Chapter 1

The Framework of Contemporary Business

Go als
a rni ng
Le
Distinguish between business and
1 5 Explain how today’s business
not-for-profit organizations. workforce is changing.

2 Identify and describe the factors 6 Describe how the nature of work
of production. is changing.
3 Describe the private enterprise 7 Identify skills and attributes of
system. 21st-century managers.

4 Identify the six eras of business 8 Outline the characteristics

and explain the relationship era. that make a company
admired.
WHAT IS BUSINESS?
Business All profit-seeking activities and enterprises that provide goods and
services necessary to an economic system.
Profit Rewards for businesspeople who take risks involved to offer goods and
services to customers.

Not-for-Profit Organizations
• Businesslike establishments that have primary objectives other than returning
profits to owners.
• Examples: Ohio State’s athletics departments, U.S. Postal Service, American
Heart Association
• Face many of the same challenges as for-profit organizations.
Factors of Production
Four basic inputs an economic system requires:
Natural Resources All production inputs that are
useful in their natural state.
Capital Technology, tools, information, and
physical facilities.
Human Resources Anyone who works, including
the CEO and a self-employed mechanic.
Entrepreneurship Willingness to take risks to
create and operate a business.
THE PRIVATE ENTERPRISE SYSTEM
Private Enterprise System An economic system that rewards firms for their
ability to see and meet the needs and demands of consumers. Also called
capitalism.
Competition Battle among businesses for customer acceptance; Adam Smith’s
“invisible hand” that requires firms to engage in competitive differentiation
to set themselves apart from competitors.
• To succeed, firms must adjust to market changes and competitors’ actions
• Example: Kellogg’s adaptations to consumers’ preference for healthier cereal
help it succeed in its battle against General Mills for the breakfast cereal
market.
Basic Rights in the Private Enterprise System

Right to own, use, Fairness ensured by

buy, sell, and rules and laws set in
bequeath most public sphere.
forms of property.

Owner legally and Citizen choice in

ethically entitled to employment, purchases,
income in excess and investments.
of costs, after taxes
paid.
The Entrepreneurship Alternative
Entrepreneur A risk taker in the private enterprise system. Also called
capitalism.
Entrepreneurship fuels the growth of the U.S. economy:
• One in every seven firms in the United States began operations in the last
year.
• Of the 20 million U.S. businesses currently in operation, 15 million are self-
employed people without any employees.
• Nearly 12 million U.S. employees currently work for a business with fewer
than ten employees.
• Small companies tend to be more flexible and innovative in their use of the
factors of production.
• Large firms adopt entrepreneurial approaches to enhance flexibility,
improve innovation, and open new market opportunities
SIX ERAS IN THE HISTORY OF U.S.
BUSINESS

The Colonial Period (pre-1776)

• Emphasized rural and agricultural production.
• Colonists depended on England for finished products and financial backing.

The Industrial Revolution (1760-1850)

• Move from one-by-one production of goods by skilled laborers to factory
systems and mass production.
• Factories profited from savings realized through large-scale production.
The Age of Industrial Entrepreneurs (late 1800s)
• Inventors created an endless array of commercially useful products and new
production methods.
• Eli Whitney introduced concept of interchangeable parts.
• Robert McCormick introduced horse-drawn reaper than reduced the labor
involved in harvesting wheat.
• Vanderbilt (railroads), Morgan (banking), and Carnegie (steel) started new
businesses and reaped great benefits.

The Production Era (through the 1920s)

• Emphasis on efficient production of goods through huge, labor-saving factories.
• Focus on internal processes rather than external influences,
e.g., Henry Ford’s assembly lines.
The Marketing Era (since 1950s)
• Drop in income during Great Depression focused businesses on marketing goods
and services through sales and advertising.

• Development of consumer orientation, a marketing approach that focuses on

determining what consumers want and need and developing products to satisfy
those needs

• Businesses increasingly distinguished their products from competitors’ through

branding, e.g., the McDonald’s “golden arches.”
The Relationship Era (began in 1990s)
• Businesses take a long-term approach to interactions with customers to build
loyalty and improve customer retention.
Managing Relationships through Technology
Relationship Management Collection of activities that build and maintain
ongoing, mutually beneficial ties with customers and other parties.
• Involves gathering knowledge of customer needs and preferences and applying
this understanding.
• Many of these activities are based on technology, the business application of
knowledge based on scientific discoveries, inventions, and innovations.
• Communication with customers often aided by technology, particularly the
Internet, e.g., Stonyfield Farm’s use of blogs to reinforce customer
relationships.
• Bovine Bugle
Strategic Alliances and Partnerships
• Businesses affiliate with each other through partnerships to take advantage of
new opportunities.
• Firms form a strategic alliance to create a competitive advantage.
• Example: A partnership between an online company such as eBay and
traditional retailers such as Bloomingdale’s, Home Depot, and Motorola.
• Traditional retailers contribute expertise in buying and distribution.
• Online company sells outdated or excess merchandise.
• Everyone wins: Customers get good prices, retailers get better return on their
dollar, and eBay gets a cut of sales.
• Example: Pepsi and Apple partnering in short-term promotion of Pepsi’s soft
drinks and Apple’s iTunes Music Store.
TODAY’S BUSINESS WORKFORCE
A skilled and knowledgeable workforce
• Fosters strong ties with customers and partners
• Improves efficiency and quality
• Promotes innovation
All of these provide a foundation for competitive differentiation.
Changes in the Workforce
Aging of the Population The number of Americans 65 and older will double
by 2030; trend is similar globally.
• More workers at the younger and older ends of the age spectrum.
• Companies developing incentives to keep older employees longer.
Shrinking Labor Pool The U.S. may face a shortage of 10 million workers by
2010.
• Technology requires workers with advanced skills.
• Immigrants represent one of every seven workers, one of every two new
workers.
Changes in the Workforce
Increasingly Diverse Workforce Immigration and growing Hispanic and
Asian populations are major factors contributing to a more diverse workforce.
• Diversity—blending individuals of different genders, ethnic backgrounds,
cultures, religions, ages, and physical and mental abilities—can enhance a
firm’s chances of success.
• Offer firms varied perspectives and experiences that foster innovation and
creativity.
Changes in the Workforce
Outsourcing and the Changing Nature of Work U.S. output is shifting
from manufacturing to services such as financial management and
communications.
• Different work lifestyles, e.g., telecommuting, scheduling flexibility.
• Outsourcing Using outside vendors to do work formerly done inside the
company.
• Increased use of offshoring, relocation of business processes to lower-cost
locations overseas, and nearshoring, outsourcing near the firm’s home base.
Changes in the Workforce
New Employer-Employee Partnership Lifetime employment with one
company is largely a thing of the past. Today’s model is partnership.
• Companies recognize value of a partnership with employees and many
routinely share financial data with them.
• Companies offer stock, profit-sharing, and employee training geared toward
career advancement.
THE 21ST-CENTURY MANAGER

Importance of Vision
Vision is the ability to perceive marketplace needs and what an organization must
do to satisfy them.
Importance of Critical Thinking and Creativity
Critical thinking is the ability to analyze and assess information to pinpoint
problems or opportunities.
Creativity is the capacity to develop novel solutions to perceived organizational
problems.

Ability to Steer Change

Changes are driven by technology, marketplace demands, and
global competition.
WHAT MAKES A COMPANY
ADMIRED?
Business ethics—standards of conduct and moral values involving decisions made
in the work environment.
Social responsibility—management philosophy that includes contributing
resources to promote the well-being of the general public.

More information about this list

Chapter 2
Business Ethics and Social Responsibility
Go als
a rni ng 5 Discuss how organizations shape
Le ethical behavior.
Explain the concepts of business
1 6 Describe how businesses’ social
ethics and social responsibility. responsibility is measured.

2 Describe the factors that influence 7 Summarize the responsibilities of

business ethics. business to the general public,
customers, and employees.
3 List the stages in the development
of ethical standards. 8 Explain why investors
Identify common ethical dilemmas are concerned with
4 business ethics and
in the workplace.
social responsibility.
Concern for Ethical and Societal
Issues
Sarbanes-Oxley Act 2002 law that added oversight for the nation’s major
companies and a special oversight board to regulate public accounting firms
that audit the financial records of these corporations.
Business Ethics The standards of conduct and moral values governing actions
and decisions in the work environment.
• Social responsibility.
• Balance between what’s right and what’s profitable.
• Often no clear-cut choices.
• Often shaped by the organization’s ethical climate.
THE NEW ETHICAL ENVIRONMENT
• High profile investigations and arrests in headlines.
• Vast majority of businesses ethical.
• New corporate officers charged with deterring wrongdoing and ensuring ethical
standards.
Individuals Make a Difference
• Personal ethics matter.
• Survey of British workers found 30 percent spent 30 minutes daily doing
personal business online.
• Technology expanded abuses.
• Data theft.
Development of Individual Ethics
 On-the-Job Ethical Dilemmas

Situation in which a business Telling the truth and

decision may be influenced adhering to deeply felt
for personal gain. ethical principles in
business decisions.

Employee’s disclosure
Businesspeople expect
of illegal, immoral, or
employees to be loyal
unethical practices in
and truthful, but ethical
the organization.
conflicts may arise.
HOW ORGANIZATIONS SHAPE
ETHICAL CONDUCT
Ethical Awareness
• Code of Conduct Formal statement that defines how the organization expects
and requires employees to resolve ethical questions.

Ethical Reasoning
• Codes of conduct cannot detail a solution for every ethical situation, so
corporations provide training in ethical reasoning.

Ethical Action
• Helping employees recognize and reason through ethical problems and turning
them into ethical actions.

Ethical Leadership
• Executives must demonstrate ethical behavior in their actions.
ACTING RESPONSIBLY TO SATISFY
SOCIETY
Social Responsibility Management’s acceptance of the obligation to consider
profit, consumer satisfaction, and societal well-being of equal value in
evaluating the firm’s performance.
• For example, contributions to the overall economy, job opportunities, and
charitable contributions and service.
• Measured through social audits.
Areas of responsibility
Responsibilities to the General Public
Public Health Issues What to do about inherently dangerous
products such as alcohol, tobacco, vaccines, and steroids.
Protecting the Environment Using resources efficiently,
minimizing pollution.
•  Recycling Reprocessing used materials
for reuse.
Developing the Quality of the Workforce Enhancing
quality of the overall workforce through education and
diversity initiatives.
Corporate Philanthropy Cash contributions, donations of
equipment and products, and supporting the volunteer efforts
of company employees.
Responsibilities to Customers
The Right to Be Safe Safe operation of products, avoiding
product liability.
The Right to Be Informed Avoiding false or misleading
advertising and providing effective customer service.
The Right to Choose Ability of consumers
to choose the products and services they
want.
The Right to Be Heard Ability of consumers to
express legitimate complaints to the appropriate parties.
Responsibilities to Employees
Workplace Safety Monitored by Occupational Safety and
Health Administration.
Quality-of-Life Issues Balancing work and family
through flexible work schedules, subsidized child
care, and regulation such as the Family and
Medical Leave Act of 1993.
Ensuring Equal Opportunity on the Job
Providing equal opportunities to all employees without
discrimination; many aspects regulated by law.
Age Discrimination Age Discrimination in Employment
Act of 1968 protects workers age 40 or older.
Sexual Harassment and Sexism Avoiding unwelcome
actions of a sexual nature; equal pay for equal work without
regard to gender.
Responsibilities to Investors and the Financial
Community
• Obligation to make profits for shareholders.
• Expectation of ethical and moral behavior.
• Investors protected by regulation by the
Securities and Exchange Commission
and state regulations.
Chapter 3
Economic Challenges Facing Global and
o al s Domestic Business
rni ngG
Lea 5 Identify and describe the four
stages of the business cycle.
Distinguish between micro-
1 6 Explain the factors that affect the
economics and macroeconomics. stability of a nation’s economy.

2 Explain the factors that drive
supply and demand.
3 Describe the four types of market
structures in a private enterprise
system.
4 Compare the three major types of
economic systems.
7 Discuss how monetary and fiscal
policy are used to manage an
economy’s performance.
8 Describe the major global
economic challenges of
the 21st century.
Economics Analysis of the choices people and governments make in allocating
scarce resources.
Microeconomics The study of small economic units, such as individual
consumers, families, and businesses.
Macroeconomics The study of a country’s overall economic issues, such as how
an economy uses its resources and the effects of government policies on
individuals’ standard of living.

Microeconomics: The Forces of

Demand and Supply
Demand Willingness and ability of consumers to purchase goods and services at
different prices.
Supply Amount of goods and services for sale at different prices.
Factors Driving Demand
• Demand curve shows the amount of a product buyers will purchase at different
prices. Quantity increases as price decreases.
• Economists distinguish between changes in the quantity demanded at various
prices and a true shift in the demand curve.
Factors Driving Supply
• A supply curve shows the relationship between different prices and the
quantities that sellers will offer for sale, regardless of demand.
• Movement along the
supply curve is the
opposite of
movement along
the demand curve.
• The factors of
production play a
central role in
determining the
overall supply of
goods and
services.
How Demand and Supply Interact
• Changes in the real world often affect both supply and demand, and often
multiple factors cause contradictory pressures.
• Supply and demand curves meet at the equilibrium price.

• Buyers and
sellers tend to
make choices
that restore the
equilibrium
price.
MACROECONOMICS: ISSUES FOR
THE ENTIRE SOCIETY
• Political, social, and legal environments differ in every country.
• Three types of economies
• Private enterprise systems
• Planned economies
• Mixed market systems
EVALUATING ECONOMIC
PERFORMANCE
• Economic system should provide stable business environment and sustained
growth.

Flattening the Business Cycle

• Business decisions and consumer behavior differ at various stages of the
business cycle:
• Prosperity—High consumer confidence, businesses expanding
• Recession—Cyclical economic contraction lasting for six months or longer
• Depression—Extended recession
• Recovery—Declining unemployment, increasing business activity
Productivity and the Nation’s Gross Domestic Product
Productivity Relationships between the goods and services produced and the
inputs needed to produce them.

Gross Domestic Product (GDP) Sum of all goods and services produced within
a nation’s boundaries; a measure of national productivity.
• GDP is tracked in the United States by the Bureau of Economic Analysis, a
division of the U.S. Department of Commerce.
Price-Level Changes
Inflation Rising prices caused by a combination of excessive consumer demand
and increases in the costs of raw materials, component parts, human resources,
and other factors of production.
• Devalues money: Hurts people with fixed or slowly rising incomes, income from
fixed interest rate; benefits people with rising incomes, debts with fixed
interest rate
• Steady prices benefit the overall economy
• Businesses can make long-range plans and investments
• Consumers can purchase more products, particularly major purchases.
• Deflation Falling prices, which can weaken the overall economy.
Measuring Price Level Changes The U.S. government tracks price
changes through the Consumer Price Index, which measures the
monthly average change in prices of goods and services.
Employment Levels
• The unemployment rate is the percentage of total workforce actively seeking
work but currently unemployed.
MANAGING THE ECONOMY’S
PERFORMANCE
• Government uses monetary and fiscal policy to fight unemployment, increase
spending, and reduce the duration and severity of economic recession.

Monetary Policy
Monetary Policy Government actions to increase or decrease the money supply
and change banking policy and interest rates to influence consumer spending.

Fiscal Policy
Fiscal Policy Government actions to influence economic activity through
decisions about taxes and spending.
The Federal Budget
Budget Annual plan for how the government will raise and spend money in
the coming year.
• Primary sources of government funds: Taxes, borrowing, and fees.
• Government spending in excess of tax revenue produces a budget deficit.
• Government covers the deficit by borrowing money by selling
Treasury bills, notes, and bonds to investors.
• These obligations are added to the national debt, $43 trillion at the
writing of this text.
• Government revenue in excess of spending results in a budget surplus.
• Equal spending and revenue results in a balanced budget.
• How fast to pay off the national debt is the subject of national debate.
GLOBAL ECONOMIC CHALLENGES
OF THE 21ST CENTURY
GLOBAL ECONOMIC CHALLENGES
OF THE 21ST CENTURY
Chapter 4
Competing in Global Markets
Go als
a rni ng
Le
Explain international business and
1 international trade.
why nations trade.
2 Discuss types of advantage in
international trade.
3 Describe measurements of
international trade and exchange
rates.
4 Identify the major barriers that
confront global businesses.
5 Explain how international trade
organizations and economic
communities reduce barriers to
Compare the different levels of
6
involvement used by businesses
when entering global markets.
Distinguish between a
7
global business strategy
and a multidomestic
business strategy.
Exports Domestically produced goods and services sold in markets in other
countries.
Imports Foreign-made products and services purchased by domestic consumers.

WHY NATIONS TRADE

• Boosts economic growth by providing access to
new markets and needed resources.
• More efficient production systems.
• Less reliance on economies of home nations.
International Sources of Factors of Production
• Decisions to operate abroad depend on availability, price, and quality of
• Labor
• Natural resources
• Capital
• Entrepreneurship
• Allows a company to spread risk throughout nations in different stages of the
business cycle or development.
Size of the International Marketplace
• World population = 7 billion
• One in five people live in relatively well-developed
countries.
• Share of world’s population in less-developed
countries will grow in coming years.
• Population size is no guarantee of prosperity.
• Though developing nations generally have lower per capita income,
many have strong GDP growth rates and their huge populations can
be lucrative markets.
Absolute and Comparative Advantage
• Absolute advantage Country can maintain a monopoly or produce at a lower cost
than any competitor.
• Example: China’s domination of silk production for centuries.
• Rare these days, mostly tied to climate advantages for growing certain crops.
• Comparative advantage Country can supply a product more efficiently and at
lower cost than it can supply other goods, compared with other countries.
• Example: India’s combination of a highly educated workforce and low wage
scale.
MEASURING TRADE BETWEEN
NATIONS
Balance of trade Difference between a nation’s imports and exports.
Balance of payments Overall flow of money into or out of a country.

Major U.S. Exports and Imports

• U.S. leads world, exports and imports annually total $3 trillion.
• U.S. imports more goods than exports; exports more services than imports.
Exchange Rates
Exchange rate Value of one nation’s currency relative to the currencies of other
nations.
• Values fluctuate, or “float,” depending on supply and demand for each currency
in the international market.
• National governments deliberately influence exchange rates
• Business transactions usually conducted in currency of the region where they
happen.
• Rates can quickly create or wipe out competitive advantage.
• Hard currencies Currencies that owners can easily convert into other currencies.
• Foreign currency market is world’s biggest, with daily volume of $1.5 trillion, 50
times the size of all equity markets put together.
BARRIERS TO INTERNATIONAL
TRADE

Social and Cultural Differences

Language Potential problems include mistranslation, inappropriate messaging,
lack of understanding of local customs and differences in taste.
Values and Religious Attitudes Differing values about business efficiency,
employment levels, importance of regional differences, and religious
practices, holidays, and values about issues such as interest-bearing loans.
Economic Differences
Infrastructure Basic systems of communication, transportation, energy
facilities, and financial systems.
Currency Conversion and Shifts Fluctuating values can make pricing in
local currencies difficult and affect decisions about market desirability and
investment opportunities.

Political and Legal Differences

Political Climate Stability is a key consideration.
Legal Environment Three dimensions: U.S. law, international regulations, laws
of the countries where they plan to trade. Corruption can be an important
issue.
International Regulations Friendship, commerce, and navigation
treaties between U.S. and other nations.
Types of Trade Restrictions
Tariffs Taxes, surcharges, or duties on foreign products.
• Revenue tariffs generate income for the government.
• Protective tariffs raise prices of imported goods to level the playing field for
domestic competitors.
Nontariff Barriers Also called administrative trade barriers
• Quotas limit the amount of a product that can be imported over a specified
time period.
• An embargo imposes a total ban on importing a specified product or all
trading with a particular country.
• Exchange controls through central banks or government agencies
regulate the buying and selling of currency to shape foreign
exchange in accordance with national policy.
REDUCING BARRIERS TO
INTERNATIONAL TRADE
Organizations Promoting International Trade
• General Agreement on Tariffs and Trade (GATT) sponsored negotiations to
reduce worldwide barriers to trade.
• Founded 1947
• Uruguay Round of negotiations cut average tariffs by one-third, or $700
billion.
• Led to the establishment of the World Trade Organization.
World Trade Organization Monitors GATT agreements.
• 149 member countries
• Began monitoring GATT agreements in 1995
World Bank Lends money to less-developed and developing countries.
• Funds projects that build or expand infrastructure.
• Provides assistance and advice.
International Monetary Fund Promotes trade through financial cooperation.
• Makes short-term loans to member nations to meet expenses.
• Operates as lender of last resort for troubled nations.
International Economic Communities
• Reduce trade barriers and promote regional economic cooperation.
• Free-trade area Members trade freely among selves without tariffs or trade
restrictions.
• Customs union Establishes a uniform tariff structure for members’ trade with
nonmembers.
• Common market Members bring all trade rules into agreement.

NAFTA (1994)
• World’s largest free-trade zone: United States, Canada, Mexico.
• Combined population: 435 million
• Total GDP: nearly $14 trillion
• U.S. and Canada are each other’s biggest trading partners.
CAFTA (2005)
• Free-trade zone among United States, Costa Rica, the Dominican Republic, El
Salvador, Guatemala, Honduras, and Nicaragua.
• Total GDP: nearly $14 trillion
• $33 billion traded annually between U.S. and these countries.

European Union
• Best-known example of a common market.
• Combined population: 450 million people in 25 countries
• Total GDP: $12 trillion
• Goals include promoting economic and social progress, introducing
European citizenship as complement to national citizenship, and
giving EU a significant role in international affairs.
GOING GLOBAL
• Three key decisions for companies considering going global:
• What foreign market(s) will the company enter?
• What expenditures are required to enter a new market?
• What is the best way to organize overseas operations?

Levels of Involvement
Importers and Exporters Most basic level of international involvement, with
the least risk and control.
Countertrade Payments made in the form of local products, not currency.
Contractual Agreements Often come after a company has some experience in
international sales. Include franchising, foreign licensing, and subcontracting.
Franchising Contractual agreement in which a wholesaler or a retailer gains the
right to sell the franchisors’ products under that companies brand name in
exchange for agreeing to related operating requirements.
Offshoring Relocation of business processes to lower-cost location overseas.
International Direct Investment Includes establishment of manufacturing
facilities, opening of an overseas division, and acquisition of an existing firm
in the host country.
• Joint ventures Allow companies to share risks, costs, profits, and
management responsibility with one or more host country nationals.
From Multinational Corporation to Global Business
Multinational corporation (MNC) An organization with significant foreign
operations and marketing activities outside its home country.
DEVELOPING A STRATEGY FOR
INTERNATIONAL BUSINESS
Global Business Strategies
• Firm sells same product in essentially the same manner throughout the world.
• Works well for products with nearly universal appeal and luxury items.

Multidomestic Business Strategies

•  Firm develops products and marketing strategies that appeal to customs, tastes,
and buying habits of particular national markets.
• Example: Spinach, egg, and tomato soup on the menu in KFC’s
menu in China.