1. International Business Chapter 5 Structures of International Business Organizations

2. 5.1 Forms of Business Ownership
Sole proprietorship – a business owned by one person
Partnership – a business that is owned by two or more people, but is not incorporated
Corporation – a business that operates as a legal entity separate from any of the owners
Stockholders/shareholders – owners of a corporation
Dividends – a share of corporate earnings paid to stockholders

3. Discussion
What are some advantages and disadvantages of each form of ownership?

4. Sole proprietorships Advantages Disadvantages Easy to start
Decision making freedom
Owner keeps all the profits – different between revenue and expenses (aka net income)
Pride
Disadvantages
Limited source of funds
Long hours
Hard work
Unlimited liability/risk – owner’s personal assets can be used to pay any business debts
Limited life of a the business

5. Partnership Advantages Disadvantages Easy to start
Additional sources of funds
Availability of different talents
Disadvantages
Partners are liable (unlimited)
Profits are shared
Potential for disagreement
Business can dissolve suddenly

6. Corporation Advantages Disadvantages More source of funds
Fixed financial liability (limited liability) – business owner is only responsible for the debts of the business up to the amount invested
Specialized management
Unlimited life of the company
Disadvantages
More difficult to create
Charter – document granted by the state or federal government allowing a company to form a corporation
Owners have limited control
Double taxation
Corporate income tax
Stockholders pay personal income tax on dividends

7. Other forms of Business Organization
Municipal corporation – an incorporated town or city organized to provide services for citizens rather than make a profit
Nonprofit corporation – groups created to provide a service and not concerned with making a profit
Cooperative – a business owned by its members and operated for their benefit

8. 5.2 Operations of Global Businesses
Multinational Company/Corporation – an organization that conducts business in several countries
Home country – parent company location
Host country – divisions and/or separate companies

9. Characteristics of Multinational Companies
Worldwide market view
Standardized products
Culturally-sensitive hiring
International and local perspective

10. Teamwork – commissioner in charge
As a group:
List some local businesses within Dallastown Area School District
Identify their form of ownership
Are multinational companies a good thing to have in a community? Why or why not?
Research what is an LLC?
Research what is an S Corporation?

11. Multinational Companies
Advantages
Jobs
Products/services
Improved infrastructure
Disadvantages
Economic dependence
Political interference

12. 5.3 Starting Global Business Activities
Methods for getting involved in International Business
Indirect Exporting
Direct Exporting
Management Contracting
Licensing
Franchising
Joint Venture
Turnkey Operation
Foreign Direct Investment
Wholly-Owned Subsidiary

13. Indirect Exporting and Direct Exporting
Indirect exporting – when a company sells its products in a foreign market without any special activity for that purpose
Also known as casual or accidental exporting
Minimum costs and low risk
Direct exporting – when a company actively seeks and conducts exporting
Slightly higher costs than indirect exporting
More control over foreign activities
Relatively low risk

14. Management Contracting
Management contract – agreement under which a company sells only its management skills
Contract manufacturing – a company in one country produces an item for a company located in another country
Both have low to moderate risk

15. Licensing and Franchising
Licensing – selling the right to use some intangible property (production process, trademark, or brand name) for a fee or royalty
TV and movie characters
Sports team emblems
Low monetary investment, low financial return, low risk
Franchising – right to use a company name or business process a specific way
Selling a product or service rather than manufacturing
Involves royalty payment to parent company
Relatively low risk

16. Joint Venture and Turnkey Project
Joint venture – agreement between two or more companies from different countries to share a business project
Also called strategic partnerships
Increased profit potential, increased risk
Turnkey project – allows a company to enter a foreign market by creating a ready-to-use facility
Ex: European-based energy company builds a plant in Africa, upon completion local company takes over

17. Foreign Direct Investment
Foreign direct investment (FDI) – company buys land or other resources in another country
Real-estate and existing companies are typical purchases
Wholly-owned subsidiary – independent company owned by a parent company