BusinessEssentialsTwelfthEditionChapter3Entrepreneurship,NewVentures,andBusinessOwnershipCopyright?2019,2016,2013PearsonEducation,Inc.AllRightsReserved.IntroductionInthischapter,weexamineconvertingagreatbusinessideaintoaprofitableenterpriseassessingthemarketpotentialfornewandup-and-comingbusinessesthebusinessplan,reasonsforsuccessandfailureadvantagesanddisadvantagesofdifferentkindsofownershipLearningObjectives(1of2)Definesmallbusiness,discussitsimportancetotheU.S.economy,andexplainpopularareasofsmallbusiness.Explainentrepreneurshipanddescribesomekeycharacteristicsofentrepreneurialpersonalitiesandactivities.Describedistinctivecompetence,thebusinessplan,andthestart-updecisionsmadebysmallbusinessesandidentifysourcesoffinancialaidavailabletosuchenterprises.LearningObjectives(2of2)Discussthetrendsinsmallbusinessstart-upsandidentifythemainreasonsforsuccessandfailureamongsmallbusinesses.Explainsoleproprietorships,partnerships,andcooperativesanddiscusstheadvantagesanddisadvantagesofeach.Describecorporations,discusstheiradvantagesanddisadvantages,andidentifydifferentkindsofcorporations;explainthebasicissuesinvolvedinmanagingacorporationanddiscussspecialissuesrelatedtocorporateownership.WhatIsa“Small”Business?Smallbusinessonethatisindependent(notpartofalargerbusiness)andthathasrelativelylittleinfluenceinitsmarketSmallBusinessAdministration(SBA)governmentagencychargedwithassistingsmallbusinessesTheImportanceofSmallBusinessintheUnitedStates(1of2)TheImportanceofSmallBusinessintheUnitedStates(2of2)JobcreationInnovationContributionstobigbusinessJobCreationSmallbusinesseshaveaccountedforabout40percentofallnewjobsinhigh-technologysectorsoftheeconomySmallbusinessesaregenerallythefirsttohireintimesofeconomicrecoveryPopularAreasofSmall-BusinessEnterpriseEntrepreneurshipEntrepreneurbusinesspersonwhoacceptsboththerisksandtheopportunitiesinvolvedincreatingandoperatinganewbusinessventureEntrepreneurshiptheprocessofseekingbusinessopportunitiesunderconditionsofriskEntrepreneurialCharacteristicsResourcefulnessConcernforgood,personalcustomerrelationsStrongdesiretobetheirownbossesDealwithuncertaintyandriskUnderstandingDistinctiveCompetenciesEstablishedMarketoneinwhichmanyfirmscompeteaccordingtorelativelywell-definedcriteriaNicheasegmentofamarketthatisnotcurrentlybeingexploitedFirst-MoverAdvantagesFirst-moveradvantageisanyadvantagethatcomestoafirmbecauseitexploitsanopportunitybeforeanyotherfirmdoesStartingandOperatingaNewBusinessBusinessplanDocumentinwhichtheentrepreneurdescribesherorhisbusinessstrategyforthenewventureanddemonstrateshowitwillbeimplementedCraftingaBusinessPlanSettingGoalsandObjectivesSalesForecastingFinancialPlanningStartingtheSmallBusinessStartingaSmallBusinessFranchisearrangementinwhichabuyer(franchisee)purchasestherighttosellthegoodorserviceoftheseller(franchiser)FranchisingAdvantagesProvenbusinessopportunityAccesstomanagementexpertiseDisadvantagesStart-upcostsOngoingpaymentsManagementrulesandrestrictionsStartingfromScratchWhoandwherearemycustomers?Howmuchwillthosecustomerspayformyproduct?HowmuchofmyproductcanIexpecttosell?Whoaremycompetitors?Whywillcustomersbuymyproductratherthantheproductofmycompetitors?FinancingaSmallBusiness(1of2)PersonalresourcesLoansfromfamilyandfriendsBankloansVenturecapitalcompaniesSmall-BusinessInvestmentCompanies(SBICs)MinorityEnterpriseSmall-BusinessInvestmentCompanies(MESBICs)SBAfinancialprogramsFinancingaSmallBusiness(2of2)VentureCapitalCompanygroupofsmallinvestorswhoinvestmoneyincompanieswithrapidgrowthpotentialSmall-BusinessInvestmentCompany(SBIC)government-regulatedinvestmentcompanythatborrowsmoneyfromtheSBAtoinvestinorlendtoasmallbusinessTrendsinSmall-BusinessStart-Ups(1of2)EmergenceofE-CommerceTheInternetprovidesfundamentallynewwaysofdoingbusinessCrossoversfromBigBusinessMorebusinessesarebeingstartedbypeoplewhohaveoptedtoleavebigcorporationsandputtheirexperiencetoworkforthemselvesOpportunitiesforMinoritiesandWomenMoresmallbusinessesarealsobeingstartedbyminoritiesandwomenEmergenceofE-commerceReasonsWomenGiveforStartingBusinessesTrendsinSmall-BusinessStart-Ups(2of2)GlobalOpportunitiesManyentrepreneursarealsofindingnewopportunitiesinforeignmarketsBetterSurvivalRatesToday,44percentofnewstart-upscanexpecttosurviveforatleastfouryearsReasonsforFailureManagerialincompetenceorinexperienceNeglectWeakcontrolsystemsInsufficientcapitalReasonsforSuccessHardwork,drive,anddedicationMarketdemandfortheproductsorservicesbeingprovidedManagerialcompetenceLuckNoncorporateBusinessOwnershipSoleProprietorshipbusinessownedandusuallyoperatedbyonepersonwhoisresponsibleforallofitsdebtsGeneralPartnershipbusinesswithtwoormoreownerswhoshareinboththeoperationofthefirmandthefinancialresponsibilityforitsdebtsSoleProprietorshipAdvantagesFreedomSimpletoformLowstart-upcostsTaxbenefitsDisadvantagesUnlimitedliabilityLimitedresourcesLimitedfundraisingcapabilityLackofcontinuityPartnershipsAdvantagesMoretalentandmoneyMorefundraisingcapabilityRelativelyeasytoformLimitedliabilityforlimitedpartnersTaxbenefitsDisadvantagesUnlimitedliabilityforgeneralpartnersDisagreementsamongpartnersLackofcontinuityComparativeSummary:ThreeFormsofBusinessTable3.1ComparativeSummary:ThreeFormsofBusinessOwnershipBusinessFormLiabilityContinuityManagementSourcesofInvestmentProprietorshipPersonal,unlimitedEndswithdeathordecisionofownerPersonal,unrestrictedPersonalGeneralPartnershipPersonal,unlimitedEndswithdeathordecisionofanypartnerUnrestrictedordependsonpartnershipagreementPersonalbypartner(s)CorporationCapitalinvestedAsstatedincharter,perpetualorforspecifiedperiodofyearsUndercontrolofboardofdirectors,whichisselectedbystockholdersPurchaseofstockAlternativestoGeneralPartnershipsLimitedPartnershipAllowsforlimitedpartnerswhoinvestmoneybutareliablefordebtsonlytotheextentoftheirinvestmentsGeneral(oractive)partnersrunthebusinessMasterLimitedPartnershipMasterpartnerhasmajorityownershipandrunsthebusiness;minoritypartnershavenomanagementvoiceCooperativesCombinethefreedomofsoleproprietorshipswiththefinancialpowerofcorporationsGroupsofsoleproprietorshipsorpartnershipsagreetoworktogetherfortheircommonbenefitProportionsofU.S.FirmsinTermsofOrganizationTypeandSalesRevenueTheCorporateEntityCorporationbusinessthatislegallyconsideredanentityseparatefromitsownersandisliableforitsowndebts;owners’liabilityextendstothelimitsoftheirinvestmentsCorporationsAdvantagesLimitedliabilityContinuityStrongerfundraisingcapabilityDisadvantagesCanbetakenoveragainstthewillofitsmanagementDoubletaxationofprofitsComplicatedandexpensivetoformTypesofCorporations(1of4)Table3.2TypesofCorporationsTypeDistinguishingFeaturesExamplesCloselyHeldStockheldbyonlyafewpeopleSubjecttocorporatetaxationBlueCross/BlueShieldMasterCardPrimestarPubliclyHeldStockwidelyheldamongmanyinvestorsSubjecttocorporatetaxationAppleStarbucksTexasInstrumentsSubchapterSOrganizedmuchlikeacloselyheldcorporationSubjecttoadditionalregulationSubjecttopartnershiptaxationMinglewoodAssociatesEntechPestSystemsFrontierBankLimitedLiabilityOrganizedmuchlikeapubliclyheldcorporationSubjecttoadditionalregulationSubjecttopartnershiptaxationPacificNorthwestAssociatesGlobalGroundSupportRitzCarltonProfessionalSubjecttopartnershiptaxationLimitedbusinessliabilityUnlimitedprofessionalliabilityNormanHui,DDS&AssociatesB&HEngineeringAnderson,McCoy&OriaMultinationalSpansnationalboundariesSubjecttoregulationinmultiplecountriesToyotaNestléGeneralElectricTypesofCorporations(2of4)CloselyHeld(orPrivate)CorporationacorporationwhosestockisheldbyonlyafewpeopleandisnotavailableforsaletothegeneralpublicPubliclyHeld(orPublic)CorporationA

corporationwhosestockiswidelyheldandavailableforsaletothegeneralpublicSCorporationahybridofacloselyheldcorporationandapartnership,organizedandoperatedlikeacorporationbuttreatedasapartnershipfortaxpurposesTypesofCorporations(3of4)LimitedLiabilityCorporation(LLC)hybridofapubliclyheldcorporationandapartnershipinwhichownersaretaxedaspartnersbutenjoythebenefitsoflimitedliabilityProfessionalCorporationformofownershipallowingprofessionalstotakeadvantageofcorporatebenefitswhilegrantingthemlimitedbusinessliabilityandunlimitedprofessionalliabilityTypesofCorporations(4of4)Multinational(orTransnational)CorporationformofcorporationspanningnationalboundariesManagingaCorporationCorporateGovernancerolesofshareholders,directors,andothermanagersincorporatedecisionmakingandaccountabilityCorporateGovernanceStockholder(orShareholder)ownerofsharesofstockinacorporationBoardofDirectorsgoverning

bodyofacorporationthatreportstoitsshareholdersanddelegatespowertorunitsday-to-dayoperationswhileremainingresponsibleforsustainingitsassetsOfficerstopmanagementteamofacorporationSpecialIssuesinCorporateOwnershipJointVenturesandStrategicAlliancesEmployeeStockOwnershipPlansInstitutionalOwnershipMergers,Acquisitions,Divestitures,andSpin-OffsApplyingWhatYou’veLearned(1of2)Definesmallbusiness,discussitsimportancetotheU.S.economy,andexplainpopularareasofsmallbusiness.Explainentrepreneurshipanddescribesomekeycharacteristicsofentrepreneurialpersonalitiesandactivities.Describedistinctivecompetence,thebusinessplan,andthestart-updecisionsmadebysmallbusinessesandidentifysourcesoffinancialaidavailabletosuchenterprises.ApplyingWhatYou’veLearned(2of2)Discussthetrendsinsmallbusinessstart-upsandidentifythemainreasonsforsuccessandfailureamongsmallbusinesses.Explainsoleproprietorships,partnerships,andcooperativesanddiscusstheadvantagesanddisadvantagesofeach.Describecorporations,discusstheiradvantagesanddisadvantages,andidentifydifferentkindsofcorporations;explainthebasicissuesinvolvedinmanagingacorporationanddiscussspecialissuesrelatedtocorporateownership.CopyrightBusinessEssentialsTwelfthEditionChapter4UnderstandingtheGlobalContextofBusinessCopyright?2019,2016,2013PearsonEducation,Inc.AllRightsReserved.TheDoorOpensInJuly2015,theUnitedStatesofficiallyrestoreddiplomaticrelationswithCuba.CreatesanumberofopportunitiesforU.S.businesses.OneofthemostsignificantimpactsistheabilityofU.S.citizenstotraveltoCuba.IntroductionThischapterexplorestheglobalcontextofbusinesswith:majorworldmarketplacesandtradeagreementsfactorsthathelpdeterminehowcountriesandbusinessesrespondtointernationalopportunitiesandchallengesdecisionsmanagersmustmakeiftheyintendtocompeteininternationalmarketssocial,cultural,economic,legal,andpoliticalfactorsthataffectinternationalbusinessLearningObjectives(1of2)Discusstheriseofinternationalbusinessanddescribethemajorworldmarketplaces,tradeagreements,andalliances.Explainhowdifferencesinimport-exportbalances,exchangerates,andforeigncompetitiondeterminethewaysinwhichcountriesandbusinessesrespondtotheinternationalenvironment.LearningObjectives(2of2)Discussthefactorsinvolvedindecidingtodobusinessinternationallyandinselectingtheappropriatelevelsofinternationalinvolvementandinternationalorganizationalstructure.Explaintheroleandimportanceoftheculturalenvironmentininternationalbusiness.Describesomeofthewaysinwhicheconomic,legal,andpoliticaldifferencesamongnationsaffectinternationalbusiness.TheContemporaryGlobalEconomy(1of2)GlobalizationprocessbywhichtheworldeconomyisbecomingasingleinterdependentsystemImportproductmadeorgrownabroadbutsolddomesticallyExportproductmadeorgrowndomesticallybutshippedandsoldabroadTheContemporaryGlobalEconomy(2of2)GovernmentsandbusinessesaremoreawareofthebenefitsofglobalizationtobusinessesandshareholdersNewtechnologieshavemadeinternationaltravel,communication,andcommercefasterandcheaperthaneverSometimesafirmmustexpandintoforeignmarketssimplytokeepupwithcompetitorsDistinctionsBasedonWealthHigh-incomecountriesUpper-middle-incomecountriesLower-middle-incomecountriesLow-incomecountriesGlobalClustersNorthAmericaEuropePacificAsiaTradeAgreementsandAlliances(1of3)NorthAmericanFreeTradeAgreement(NAFTA)agreementtograduallyeliminatetariffsandothertradebarriersamongtheUnitedStates,Canada,andMexicoEuropeanUnion(EU)agreementamongmajorEuropeannationstoeliminateormakeuniformmosttradebarriersaffectinggroupmembersEuropeanUnionTradeAgreementsandAlliances(2of3)AssociationofSoutheastAsianNations(ASEAN)organizationforeconomic,political,social,andculturalcooperationamongSoutheastAsiannationsAssociationofSoutheastAsianNationsTradeAgreementsandAlliances(3of3)GeneralAgreementonTariffsandTrade(GATT)internationaltradeagreementtoencouragethemultilateralreductionoreliminationoftradebarriersWorldTradeOrganization(WTO)organizationthroughwhichmembernationsnegotiatetradeagreementsandresolvedisputesabouttradepoliciesandpracticesGoalsoftheWTOPromotetradebyencouragingmemberstoadoptfairtradepracticesReducetradebarriersbypromotingmultilateralnegotiationsEstablishfairproceduresforresolvingdisputesamongmembersInternationalTradeBalanceofTradeeconomicvalueofallproductsacountryexportsminustheeconomicvalueofallproductsitimportsMajorTradingPartnersoftheU.S.(1of2)Table4.1MajorTradingPartnersoftheUnitedStates(InMillions)RankCountryExportsImportsTotalTradePercentofTotalTrade1China115.8462.8578.615.9%2Canada266.8278.1544.915.0%3Mexico231.0294.2525.114.4%4Japan63.3132.2195.55.4%5Germany49.4114.2163.64.5%6Korea,South42.369.9112.23.1%MajorTradingPartnersoftheU.S.(2of2)Table4.1ContinuedRankCountryExportsImportsTotalTradePercentofTotalTrade7UnitedKingdom55.454.3109.73.0%8France30.946.877.72.1%9India21.746.067.71.9%10Taiwan26.039.365.41.8%11Italy16.845.262.01.7%12Switzerland22.736.459.11.6%13Netherlands40.416.256.51.6%14Brazil30.326.256.51.5%15Ireland9.645.555.11.5%Source:/foreign-trade/InternationalTrade(1of3)InternationalTrade(2of3)TradeDeficitsituationinwhichacountry’simportsexceeditsexports,creatinganegativebalanceoftradeInternationalTrade(3of3)TradeSurplussituationinwhichacountry’sexportsexceeditsimports,creatingapositivebalanceoftradeBalanceofPaymentsflowofallmoneyintooroutofacountryExchangeRatesExchangeRaterateatwhichthecurrencyofonenationcanbeexchangedforthecurrencyofanothernationEuroacommoncurrencysharedamongmostofthemembersoftheEuropeanUnion(excludingDenmark,Sweden,andtheUnitedKingdom)FormsofCompetitiveAdvantage(1of2)AbsoluteAdvantagetheabilitytoproducesomethingmoreefficientlythananyothercountrycanComparativeAdvantagetheabilitytoproducesomeproductsmoreefficientlythanothersFormsofCompetitiveAdvantage(2of2)NationalCompetitiveAdvantageInternationalcompetitiveadvantagestemmingfromacombinationoffactorconditions,demandconditions,relatedandsupportingindustries,andfirmstrategies,structures,andrivalriesGoingInternationalLevelsofInternationalInvolvementInternationalFirmfirmthatconductsasignificantportionofitsbusinessinforeigncountriesMultinationalFirmfirmthatdesigns,produces,andmarketsproductsinmanynationsIndependentAgentforeignindividualororganizationthatagreestorepresentanexporter’sinterestsTheWorld’sLargestNon-U.S.CompaniesTable4.2TheWorld’sLargestNon-U.S.CompaniesbySales,Profits,andNumberofEmployees(2016)CompanySales($millions)Profits($billions)EmployeesStateGrid529,601blankblankChinaNat’lPetro.299,271blankblankSinopec294,344blankblankRoyalDutchShell272,156blankblankVolkswagen236,592blankblankIndustrialandCommercialBankofChinablank44.2blankChinaConstructionBankblank36.4blankBankofChinablank27.2blankAgriculturalBankofChinablank28.8blankHSBCblank13.5blankHonHaiPrecisionIndustriesblankblank1,290,000Volkswagenblankblank593,000PetroChinablankblank535,000CompassGroupblankblank515,000Sources:TheFortune2016Global500();TheWorld’sMostProfitableCompanies()InternationalOrganizationStructures(1of2)LicensingArrangementarrangementinwhichfirmschooseforeignindividualsororganizationstomanufactureormarkettheirproductsinanothercountryStrategicAlliancearrangementinwhichacompanyfindsaforeignpartnertocontributeapproximatelyhalfoftheresourcesneededtoestablishandoperateanewbusinessinthepartner’scountry-alsocalledjointventureInternationalOrganizationStructures(2of2)BranchOfficeforeignofficesetupbyaninternationalormultinationalfirmForeignDirectInvestment(FDI)ArrangementinwhichafirmbuysorestablishestangibleassetsinanothercountryBarrierstoInternationalTradeSocialandCulturalDifferencesEconomicDifferencesLegalandPoliticalDifferencesUnderstandingtheCulturalEnvironment(1of2)SocialOrientationaperson’sbeliefsabouttherelativeimportanceoftheindividualversusgroupstowhichthatpersonbelongsPowerOrientationthebeliefsthatpeopleinacultureholdabouttheappropriatenessofpowerandauthoritydifferencesinhierarchiessuchasbusinessorganizationsHofstede’sFiveDimensionsofNationalCultureUnderstandingtheCulturalEnvironment(2of2)UncertaintyOrientationthefeelingindividualshaveregardinguncertainand