Chapters 3,4,5 And 6 Assesment Questions

Name: Steven P Sanderson II Date: 6/7/06 Class: Intro to Business BA11 5040 Professor: McNamara Chapter 3 Questions on page 75 How do world population and market statistics support the expansion of U.S. business into global markets? With the world population around 6 billion plus or minus a few, that gives the U.S. quite a few potential customers. Since we are able to practice free trade with many other nations in the world we are able to sell products to other nations that cannot produce them efficiently giving us the ability to price them at a premium to our cost of manufacturing this gives us the ability to purchase things that we cannot produce readily which is a factor in smooth cycles of business. What is comparative advantage, and what are some examples of this concept in actual global markets? Comparative advantage theory states that a country should sell to other countries those products that it produces most effectively and efficiently and buy from other countries those products it cannot produce as effectively or efficiently. Some examples would be that the U.S. is able to computer chips, software and engineering services, while at the same time the U.S. does not have an advantage over various items like coffee beans or making shoes. How are a nation’s balance of trade and balance of payments determined? First the definition of balance of trade would be the ratio of a nations exports vs. imports. A favorable balance of trade would ultimately be to export more than you import. An example of this would be to sell $200 worth of goods and buy $100 worth of goods leaving you with $100 to spend somewhere else. An unfavorable balance of trade comes when a country imports more than it exports such as the U.S. which has been in a trade deficit for about 20 years. What is dumping? Dumping is defined as the practice of selling products in a foreign country at lower prices than those charged in the producing county. Companies sometimes use this tactic to reduce surplus products in foreign markets or to gain a foothold in a new market by offering products for lower prices than domestic competitors do. Japan and Russia for example have been accused of dumping steel in the U.S. And Canada of dumping softwood lumber. U.S. laws against dumping are specific and require that foreign firms must price their products to include 10 percent overhead costs and an 8 percent profit margin. Now I believe it would be hard to prove some nations of dumping when they are at a specific low cost advantage over the U.S. say in the area of wages.

Questions from page 81 What are the advantages to a firm of using licensing as a method of entry in global markets? What are the disadvantages? Some advantages of using licensing as an entry point into global markets would be that someone else has to come up with the money, also the licensor usually will assist with distribution, promotion and consulting which it normally charges a fee for. The licensor also usually gets paid a royalty on the product or services sold. Some disadvantages would be that typically a licensor would license the product or service for an extended period of time, say 20 years, now if the licensor experiences tremendous growth the bulk of the revenue will go to the licensor and not the licensee. What services are usually provided by an export-trading company? Some services usually provided by an export-trading company would be negotiations, payment processing, dealing with foreign customs offices, documentation requirements such as weights and measures. All of the aforementioned services are extremely important to a company that does business abroad. What is the key difference between a joint venture and a strategic alliance? A joint venture is basically a partnership in which two or more companies often from different countries join to undertake a major project. According to Coopers & Lybrand, a New York-based international professional services firm, companies that participate in such partnerships grow much faster than their counterpart companies that are not participating. Joint venture can even be mandated by governments as a condition of doing business in their country. The benefits of international joint ventures are clear: Shared technology, shared marketing and management expertise, entry into market where foreign companies are often not allowed unless their goods are produced locally, and shared risk. A strategic alliance is a long-term partnership between tow or more companies establish to help each company build competitive market advantages. Suck alliances can provide access to market, capital and technical expertise. Unlike joint ventures, however, the do not typically involve shares costs, risks, management or even profits. What is a multinational corporation? Can you name at least three multinational corporations? A multinational corporation is an organization that manufactures and market products in many different countries; it has multinational stock ownership and multinational management. Multinational companies are usually extremely large. Some multinationals include; Exxon, Wal Mart, and Ford Motor Co. Questions from page 92 What are the major hurdles to successful global trade? Some major hurdles to successful global trade would be simply the differences in culture. Within the culture there are differences in religion, manners and customs, values and attitudes, language and personal communication. Not having a distinct understanding of

any of these aspects of culture could break a company when it is trying to penetrate a foreign market. One example of this would be Coca-Cola offending the Muslins in Saudi Arabia by putting the Saudi Arabian flag on their packaging. The flag’s design contains a passage fro the Koran, and Muslims feel their holy writ should never be wrapped up crumpled and thrown away. What does ethnocentricity mean? Ethnocentricity is when one culture has an attitude that its own culture is superior to another’s. The U.S. is largely accused of being this way, where as for the most part foreign companies adapt easily and effectively to American culture. Which cultural and societal differences are most likely to affect global trade efforts? (Name at least two) Religion is a major cultural difference that may affect global trade. There are many different religions in the world today and they are all different in the way that they are performed ceremonially and what religious laws are contained in each one. Some religions may not allow work on Sundays, some may not allow the eating of beef, which would be particularly bad places for say a Burger King or McDonalds. Another sociocultural difference that can also affect important business decisions involving human resource management would be how authority is viewed upon by the working crowd. Consider what happened to one American manager in Peru who was unaware of this important cultural characteristic and believed workers should participate in managerial functions. This manager was convinced he could motivate his workers to higher levels of productivity by instituting a more democratic decision-making style than the style already in place. Son workers began quitting their jobs in droves. When asked why, the Peruvian workers said the new production manager and supervisors did not know their jobs and were asking the workers what to do, the workers thought of the managers as incompetent. What are the advantages and disadvantages of trade protectionism and tariffs? Trade protectionism is defined as the use of government regulations to limit the import of goods and services. Advocates of protectionism believe it allows domestic producers to survive and grow, producing more jobs. Countries use protectionist measures to guard against things like dumping. Another form of protectionism would be import quotas which are defined as limiting the amount of goods to be brought into the country. The overall effect is to protect U.S. jobs and companies. Another form of protectionism would be an embargo. An embargo would be the complete ban on the import or export of a certain good or service to another country. This would be done in the case of high tech weapons so they cannot be used against the U.S. Some disadvantages of tariffs would be that for the country doing the exporting it may make it quite hard for the company to grow. Questions from page 94 What are the economic risks of doing business in countries like the People’s Republic of China or Russia?

Some risks of doing business with countries such as China and Russia are that say in China they have a one-party political system, its human rights policies usually leave something to be desired and there is difficulty with China’s financial market. For quite sometime China has been accused of currency manipulation by not letting it float ‘fairly’ like other countries do. With Russia sever political and cultural issues are still problems for businesses. What might be some important factors that will have an impact on global trading? The largest factor that will have an impact on global trading is e-commerce. E-commerce is by far the fastest growing segment of the market place as a whole today. Such companies that come to mind would be E-Bay.com, Amazon.com; there has also been the advent of comparison shopping sites, another form of e-commerce like Shopping.com and Activeshopper.com. Chapter 4 Questions from Page 110 When faced with ethical dilemmas, what questions can you ask yourself that might help you make ethical decisions? Three questions that you can ask yourself to help you make ethical decisions would be; Is it legal? Is it balanced? and How will it make me feel about myself? When you ask yourself is it legal not only should you wonder if you are violating any laws but are you violating company policy. Really it comes down to should you drink and drive, how should you fire an employee, how do you get rid of waste or even should you be using a questionable nickname. When you ask yourself if the decision is balanced you should ask yourself if you would like to be treated in this fashion. Often Win-Lose situations become Lose-Lose situations and there is nothing like retaliation from the looser who has suffered a major loss. Now when you ask yourself how you would feel about yourself after the decision you should want to know if your family and the public in general would be proud of you or ashamed of you. You would never want to have to ask yourself how will I hide my actions so I look good this is an obvious indication that it is a bad decision. What are the six steps to follow in establishing an effective ethics program in a business? The six steps to follow are as follows: Top management must adopt and unconditionally support an explicit corporate code of conduct. Employees must understand that expectations for ethical behavior begin at the top and that senior management expects all employees to act accordingly. Managers and others must be trained to consider the ethical implications of all business decisions. An ethics office must be set up. Pone lines to the office should be established so that employees who don’t necessarily want to be seen with an ethics officer can inquire about ethical matters anonymously. Whistleblowers (people who report illegal or unethical behavior) must feel protected from retaliation. In 2002 President Bush signed the

Corporate and Criminal Fraud Accountability (Sarbanes-Oxley) Act. The act contains historic protections for corporate whistleblowers. Outsiders such as suppliers, subcontractors, distributors and customers must be told about the ethics program. Pressure to put aside ethical considerations often comes from the outside and it helps employees resist such pressure when everyone know what the ethical standards are. The ethics code must be enforced. It is important to back any ethics program with timely action if any rules are broken. Questions form page 118 What is corporate social responsibility and how does it relate to each of business’s major stakeholders? Corporate social responsibility is the concern businesses have for the welfare of society. It goes well beyond merely being ethical. Just as you and I need to be good citizens, contributing what we can to society, corporations need to be good citizens as well. The social performance of a company has several dimensions: Corporate philanthropy includes charitable donations to nonprofit groups of al kinds. Corporate charitable donations amounted to $9.1 billion in 2001. Strategic philanthropy involves companies making long-term commitments to one cause such as McDonald’s founding and support of Ronald McDonald Houses, which house families whose critically ill children require treatment away from home. Corporate responsibility includes everything from hiring minority workers to making safe products, minimizing pollution, using energy wisely and providing a safe work environment-that is, everything that has to do with acting responsibly within society. Corporate policy refers to the position a firm takes on social and political issues. What is a social audit, and what kinds of activities does it monitor? A social audit is a systematic evaluation of an organization’s progress toward implementing programs that are socially responsible and responsive. One of the major problems of conducting a social audit is establishing procedures for measuring a firm’s activities and their effects on society. What should be measured? There is some question as to whether positive actions should be added and negative actions subtracted. In addition to social audits conducted by the companies themselves, there are four types of groups that serve as watchdogs regarding how well companies enforce their ethical and social responsibility policies. Socially conscious investors who insist that a company extend its own high standards to its entire supplier organization. Environmentalists who apply pressure by naming names of companies that don’t abide by the environmentalists’ standards. Union officials who hunt down violations and force companies to comply to avoid negative publicity. Customers who take their business elsewhere if a company demonstrated unethical of socially irresponsible practices. Chapter 5 Questions from page 148

Most people who start businesses in the United States are sole proprietors. What are the advantages and disadvantages of sole proprietors? Some advantages of a sole proprietorship are as follows: Ease of starting and ending the business. All you have to do to start a sole proprietorship is buying or lease the needed equipment and put up some announcements saying you are in business. It is just as easy to get out of business; you simply stop. There is no on to consult or to disagree with about such decisions. Being you own boss. Working for others simply does not have eth same excitement as working for yourself-at least, that’s the way sole proprietors feel Pride of ownership. People who own and manage their own businesses are rightfully proud of their work. They deserve all the credit for taking the risks and providing needed goods or services. Leaving a legacy. Business owners have something to leave behind for future generations. Retention of company profit. Other than the joy of being you own boss, there is nothing life the pleasure of knowing that you can earn as much as possible and not have to share that money with anyone else. No special taxes. All the profits of a sole proprietorship are taxed as the personal income of the owner, and the owner pays the normal income tax on that money. Some disadvantages of a sole proprietorship are unlimited liability-the risk of personal loss. When you work for others, it is their problem if the business is not profitable. When you own you own business you and the business are considered one. Limited financial resources. Funds available to the business are limited to the funds that the one owner can gather. Since there are serious limits to how much money on person can raise, partnerships and corporations have a greater probability of obtaining the needed financial backing to start a business and keep it going. Management difficulties. All businesses need management; that is someone must keep inventory, hire and fire and keep records in place. Overwhelming time commitment. Though sole proprietors say they can set their own hours a great deal of time is required to get a business up running and staying that way. They often work more then their non business owning counterparts. What are some of the advantages of partnerships over sole proprietorships? Some advantages of partnerships of proprietorships are that there are usually more financial resources available since there is more than one person in business. When two or more people pool their money together it makes it easier to pay rent, insurance and utilities. Shared management and pooled complementary skills and knowledge are another benefit of a partnership. It could happen that two people get together and one person is good with the front end for example sales and customer service while the other partner is good at keeping records. Partnerships also on average experience a 400% higher chance of lasting. There are also no special taxes with a partnership meaning that all profits of partnerships are taxes as the personal income of the owners. Why would unlimited liability be considered a major drawback to sole proprietorships and general partnerships? The answer to this is really quite simple. If the business defaults like the saying goes “Somebody’s got to pay and it ain’t gonna be me” unfortunately for the one holding the liability it is them. For the sole proprietors they are the ones left holding the bag if things do not go right and the business defaults.

What is the difference between a limited partner and a general partner? A general partner is an owner who has unlimited liability and is in assuming liability for the businesses debts. A limited partner is an owner that can only loose his/her investment and does not have any management responsibilities for the company. Questions from page154 What are the major advantages and disadvantages of incorporating a business? Some advantages of corporations are the liability is limited by the fact that corporations are considered separate entities so the only thing you can loose is the money you invest. There is also more money available for investment. To raise money, a corporation can sell ownership (stock) to anyone who is interested. This means that millions of people can own part of major companies like IBM, Xerox and Ford Motor Company. Say if you sell 10 million shares at $50 a piece the company would be able to raise $500 million and would have it available to build plants and to expand as necessary. Perpetual life is another advantage to a corporation. It is also easy to transfer ownership of a corporation; all you need to do is sell the stock certificate to another person. Some disadvantages of a corporation are that there is often extensive paperwork to be done. Double taxation is also another disadvantage to a corporation. Not only is the corporations income taxed but so are the dividends paid to the investors. If an individual incorporates, he or she must file both a corporate tax return and an individual tax return. The initial cost of incorporating may also be high since it usually involves expensive lawyers and accountants. What is the role of stockholders in the role of a corporation? The stockholders are the ones who are responsible for electing a board of directors other than that they really do not have any other functions in the running of the corporation. If you buy stock in a corporation and someone gets injured by one of the corporation’s products, can you be sued? Why or why not? Could you be sued if you were a general partner in a partnership? Stockholders cannot be sued for something a corporation does or form any problems that arise from something the corporation does or produces. The corporation is a separate entity and the stockholders a shielded by their limited liability. The only thing a stockholder may want to do is sell the stock or short it. Now if the same circumstances come about over the form of a general partnership then yes you can be sued and I hope you have a good lawyer. Since in a general partnership the partner is not shielded by limited liability and therefore can loose everything. Questions from page 166 What are some of the factors to consider before buying a franchise? Some things that need to be considered before buying a franchise would be dose the franchisor have an established reputation? Do they provide management and marketing assistance? There are many other things to consider when looking into operating a franchise. There could be coattail effects of a franchise which is when other franchises

fail, yours even if profitable could go out of business. There could also be a restriction on selling the franchise, which makes quite a bit more difficult to leave the business then say if you had a corporation, all you would have to do there is sell the stock certificate. Also there can be a lot of management regulation. This means that you could almost really end up working for the franchisor in a given respect. You may own the place but they are telling you what to do. What opportunities are available for starting a global franchise? One opportunity that comes to mind for going global today would be e-commerce. This right away opens up your doors to about 2 billion people that have internet access. Some other opportunities may arise from a lack of availability of you service or product in a certain area of the world. What is a cooperative? A cooperative is a business owned and controlled by the people who use it-producers, consumers, or workers with similar needs who pool their resources for mutual gain. There are 47,000 co-ops in America today. Some co-ops are set up to give individuals more economic power as a group then they would have as an individual. The idea was first for farmers who banded together to try and get better prices for their crops. Eventually the organization expanded enough to allow them to be able to buy and sell equipment, fertilizer and many other things needed in the running of a modern day farm. Chapter 6 Questions from page 183 Why are people willing to take the risks of entrepreneurship? People take the risk of entrepreneurship most notably because of the opportunities that are available to them via this avenue. Also today the corporate workplace is not like it used to be. Today in the corporate world you are as likely to get promoted a bonus or a raise just as easily as you could get a pink slip. Today’s corporate world is not like it was say 50 years ago when working hard for a company could get you to the upper realm of the company. Some entrepreneurs are also out for the challenge of owning their own business. For them there is more excitement in achievement than in power that they might get from working for a large firm. What are the advantages of entrepreneurial teams? An entrepreneurial team is a group of experienced people from different areas of business who join together to form a managerial team with the skills needed to develop, make, and market a new product. A team may be better than an individual entrepreneur because team members can combine creative skills with production and marketing skills right from the start. Having a team also can ensure more cooperation and coordination among functions. How do micropreneurs differ from other entrepreneurs?

Micropreneurs are mostly people who run home based businesses; they rather live a balanced lifestyle between work and home instead of trying to be the next 800 pound gorilla. Many home-based businesses are people trying to balance home and a career. One major thing that has changed the playing field and view of home based business is computer technology. Broadband internet connections, fax machines and other technologies have become so affordable now that the initial investment in a new company has been substantially reduced. What are some of the opportunities and risks of Web-based businesses? With well over 1 billion people that have an internet connection this makes the idea of owning a web based business very attractive. Web based businesses do not have a lot of the same expenses that a traditional brick and mortar business incur. Many of the web based businesses offer solutions that can be done online. There are many things that can be done online and one of the largest things that can be done and are done by small business are online retail shops through platforms like eBay.com Every year eBay.com reports record growth in the amount of people who set up shop via their site. This is proof that e-commerce is not only growing every year but growing in popularity. Also today with record gasoline prices many people may find it practical to shop online so they are not going from store to store. They can use comparison sites to find the lowest prices on products and then purchase them from there. Questions from page 193 A business plan is probably the most important document a small-business owner will ever create. There are nine sections in the business plan outline on page 191. Can you describe at least five of those sections? The first part of a business plan would be the cover letter. In the cover letter you need to make yourself standout since you will not be the only one looking for money. The best way to address the cover letter is with the first name of the potential investor and with “To whom it may concern” or “Dear Sir or Madam”. You will also need an executive summary which will tell a little bit about the venture. You should include major goals and a short description of the business. A potential investor will also want a company background meaning give details of the company to date if there are any operations to speak about and summarize the company’s financial situation. One of the most important things an investor will want to know is who is going to be running the company and what experience do they have. You will need to discuss this in the Management team part of the business plan. Since investors are in business to make money like most businesses are they are going to want to see a five year projection of income, expenses and funding sources. This will help them decide on whether or not the company is worth investing in. If the company has a great product and management team but shows that it will never turn a profit no one in their right mind would invest in it. Now for one of the most important things in the plan, the amount of capital needed. You must make sure that you can explain how the money is going to be used and that the amount asked for and the cash flows add up. What are three of the reasons given by the SBA for why small businesses fail financially?

Some reasons as to why a small business will fail or do fail are as follows: Plunging in without first testing the waters on a small scale. You may think that you have a great product of service but if you do no test the market it may be like trying to sell Ice to Eskimos. Another pitfall that can be averted by testing the marketplace would be over or under pricing. If you overprice you product or service you may not be able to get the amount of business you need to pay the bills. Also if you under price yourself you may not be able to get enough business to pay the bills. Another large pitfall of why businesses fail is bringing personal extravagance into the business. Trying to lead a lifestyle the business was never meant to support. Questions from page 198 Why do many small businesses avoid doing business overseas? Small businesses avoid doing business overseas for a variety of reasons. One of the largest reasons that small businesses avoid foreign business may because they do not understand how those markets work or what they need to offer them. There is also a lot of bureaucracy that must be worked through first before you can do anything overseas. All of this may seem quite daunting to a small business that is just trying to get through the first few years without failing. What are some advantages small businesses have over large businesses in selling in global markets? Some things that small businesses have going for them over their larger counterparts in the global markets are that they can adapt to markets a lot quicker than the larger companies, this will help them in all aspects of their business such as personal customer service and quicker turnaround on shipping or many other of the customers needs. Many small companies will give their undivided attention to an overseas customer because they are a major source of revenue for them.