Intro to Business Test Study Guide
Intro to Business Test Study Guide MGMT 11100
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This 21 page Study Guide was uploaded by Jordan Kratz on Wednesday January 27, 2016. The Study Guide belongs to MGMT 11100 at Ithaca College taught by Quigley in Fall 2015. Since its upload, it has received 49 views. For similar materials see Intro to Business in Business at Ithaca College.
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Date Created: 01/27/16
Study Guide Intro to Business Test 1 Chapter 1 & 2: Business: Organization or activity that provides goods and services in an effort to earn a profit. Organizational Change: successful businesses embrace change. Businesses have to keep up with competitors or they will be left behind. Evolution of modern business: 1. Industrial revolution 2. Entrepreneurship era 3. Production era 4. Marketing era 5. Relationship era Profit: Money earned in sales/revenue minus expenses Loss: when expenses are greater than revenue Revenue: money coming in. revenue – expenses = profit/loss Entrepreneurs: people who risk their time, money and other resources to start and manage a business Nonprofits: business-like establishments that employ people and produce goods and services. *aim to contribute to the community rather than generating financial gain. Ex. Red Cross Standard of living: quality and quantity of goods and services available to a population Quality of life: overall sense of well-being Factors of production: fundamental resources required to achieve organizational objectives. ie. Natural resources – land, water Capital – machines, tech, buildings Human Resources – physical, intellectual creativity Entrepreneurship – hire/fire people *aids the economy by creating opportunities and by harnessing other factors of production. Business Environment: setting in which businesses operate. Makes a critical difference in whether an economy thrives or disintegrates Economic Social Competitive Global Technological Speed-to-market: rate at which a firm transforms concepts into actual products, key source of competitive advantage Bleeding-edge firms: launch products that are too far ahead of the market ie. apple watch, google glass Leading-edge firms: offer products as the market becomes ready for them Workforce Advantage: a key resource for a firm’s competitive advantage. People want a work/life balance. Employee satisfaction Business Technology: tools used by business to become more efficient and effective World Wide Web: Allows computer users to easily access and share information on the internet e-commerce: Business transactions conducted online, typically via the internet Factors of Social Environment: (Demographics) Measurable characteristics of a population. Reason behind difference in social environment of various countries Diversity Aging population Rising worker expectations Ethics and social responsibility Free trade: international, public and economic movement designed to help goods and services flow more freely across international boundaries. Lower costs Increases quality Global Environment: Multi-Pronged Treats War and terrorism – decimated the travel industry Disease Natural Disasters Chapter 3: Global Trade: Key reasons – Access to technology and decrease in barriers to trade has increased global business opportunities Opportunity to penetrate huge and growing markets Access to factors of production Reduced risk Inflow of innovation Global Brands: Brands that derive at least 1/3 of earnings from outside home country Opportunity Cost: Opportunity of giving up the second-best choice when making a decision Absolute advantage: when a country can produce more of a product than other nations using the same amount of resources. Cheaper labor Easier access to natural resources Comparative advantage: benefit a country has in a given industry of if it can make products at a lower opportunity cost than other countries *seldom remains static due to upgrade of technology and workforce -Why countries concentrate in one industry Balance of trade: difference between a nation’s exports and imports Trade surplus: total value of exports is higher than the total value of imports Trade deficit: total value of imports is higher than the total value of exports Balance of payments: total flow of money, into or out of a country Balance of payments surplus: more money flows in than out Balance of payments deficit: more money flows out than in Exchange rates: measure the value of one nation’s currency relative to the currency of other nations Countertrade: barter of products for products rather than for currency Marketing Development Options Low Risk Exporting Licensing Franchising Direct Higher Risk Less Control Investment More Control Foreign outsourcing: contracting with foreign suppliers to produce products at a fraction of the cost of domestic production Importing: buying products, domestically that have been produced or grown in foreign nations Exporting: selling products in foreign nations that have been produced or grown domestically Foreign licensing: organization (licensor) granting a foreign firm (licensee) to produce and market products or to use its trademark in a defined geographical area ***Easy to lose control Foreign franchising: firms (franchisor) expand by offering businesses (franchisees) in other countries the right to produce and market their products according to specific operating requirements. ***Maintain Control Direct investment: acquiring foreign firms or developing new facilities from the ground up in foreign countries ***Excellent Control/ more risk/ high cost Joint ventures: two or more companies join force to push/pursue specific opportunities Partnership: long-term agreement Strategic alliance: less encompassing and informal agreement Barriers to trade (2 differences): 1. Sociocultural differences: among cultures in language, altitudes and values Vital to understand and respond Requires cultivating firsthand knowledge and practicing sensitivity 2. Economic differences: critical to understand and evaluate Infrastructure: countries physical facilities that support economic activity 3. Legal/ Political Differences: a. International businesses must comply with –international legal standards and laws of their own and host courtiers b. Ease of doing business increases the chances of a country to grow Political Climate: influences whether that nation is attractive to foreign business Protectionism: national policies designed to restrict international trade, usually with the goal of protecting domestic businesses. Tariffs: (common trade restrictions) taxes levied against imports Quotas: (common trade restrictions) limitations on the amount of specific products that may be imported from certain countries during a given time period Voluntary export restraints: (common trade restrictions) limitations on the amount of specific products that one nation will export to another nation Embargo: (common trade restriction) complete ban on international trade of a certain item, or a total halt in trade with a particular nation Free trade: unrestricted movement of goods and services across international borders General Agreement on Tariffs and Trade (GATT): international trade treaty designed to encourage worldwide trade among its members. World Trade Organization (WTO): permanent global institution to promote international trade, settle international trade disputes. World Bank: international cooperative to reduce poverty in the developing world Web-link: World Bank endeavors to end extreme poverty within a generation and boost-shared prosperity. International Monetary Fund (IMF): promotes international economic cooperation and stable growth Trading Blocs: groups of countries that have reduced or eliminated all tariffs *allow free flow of goofs among the member nations Common market: group of countries that have eliminated tariffs and harmonized trading rules to allow the free flow of goods among member nations. North American Free Trade Agreement (NAFTA): treaty among the US, Mexico, and Canada that eliminated trade barriers and investment restrictions. *Drawback: increase in the US trade deficit that adversely affects the economy. European Union: aid Europe’s trade position and to increase its international, political and economic power. *Drawback: economically weaker member countries could drag EU into damaging recession. Chapter 4: Ethics: sets of beliefs about right and wrong, good and bad. Challenge- forming broad agreement on specific ethical standards Legal actions can be unethical Not all actions have ethical implications Business ethics: application of right and wrong, good and bad, in a business setting Ethical dilemma: decision that involves a conflict of values. Both decisions are bad but you have to make a choice Code of ethics: defines the ethical standards of an organization and gives employees the information they need to make ethical decisions across a range of situations. *in multinational companies-it lays out unifying values and priorities for divisions that are rooted in different cultures. Social responsibility: the obligation of a business to contribute to society *nearly 80% of Americans consider corporate citizenship when making investment and purchasing decisions. Stakeholders: groups that have a stake in the performance and actions of an organization Employees Customers Investors Community Environment Social Responsibility: the obligation of a business to contribute to society The Spectrum of Social Responsibility: No contribution Responsive contribution Proactive contribution Consumerism: Social movement that focusing on four key consumer rights 1. Right to be safe 2. Right to be informed 3. Right to choose 4. Right to be heard *planned obsolescence: deliberately designing products to fail in order to shorten the time between consumer repurchases. Sarbanes-Oxley Act: limits conflict-of-interest issues by restricting the consulting services that accounting firms can provide for the companies they audit. Corporate Philanthropy: all business donations to nonprofit groups Cause-related marketing: partnership between a business and a nonprofit *designed to spike sales for the company and raise money for the nonprofit Corporate Responsibility: focused on the actions of the business itself rather than donations of money and time. Social Audit: evaluation of how well a firm is meeting its ethics and social responsibility objectives Steps involved: establishing goals, determining how to evaluate the achievement of these goals. Test 2 Study Guide Intro to Business Chapter 6: Business Formation Forms of Business Ownership Sole Proprietorship: single owner actively actively manages the company. Partnership: two or more people act as coowners of a business for profit. o General Partnership: all partners actively manage business and have unlimited liability for any claims against the firm. Corporation: business is considered a legal entity that is separate and distinct from its owners. o Articles of Incorporation: document filled with a state government to establish the existence of a new corporation. o Limited Liability: Owners are not personally liable for claims against the firm lose investment in the company, but other personal assets are protected. Limited Liability Company (LLC): offers both limited liability to its owners and flexible tax treatment Advantages and Disadvantages of Sole Proprietorships Advantages Disadvantages Ease of formation Limited financial resources Retention of Control Unlimited liability Pride of ownership Limited ability to attract and maintain talent Retention of profits Heavy workload and responsibilities Possible tax advantage Lack of permanence Formation of General Partnerships No limit to the number of partners Verbal or written agreement details out o Initial financial contributions o Specific duties and responsibilities o How profits and losses will be shared o How disagreements will be settled o How a partner’s death or withdrawal will be dealt with Advantages and Disadvantages of General Partnerships Advantages Disadvantages Ability To: Unlimited liability Pool financial Resources Share Responsibilities Capitalize on complementary skills Ease of formation Potential for disagreements Possible tax advantages Lack of continuity Difficulty in withdrawing from a partnership Other Forms of Partnership Limited Partnership: o General Partners: participate fully and assume unlimited personal liability o Limited Partners: cannot actively participate and are protected by limited liability Limited Liability Partnership: All partners participate in management and have limited liability for company debts Corporations C Corporation: Legal business entity that offers limited liability to all its owners o Corporate Bylaws: govern how a corporation is organized and how it conducts its business Stockholder: Owner of a corporation o Institutional Investor: pool contributions from investors, clients, or depositors and use them to buy stocks and securities o Board of Directors: Individuals elected by stockholders to represent their interests Advantages and Disadvantages of C Corporations Advantages Disadvantages Limited Liability Expense and complexity of formation and operation Permanence Complications when operating in more than one state Ease of transfer of ownership Double taxation of earnings and additional taxes Ability to raise large amounts of financial More paperwork, more regulation, and less capital secrecy Ability to make use of specialized Possible conflicts of interest management Characteristics of S, Statutory Close, and Nonprofit Corporations Corporate Reconstructing Acquisition: one firm buys another o Corporations are constantly looking to grow/change EX. Amazon bought Zappos Zappos’ name is the same and still exists but you cannot buy “Zappos” stock Merger: two formerly independent business entities combine to form a new organization o Equal strength, one is not “better” than the other EX. JP Morgan and Chase, Exxon Mobil, Sirius XM o 2 is stronger than one o Advantage: new customer base, no competition, stronger o Disadvantage: less competition gives the customer no other choices → monopoly Types of Mergers and Acquisitions Horizontal: ie. 2 airlines, 2 gas/oil companies joining together Vertical: ie. car company & tire company o Allows to keep more control Conglomerate: ie. Disney, GE o Allows to be more diverse o Reduces Risk Divestiture Transfer of total or partial ownership of firm’s operations to investors or to another company Spinoff: company issues stock in one of its own diversions and sets it up as a separate company o ie. Proctor & Gamble and Smuckers Smuckers = separate ownership, whatever happens doesn’t affect Proctor & Gamble Carveout: company sells the stock to outside investors, thus raising additional financial capital o When a company wants to get rid of a business because it can usually increase capital or it just doesn’t fit into their goals. ie. Pringles Stock to Kellogg The Limited Liability Company (LLC) Formed by filing a document and paying filing fees to the respective state LLC Organizers draft an operating agreement Neither a corporation nor a partnership o Owners are called members and manage their own company under an agreement o Hire professional managers Advantages and Disadvantages of LLCs Advantages Disadvantages Limited Liability Complexity of formation Tax passthrough Annual franchise tax Simplicity and flexibility in management and Foreign status in other states operation Flexible ownership Limits on types of firms that can form LLCs Difference in state laws Franchise Is a licensing agreement Franchisor allows franchisees to use its name, trademark, products, business methods, and other property Franchisor: supplies resources in exchange for money and other considerations Franchisee: pays for the right to use resources supplied by the franchisor Advantages and Disadvantages of Franchising Advantages Disadvantages Less risk Costs Training and support Lack of control Brand recognition Negative halo effect Easier access to funding Growth challenges Restriction on sale Poor execution Franchise Agreement Contractual arrangement specifying duties and responsibilities of parties involved o Terms and conditions o Fees and other payments o Training and support o Specific operational requirements o Conflict resolution o Assigned territory Franchise Disclosure Document (FDD) Detailed description of all aspects of a franchise Should be provided to franchisee at least fourteen calendar days before franchise agreement is signed Chapter 7 : Small businesses and Entrepreneurship Reasons people start their own business Greater financial success o Entrepreneurs: risk their time , money, and other resources to start and manage a business Independence Flexibility Challenge constantly learning new things Survival Entrepreneurial Characteristics Vision: Bringing out new ideas and solutions Self reliance: o Internal locus of control: deepseated sense that the individual is personally responsible for what happens in his or her life. o External locus of control: Deepseated sense that others are responsible for what happens in one's life. Energy: putting in extra hours and days Confidence: ability to achieve and act boldly Tolerance of uncertainty: turing uncertainty into an advantage Tolerance of failure: viewing failure as a chance to learn Funding options for small businesses Personal resources o family or friends o credit cards Loans o Commercial loans o U.S. Small Business Administration (SBA) o Peertopeer Angel Investors: invest in startups with high growth potential in exchange of share in ownership o do not want to be involved in your business Venture capital firms: invest in startups with high growth potential in exchange for a share of ownership o more involved in business o ex. Sharktank Opportunities for small businesses Gain profitable market niches o Market niche: small segment of a market with fewer competitors than the market as a whole o what are you offering that other bigger companies don't offer? o ex. makeup remover, organic foods Personal customer service lower overhead costs new opportunities fueled by the internet ** Businesses need to be available when people need them must be adaptable/ flexible Threats for small businesses High risk of failure Lack of knowledge and experience Insufficient funds Bigger regulatory burden Higher health insurance costs Starting a business from scratch Pros: It's all you: your concept, your decisions, your structure you don't have to deal with the prior owners and decisions Cons: It's all you: thats a lot of pressure it can be hard to get credit logistics can be challenging it takes time, money, and sheer sweat to build a customer base Buying an established business Pros: THe concept, organizational structure, and operating practices are in place relationships are established obtaining financing is less challenging Cons: Working with someone else's ideas may not be fun You may inherit old mistakes Buying a franchise Pros: partnering with established brand possibility of assistance with management and financing low failure rate Cons: less opportunity for creativity tied to national brand’s mistakes purchase price and ongoing royalties can be steep Becoming an Entrepreneur 1. Gain experience: learn about industry and make contacts 2. Learn about others: people who have succeeded or failed provide deep insight 3. Access Small Business Administration (SBA): Provides information on industryspecific statistics, general trends, and updates on small business regulations 4. Develop business plan 1. Business Plan: Describe a business concept, outlines core business objectives, and details strategies and timelines for achieving them Components of a business plan Executive summary Description of business Marketing Competition Operating procedures Personnel COmplete financial data and plan Appendix Small Business Administration (SBA) Agency of the federal government that maintains and strengthens the nation's economy. o counsels, assists, and protects the interests of small businesses Affiliates o Small Business Development Centers (SBDCs): Provide comprehensive management assistance to small businesses o SCORE ( Service Corps of Retired Executives): Provides free, comprehensive counseling for small business owners from qualified volunteers. Small Businesses: Characteristics and Impact Small businesses play a vital role in the US economy Contribution to the economy o Create new jobs o Fuel innovation o Vitalize inner cities Big businesses profit from small companies Chapter 14 Management: Responsibilities and Skills Involved Top Management: Sets the overall direction of the firm Middle Management: Manages the managers Firstline Management: Manages the people who do the work Planning: Figuring out where to go and how to get there Organizing: Determining a structure for both individuals and the organization Leadings: Directing and motivating people to achieve organizational goals Controlling: Monitoring performance and making adjustments as needed Technical skills: Expertise in a specific functional area of department Human skills: Ability to work with and through other people in a range of different relationships Conceptual skills: Ability to grasp a big picture view of the overall organization and the relationship between its various parts Planning: An Overview Strategic Planning: vision for the company, define longterm objectives and priorities, determine broad action steps, and allocate resources o example: should we acquire a new company? Should we begin manufacturing in China? Tactical planning: applying the strategic plan to specific areas of responsibility o ex: Should we spend more time servicing each customer? Should we hire a PR agency to handle PR? Operational planning: Applying the tactical plans to daily, weekly and monthly operations o ex: How should we schedule employees this week? o When should we schedule delivery for each batch of product? Contingency planning: For unexpected events Strategic Planning Steps: Defining the mission of the organization Mission: Organization’s purpose, values, and core goals providing the framework for all other plans SWOT analysis: Evaluates where the organization stands relative to competition •Strengths, weaknesses, opportunities, and threats Goals: o Strategic goals: Represent concrete benchmarks that managers can use to measure performance in key areas o should be SMART Specific Measurable Attainable (tools available) Realistic (knowledge and background) Timebound Organizing: Creating Logical Structure in a Firm Organization chart: Helps employees understand how they and their jobs fit within the broader organization Degree of centralization: Relates directly to the source of power and control Span of control: Number of people a manager supervises Departmentalization: Breaking workers into logical groups o Functional o Product o Customer o Geographical o Process Organization Models: Line Organization: Clear, simple chain of command from top to bottom Lineandstaff organization: Benefits of a line organization without all the drawbacks o Line managers: Supervise the functions that contribute directly to profitability o Staff managers: Supervise the functions that provide advice and assistance to the line departments Matrix organizations: Build on the lineandstaff approach by adding a lot more flexibility o Encourages team work o Flexible and innovative Autocratic leaders:Hoard decisionmaking powers and issue orders without consulting their followers Democratic leaders: Share power with followers but make final decisions Freerein leaders: Set objectives for their followers but give them freedom to choose how they accomplish those goals Motivation Expectancy theory: Relationship among individual effort, individual performance, and individual reward Equity theory: Perceptions of fairness directly affect worker motivation Controlling Monitoring performance of the firm and making improvements when necessary Control process o Establishes clear performance standards Specific and measurable Realistic but challenging Tied to a time frame
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