International Business and Trade

International Business

• International trade occurs when goods are produced in one country but sold to customers in another.
• Exports are produced domestically and sold abroad.
• Imports are purchased domestically, but produced in a foreign country.
• A trade surplus results when exports exceed imports.
• A trade deficit results when exports are less than imports.
• Comparative advantage involves specializing in the production of goods or services with the lowest opportunity cost.
• Countries can carry out a particular economic activity more efficiently than other countries.
• Opportunity cost is the value of the next best alternative.
• Businesses should focus on areas/activities they excel in and trade with countries that have a comparative advantage elsewhere.

Accessing International Markets

• Exporting is selling a good or service produced domestically to customers in foreign countries.
• International licensing and franchising allow a foreign company to produce a product, and utilize trademarks for a royalty fee.
• Contract manufacturing allows companies to access international markets. It also avoids expensive startup costs by using foreign factories to produce its products.
• Joint ventures and strategic alliances form a partnership between two or more companies in different countries.
• Foreign direct investment is the purchase of permanent capital goods such as a factory or business in another country.
• A subsidiary happens when a parent company in a home country has ownership of a company in another country.
• The World Trade Organization negotiates trade rules, settles trade disputes, and facilitates global trade.

Barriers to International Trade and Advantages/Disadvantages

• Physical and technical barriers to international trade include transportation costs, geographic challenges, and non-tradable goods and services.
• Political barriers or trade protection include tariffs, quotas, and non-tariff barriers.
• Advantages of trade include increased competition, lower prices, and encouraged innovation
• Advantages continued: Provides access to new markets and diversifies across different markets.
• Disadvantages of trade include potential negative impacts on some domestic firms, loss of jobs in some industries, and negative impacts on the environment.

Human Capital

• Human capital includes the skills, knowledge, and experience possessed by an individual or population of an organization.
• Human Capital is correlated to the workforce
• Productivity is higher when companies invest more in human capital.
• Employer attractiveness factors include compensation and benefits, location, intellectual challenge, company culture, reputation, corporate social responsibility, brand perceptions, impressions of coworkers, and size.
• Attracting internal candidates through promotions motivates workers and is often faster and less expensive.
• Internal hiring also makes available performance data, but may result in hiring disinterested, or unqualified candidates.
• Advertising in various sources, hiring search firms or recruiters, recruiting on college campuses, using temp agencies, and offering incentives to current employees are methods to attract external job candidates.
• Validated selection tools predict some aspect of an employee's future performance using job applications, intelligence tests, personality tests, and interviews.
• Structured interviews ask the same job-related questions to all applicants.
• Unstructured interviews are interviews in which managers use their own questions for each of the candidates.
• Semi-structured interviews combine structured and unstructured interview types.
• Legally defensible performance evaluations should be objective, unbiased, reliable, and valid.
• Evaluations can also include multiple raters who have been trained
• Include comments and explanations, employ well-defined anchors or ratings descriptions, and provide a means for filing an appeal.
• Effective compensation systems that attract, motivate, and retain employees are critical for retaining the best talent.
• Different types of pay scales are better for different types of jobs.

Legal and Business Structures

• Title VII of the Civil Rights Act of 1964 prohibits discrimination based on race, religion, national origin, sex, color, sexual orientation, gender identity, marital status, dependents, and pregnancy.
• The Age Discrimination in Employment Act protects people 40 years of age or older.
• The Americans with Disabilities Act (ADA) protects individuals with physical or mental impairments that substantially limit one or more major life functions.
• Legal structures affect how profits are distributed, what taxes will be paid, owners' exposure to personal loss, and sources of future financing.
• A sole proprietorship is a business owned and run by one person where there is unlimited liability. It can be difficult to raise funds. However, the operator is their own boss, there is no sharing of profits.
• In a sole proprietorship, double taxation is avoided, and formation and dissolution are easy.
• A partnership can either be general or limited.
• General partnerships have shared running, joint ownership, shared financial responsibility, development of a formal contract, and have unlimited liability.
• Limited Partnerships will share profits and have joint ownership.
• Limited partners do not have formal decision-making power
• Key Disadvantages of partnerships included unlimited liability for general partners, risk of disagreements, and can be difficult to end.
• Combined skills, ease of formation, and avoidance of double taxation are key advantages to a partnership.
• C-Corporations have limited liability, but are subject to double taxation.
• S-Corporations have limited liability and no double taxation at the shareholder level, but have restrictions on who can have that status.
• Limited Liability Corporations also have limited liability and no double taxation but no shareholder restrictions.
• Compared to other structures, Corporations have a difficult/expensive to form and incur additional government regulations.
• On the other hand, they offer limited liability, ability to raise funds, transfer of ownership, longevity, and ability to attract human capital.
• A merger occurs when two companies enter into an agreement to operate as a new company.
• An acquisition occurs when one company acquires another, usually by purchasing it from its owners.
• Franchises are a type of licensing
• A franchisor is the owner, while a franchisee is the user.
• A franchise fee is an initial fee.
• Royalties are ongoing fees (% of revenue)
• There is a franchise agreement of terms and conditions.
• Initial/ongoing fees, rules/regulations, limited control/flexibility, and multiple disconnected franchises are key disadvantages to franchising.
• Established brand name, support from franchisor, access to capital, and national advertising are key advantages to franchising.

Adding Value through Accounting

• The Securities and Exchange Commission (SEC) works to keep the business world honest through regulation.
• The SEC is responsible for detecting and preventing accounting fraud.
• Financial accounting serves external stakeholders through past transactions. It also provides financial statements with deadlines by external entities.
• Managerial accounting serves internal stakeholders through future projections. It also provides information for decision-makers with deadlines at the discretion of the organization.
• Information for stakeholders is used in decision making
• It is proprietary (not for public viewing), and is not subject to external regulation
• Financial Accounting Standards Board (FASB) generally accepted accounting principles (GAAP).
• International Accounting Standards Board (IASB) issues the International Financial Reporting Standards (IFRS).
• A Balance Sheet summarizes the assets, liabilities, and owner's equity.
• The basic accounting equation Assets = Liabilities + Owners’ Equity.
• Assets are what is owned by or owed to the firm.
• Liabilities are what’s owed by the firm to creditors.
• Owners’ Equity is what’s owed by the firm to its owners.
• An Income Statement reports the financial results of a firm over a given period of time
• Revenue - Expenses = Net Income
• Walmart's statement of cash flows identifies where the company's cash came from and how it was used during the past year.
• Operating activities include sales of goods & services and payment of related expenses.
• Investing activities include the purchase of machinery, buildings, land, or other long-term investments.
• Financing activities include the purchase or repayment of loans, issuing new stock, or paying dividends.
• Profitability ratios include earnings per share, return on equity, and return on assets.
• Liquidity ratios include the current ratio.
• Leverage ratios include the debt to owner's equity ratio.
• Managerial accounting includes operating and financial budgets.
• Direct costs of production (COGS) include raw materials and labor.
• Indirect costs include supplies, rent, and overhead.
• Fixed costs include equipment and insurance.
• Variable costs include raw materials and labor.
• Auditing can be internal/private or external/independent/public.
• Other accounting professions include Tax, Government, and Nonprofit accountants.
• Auditors evaluate a company's financial statements and ensure they're accurate, relevant, reliable, consistent, and comparable.
• Auditors ensure the independence of the audit process and place restrictions on the relationship between auditors and the firm.