ebert and griffin chapter 3 and 4

1. Business Essentials, 12th Edition
Ebert/Griffin
© 2009 Pearson Education, Inc.
Chapter 3: Entrepreneurship,
New Ventures, and Business
Ownership
PowerPoint Presentation prepared by
Carol Vollmer Pope Alverno College

2. What Is a “Small” Business?
• Small Business Defined
– A business that is independent (not part of a larger
business) and that has relatively little influence in its
market.
• The Importance of Small Business in the U.S.
Economy
– Job creation
– Innovation
– Contributions to big business
• Suppliers of specialized services and raw materials
• Sellers of larger firms’ products
© 2009 Pearson Education, Inc.

3. Entrepreneurship
• Entrepreneurship
– The process of seeking business opportunities under
conditions of risk
• Entrepreneur
– One who accepts the risks and opportunities of creating,
operating and growing a new business
• Small Business Owner
– A person who independently owns a business that
has relatively little impact in its market
© 2009 Pearson Education, Inc.

4. types of small businesses
The most common types of small businesses are firms engaged
(1) services,
(2) retailing, and
(3) construction.
Services comprise the largest sector, in part because most service
businesses require relatively little capital to start. In contrast, there are
relatively fewer small businesses who manufacture products because
the start-up costs are often high

5. Entrepreneurial Characteristics
• Successful Entrepreneurs:
– Are resourceful.
– Are concerned about good customer relations.
– Desire to be their own boss.
– Can deal with uncertainty and risk.
– Are open-minded.
– Rely on networks, business plans, and consensus.
– Have different views on how to succeed, to automate
a business, and when to rely on experience or
business acumen.
© 2009 Pearson Education, Inc.

6. Starting and Operating a New Business
• Crafting a Business Plan
– Conveys a description of the business strategy for the new
venture and how it will be implemented
– A business plan should address:
• The entrepreneur’s goals and objectives
• The strategies that will be used to obtain them
• The implementation of the chosen strategies
• Preparing a Business Plan
– Setting goals and objectives
– Sales forecasting
– Financial planning
© 2009 Pearson Education, Inc.

7. Starting the Small Business
• Buying an Existing Business
– Less risk in purchasing ongoing, viable business
• Franchising
– Advantages
• Proven business opportunity for franchisee
• Access to management expertise of franchisor
– Disadvantages
• Start-up costs for franchise purchase
• Ongoing payments to the franchisor
• Management rules and restrictions on the franchisee
© 2009 Pearson Education, Inc.

8. Starting the Small Business (cont’d)
• Starting from Scratch
– Disadvantage: Higher risk of business failure
– Advantage: Avoids problems of an existing business
• Questions to Be Answered:
– Who and where are my customers?
– How much will those customers pay for my product?
– How much of my product can I expect to sell?
– Who are my competitors?
– Why will customers buy my product rather than the
product of my competitors?
© 2009 Pearson Education, Inc.

9. Financing the Small Business
• Personal Resources
• Loans from Family and Friends
• Bank Loans
• Venture Capital Companies
• Small-Business Investment Companies (SBICs)
• Minority Enterprise Small-Business Investment Companies
(MESBICs)
• SBA Financial Programs
– Guaranteed loans and immediate loan programs
– Management advice (SCORE and SBDCs)
© 2009 Pearson Education, Inc.

10. Trends in Small-Business Startups
Emergence of
E-commerce
Crossovers from
Big Business
Opportunities for
Minorities & Women
Global
Opportunities
Better
Survival Rates
© 2009 Pearson Education, Inc.

11. Reasons for Failure and Success
• Failure
– Poor management
– Neglect
– Weak control systems
– Insufficient capital
• Success
– Hard work, drive, and dedication
– Market demand
– Managerial competence
– Luck!!!
© 2009 Pearson Education, Inc.

12. Business Ownership
• Forms of Legal Ownership
– Sole proprietorship: Owned and operated by one person
– Partnership: Sole proprietorship multiplied by the number
of partner-owners
– Corporation
• Choice of Ownership Form
– Based on the entrepreneur’s needs/desires for control,
ownership participation, financing sources, and
appropriateness of the chosen form for the industry in
which the firm will compete
© 2009 Pearson Education, Inc.

13. Sole Proprietorships
• Advantages:
• Freedom
• Simple to form
• Low start-up costs
• Tax benefits
• Formation of cooperatives
• Disadvantages:
• Unlimited liability: Owners are
responsible for all debts of a
business
• Limited resources
• Limited fundraising capability
• Lack of continuity
© 2009 Pearson Education, Inc.

14. Partnerships
• Advantages:
• More talent and money
• More fundraising capability
• Relatively easy to form
• Limited liability for limited
partners
• Tax benefits
• Disadvantages:
• Unlimited liability for general
partner
• Disagreements among
partners
• Lack of continuity
© 2009 Pearson Education, Inc.

15. Alternatives to General Partnerships
• Limited Partnership
– Allows for limited partners who invest money but are
liable for debts only to the extent of their investments
– Must have at least one general (or active) partner, who is
usually the person who runs the business and is
responsible for its survival and growth
• Master Limited Partnership
– Organization sells shares (partnership interests) to
investors on public exchange. Investors are paid back from
profits
– The master partner retains at least 50 percent ownership
and runs the business, while minority partners have no
management voice
© 2009 Pearson Education, Inc.

16. Cooperatives
• Combine the freedom of sole
proprietorships with the financial power
of corporations
• Groups of sole proprietorships or
partnerships agree to work together for
their common benefit
© 2009 Pearson Education, Inc.

17. Corporations
• Corporation
– Firms that have filed papers of incorporation
• Corporations may:
– Be small or large
– Sue and be sued
– Buy, hold, and sell property
– Make and sell products
– Commit crimes and be tried and punished for them
– Have limited liability for individuals who form them
© 2009 Pearson Education, Inc.

18. Corporations
• Advantages:
• Limited liability: The owners’
responsibility for the debts of a
business is limited to their
investment in a business
• Continuity
• Stronger fundraising
capability
• Disadvantages:
• Double taxation of dividends
• Fluid control
• Complicated and expensive
to form
© 2009 Pearson Education, Inc.

19. Types of Corporations
• Closely Held (Private) Corporation
• Publicly Held (Public) Corporation
• Subchapter S Corporation
• Limited Liability Corporation (LLC)
• Professional Corporation
• Multinational (Transnational) Corporation
© 2009 Pearson Education, Inc.

20. Managing a Corporation
• Corporate Governance
– The roles of shareholders, directors, and other managers in
corporate decision making and accountability
– Corporate governance is established by the firm’s bylaws
and involves three bodies:
• Stockholders (shareholders): Investors who buy ownership shares
in the form of stock
• The board of directors: Group elected by stockholders to oversee
corporate management
• Corporate officers: Top managers hired by the board to run the
corporation
© 2009 Pearson Education, Inc.

21. Stockholders: Owners of Corporations
• Stock: A share of ownership in a corporation
• Dividends: Profits distributed among stockholders
© 2009 Pearson Education, Inc.

22. Special Issues in Corporate Ownership
• Joint Ventures and Strategic Alliances:
– Strategic alliance: Two or more organizations collaborate
on a project for mutual gain
– Joint venture: Partners share ownership of a new
enterprise
• Employee Stock Ownership Plans
– Allows employees to own a share of the corporation
through trusts established on their behalf
• Institutional Investors
– Control enormous resources and can buy huge blocks of
stock
© 2009 Pearson Education, Inc.

23. Special Issues in Corporate Ownership (cont’d)
• Mergers, Acquisitions, Divestitures, and Spin-
Offs:
– Merger: Two firms combine to create a new
company
– Acquisition: One firm buys another outright
– Divestiture: Strategy whereby a firm sells one or
more of its business units
– Spin-off: A firm sells part of itself to raise capital
© 2009 Pearson Education, Inc.

24. Business Essentials, 12th Edition
Ebert/Griffin
© 2009 Pearson Education, Inc.
Chapter 4: The Global Context
of Business
PowerPoint Presentation prepared by
Carol Vollmer Pope Alverno College

25. The Contemporary Global Economy
• Globalization
– The process by which the world’s various
national economies and trading systems
are fast becoming a single, highly
interdependent system
• Exports: Domestically produced products sold in foreign
markets
• Imports: Foreign products sold in domestic markets
© 2009 Pearson Education, Inc.

26. The Major World Marketplaces
• Distinctions Based on Wealth
– High-income countries
– Upper middle-income countries
– Low middle-income countries
– Low-income countries (developing countries)
• Geographic Clusters
– North America
– Europe
– Pacific Asia
© 2009 Pearson Education, Inc.

27. Trade Agreements and Alliances
• Significant Agreements and Treaties
– North American Free Trade Agreement (NAFTA)
• Canada, Mexico, and the United States
• Effects: increases direct foreign investment, increases
exports and imports, creates jobs
– European Union (EU)
• Most European nations
• Effects: eliminates quotas, removes trade barriers, and sets
uniform tariffs on internally traded EU imports and exports
– Association of Southeast Asian Nations (ASEAN)
• Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar,
Philippines, Singapore, Vietnam
© 2009 Pearson Education, Inc.

28. Import-Export Balances
• Balance of Trade
– The total economic value of all the products that a country
exports minus the economic value of all the products that
it imports
• Trade Surplus
– A positive balance of trade that results when a country
exports more than it imports
• Trade Deficit
– A negative balance of trade that results when a country
imports more than it exports
© 2009 Pearson Education, Inc.

29. Import-Export Balances (cont’d)
• Balance of Payments
– The flow of money into or out of a country
• The money that a country pays for imports and receives for
exports—its balance of trade—comprises much of its balance of
payments
• Exchange Rate
– The rate at which the currency of one nation can be
exchanged for that of another
• Fixed exchange rates
• Floating exchange rates
© 2009 Pearson Education, Inc.

30. Exchange Rates Impact Global Trade
• When an economy’s currency is strong:
– Domestic companies find it harder to export products
– Foreign companies find it easier to import products
– Domestic companies may move production to cheaper
production sites in foreign countries
• Implications for the balance of trade?
© 2009 Pearson Education, Inc.

31. Exchange Rates Impact Global Trade (cont’d)
• When an economy’s currency is weak:
– Domestic companies find it easier to export products
– Foreign companies find it harder to import products
– Foreign companies may invest in domestic production
facilities
• Implications for the balance of trade?
© 2009 Pearson Education, Inc.

32. Forms of Competitive Advantage
• Absolute Advantage
– When a country can produce something that is cheaper
and/or of higher quality than any other country
– An advantage based on possessing a scarce resource (e.g.,
oil) or favorable physical location
• Comparative Advantage
– When a country can produce goods more efficiently or
better than other countries can produce the same goods
– An advantage based on superior productivity (e.g.,
technologically advanced manufacturing capability)
© 2009 Pearson Education, Inc.

33. Forms of Competitive Advantage (cont’d)
• National Competitive Advantage
– Conditions favoring heavy involvement in international
business:
1. Factor conditions—labor, capital, entrepreneurs, physical
resources, and information resources
2. Demand conditions—a large domestic consumer base that
promotes strong demand for innovative products
3. Related and supporting industries—strong local or regional
suppliers and/or industrial customers
4. Strategies, structures, and rivalries—domestic firms and
industries that stress cost reduction, product quality, higher
productivity, and innovative products
© 2009 Pearson Education, Inc.

34. International Business Management
• Going International
– Gauging International Demand
• Foreign demand for a company’s product may be greater than, the
same as, or weaker than domestic demand
– Adapting to Customer Needs
• A firm must decide whether and how to adapt its products to meet
the special demands of foreign customers
– Outsourcing
• Paying suppliers and distributors to perform certain business
processes or to provide needed materials or services
– Offshoring
• Outsourcing to foreign countries
© 2009 Pearson Education, Inc.

35. Levels of International Involvement
• Exporters
– Make products in one country to distribute and sell in
others
• Importers
– Buy products in foreign markets and bring them home for
resale
• International firms
– Conduct much of their business abroad and may maintain
overseas manufacturing facilities
• Multinational firms
– Design, produce, and market products in many nations
© 2009 Pearson Education, Inc.

36. International Organization Structures
• Independent Agent
– A foreign individual or organization that represents an
exporter in foreign markets
• Licensing Arrangements (or Agreements)
– Domestic firms give foreign individuals or companies
exclusive rights to manufacture or market their products in
that market
• Branch Offices
– A firm sends its own managers to overseas branch offices
so that it will have more direct control than it does over
agents or license holders
© 2009 Pearson Education, Inc.

37. International Organization Structures (cont’d)
• Strategic Alliance (or Joint Venture)
– A company finds a partner firm in the country in
which it wants to do business
– Each party agrees to invest resources and capital
into a new business or to cooperate in some
mutually beneficial way
• Foreign Direct Investment (FDI)
– Involves buying or establishing tangible assets in
another country
© 2009 Pearson Education, Inc.

38. Barriers to International
Trade
Social and Cultural
Differences
Economic
Differences
Legal and Political
Differences
© 2009 Pearson Education, Inc.

39. Legal and Political Differences
• Quotas, Embargoes, Tariffs, and Subsidies
– Quota: Restricts the number of products of a certain type that
can be imported, raising the prices of those imports
– Embargo: Government order forbidding exportation and/or
importation of a product or all products from a specific
country
– Tariffs: Taxes on imported products
– Subsidy: Government payment to help a domestic business
compete with foreign firms
• Protectionism
– The practice of protecting domestic business at the expense of
free market competition
© 2009 Pearson Education, Inc.

40. Legal and Political Differences (cont’d)
• Local Content Laws
– Requirements that products sold in a country be at least
partly made there
• Business Practice Laws
– Host countries govern business practices within their
jurisdictions
• Cartels
– Associations of producers that control supply and prices
• Dumping
– Selling a product abroad for less than the cost of
production at home
© 2009 Pearson Education, Inc.