers and managers
fairness, honesty, openness, and more integrity
Compliance based ethics code
ethical standards that prevent unlawful behavior by increasing control and penalizing wrongdoers
Integrity based ethics code
stands that define the org. guiding values, create a good environment
Process help improve america’s business ethics
top management must support, employees must understand expectations, managers, must be trained, ethics office must be set up, outsiders must be told the program and ethics code must be enforced
Corporate social responsibility
businesses concern for the welfare of society
Corporate philo
social resp. that includes charity donations
Corporate social initiatives
corporate philo directly related to the companies competencies
Corporate resp.
includes everything from hiring minority workers to making safe products
Corporate policy
position a firm takes on social and political issues
Basic rights of consumers
safety, be informed, choose, and be heard
Insider trading
unethical activity which insiders use private company info to further their own fortunes or those of their friends
Social audit
systematic evaluation of an org progress toward implementing socially responsible and responsive programs
Socially conscious investors
companies extend the companys own high standards to all their suppliers
Socially conscious research org.
analyze and report CSR efforts
Environmentalists
apply pressuring by naming names of companies that dont abide by their standards
Union officials
hunt down violations and force companies to comply to avoid negative publicity
Customers
take their business elsewhere if a company demonstrates irresponsible practices
Sole proprietorship
business that owned and usually managed by one person
Partnership
legal form of business with two or more owners
Corporation
legal entity with authority to act and have liability separate from its owners
Unlimited liability
responsibility of business owners for all of the debts of the business
Limited financial resources
limited to the funds that the sole owner can gather
Management difficulties
many owners are not skilled at management and with details such as accounting
Disadvantages of sole proprietorships
Unlimited liability, limited financial resources, management difficulties, overwhelming time commitment, few fringe benefits, limited growth and limited life span
General partnership
all owners share in operating the business and in assuming liability for the businesses debts
Limited partnership
one or more general partners and one or more limited partners
General partner
owner who has unlimited liability and is active in managing the firm
Limited partner
invests money in the business but does not have any management responsibility or liability for losses beyond the investment
Limited liability
responsibility of a business’s owners for losses only up to the amount they invest, limited partners and shareholders have limited liability
Master limited partnership
looks like a corporation but is taxed like a partnership and thus avoids the corporate income tax
Limited liability partnership
limits partners risk of losing their personal assets to only their own acts and omissions and the acts and omissions of the people under their supervision
Advantages of partnerships
more financial resources, shared management and pooled/complementary knowledge, longer survival and no special taxes
Disadvantages of partnerships
unlimited liability, division of profits, disagreements among parties, difficulty of termination
Conventional corporation
state chartered legal entity with authority to act and have liability separate from its owners
Advantages of corporations
limited liability, ability to raise more money for investment, size, perpetual life, ease of ownership change, ease of drawing talented employees, separation of ownership from management
Disadvantages of corporations
initial cost, expensive paperwork, double taxation, two tax returns, size, difficulty of termination, possible conflict with stockholders and board of directors
Corporation pays tax
on income before it can distribute any dividends to stockholders
Stockholders pay tax
income they receive from the corporation
S corporations
gov creation that looks like a corporation but is taxed like sole proprietorships and partnerships
S corporations must
have no more than 100 shareholders, shareholders are ind. or estates and are citizens or permeant residents of the US, one class of stock and have no more than 25% of income from passive sources
Limited liability company
similar to the s corporation but without the special eligibility requirements
Advantages of LLC
limited liability, choice of taxation, flexible ownership rules, flexible distribution of profits and losses, operating flexibilty
Disadvantages of LLC
no stock, limited life span, fewer incentives, taxes and paperwork
Merger
result of two firms forming one company
Acquisition
one company’s purchase of the property and obligations of another company
Vertical merger
joining of two companies involved in different stages of related businesses
Horizontal merger
joins two firms in the same industry
Conglomerate merger
joining of firms in completely unrelated industries thereby diversifying business operations
Leveraged buyout
attempt by employees, management or group of investors to purchase an org primarily through borrowing
Franchise agreement
someone with a good idea for a business sells the rights to use the business name and sell a product or service to others in a given territory
Franchisor
company that develops a product concept and sells others the rights to make and sell the product
Franchise
right to use a specific business’s name and sell its products or services in a given territory
Franchisee
person who buys a franchise
Advantages of franchises
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
Diversity in franchising
women in franchising, minority franchise ownership
Cooperative
business owned and controlled by the people who use it, producers, consumers, or workers with similar needs who pool their resources for mutual gain
