Sole Proprietorship and Corporations

Sole Proprietorship

• A business owned by one person that can employ many people
• To start, it involves a product or service, money for expenses, and management knowledge
• Advantages: Ease of starting, freedom to make decisions, owner keeps profits, and pride of ownership
• Disadvantages: Limited funds, long hours with hard work, unlimited risks, and limited business life

Corporation

• Corporations account for approximately 90% of sales, despite sole proprietorships being more common
• Corporations raise funds by selling stock, making buyers part owners
• A stock certificate documents ownership in a corporation
• Owners of a corporation are called stockholders or shareholders
• Stockholders rights include earning dividends and voting on company policies
• Dividends are a portion of company profits
• Stockholders control company management and have 1 vote per share owned
• Stockholders indirectly elect the board of directors
• The board of directors hires managers
• Corporations are legal "entities" and are responsible for actions, unlike sole proprietorships/partnerships
• Advantages: More funds, fixed liability, specialized management, unlimited company life
• Disadvantages: Difficult creation, owners having limited control, and double taxation

Other Forms of Organization For Internationalization

• Municipal corporations are towns or cities that provide services without aiming for profit, and also engage in international partnerships
• Non-profit corporations provide a service without concern for profit, such as churches, hospitals, and charities
• Cooperatives are businesses owned and operated for the benefit of its members

Multinational Companies (MNCs)

• MNCs conduct business in multiple countries; also known as global, transnational, or worldwide companies
• Typically, MNCs include a parent company in a home country plus divisions in host countries
• Characteristics include a worldwide market view involving foreign subsidiaries and worldwide materials
• MNCs offer standardized products by looking for similarities across markets
• Have culturally sensitive hiring practices and recruit managers internationally
• They integrate international and local perspectives into distribution, product development, pricing, and promotion strategies

Methods of International Business Involvement

• Increase control and risk by using these methods
• Indirect exporting is when a company sells in a foreign market without special activity/effort
• Indirect exporting is casual or accidental, using agents and brokers, with minimum costs and risks
• Direct exporting is seeking and conducting export activities by creating its own exporting department
• Direct exporting requires more cost but provides more control
• Management contracting is selling management skills
• The process is low risk because managers can leave quickly if conditions become risky
• Contract manufacturing is a type of this agreement
• Licensing involves selling the right to use intangible property for a fee or royalty
• Low monetary investment involved with licensing and a low financial return and risk
• Franchising grants the right to use a company's name/business processes in a specific manner
• Franchise elements often adapt to various business elements
• Marketing must meet cultural needs and legal requirements
• A royalty payment is involved, but usually involves selling a product or service
• Franchise agreements are common with fast-food chains
• Joint venture agreements can share costs, risks, and profits, with specific ownership arrangements
• Joint ventures have higher risks but return greater profits, also giving more control
• Joint ventures share material, shipping, management, and production
• Foreign direct investments (FDI) involves buying land or resources in another country
• One type of FDI is a wholly-owned subsidiary (ie Burger King, Pillsbury, Green Giant)
• Nations may restrict how much land/factories are sold to foreign owners

Importance of Importing

• Imports are services/products bought from businesses in other countries
• Businesses import to join international trade
• Importing creates new or extends sales because of consumer demand, lower costs, and components for manufacturing
• U.S. government agencies assist companies with importing with information and regulations

Exporting

• Is selling goods/services to companies in other countries
• Indirect is when a company sells its products in a foreign market without actively seeking the business
• Direct is when export operations are being actively sought

Process of Exporting

• Must find buyers by way of trade leads, which are lists of companies planning to work overseas
• Every business transaction involves shipping and payment terms
• Free on board (FOB) indicates that the selling price includes the cost of loading exported goods onto transport at the specified spot
• Cost, Insurance, and freight (CIF) means that costs of goods, insurance, and freight are included in the quoted price
• Cost and freight (C&F) means the price includes the cost of the product and freight but the buyer pays insurance
• Some goods are standardized/sold the same worldwide
• A freight forwarder arranges shipping
• Documents like bill of lading (agreement between exporter and transportation company) and certificate of origin (states where goods are made) are needed
• Financial institutions convert currency