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8eBusiness

A Changing World

O.C. FerrellUniversity of New Mexico

Geoffrey A. HirtDePaul University

Linda FerrellUniversity of New Mexico

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BUSINESS: A CHANGING WORLDPublished by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY, 10020. Copyright 2011, 2009, 2008, 2006, 2003, 2000, 1996, 1993 by The McGraw-Hill Companies, Inc. All rights reserved. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of The McGraw-Hill Companies, Inc., including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning.

Some ancillaries, including electronic and print components, may not be available to customers outside the United States.

This book is printed on acid-free paper.

1 2 3 4 5 6 7 8 9 0 WVR/WVR 1 0 9 8 7 6 5 4 3 2 1 0

ISBN 978-0-07-351175-7MHID 0-07-351175-7

Vice president and editor-in-chief: Brent GordonEditorial director: Paul DuchamPublisher: Doug HughesDirector of development: Ann TorbertEditorial coordinator: Jonathan ThorntonVice president and director of marketing: Robin J. ZwettlerSenior marketing manager: Sarah SchuesslerVice president of editing, design, and production: Sesha BolisettyLead project manager: Christine A. VaughanSenior buyer: Michael R. McCormickCover and interior designer: JoAnne SchoplerSenior photo research coordinator: Keri JohnsonMedia project manager: Ron NelmsTypeface: 10.5/12 MinonCompositor: Laserwords Private LimitedPrinter: Worldcolor

Library of Congress Cataloging-in-Publication DataFerrell, O. C. Business : a changing world / O. C. Ferrell, Geoffrey Hirt, Linda Ferrell.8th ed. p. cm. Includes index. ISBN-13: 978-0-07-351175-7 (alk. paper) ISBN-10: 0-07-351175-7 (alk. paper) 1. Business. 2. ManagementUnited States. I. Hirt, Geoffrey A. II. Ferrell, Linda. III. Title. HF1008.F47 2011 650dc22

2010030320

www.mhhe.com

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To James and George

To Linda Hirt

To Zoe lutzi and Kenneth Nafziger

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WelcomeWelcome to the eighth edition of Business: A Ch anging World. The new edition reflects major changes in the business environment, especially the economy and information technology. All of these changes are presented in concepts that entry-level students can understand. Our book contains all of the essentials that most students should learn in a semester. Business: A Changing World has, since its incep-tion, been a concise presentation of the essential material needed to teach introduc-tion to business. From our experience in teaching the course, we know that the most effective way to engage a student is by making business exciting, relevant, and up-to-date. Our teachable, from-the-ground-up approach involves a variety of media, application exercises, and subject matter, including up-to-date content supplements, boxed examples, video cases, PowerPoints, and testing materials that work for entry-level business students. We have worked hard to make sure that the content of this edition is as up-to-date as possible in order to best reflect todays dynamic world of business. We cover major changes in our economy related to sustainability, digital marketing, social networking, and the most recent financial crisis. The most recent recession has changed business strategies, and many firms have had to learn how to manage in a difficult environment.

The Eighth EditionIn the last three years, we have witnessed the most devastating financial crisis since the Great Depression. The eighth edition of Business: A Ch anging World reflects these events as they relate to foundational concepts in business. The recession chal-lenged businesses to critically analyze the business environment. Unemployment among those 18 to 25 years old reached 25 percent in 2010. Therefore, to be suc-cessful, students need to know how foundational business concepts must be adapted to survive in a down economy and how to gain competitive advantages in an up economy. Our feedback indicated that you want these changes in the environment reflected in content, boxes, and cases, and we have responded.

We also responded to your feedback that it is time to have a chapter on digital marketing and social networking in business. The importance of social networking sites such as Facebook, Twitter, and LinkedIn, as well as many other social network-ing sites, is changing the face of business. Entrepreneurs and small businesses have to be able to increase sales and reduce costs by using social networking to com-municate and develop relationships with customers. Many of these businesses are utilizing messages that say Follow us on Twitter or encourage visitors to tour their Facebook pages to learn about their products and share their opinions and experi-ences. Our new Chapter 13, Digital Marketing and Social Networking, provides an overview of how the Internet is changing and how business is efficiently developing improved customer relationships. While students may use Facebook or MySpace for their personal relationships, this chapter will explore and help them understand the relationship of this new technology to business applications.

While the title of our book remains Business: A Changing World, we could have changed the title to Business: A Green World. Throughout the book we recognize the importance of sustainability and green business. By using the philosophy reduce,

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reuse, and recycle, we believe every business can be more profitable and contribute to a better world through green initiatives. There is a new Going Green box in each chapter that covers these environmental changes. Our Entrepreneurship in Action boxes also discuss many innovations and opportunities to use green busi-ness for success.

To make introduction to business relevant and up-to-date, the book has to reflect our current economic and political environment. The very visible hand of the gov-ernment creates a constantly shifting business environment, and we pay special attention to how changes in policies relating to financial and banking markets have affected the economic business cycle. Fluctuating prices in commodities, such as oil and agricultural products like corn, wheat, and soybeans, have changed consumer behavior. In a consumer-driven industry, American automobile companies are recovering from a decline in sales because they were not making the products that consumers wanted. While Toyota was ranked third globally in corporate reputation, it lost this advantage quickly in 2010 with many product recalls and a $16.4 million fine for hiding safety defects from customers. We address all of these issues in this text through the use of examples and embedded content in order to help students better appreciate the dynamic changes in the business world. Success in business comes from anticipating these changes and being prepared to deal with the business risks associated with change.

We have been careful to continue our coverage of global business, ethics and social responsibility, and information technology as it relates to the foundations important in an introduction to business course. Our co-author team has a diver-sity of expertise in these important areas. O.C. Ferrell and Linda Ferrell have been recognized as leaders in business ethics education, and their insights are reflected in every chapter and in the Consider Ethics and Social Responsibility boxes. In addition, they maintain a Web site, www.e-businessethics.com, that provides free resources such as PowerPoints and cases that can be used in the classroom. Geoff Hirt has a strong background in global business development, especially world financial markets and trade relationships.

The foundational areas of introduction to business, entrepreneurship, small business management, marketing, accounting, and finance have been completely revised. Examples have been provided to which students can easily relate. An under-standing of core functional areas of business is presented so students get a holistic view of the world of business. Box examples related to Responding to Business Challenges, Think Globally, Going Green, and Consider Ethics and Social Responsibility help provide real-world examples in these areas.

Our goal is to make sure that the content and teaching package for this book are of the highest quality possible. We wish to seize this opportunity to gain your trust, and we appreciate any feedback to help us continually improve these materials. We hope that the real beneficiary of all of our work will be well-informed students who appreciate the role of business in society and take advantage of the opportunity to play a significant role in improving our world. As students understand how our free enterprise system operates and how we fit into the global competitive environment, they will develop the foundation for creating their own success and improving our quality of life.

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Created from the ground up,

The best-selling paperback text on the market, Business: A Changing World was built from the ground upthat is, developed and written expressly for faculty and students who value a brief, flexible, and affordable paperback with the most up-to-date coverage available.

Conversly, most brief Introduction to Business textbooks on the market today are simply ground-down versions of much longer hardcover books. None of these books is truly designed to meet the needs of students or instructors; theyre after-thoughts, products chiefly designed to leverage existing content, not to help you teach your course.

With market-leading teaching support and fresh content and examples, Business: A Changing World offers just the right mix of currency, flexibility, and value that you need. It is the fastest-growing bookand the best value availablein the brief Introductory Business market.

What sets Ferrell/Hirt/Ferrell apart from the competition? An unrivaled mixture of current content, topical depth, and the best teaching support around:

Because it isnt tied to the revision cycle of a larger book, Business: A Changing World inherits no outdated or irrelevant examples or coverage. Everything in the eighth edition reflects the very latest developments in the business world, from the growth of digital marketing and social networking, to the recovery from the financial crisis. In addition, ethics continues to be a key issue, and Ferrell et al. use Consider Ethics and Social Responsibility boxes to instill in students the importance of ethical conduct in business.

The Freshest Topics and Examples

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not ground down

Teaching Assistance That Makes a Difference

The first and often most serious hurdle in teaching is engaging your students interest, making them under-stand how textbook material plays a very real role in real business activities. The instructors material for Business: A Changing World is full of helpful resources that enable you to do this, including detailed teaching notes and additional material in the Instructors Man-ual, even for role-playing exercises found on the Web site. Furthermore, the Active Classroom Resource Manual is loaded with additional projects, cases, and exercises. The Instructors Manual contains a matrix to help you decide which exercise to use with which chapter.

Theres much more to Business: A Changing World, and much more it can do for your course. To learn about Ferrell et al.s great pedagogical features and top-notch ancillaries, keep reading.

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Its easy for students taking their first steps into busi-ness to become overwhelmed. Longer books try to solve this problem by chopping out examples or topics to make ad hoc shorter editions. Business: A Changing World carefully builds just the right mix of coverage and applications to give your students a firm ground-ing in business principles. Where other books have you sprinting through the semester to get everything in, Ferrell et al. allows you the breathing space to explore topics and incorporate other activities that are important to you and your students.

Just Enough of a Good Thing

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CHAPTER OUTLINE Introduction

The Nature of Business The Goal of Business The People and Activities of Business Why Study Business?

The Economic Foundations of Business

Economic Systems The Free-Enterprise System The Forces of Supply and Demand The Nature of Competition Economic Cycles and Productivity

The American Economy A Brief History of the American Economy The Role of the

The Dynamics of Business and Economics OBJECTIVES After reading this chapter, you will be able to:

Define basic concepts such as business, product, and profit.

Identify the main participants and activities of business and explain why studying business is important.

Define economics and compare the four types of economic systems.

Describe the role of supply, demand, and competition in a free enterprise system.

Specify why and how the health of the economy is measured.

Trace the evolution of the American economy and discuss the role of the entrepreneur in the economy.

E l ll b i i i d f

OBJECTIVES After reading this chapter, you will be able to:

Define basic concepts such as business, product, and profit.

Identify the main participants and activities of business and explain why studying business is important.

Define economics and compare the four types of economic systems.

Describe the role of supply, demand, and competition in a free enterprise system.

Specify why and how the health of the economy is measured.

Trace the evolution of the American economy and discuss the role of the entrepreneur in the economy.

Evaluate a small-business owners situation and propose a course of action.

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Getting a Handle on BusinessBusiness: A Changing Worlds pedagogy helps your students get the most out of their reading, from handy outlines at the beginning of the

chapter to a range of questions and exercises at the end of it.

Chapter ObjectivesThese appear at the beginning of each chapter to provide goals for students to reach in their reading. The objectives are then used in the Review Your Understand-ing, the summary at the end of each chapter, and help the students gauge whether theyve learned and retainedthe material.

Chapter OutlinesThese provide a useful over-view of all the topics covered in the chapter, giving students a sneak preview of what theyll be learning.

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When most people think of a career in business, they see themselves entering the door to large companies and multinationals that they read about in the news and that are discussed in class. In a national survey, students indi-cated they would like to work for Google, Walt Disney, Apple, and Ernst & Young. In fact, most jobs are not with large corporations, but are in small companies, nonprofit organizations, government and even self-employed indi-viduals. There are 20 million individuals that the Small Business Administration says own their businesses and have no employees. In addition, there are nearly 5 mil-lion small businesses which employ 10 or fewer work-ers. With more than 75 percent of the economy based on services, there are jobs available in industries such as healthcare, finance, education, hospitality, entertainment and transportation. The world is changing quickly and large corporations replace the equivalent of their entire workforce every four years.

The fast pace of technology today means that you have to be prepared to take advantage of emerging job oppor-tunities and markets. You must also become adaptive and recognize that business is becoming more global, with job opportunities around the world. If you may want to obtain such a job, you shouldnt miss a chance to spend

some time overseas. As get you started on the path to thinking about job opportunities, consider all of the changes in business today that might affect your possible long-term track and that could bring you lots of success. You may want to stay completely out of large organiza-tions and corporations and put yourself in a position for an entrepreneurial role as a self-employed contractor or small-business owner. However, there are many that feel that experience in larger businesses is helpful to your success later as an entrepreneur.

Youre on the road to learning the key knowledge, skills and trends that you can use to be a star in business. Businesses impact on our society, especially in the area of sustainability and improvement of the environment is a growing challenge and opportunity. Green businesses and green jobs in the business world are provided to give you a glimpse at the possibilities. Along the way, we will introduce you to some specific careers and offer advice on developing your own job opportunities. Research indi-cates that you wont be that happy with your job unless you enjoy your work and feel that it has a purpose. Since you spend most of your waking hours every day at work, you need to seriously think about what is important to you in a job.27

So You Want a Job in the Business World

There Are Plenty of Fish Markus Frind has taken the phrase there are plenty of fish in the sea to a whole new level by turning peoples search for love into a strong business. Frind is a computer programmer who spent years going from job to job dur-ing the dot-com bust. Because he disliked his work and was growing tired of being laid off, Frind decided to increase his skills by learning ASP.net (a Microsoft Web building tool). To challenge himself, he built an online dating site entitled Plenty of Fish.

Frinds goal was to have a steady income without having to work much. Aware of the intense competition out there, he knew that his site needed to stand out. So he offered matchmaking services on Plenty of Fish for free. The target market is people curious about online dating but unwilling to pay for the privilege. Without collecting fees from the target market, however, Frind had to figure out another way to make a living off his site. His solution was advertisements. Advertisements on Plenty of Fish include banner ads along with advertisements supplied from Google. Interestingly, Plenty of Fish also uses its competition to earn money. Frind sells ad space to other dating sites that assume that Frinds free users will eventually upgrade to their more sophisticated sites (many never have). Within his first year, Frind was earning more than $3,300 monthly. Until recently, Plenty of Fish was designed and run by Frind out of his apartment. His success is largely due to minimal costs and a tiny staff.

Today, Plenty of Fish handles about 1.6 Web pages monthly and is set to hit $10 million in revenues. Best of all, Frind achieved his goal: he works about 10 hours each week. 1

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Chapter-Opening VignetteThese anecdotes neatly illustrate the real-world implications of the business issues students will encounter in their reading. At the end of the chapter, students are asked to Revisit the World of Business and apply what theyve learned throughout the chapter.

So You Want a Job In . . .These end-of-chapter features offer valuable advice on a wide spectrum of business career choices.

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Getting a Handle on Business

These features, scattered liberally throughout the book, use real and often familiar companies to highlight various issues of importance in business today.

Consider Ethics and Social ResponsibilityEthics in business continues to be a major public concern, and it is vital for students to understand that unethical conduct hurts investors, customers, and indeed the entire business world. These features high-light the importance of ethical conduct and show how businesses can serve a vital, positive function in their communities.

Going GreenBusinesses are becoming more aware of how their operations and products affect the world and environment they operate in. These boxes highlight companies taking steps to minimize their carbon footprintor the measure of the impact their processes have on the environment.

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Responding to Business ChallengesThese boxes illustrate how businesses overcome tough challenges and provide an excellent vehicle for stimulating class discussions.

Entrepreneurship in ActionSuccessful entrepreneurs and their endeavors are spotlighted.

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144 PART 2 Starting and Growing a Business

Revisit the World of Business 1. Kiva.org has been very successful at extending

microlending to entrepreneurs in need. What about Kiva.org has helped to make it so successful?

2. What is unique about the way Kiva.org is organized that sets it apart from more traditional businesses?

3. Do you think the Kiva.org model of giving loans would work for larger loans, or even for other kinds of businesses?

Learn the Terms acquisition 139 articles of partnership 126 board of directors 133 common stock 134 cooperative (or co-op) 138 corporate charter 130 corporation 129 dividends 130

general partnership 124 initial public offering (IPO) 132 joint venture 137 leveraged buyout (LBO) 141 limited liability company (LLC) 138 limited partnership 125 merger 139 nonprofit corporations 133

partnership 124 preferred stock 134 private corporation 131 public corporation 131 quasi-public corporations 133 S corporation 137 sole proprietorships 120 stock 130

Check Your Progress 1. Name five advantages of a sole proprietorship. 2. List two different types of partnerships and describe

each. 3. Differentiate among the different types of

corporations. Can you supply an example of each type?

4. Would you rather own preferred stock or common stock? Why?

5. Contrast how profits are distributed in sole proprietorships, partnerships, and corporations.

6. Which form of business organization has the least government regulation? Which has the most?

7. Compare the liability of the owners of partnerships, sole proprietorships, and corporations.

8. Why would secrecy in operating a business be important to an owner? What form of organization would be most appropriate for a business requiring great secrecy?

9. Which form of business requires the most specialization of skills? Which requires the least? Why?

10. The most common example of a cooperative is a farm co-op. Explain the reasons for this and the benefits that result for members of cooperatives.

Get Involved 1. Select a publicly owned corporation and bring to

class a list of its subsidiaries. These data should be available in the firms corporate annual report, Standard & Poors Corporate Records, or Moody Corporate Manuals. Ask your librarian for help in finding these resources.

2. Select a publicly owned corporation and make a list of its outside directors. Information of this nature

can be found in several places in your library: the companys annual report, its list of corporate directors, and various financial sources. If possible, include each directors title and the name of the company that employs him or her on a full-time basis.

CHAPTER 4 Options for Organizing Business 145

Background: Ali Bush sees an opportunity to start her own Web site development busi-ness. Ali has just graduated from the

University of Mississippi with a masters degree in computer science. Although she

has many job opportunities outside the Oxford area, she wishes to remain there to care for her aging parents. She already has most of the computer equipment nec-essary to start the business, but she needs additional software. She is considering the purchase of a server to maintain Web sites for small businesses. Ali feels she has the ability to take this start-up firm and create a long-term career opportunity for herself and others. She knows she can hire Ole Miss students to work on a part-time basis to support her business. For now, as she starts the business, she can work out of the extra bedroom of her apartment. As the business grows, shell hire the additional full- and/or part-time help needed and reassess the location of the business.

Task: 1. Using what youve learned in this chapter, decide

which form of business ownership is most appropri-ate for Ali. Use the tables provided to assist you in evaluating the advantages and disadvantages of each decision

Build Your Skills SELECTING A FORM OF BUSINESS

Sole Proprietorships

Advantages Disadvantages

Corporation

Advantages Disadvantages

Limited Liability Company

Advantages Disadvantages

146 PART 2 Starting and Growing a Business

Thomas OGrady and Bryan Rossisky have decided to start a small busi-ness buying flowers, shrubs, and trees whole-sale and reselling them to the

general public. They plan to contribute $5,000 each in startup capital and lease a

2.5-acre tract of land with a small, portable sales office. Thomas and Bryan are trying to decide what form of

organization would be appropriate. Bryan thinks they should create a corporation because they would have lim-ited liability and the image of a large organization. Thomas thinks a partnership would be easier to start and would

allow them to rely on the combination of their talents and financial resources. In addition, there might be fewer reports and regulatory controls to cope with.

Discussion Questions 1. What are some of the advantages and disadvantages

of Thomas and Bryan forming a corporation? 2. What are the advantages and disadvantages of their

forming a partnership? 3. Which organizational form do you think would be best

for Thomas and Bryans company and why?

Solve the Dilemma TO INCORPORATE OR NOT TO INCORPORATE

Your team needs to think about how you should organize yourselves that would be most efficient and effective

for your business plan. The benefits of having partners include having others to

share responsibilities with and to toss ideas off of each other. As your business evolves you will have to decide whether one or two members will manage the business while the other members are silent partners. Or perhaps you will all decide on working in the business to keep costs down, at least initially. However you decide on

team member involvement in the business, it is impera-tive to have a written agreement so that all team members understand what their responsibilities are and what will happen if the partnership dissolves.

It is not too soon for you and your partners to start thinking about how you might want to find additional funding for your business. Later on in the development of your business plan you might want to show your business plan to family members. Together you and your partners will want to develop a list of potential investors in your business.

Build Your Business Plan OPTIONS FOR ORGANIZING BUSINESS

New Belgium Brewing is an employee-owned business that not only produces great beers, but also stresses employee

satisfaction and empowerment. At New Belgium, a synergy of brand and values nat-

urally evolved into the firms ethical culture in the form of core values and beliefs. Back in early 1991, before they signed any business paperwork, Jeff Lebesch and Kim Jordam (Lebeschs wife) took a hike into Rocky Mountain National Park. Armed with a pen and a notebook, they took their first stab at what the fledgling companys core purpose would be. Before New Beligum even became a business Lebesch and Jordan formulated the business core values, to which the company has remained true for two decades. Ask any New Belgium employee and he or

she can list for you many of these shared values. For New Belgium, branding strategies are as rooted in their com-pany values as in other business practices.

Having fun and allowing their employees to have fun has always been an important goal of the company. In keeping with its fun and eco-friendly attitude, New Bel-gium gifts all employees with cruiser bikes after one year of employment. Employees are encouraged to ride to work, rather than drive. Members of the sales force receive Toyota Prius hybrids. Recognizing employees value to the business success, New Belgium has a generous benefits package. In addition to the usual paid health and den-tal insurance and retirement plans, employees get a free lunch every other week as well as a free massage once a year. They can also bring their children and dogs to work.

See for Yourself Videocase NEW BELGIUM BREWING

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End-of-Chapter MaterialWhether your students discover it on their own or you make it an integral part of your classroom and homework assignments, the end-of-chapter material provides a great opportunity to reinforce and expand upon the chapter content.

Revisit the World of Business 1. Why does the NCAA seek to regulate advertising and

sponsorships at collegiate sporting events? 2. What is the ethical dilemma involved in a student

being paid by marketers?

3. What were the ethical objections raised by stakeholders regarding the Budweiser college can campaign?

Revisit the World of BusinessThese exercises refer to the chapter opening vignettes (see page xi ) and ask students to answer more in-depth questions using the knowledge they gained in their reading.

Review Your Understanding Explore some of the factors within the international trade environment that influence business.

International business is the buying, selling, and trading of goods and services across national boundaries. Import-ing is the purchase of products and raw materials from another nation; exporting is the sale of domestic goods and materials to another nation. A nations balance of trade is the difference in value between its exports and imports; a negative balance of trade is a trade deficit. The difference between the flow of money into a country and the flow of money out of it is called the balance of payments. An abso-lute or comparative advantage in trade may determine what products a company from a particular nation will export.

resources and effort, ranging from importing/exporting to multinational corporations. Countertrade agreements occur at the import/export level and involve bartering products for other products instead of currency. At the next level, a trading company links buyers and sellers in different countries to foster trade. In licensing and fran-chising, one company agrees to allow a foreign company the use of its company name, products, patents, brands, trademarks, raw materials, and production processes, in exchange for a flat fee or royalty. Contract manufacturing occurs when a company hires a foreign company to pro-duce a specified volume of the firms product to specifi-cation; the final product carries the domestic firms name. A joint venture is a partnership in which companies from

Review Your UnderstandingAre your students sometimes unsure whether theyve properly absorbed the chapter material? This feature resummarizes the chapter objectives, leaving students in no doubt of what theyre expected to remember.

Build Your Skills MAKING DECISIONS ABOUT ETHICAL ISSUES

Background The merger of Lockheed and Martin Marietta created Lockheed Martin, the number-one company in the defense

industryan industry that includes such companies as McDonnell Douglas and

Northrop Grumman. You and the rest of the class are managers at Lockheed

Martin Corporation, Orlando, Florida. You are getting ready to do the group exercise in an ethics training session. The training instructor announces you will be playing Gray Matters: The Ethics Game. You are told that Gray Matters, which was prepared for your companys employees, is also played at 41 universities, including Harvard University, and at 65 other companies. Although there are 55 scenarios in Gray Matters, you will have time during this session to complete only the four scenarios that your group draws from the stack of cards. 75

Task Form into groups of four to six managers and appoint a group leader who will lead a discussion of the case, obtain a consensus answer to the case, and be the one to report the groups answers to the instructor. You will have five minutes to reach each decision, after which time, the instructor will give the point values and rationale for each choice. Then you will have five minutes for the next case, etc., until all four cases have been completed. Keep track of your groups score for each case; the winning team will be the group scoring the most points.

Since this game is designed to reflect life, you may believe that some cases lack clarity or that some of your choices are not as precise as you would have liked. Also, some cases have only one solution, while others have more than one solution. Each choice is assessed points to reflect which answer is the most correct. Your groups task is to select only one option in each case.

Build Your SkillsThese activities are designed to be carried out in teams, giving you a launching pad for a lively in-class discussion.

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Solve the Dilemma MRS. ACRES HOMEMADE PIES

Shelly Acres, whose grandmother gave her a family recipe for making pies, loved to cook, and she decided to start a busi-

ness she called Mrs. Acres Homemade Pies. The company produces specialty

pies and sells them in local supermarkets and select family restaurants. In each of the first six months, Shelly and three part-time employees sold 2,000 pies for $4.50 each, netting $1.50 profit per pie. The pies were quite successful and Shelly could not keep up with demand. The companys success results from a quality product and pro-ductive employees who are motivated by incentives and who enjoy being part of a successful new business.

To meet demand, Shelly expanded operations, borrow-ing money and increasing staff to four full-time employees. Production and sales increased to 8,000 pies per month,

and profits soared to $12,000 per month. However, demand for Mrs. Acres Homemade Pies continues to accelerate beyond what Shelly can supply. She has several options: (1) maintain current production levels and raise prices; (2) expand the facility and staff while maintaining the cur-rent price; or (3) contract the production of the pies to a national restaurant chain, giving Shelly a percentage of profits with minimal involvement.

Discussion Questions 1. Explain and demonstrate the relationship between

supply and demand for Mrs. Acres Homemade Pies. 2. What challenges does Shelly face as she considers

the three options? 3. What would you do in Shellys position?

See for Yourself Videocase HAPPINESS, MONEY, AND DOING GOODICONTACT FOUNDERS HAVE IT ALL!

iContact co-founders, Aaron Houghton (Board Chairman & Chief Innovation Officer) and Ryan Allis (CEO), met and launched the iContact business while

still in college. Each already owned a technology-based business, and they pooled

their knowledge of online marketing and software to cre-ate iContact, a simple way for businesses of all sizes to take their marketing online by utilizing email.

All entrepreneurs take risks when starting a new busi-ness, but Houghton and Allis knew that that there was a demand for their product. The partners benefited from bas-ing their business venture online because they required little initial capitala good thing, since they had almost none. As iContact expanded, however, Houghton and Allis used venture capital funding to facilitate quick growth. The company has doubled its sales each year since its founding and is now a multimillion dollar business.

iContact emphasizes how it handles human resources. The company believes in hiring skilled, motivated people and giving them the freedom to truly do their jobs. It also hires with an eye toward diversity, not only because of the ethical

have also endowed one percent of ownership to a grant-making foundation, The Humanity Campaign, aimed at eradicating extreme poverty and hunger. Houghton and Allis are also concerned with their impact on the environ-ment. One of the motivating factors behind their business is that companies switching to online email marketing often move away from paper-based systems. Eliminating the production of paper-based marketing materials helps protect environmental assets such as trees and reduces the waste produced through paper making.

Today, the company has 180 employees and works with prestigious clients such as AT&T, ReMax, and Viacom. iCon-tact has been voted number one as an email marketing ser-vice provider and resource for web professionals by Website magazine. Both Houghton and Allis have also received individual awards and recognition for their work as young entrepreneurs. For them, however, the goal has never been to increase the bottom line but to meet a consumer need, to create jobs and empower employees, and to make enough money to make a positive difference in both the companys local community and communities around the globe. They have come a long way toward achieving their dreams. 27

Build Your Business Plan BUSINESS ETHICS AND SOCIAL RESPONSIBILITY

Think about which industry you are considering competing in with your product/service. Is there any kind of

questionable practices in the way the product has been traditionally sold? Pro-

duced? Advertised? Have there been any recent accusations regarding safety within the industry? What about any environmental concerns?

For example, if you are thinking of opening a lawn care business, you need to be thinking about what possible effects the chemicals you are using will have on the cli-ent and the environment. You have a responsibility to keep your customers safe and healthy. You also have the social responsibility to let the community know of any damaging effect you may be directly or indirectly responsible for.

Solve the DilemmaThese boxes give students an opportunity to think creatively in solving a realistic business situation.

See for Yourself VideocaseStimulate your students with these engaging case videos, all of which are new to this edition.

Build Your Business PlanWritten by Therese Maskulka of Walsh University, and used in her own classroom, the end-of-chapter feature Build Your Business Plan and Appendix A, Guidelines for the Development of the Business Plan help students through the steps of the business plan relating to each chapter. Additional information and resources can be found in the Instruc-tors Manual.

Team ExerciseEncourage your students to develop their teamwork and critical thinking skills while addressing real-world global business challenges.

Team Exercise Major economic systems including capitalism, socialism, and communism, as well as mixed economies, were dis-cussed in this chapter. Assuming that you want an eco-nomic system that is best for the majority, not just a few

members of society, defend one of the economic systems as the best system. Form groups and try to reach agree-ment on one economic system. Defend why you support the system that you advance.

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Instructors Resource CD-ROMEverything you need to get the most from your textbook, including:

Instructors Manual Includes learning objectives; lecture outlines; PowerPoint notes; supplemental lecture; answers to discussion questions and end-of-chapter exercises; notes for video cases; term paper and project topics; suggestions for guest speakers; and roles and options for implementing role playing exercises.

Test Bank Assurance of Learning Ready: Educational institutions are often focused on the notion of assur-ance of learning, an important element of many accreditation standards. Business: A Changing World is designed specifically to support your assurance of learning initiatives with a simple, yet powerful, solution. Weve aligned our Test Bank questions with Blooms Taxonomy and AACSB guidelines, tagging each question according to its knowledge and skills areas.

Each test bank question for Business: A Changing World also maps to a specific chapter learn-ing objective listed in the text. You can use our test bank software, EZ Test, to easily query for learning objectives that directly relate to the learning objectives for your course. You can use the reporting features of EZ Test to aggregate student results in a similar fashion, making the collec-tion and presentation of assurance of learning data quick and easy.AACSB Statement: McGraw-Hill Companies is a proud corporate member of AACSB Interna-tional. Understanding the importance and value of AACSB accreditation, the authors of Business: A Changing World have sought to recognize the curricula guidelines detailed in the AACSB stan-dards for business accreditation by connecting selected questions in the Test Bank to the general knowledge and skill guidelines found in the AACSB standards.

The statements contained in Business: A Changing World are provided only as a guide for the users of this text. The AACSB leaves content coverage and assessment clearly within the realm and control of individual schools, the mission of the school, and the faculty. The AACSB does also charge schools with the obligation of doing assessment against their own content and learn-ing goals. While Business: A Changing World and the teaching package make no claim of any specific AACSB qualification or evaluation, we have, within Business: A Changing World, labeled selected questions according to the six general knowledge and skills areas. The labels or tags within Business: A Changing World are as indicated. There are, of course, many more within the Test Bank, the text, and the teaching package which may be used as a standard for your course.EZ Test Online: McGraw-Hills EZ Test Online is a flexible and easy-to-use electronic testing program. The program allows instructors to create tests from book specific items, accommo-dates a wide range of question types, and enables instructors to even add their own questions. Multiple versions of the test can be created, and any test can be exported for use with course management systems such as WebCT, BlackBoard, or any course management system. EZ Test Online is accessible to busy instructors virtually anywhere via the Web, and the program elimi-nates the need for them to install test software. Utilizing EZ Test Online also allows instructors to create and deliver multiple-choice or true/false quiz questions using iQuiz for iPod. For more information about EZ Test Online, please see the Web site at: www.eztestonline.com.

Instructor Supplements

MHID: 0077324870 ISBN: 9780077324872

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Instructor Supplements xvii

PowerPoint Presentations Developed by Jennifer Jackson, University of New Mexico, the PowerPoints consist of two formats: a detailed presentation (with additional information, figures, and links) and an outline presentation (an outline of the chapter). Each chapter contains 2030 slides. Additional figures and tables from the text may be found on the CD-ROM in the Digital Image Library.

Online Learning Center (OLC) with Premium Contentwww.mhhe.com/ferrell8e

Access everything you need to teach a great course through our convenient online resource. A secured Instructor Resource Center stores your essential course materials to save you prep time before class. The Instructors Manual, PowerPointTM, and additional resources are now just a couple of clicks away.

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End of Chapter Video These videos offer a stimulating mix of topical reinforce-ment and real-world insight to help students master the most challenging business topics with segments such as Walt Disney Around the World or Rebuilding Americas Trust in Business or Should Employees Use Facebook at Work? The videos can be found on the Instructor DVD-Rom and as downloadable files within the Instructor portion of the Web site. Summaries and discussion questions for the students can be found at the end of each chapter of the text and quizzes found online.

A Guide for Introducing and Teaching Ethics in Introduction to Business The guide will be available on the OLC (Instructor Resources); only a limited number remain in print.

Written by O.C. Ferrell and Linda Ferrell, this is your one-stop guide for integrating this important issue into all aspects of your course. It helps you to demonstrate how business ethics lead to business success and offers a wide range of business ethics resources, including university centers, government resources, and corporate ethics programs. It is located with the Instructor Resources on the Web Site.

Active Classroom Resource Guide The guide will be available on the OLC (Instructor Resources); only a limited number remain in print.

An additional collection of team projects, cases, and exercises that instructors can choose from to be used in class or out, which can be found electronically with the Instructor Resources on the Web Site.

eBookseBooks, or digital textbooks, are exact replicas of the print version, and can offer substantial savings to your students off the cost of their textbook. Business: A Changing World offers:

CourseSmart eBook With the CourseSmart eTextbook version of this title, students can save up to 50 percent off the cost of a print book, reduce their impact on the environment, and access powerful Web tools for learning. Faculty can also review and compare the full text online without having to wait for a print desk copy. CourseSmart is an online eTextbook, which means users need to be connected to the Internet in order to access. Students can also print sections of the book for maximum portability.

MHID 0077324935 ISBN 9780077324933

A Unique Use of Video

Instructor Video DVD MHID 0077324927 ISBN 9780077324926

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Student Supplements

Online Learning Center (OLC) with Premium Contentwww.mhhe.com/ferrell8eMore and more students are studying online. Thats why we offer an Online Learning Center (OLC) that follows Business: A Changing World chapter by chapter. It doesnt require any building or maintenance on your part, and is ready to go the moment you and your students type in the URL.

As your students study, they can refer to the OLC Web site for such benefits as:

Internet-based activities Self-grading quizzes Learning objectives Additional video and related video exercises

The site includes an online running video case highlighting entrepreneur Todd McFarlane, who parlayed his artistic ability (and a passion for sports) into a multimillion dollar business that straddles film and television production, toys, comic books, sports licensing and games. Students watch and learn as McFarlane explains how he leads his company across all functional areas of business, illustrating how firms deal with the problems and opportunities of todays business world. With one video case for each part of the textbook highlighting this fun and unique company, students and instructors are provided a complete context for discussing every aspect of introductory business.

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The eighth edition of Business: A Ch anging W orld would not have been possible without the commit-ment, dedication, and patience of Jennifer Jackson, Jennifer Sawayda, Harper Baird, and Julie Oliver. Jennifer Jackson provided oversight for editing and developing text content, cases, boxes, and the supple-ments. Alexi Sherrill assisted in developing most of the boxes in this edition. Doug Hughes, Executive Editor, provided leadership and creativity in planning and implementing all aspects of the seventh edition. Christine Scheid, Senior Developmental Editor, did an outstanding job of coordinating all aspects of the development and production process, with the assis-tance of Jonathan Thornton. Christine Vaughan was

the Project Manager. Greg Bates managed the tech-nical aspects of the Online Learning Center. Others important in this edition include Sarah Schuessler (Marketing Manager) and JoAnne Schopler (Design).

Michael Hartline developed the Personal Career Plan in Appendix C. Vickie Bajtelsmit developed Appendix D on personal financial planning. Eric Sandberg of Interactive Learning assisted in develop-ing the interactive exercises found on the OLC.

Many others have assisted us with their helpful comments, recommendations, and support through-out this and previous editions. Wed like to express our thanks to the reviewers who helped us shape the eighth edition:

Acknowledgments

Brenda AnthonyTallahassee Community College

Vondra ArmstrongPulaski Tech College

Gene BakerUniversity of North Florida

Lia BaroneNorwalk Community College

Ellen BenowitzMercer County Community College

Dennis BrodeSinclair Community College

Margaret ClarkCincinnati State Tech & Community College

Peter DawsonCollin County Community CollegePlano

Mike DrafkeCollege of DuPage

Donna EverettSanta Rosa Junior College

Gil FeiertagColumbus State Community College

Jackie FlomUniversity of Toledo

Kris GossettIvy Tech Community College of Indiana

Peggy HagerWinthrop University

Susan KendallArapahoe Community College

Daniel MontezSouth Texas College

Mark NygrenBrigham Young UniversityIdaho

Velvet LandinghamKent State UniversityGeauga

Kent LutzUniversity of Cincinnati

Dyan PeaseSacramento City College

Elaine SimmonsGuilford Technical Community College

Delores RehaFullerton College

Morgan ShepherdUniversity of Colorado

Kurt StanberryUniversity of Houston Downtown

Scott TaylorMoberly Area Community College

Evelyn ThrasherUniversity of MassDartmouth

Kristin TraskButler Community College

Richard WilliamsSanta Clara University

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Linda Anglin, Mankato State UniversityPhyllis Alderdice, Jefferson Community CollegeJohn Bajkowski, American Association of Individual

InvestorsJames Bartlett, University of IllinoisStephanie Bibb, Chicago State UniversityBarbara Boyington, Brookdale County College of

MonmouthSuzanne Bradford, Angelina CollegeAlka Bramhandkar, Ithaca CollegeEric Brooks, Orange County Community CollegeNicky Buenger, Texas A&M UniversityAnthony Buono, Bentley CollegeTricia Burns, Boise State UniversityWilliam Chittenden, Texas Tech UniversityMichael Cicero, Highline Community CollegeM. Lou Cisneros, Austin Community CollegeDebbie Collins, Anne Arundel Community

CollegeArnoldKaren Collins, Lehigh UniversityKatherine Conway, Borough of Manhattan

Community CollegeRex Cutshall, Vincennes UniversityDana DAngelo, Drexel UniversityLaurie Dahlin, Worcester State CollegeJohn DeNisco, Buffalo State CollegeTom Diamante, Adelphi UniversityJoyce Domke, DePaul UniversityMichael Drafke, College of DuPageJohn Eagan, Erie Community College/City Campus

SUNYGlenda Eckert, Oklahoma State UniversityThomas Enerva, Lakeland Community CollegeRobert Ericksen, Craven Community CollegeJoe Farinella, DePaul UniversityJames Ferrell, R. G. Taylor, P.C.Art Fischer, Pittsburg State UniversityToni Forcino, Montgomery CollegeGermantownJennifer Friestad, AnokaRamsey Community

CollegeChris Gilbert, Tacoma Community College/

University of WashingtonRoss Gittell, University of New HampshireFrank Godfrey, St. Augustines CollegeBob Grau, Cuyahoga Community CollegeWestern

Campus

Gary Grau, Northeast State Tech Community College

Jack K. Gray, Attorney-at-Law, Houston, TexasCatherine Green, University of MemphisClaudia Green, Pace UniversityPhil Greenwood, University of St. ThomasDavid Gribbin, East Georgia CollegePeggy Hager, Winthrop UniversityMichael Hartline, Florida State UniversityNeil Herndon, University of MissouriJames Hoffman, Borough of Manhattan Community

CollegeJoseph Hrebenak, Community College of Allegheny

CountyAllegheny CampusStephen Huntley, Florida Community CollegeRebecca Hurtz, State Farm Insurance Co.Roger Hutt, Arizona State UniversityWestVerne Ingram, Red Rocks Community CollegeScott Inks, Ball State UniversitySteven Jennings, Highland Community CollegeCarol Jones, Cuyahoga Community

CollegeEastern CampusGilbert Joe Joseph, University of TampaNorm Karl, Johnson County Community CollegeJanice Karlan, LaGuardia Community CollegeEileen Kearney, Montgomery County Community

CollegeCraig Kelley, California State

UniversitySacramentoIna Midkiff Kennedy, Austin Community CollegeArbrie King, Baton Rouge Community CollegeJohn Knappenberger, Mesa State CollegeGail Knell, Cape Cod Community CollegeAnthony Koh, University of ToledoDaniel LeClair, AACSBFrank Lembo, North Virginia Community CollegeRichard Lewis, East Texas Baptist CollegeCorinn Linton, Valencia Community CollegeCorrine Livesay, Mississippi CollegeThomas Lloyd, Westmoreland Community CollegeTerry Loe, Kennerow UniversityScott Lyman, Winthrop UniversityDorinda Lynn, Pensacola Junior CollegeIsabelle Maignan, INGLarry Martin, Community College of Southern

NevadaWest Charles

We extend special appreciation to the following people who reviewed previous editions:

Acknowledgments xxi

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Martin St. John, Westmoreland Community CollegeDon Sandlin, East Los Angeles CollegeNick Sarantakes, Austin Community CollegeAndy Saucedo, Dona Ana Community

CollegeLas CrucesElise Pookie Sautter, New Mexico State UniversityDana Schubert, Colorado Springs ZooMarianne Sebok, Community College of Southern

NevadaWest CharlesJeffery L. Seglin, Seglin AssociatesDaniel Sherrell, University of MemphisNicholas Siropolis, Cuyahoga Community CollegeRobyn Smith, Pouder Valley HospitalCheryl Stansfield, North Hennepin Community

CollegeRon Stolle, Kent State UniversityKentJeff Strom, Virginia Western Community CollegeWayne Taylor, Trinity Valley Community CollegeRay Tewell, American River CollegeSteve Tilley, Gainesville CollegeJay Todes, Northlake CollegeAmy Thomas, Roger Williams UniversityTed Valvoda, Lakeland Community CollegeSue Vondram, Loyola UniversityElizabeth Wark, Springfield CollegeEmma Watson, Arizona State UniversityWestJerry E. Wheat, Indiana University SoutheastFrederik Williams, North Texas State UniversityPat Wright, Texas A&M UniversityTimothy Wright, Lakeland Community CollegeLawrence Yax, Pensacola Junior

CollegeWarrington

O.C. FerrellGeoff rey HirtLinda FerrellJuly 2010

Therese Maskulka, Youngstown State UniversityKristina Mazurak, Albertson College of IdahoDebbie Thorne McAlister, Texas State

UniversitySan MarcosJohn McDonough, Menlo CollegeTom McInish, University of MemphisNoel McDeon, Florida Community CollegeMary Meredith, University of Louisiana at LafayetteMichelle Meyer, Joliet Junior CollegeGeorge Milne, University of Massachusetts

AmherstGlynna Morse, Augusta CollegeStephanie Narvell, Wilmington CollegeNew CastleFred Nerone, International College of NaplesLaura Nicholson, Northern Oklahoma CollegeStef Nicovich, University of New HampshireMichael Nugent, SUNYStony Brook University

New YorkWes Payne, Southwest Tennessee Community

CollegeDyan Pease, Sacramento City CollegeConstantine G. Petrides, Borough of Manhattan

Community CollegeJohn Pharr, Cedar Valley CollegeShirley Polejewski, University of St. ThomasDaniel Powroznik, Chesapeake CollegeKrista Price, Heald CollegeLarry Prober, Rider UniversityStephen Pruitt, University of MissouriKansas CityKathy Pullins, Columbus State Community CollegeCharles Quinn, Austin Community CollegeVictoria Rabb, College of the DesertTom Reading, Ivy Tech State CollegeSusan Roach, Georgia Southern UniversityDave Robinson, University of CaliforniaBerkelyMarsha Rule, Florida Public Utilities CommissionCarol A. Rustad, Sylvan Learning

xxii Acknowledgments

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O.C. FerrellO.C. Ferrell is Professor of Marketing, Bill Daniels Professor of Business Ethics, and Creative Enterprise Scholar in the Anderson School of Management at the Univer-sity of New Mexico. He recently served as the Bill Daniels Distinguished Professor of Business Ethics at the University of Wyoming and the Chair of the Department of Marketing and the Ehrhardt, Keefe, Steiner, and Hottman P. C. Professor of Business Administration at Colorado State University. He also has held faculty positions at the University of Memphis, University of Tampa, Texas A&M University, Illinois State University, and Southern Illinois University, as well as visiting positions at Queens University (Ontario, Canada), University of Michigan (Ann Arbor), Uni-versity of Wisconsin (Madison), and University of Hannover (Germany). He has served as a faculty member for the Masters Degree Program in Marketing at Tham-masat University (Bangkok, Thailand). Dr. Ferrell received his B.A. and M.B.A. from Florida State University and his Ph.D. from Louisiana State University. His teaching and research interests include business ethics, corporate citizenship, and marketing.

Dr. Ferrell is widely recognized as a leading teacher and scholar in business. His articles have appeared in leading journals and trade publications. In addition to Business: A Ch anging World, he has two other textbooks, Marketing: Concepts and Strategies and Business Ethics: Ethical Decision Making and Cases, that are market leaders in their respective areas. He also has co-authored other textbooks for mar-keting, management, business and society, and other business courses, as well as a trade book on business ethics. He chaired the American Marketing Association (AMA) ethics committee that developed its current code of ethics. He is past presi-dent of the Academic Council for the AMA. Currently he is vice president of publi-cations for the Academy of Marketing Science and a distinguished Fellow.

Dr. Ferrells major focus is teaching and preparing learning material for students. He has taught the introduction to business course using this textbook. This gives him the opportunity to develop, improve, and test the book and ancillary materials on a first-hand basis. He has traveled extensively to work with students and under-stands the needs of instructors of introductory business courses. He lives in Albu-querque, New Mexico, and enjoys skiing, golf, and international travel.

Geoffrey A. HirtGeoffrey A. Hirt is currently Professor of Finance at DePaul University and a Mesirow Financial Fellow. From 1987 to 1997 he was Chairman of the Finance Department at DePaul University. He teaches investments, corporate finance, and strategic plan-ning. He developed and was director of DePauls M.B.A. program in Hong Kong and has taught in Poland, Germany, Thailand, and Hong Kong. He received his Ph.D. in Finance from the University of Illinois at ChampaignUrbana, his M.B.A. from Miami University of Ohio, and his B.A. from Ohio-Wesleyan University.

Authors

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Dr. Hirt has directed the Chartered Financial Analysts Study program for the Invest-ment Analysts Society of Chicago since 1987.

Dr. Hirt has published several books, including Foundations of Financial Man-agement published by McGraw-Hill/Irwin. Now in its fourteenth edition, this book is used at more than 600 colleges and universities worldwide. It has been used in more than 31 countries and has been translated into more than 10 different lan-guages. Additionally, Dr. Hirt is well known for his text, Fundamentals of Investment Management, also published by McGraw-Hill/Irwin, and now in its tenth edition has a 2011 publication date. He plays tennis and golf, is a music lover, and enjoys traveling with his wife, Linda.

Linda FerrellDr. Linda Ferrell is Associate Professor of Marketing, Bill Daniels Professor of Busi-ness Ethics, and Albert and Mary Jane Black Professor of Economic Development in the Anderson School of Management at the University of New Mexico. She com-pleted her Ph.D. in Business Administration, with a concentration in management, at the University of Memphis. She has taught at the University of Tampa, Colorado State University, University of Northern Colorado, University of Memphis, and the University of Wyoming. She also team teaches a class at Thammasat University in Bangkok, Thailand, as well as an online Business Ethics Certificate course through the University of New Mexico.

Her work experience as an account executive for McDonalds and Pizza Huts advertising agencies supports her teaching of advertising, marketing management, marketing ethics and marketing principles. She has published in the Journal of Pub-lic P olicy a nd M arketing, J ournal o f B usiness Re search, J ournal o f B usiness E thics, Journal of Marketing E ducation, Marketing E ducation R eview, Journal of Teaching Business Ethics, Case R esearch Journal, and is co-author of Business Ethics: Ethical Decision Making and Cases (8th edition) and Business and Society (4th edition). She is the ethics content expert for the AACSB Ethics Education Resource Center (www.aacsb.edu/eerc) and leads a Daniels Fund business ethics initiative at the University of New Mexico.

Dr. Ferrell is the Vice President of Programs for the Academy of Marketing Science and a past president for the Marketing Management Association. She is a member of the college advisory board for Cutco Vector. She frequently speaks to organizations on Teaching Business Ethics, including the Direct Selling Educa-tion Foundations training programs and AACSB International Conferences. She has served as an expert witness in cases related to advertising, business ethics, and consumer protection.

xxiv Authors

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Brief Contents

P A R T 1 Business in a Changing World 1 1 The Dynamics of Business and Economics 2 Appendix A Guidelines for the Development of the Business Plan 31 2 Business Ethics and Social Responsibility 34 Appendix B The Legal and Regulatory Environment 69 3 Business in a Borderless World 84

P A R T 2 Starting and Growing a Business 117 4 Options for Organizing Business 118 5 Small Business, Entrepreneurship, and Franchising 148

P A R T 3 Managing for Quality and Competitiveness 175 6 The Nature of Management 176 7 Organization, Teamwork, and Communication 206 8 Managing Service and Manufacturing Operations 236

P A R T 4 Creating the Human Resource Advantage 269 9 Motivating the Workforce 270 10 Managing Human Resources 294 Appendix C Personal Career Plan 328

P A R T 5 Marketing: Developing Relationships 335 11 Customer-Driven Marketing 336 12 Dimensions of Marketing Strategy 364 13 Digital Marketing and Social Networking 400

P A R T 6 Financing the Enterprise 433 14 Accounting and Financial Statements 434 15 Money and the Financial System 468 16 Financial Management and Securities Markets 496 Appendix D Personal Financial Planning 525

Notes 542Glossary 564Photo Credits 577Indexes 579

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Contents

P A R T 1Business in a Changing World 1

CHAPTER 1The Dynamics of Business and Economics 2Enter the World of BusinessThere Are Plenty of Fish 3Introduction 4The Nature of Business 4

The Goal of Business 4The People and Activities of Business 5Why Study Business? 8

The Economic Foundations of Business 8Economic Systems 9The Free-Enterprise System 12The Forces of Supply and Demand 13The Nature of Competition 14

Consider Ethics and Social ResponsibilityPeets Coffee & Tea Joins in the Fight to Combat African Poverty 15

Economic Cycles and Productivity 15

The American Economy 19A Brief History of the American Economy 19

Going GreenEthanol Faces a Bumpy Road 20

The Role of the Entrepreneur 21The Role of Government in the American Economy 23The Role of Ethics and Social Responsibility in

Business 23Entrepreneurship in ActionNadaMoo! Challenges Traditional Ice Cream 24Can You Learn Business in a Classroom? 24So You Want a Job in the Business World 26Review Your Understanding 26Revisit the World of Business 27Learn the Terms 27Check Your Progress 28Get Involved 28

Build Your Skills: The Forces of Supply and Demand 28Solve the Dilemma: Mrs. Acres Homemade Pies 29Build Your Business Plan: The Dynamics of Business and Economics 29See for Yourself Videocase: Happiness, Money, and Doing GoodIContact Founders Have it All! 30Team Exercise 30Appendix AGuidelines for the Development of the Business Plan 31

CHAPTER 2Business Ethics and Social Responsibility 34Enter the World of BusinessThe Ethics and Social Responsibility of Collegiate Sports Marketing 35Introduction 36Business Ethics and Social Responsibility 36The Role of Ethics in Business 38

Recognizing Ethical Issues in Business 39Consider Ethics and Social ResponsibilityBernard Madoff Pulls Off the Largest Ponzi Scheme Ever 47

Making Decisions about Ethical Issues 48Improving Ethical Behavior in Business 49

The Nature of Social Responsibility 51Social Responsibility Issues 53

Entrepreneurship in ActionNot Your Typical Grocery Store 55Going GreenWalmart Seeks to Define Green Products 60So You Want a Job in Business Ethics and Social Responsibility 63Review Your Understanding 63Revisit the World of Business 64Learn the Terms 64Check Your Progress 64Get Involved 65Build Your Skills: Making Decisions about Ethical Issues 65

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Solve the Dilemma: Customer Privacy 66Build Your Business Plan: Business Ethics and Social Responsibility 67See for Yourself Videocase: Rebuilding Americas Trust in Business 67Team Exercise 68Appendix BThe Legal and Regulatory Environment 69

CHAPTER 3Business in a Borderless World 84Enter the World of BusinessNokia Wins with Global Strategy 85Introduction 86The Role of International Business 86

Why Nations Trade 87Trade between Countries 88Balance of Trade 88

International Trade Barriers 90Economic Barriers 90Ethical, Legal, and Political Barriers 91

Responding to Business ChallengesWalmart Opens in India, in Spite of Protests 92

Social and Cultural Barriers 95Entrepreneurship in ActionEcoMom Empowers Moms to Make a Difference 96

Technological Barriers 97

Trade Agreements, Alliances, and Organizations 98General Agreement on Tariffs and Trade 98The North American Free Trade Agreement 99The European Union 101Asia-Pacific Economic Cooperation 101World Bank 102International Monetary Fund 103

Getting Involved in International Business 103Exporting and Importing 103Trading Companies 105Licensing and Franchising 105Contract Manufacturing 106Outsourcing 106Offshoring 106Joint Ventures and Alliances 107Direct Investment 107

International Business Strategies 108Developing Strategies 108

Going GreenChina Fights Back against Pollution 109

Managing the Challenges of Global Business 110So You Want a Job in Global Business 110Review Your Understanding 111Revisit the World of Business 111Learn the Terms 112Check Your Progress 112Get Involved 112Build Your Skills: Global Awareness 113Solve the Dilemma: Global Expansion or Business as Usual? 114Build Your Business Plan: Business in a Borderless World 114See for Yourself Videocase: Walt Disney Around the Globe 114Team Exercise 115

P A R T 2Starting and Growing a Business 117CHAPTER 4Options for Organizing Business 118Enter the World of BusinessMicrolending Helps Small Entrepreneurs Start Businesses 119Introduction 120Sole Proprietorships 120

Advantages of Sole Proprietorships 121Disadvantages of Sole Proprietorships 122

Entrepreneurship in ActionUkrainian Immigrant Becomes Subway Success 123Partnerships 124

Types of Partnership 124Articles of Partnership 126Advantages of Partnerships 126Disadvantages of Partnerships 127

Going GreenE-Bikes Offers Exercise and Environmental Consciousness 128

Taxation of Partnerships 129

Corporations 129Creating a Corporation 130Types of Corporations 131Elements of a Corporation 133Advantages of Corporations 135Disadvantages of Corporations 136

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xxviii Contents

Disadvantages of Small-Business Ownership 156High Stress Level 157High Failure Rate 157

Consider Ethics and Social ResponsibilityXoai: Selling Healthy Chocolate Direct 159Starting a Small Business 159

The Business Plan 159Forms of Business Ownership 160Financial Resources 160Approaches to Starting a Small Business 162Help for Small-Business Managers 163

Going GreenA Small Business That Makes Ethanol from Algae 164The Future for Small Business 165

Demographic Trends 165Technological and Economic Trends 166

Making Big Businesses Act Small 167So You Want to be an Entrepreneur or Small-Business Owner 168Review Your Understanding 169Revisit the World of Business 169Learn the Terms 170Check Your Progress 170Get Involved 170Build Your Skills: Creativity 170Solve the Dilemma: The Small-Business Challenge 171Build Your Business Plan: Small Business, Entrepreneurship, and Franchising 172See for Yourself Videocase: Sonic Is a Successful Franch ise That Offers an Old-Eashioned Drive-In Experience 172Team Exercise 173

P A R T 3Managing for Quality and Competitiveness 175CHAPTER 6The Nature of Management 176Enter the World of BusinessUrsula Burns: From Intern to CEO 177Introduction 178The Importance of Management 178

Other Types of Ownership 137Joint Ventures 137S Corporations 137Limited Liability Companies 138Cooperatives 138

Trends in Business Ownership: Mergers and Acquisitions 138Consider Ethics and Social ResponsibilityBirkentock Values Comfort, Employees, and Sustainability 139So Youd Like to Start a Business 142Review Your Understanding 143Revisit the World of Business 144Learn the Terms 144Check Your Progress 144Get Involved 144Build Your Skills: Selecting a Form of Business 145Solve the Dilemma: To Incorporate or Not to Incorporate 146Build Your Business Plan: Options for Organizing Business 146See for Yourself Videocase: New Belgium Brewing 146Team Exercise 147

CHAPTER 5Small Business, Entrepreneurship, and Franchising 148Enter the World of BusinessAquacopia: Funding a Fish Startup 149Introduction 150The Nature of Entrepreneurship and Small Business 150

What Is a Small Business? 151The Role of Small Business in the American

Economy 151Industries That Attract Small Business 153

Advantages of Small-Business Ownership 155Independence 155Costs 155Flexibility 155

Entrepreneurship in ActionCistercian Monks Take Advantage of Their Hardworking Culture to Become Entrepreneurs 156

Focus 156Reputation 156

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CHAPTER 7Organization, Teamwork, and Communication 206Enter the World of BusinessYahoo! Focuses on Organization and Teamwork 207Introduction 208Organizational Culture 208Business ChallengesATA Engineering Embraces Teamwork 209Developing Organizational Structure 211Assigning Tasks 212

Specialization 212Departmentalization 213

Assigning Responsibility 216Delegation of Authority 216Degree of Centralization 217

Entrepreneurship in ActionAl Dente Pasta Serves Up Perfect Pasta to Customers Nationwide 218

Span of Management 218Organizational Layers 219

Forms of Organizational Structure 220Line Structure 220Line-and-Staff Structure 220Multidivisional Structure 221Matrix Structure 222

The Role of Groups and Teams in Organizations 223Committees 224Task Forces 224Teams 224

Communicating in Organizations 226Formal Communication 226

Going GreenThe Rainforest Alliance Uses Teamwork and Organization to Become a Success 227

Informal Communication Channels 228Monitoring Communications 228

So You Want a Job in Managing Organizational Culture, Teamwork, and Communication 229

Review Your Understanding 229

Revisit the World of Business 230

Learn the Terms 230

Check Your Progress 231

Get Involved 231

Management Functions 179Planning 179

Entrepreneurship in ActionMobileJets Provides a Luxury Travel Experience 180

Organizing 183Staffing 184Directing 185Controlling 185

Types of Management 186Levels of Management 186Areas of Management 189

Skills Needed by Managers 192Leadership 192

Going GreenIt Isnt Easy Being Green at Nike 193

Technical Expertise 194Conceptual Skills 194Analytical Skills 194Human Relations Skills 194

Where Do Managers Come From? 195Decision Making 196Consider Ethics and Social ResponsibilityCountrywides Subprime Loans 197

Recognizing and Defining the Decision Situation 197Developing Options 197Analyzing Options 198Selecting the Best Option 198Implementing the Decision 198Monitoring the Consequences 199

The Reality of Management 199So You Want to Be a Manager 201Review Your Understanding 201Revisit the World of Business 202Learn the Terms 202Check Your Progress 202Get Involved 203Build Your Skills: Functions of Management 203Solve the Dilemma: Making Infinity Computers Competitive 204Build Your Business Plan: The Nature of Management 204See for Yourself Videocase: Failure Acts as a Learning Tool for Savvy Entrepreneurs 205Team Exercise 205

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Build Your Skills: Teamwork 231Solve the Dilemma: Quest Star in Transition 232Build Your Business Plan: Organization, Teamwork, and Communication 233See for Yourself Videocase: ROWE Helps Organizations Improve Productivity while Increasing Employee Satisfaction 233Team Exercise 234

CHAPTER 8Managing Service and Manufacturing Operations 236Enter the World of BusinessToyota: Once Renowned for Excellence, Experiences Growing Pains 237Introduction 238The Nature of Operations Management 238

The Transformation Process 239Responding to Business ChallengesDominos Goes Online to Improve Service and Customer Satisfaction 240

Operations Management in Service Businesses 240

Planning and Designing Operations Systems 243Planning the Product 244Designing the Operations Processes 244

Entrepreneurship in ActionIn a Downturn, Restaurants Have to Stand Out from a Crowd 246

Planning Capacity 246Planning Facilities 247Sustainability and Manufacturing 251

Managing the Supply Chain 252Purchasing 252Managing Inventory 253Outsourcing 255Routing and Scheduling 256

Going GreenRecycling Is Smart Business at Best Buy 257Managing Quality 257

International Organization for Standardization (ISO) 260Inspection 261Sampling 262

So You Want a Job in Operations Management 263

Review Your Understanding 263

Revisit the World of Business 264

Learn the Terms 264Check Your Progress 265Get Involved 265Build Your Skills: Reducing Cycle Time 265Solve the Dilemma: Planning for Pizza 266Build Your Business Plan: Managing Service and Manufacturing Operations 267See for Yourself Videocase: Craft Beers Take Off 267Team Exercise 267

P A R T 4Creating the Human Resource Advantage 269

CHAPTER 9Motivating the Workforce 270Enter the World of BusinessJ.A. Frate Motivates Its Drivers 271Introduction 272Nature of Human Relations 272Historical Perspectives on Employee Motivation 274

Classical Theory of Motivation 275Going GreenLundberg Family Farms Cares about the Earth and Its Employees 276

The Hawthorne Studies 276

Theories of Employee Motivation 277Maslows Hierarchy of Needs 277Herzbergs Two-Factor Theory 279McGregors Theory X and Theory Y 280

Responding to Business ChallengesSony Makes Changes to Motivate Managers 281

Theory Z 281Variations on Theory Z 282Equity Theory 283Expectancy Theory 283

Strategies for Motivating Employees 284Behavior Modification 284Job Design 284

Entrepreneurship in ActionHudson Valley Fresh Helps Dairy Farmers Thrive 288

Importance of Motivational Strategies 288

So You Think You May Be Good at Motivating a Workforce 289

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Consider Ethics and Social ResponsibilityCompanies Change Compensation Packages 319

Why Is Diversity Important? 319The Benefits of Workforce Diversity 320Affirmative Action 321

So You Want to Work in Human Resources 322Review Your Understanding 323Revisit the World of Business 323Learn the Terms 324Check Your Progress 324Get Involved 324Build Your Skills: Appreciating and Valuing Diversity 325Solve the Dilemma: Morale among the Survivors 326Build Your Business Plan: Managing Human Resources 326See for Yourself Videocase: Bluewolf, Inc., Utilizes Human Resource Savvy 327Team Exercise 327Appendix CPersonal Career Plan 328

P A R T 5Marketing: Developing Relationships 335CHAPTER 11Customer-Driven Marketing 336Enter the World of BusinessTarget Goes Downstream to Compete with Walmart 337Introduction 338Nature of Marketing 338

The Exchange Relationship 338Functions of Marketing 340Creating Value with Marketing 341

Entrepreneurship in ActionCasttoos Make Breaking a Limb a Little More Fashionable 342

The Marketing Concept 342Evolution of the Marketing Concept 343

Developing a Marketing Strategy 345Selecting a Target Market 345

Responding to Business ChallengesBringing Back Barbie 348

Developing a Marketing Mix 349

Review Your Understanding 289Revisit the World of Business 290Learn the Terms 290Check Your Progress 291Get Involved 291Build Your Skills: Motivating 291Solve the Dilemma: Motivating to Win 292Build Your Business Plan: Motivating the Workforce 292See for Yourself Videocase: Volunteering Helps Increase Profits and Improve Employee Retention 292Team Exercise 293

CHAPTER 10Managing Human Resources 294Enter the World of BusinessBringing Together 15,000 People across the Globe to Create Our Brew 295Introduction 296The Nature of Human Resources Management 296Planning for Human Resources Needs 297Recruiting and Selecting New Employees 297

Recruiting 297Selection 299

Entrepreneurship in ActionBurgerville Makes New Strides in Benefits for Fast-Food Employees 300

Legal Issues in Recruiting and Selecting 303

Developing the Workforce 304Training and Development 304Assessing Performance 305Turnover 307

Compensating the Workforce 309Going GreenKing Arthur Flour: An Employee-Centered Corporate Culture 310

Financial Compensation 310Benefits 312

Managing Unionized Employees 313Collective Bargaining 315Resolving Disputes 316

The Importance of Workforce Diversity 318The Characteristics of Diversity 318

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Physical Distribution 386Importance of Distribution in a Marketing Strategy 387

Promotion Strategy 387Entrepreneurship in ActionGig Art: Advertising through Artwork 388

The Promotion Mix 388Responding to Business ChallengesPeople across America Catch the Twitter Bug 390

Promotion Strategies: To Push or To Pull 392Objectives of Promotion 393Promotional Positioning 394

So You Want to Be a Marketing Manager 395Review Your Understanding 395Revisit the World of Business 396Learn the Terms 396Check Your Progress 397Get Involved 397Build Your Skills: Analyzing Motel 6s Marketing Strategy 397Solve the Dilemma: Better Health with Snacks 398Build Your Business Plan: Dimensions of Marketing Strategy 398See for Yourself Videocase: Oberweis Dairy Focuses on Its Customers 399Team Exercise 399

CHAPTER 13Digital Marketing and Social Networking 400Enter the World of BusinessNASCAR Turns to Social Media 401Introduction 402What Is Digital Marketing? 402Growth and Benefits of Digital Communication 402Using Digital Media in Business 404Digital Media and the Marketing Mix 405Going GreenSocial Networking Sites Advance Sustainability 408

Social Networking 408

Types of Consumer-Generated Marketing and Digital Media 409

Blogs and Wikis 410Video Sharing 411Photo Sharing 411Podcasting 413Social Networks 413

Marketing Research and Information Systems 351Online Marketing Research 352

Buying Behavior 354Psychological Variables of Buying Behavior 354

Going GreenGreenwashing: The Newest Ethical Issue 355

Social Variables of Buying Behavior 355Understanding Buying Behavior 356

The Marketing Environment 356So You Want a Job in Marketing 359Review Your Understanding 359Revisit the World of Business 360Learn the Terms 360Check Your Progress 360Get Involved 361Build Your Skills: The Marketing Mix 361Solve the Dilemma: Will It Go? 362Build Your Business Plan: Customer-Driven Marketing 362See for Yourself Videocase: New Belgium Brewery Serves Consumers What They Want 363Team Exercise 363

CHAPTER 12Dimensions of Marketing Strategy 364Enter the World of BusinessProduct Placement Is Popular as a Marketing Tactic 365Introduction 366The Marketing Mix 366Product Strategy 366

Developing New Products 366Classifying Products 370Product Line and Product Mix 371Product Life Cycle 371Identifying Products 373

Pricing Strategy 378Pricing Objectives 379Specific Pricing Strategies 379

Going GreenGeneral Mills Breaks into Organic Foods under a New Name 380Distribution Strategy 381

Marketing Channels 381Intensity of Market Coverage 385

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Going GreenFrogs Leap Winery Cares about Wine and the Environment 441The Accounting Process 441

The Accounting Equation 442Double-Entry Bookkeeping 443The Accounting Cycle 444

Financial Statements 444The Income Statement 446

Entrepreneurship in ActionPayItGreen Helps Consumers Go Online and Save Paper 450

The Balance Sheet 450The Statement of Cash Flows 454

Ratio Analysis: Analyzing Financial Statements 455Profitability Ratios 457

Consider Ethics and Social ResponsibilityWas Mark-to-Market Accounting at the Root of the Financial Crisis? 458

Asset Utilization Ratios 458Liquidity Ratios 459Debt Utilization Ratios 459Per Share Data 460Industry Analysis 461

Accounting and the Impact of the Financial Crisis 462So You Want to Be an Accountant 463Review Your Understanding 463Revisit the World of Business 464Learn the Terms 464Check Your Progress 465Get Involved 465Build Your Skills: Financial Analysis 465Solve the Dilemma: Exploring the Secrets of Accounting 466Build Your Business Plan: Accounting and Financial Statements 466See for Yourself Videocase: Arena Football Returns from the Brink of Bankruptcy 466Team Exercise 467

CHAPTER 15Money and the Financial System 468Enter the World of BusinessGeneral Electric: The Financial Giant 469

Entrepreneurship in ActionDesert Blends Creates Unique Products with a Regional Flair 415

Virtual Worlds 416Mobile Marketing 417

Using Digital Media to Reach Consumers 418Responding to Business ChallengesOpen Source Hardware: In the Age of Social Networking, Even Manufacturing Benefits from Shared Information 420Using Digital Media to Learn about Consumers 420Legal and Social Issues in Internet Marketing 421

Privacy 421Identity Theft 423Online Fraud 424Intellectual Property 425

Digital Medias Impact on Marketing 426So You Want to Be a Digital Marketer 427Review Your Understanding 428Revisit the World of Business 429Learn the Terms 429Check Your Progress 429Get Involved 429Build Your Skills: Planning a Digital Marketing and Social Networking Site 430Solve the Dilemma: Developing Successful Freeware 430Build Your Business Plan: Digital Marketing and Social Networking 431See for Yourself Videocase: Should Employees Use Facebook at Work? 431Team Exercise 432

P A R T 6Financing the Enterprise 433

CHAPTER 14Accounting and Financial Statements 434Enter the World of BusinessFreddie Mae and Freddie Mac: Poor Decision Contributed to Crisis 435Introduction 436The Nature of Accounting 436

Accountants 436Accounting or Bookkeeping? 438The Uses of Accounting Information 438

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Managing Fixed Assets 505Capital Budgeting and Project Selection 506

Assessing Risk 506

Pricing Long-Term Money 506

Financing with Long-Term Liabilities 508Bonds: Corporate IOUs 509

Types of Bonds 510

Financing with Owners Equity 510Entrepreneurship in ActionSmall Businesses Score with On Deck Capital 511

Investment Banking 512

The Securities Markets 514Stock Markets 514

The Over-the-Counter Market 515

Measuring Market Performance 515Consider Ethics and Social ResponsibilityThe Hershey Trust Considers the Hershey School an Important Part of Doing Business 516

So You Want to Work in Financial Management or Securities 520

Review Your Understanding 520

Revisit the World of Business 521

Learn the Terms 521

Check Your Progress 522

Get Involved 522

Build Your Skills: Choosing among Projects 522

Solve the Dilemma: Surviving Rapid Growth 523

Build Your Business Plan: Financial Management and Securities Market 523

See for Yourself Videocase: Morningstar, Inc., Makes Investing Easier 524

Team Exercise 524

Appendix D

Personal Financial Planning 525

Notes 542Glossary 564Photo Credits 577Indexes 579 Name Index Company Index Subject Index

Introduction 470Money in the Financial System 470

Functions of Money 470Characteristics of Money 471Types of Money 473

The American Financial System 476The Federal Reserve System 477Banking Institutions 480

Going GreenBank of America Stakeholders Support Sustainability 482

Nonbanking Institutions 484Consider Ethics and Social ResponsibilityAccountability in Accounting 486

Electronic Banking 487Banking in the Future and the Impact of the Financial

Crisis 488Entrepreneurship in ActionMicroWind Technologies, LLC, Makes Wind Pay Off 490So Youre Interested in Financial Systems or Banking 491Review Your Understanding 491Revisit the World of Business 492L