Chapter 4
Choosing a Form of Business Ownership
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scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
LEARNING OBJECTIVES
4-1 Describe the advantages and disadvantages of sole
proprietorships.
4-2 Explain the different types of partners and the importance
of partnership agreements.
4-3 Describe the advantages and disadvantages of partnerships.
4-4 Summarize how a corporation is formed.
4-5 Describe the advantages and disadvantages of a
corporation.
4-6 Examine special types of businesses, including S
corporations, limited-liability companies, and not-for-profit
corporations.
4-7 Discuss the purpose of a joint venture and syndicate.
4-8 Explain how growth from within and growth through
mergers can enable a business to expand.
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website, in whole or in part.

Sole Proprietorships
Sole proprietorship – a business that is owned (and usually
operated) by one person
Although a few sole proprietorships are large and have many
employees, most are small.
Some of today’s largest corporations, including Walmart and
JCPenney, started out as sole proprietorships.
Sole proprietorships are the most popular form of ownership
when compared to partnerships and corporations, but they rank
last in sales revenues.
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website, in whole or in part.
3
FIGURE 4-1 Relative Percentages of Sole Proprietorships,
Partnerships, and Corporations in the United States
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website, in whole or in part.
FIGURE 4-2 Total Sales Receipts of Sole Proprietorships,
Partnerships, and Corporations in the United States

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website, in whole or in part.
Advantages of Sole Proprietorships
Ease of start-up and closure
Sole proprietorship is the simplest way to start a business.
Pride of ownership
Retention of all profits
All profits become the personal earnings of the owner.
No special taxes
Profits earned by a sole proprietorship are taxed as the personal
income of the owner.
Flexibility of being your own boss
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6
Disadvantages of Sole Proprietorships
Unlimited liability – a legal concept that holds a business owner
personally responsible for all the debts of the business
Lack of continuity
If the owner retires, dies, or is declared legally incompetent, the
business essentially ceases to exist.
Lack of money
Banks, suppliers, and other lenders usually are often unwilling
to lend large sums of money to sole proprietorships.

Limited management skills
The sole proprietor must have expertise in a number of different
areas (sales, buying, accounting, etc.).
Difficulty in hiring employees
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7
Partnerships
Partnership – a voluntary association of two or more persons to
act as co-owners of a business for profit
Example: Before becoming incorporated, Procter & Gamble was
formed as a partnership.
This form of ownership is much less common than the sole
proprietorship or the corporation, representing only about 10
percent of all American businesses.
There is no legal maximum on the number of partners a
partnership may have.
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website, in whole or in part.
8
Types of Partners
General partner – a person who assumes full or shared

responsibility for operating a business
Limited partner – a person who invests money in a business but
has no management responsibility or responsibility or liability
for losses beyond the amount he or she invested in the
partnership
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9
The Partnership Agreement
Articles of partnership – an agreement listing and explaining the
terms of the partnership
The partnership agreement should state:
Who will make the final decisions
What each partner’s duties will be
The investment each partner will make
How much profit or loss each partner receives or is responsible
for
What happens if a partner wants to dissolve the partnership or
dies
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10

FIGURE 4-3 Articles of Partnership
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website, in whole or in part.
Advantages of Partnerships
Ease of start-up
Availability of capital and credit
Because partners can pool their funds, a partnership usually has
more capital available than a sole proprietorship does.
Personal interest
Combined business skills and knowledge
Partners often have complementary skills; the weakness of one
partner may be offset by another partner’s strength in that area.
Retention of profits
All profits belong to the owners of the partnership.
No special taxes
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website, in whole or in part.
12
Disadvantages of Partnerships
Unlimited liability
Each general partner is legally and personally responsible for
the debts, taxes, and actions of any other partner conducting
partnership business, even if that partner did not incur those

debts or do anything wrong.
Limited partners risk only their original investment.
Many states allow partners to form a limited-liability
partnership (LLP), in which a partner may have limited-liability
protection from legal action resulting from the malpractice or
negligence of the other partners.
Management disagreements
Lack of continuity
Partnerships are terminated if any one of the general partners
dies, withdraws, or is declared legally incompetent; however,
the remaining partners can purchase that partner’s ownership
share.
Frozen investment
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13
Corporations
Corporation – an artificial person created by law with most of
the legal rights of a real person, including the rights to start and
operate a business, to buy or sell property, to borrow money, to
sue or be sued, and to enter into binding contracts
Unlike a real person, a corporation exists only on paper.
Corporations comprise about 18 percent of all businesses, but
they account for 82 percent of sales revenues.
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website, in whole or in part.
14
Corporate Ownership
Stock – the shares of ownership of a corporation
Stockholder – a person who owns a corporation’s stock
Closed corporation – a corporation whose stock is owned by
relatively few people and is not sold to the general public
Example: Mars
Open corporation – a corporation whose stock can be bought
and sold by any individual
Examples: General Electric, Microsoft, Nike
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website, in whole or in part.
15
TABLE 4-1 Ten Aspects of Business That May Require
Legal HelpChoosing either the sole proprietorship, partnership,
corporate, or some special form of ownershipConstructing a
partnership agreementIncorporating a businessRegistering a
corporation’s stockObtaining a trademark, patent, or
copyrightFiling for licenses or permits at the local, state, and
federal levelsPurchasing an existing business or real
estateCreating valid contractsHiring employees and independent
contractorsExtending credit and collecting debts

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website, in whole or in part.
Forming a Corporation (slide 1 of 6)
Where to Incorporate
A business is allowed to incorporate in any state that it chooses.
Most small- and medium-sized businesses are incorporated in
the state where they do the most business.
The decision on where to incorporate usually is based on two
factors:
The cost of incorporating in one state compared with the cost in
another state
The advantages and disadvantages of each state’s corporate laws
and tax structure
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17
Forming a Corporation (slide 2 of 6)
Where to Incorporate (continued)
Domestic corporation – a corporation in the state in which it is
incorporated
Foreign corporation – a corporation in any state in which it does
business except the one in which it is incorporated
Example: Sears Holding Corporation, the parent company of
Sears and Kmart, is incorporated in Delaware, where it is a
domestic corporation, but is a foreign corporation in the
remaining 49 states.
Alien corporation – a corporation chartered by a foreign

government and conducting business in the United States
Examples: Volkswagen AG, Samsung Corporation
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18
Forming a Corporation (slide 3 of 6)
The Corporate Charter
Articles of incorporation – a contract between a corporation and
the state in which the state recognizes the formation of the
artificial person that is the corporation (often called a corporate
charter)
Usually, the articles of incorporation include the following
information:
The firm’s name and address
The incorporators’ names and addresses
The purpose of the corporation
The maximum amount of stock and types of stock to be issued
The rights and privileges of stockholders
The length of time the corporation is to exist
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19

Forming a Corporation (slide 4 of 6)
Stockholders’ Rights
There are two basic types of stock.
1. Common stock – stock owned by individuals or firms who
may vote on corporate matters but whose claims on profits and
assets are subordinate to the claims of others
2. Preferred stock – stock owned by individuals or firms who
usually do not have voting rights but whose claims on dividends
are paid before those of common-stock owners
Generally, smaller corporations issue only common stock.
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20
Forming a Corporation (slide 5 of 6)
Stockholders’ Rights (continued)
Perhaps the most important right of owners of both common and
preferred stock is to share in the profit earned by the
corporation through the payment of dividends.
Dividend – a distribution of earnings to the stockholders of a
corporation
Other rights include:
Receiving information about the corporation
Voting on changes to the corporate charter
Attending the corporation’s annual stockholders’ meeting
Proxy – a legal form listing issues to be decided at a
stockholders’ meeting and enabling stockholders to transfer
their voting rights to some other individual or individuals

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21
Forming a Corporation (slide 6 of 6)
Organizational Meeting
As the last step in forming a corporation, the incorporators and
original stockholders meet to adopt corporate bylaws and elect a
board of directors.
The board members are directly responsible to the stockholders
for the way they operate the firm.
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website, in whole or in part.
22
Corporate Structure
In a corporation, both the board of directors and the corporate
officers are involved in management.
Board of directors – the top governing body of a corporation,
the members of which are elected by the stockholders
Board members can be chosen from within the corporation or
from outside it.
Their major responsibilities are to set company goals, develop
general plans (or strategies) for meeting those goals, oversee
the firm’s overall operation, and appoint corporate officers.
Corporate officers – the chairman of the board, president,

executive vice presidents, corporate secretary, treasurer, and
any other top executive appointed by the board of directors
They help the board to make plans, carry out strategies
established by the board, hire employees, and manage day-to-
day business activities.
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23
FIGURE 4-4 Hierarchy of Corporate Structure
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website, in whole or in part.
Advantages of Corporations
Limited liability – a feature of corporate ownership that limits
each owner’s financial liability to the amount of money that he
or she has paid for the corporation’s stock
Ease of raising capital
Corporations can not only borrow money but also raise
additional sums of money by selling stock.
Ease of transfer of ownership
Perpetual life
Since it is essentially a legal “person,” a corporation exists
independently of its owners and survives them.
Specialized management

Typically, corporations are able to recruit more skilled,
knowledgeable, and talented managers than proprietorships and
partnerships.
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website, in whole or in part.
Disadvantages of Corporations
Difficulty and expense of formation
Government regulation and increased paperwork
A corporation must register and meet various government
standards before it can sell its stock to the public.
Conflict within the corporation
Double taxation
Corporate profits are taxed twice—once as corporate income
and a second time as the personal income of stockholders.
Lack of secrecy
Because open corporations are required to submit detailed
reports to government agencies and to stockholders, competitors
can use this information to compete more effectively.
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website, in whole or in part.
TABLE 4-2 Some Advantages and Disadvantages of a Sole
Proprietorship, Partnership, and CorporationSole

ProprietorshipGeneral PartnershipRegular
C-CorporationProtecting against liability for
debtsDifficultDifficultEasyRaising
moneyDifficultDifficultEasyOwnership
transferDifficultDifficultEasyPreserving
continuityDifficultDifficultEasyGovernment
regulationsFewFewManyFormationEasyEasyDifficultIncome
taxationOnceOnceTwice
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website, in whole or in part.
S Corporations
S corporation – a corporation that is taxed as though it were a
partnership
In other words, the corporation’s income is taxed only as the
personal income of its stockholders.
S corporation criteria:
No more than 100 stockholders are allowed.
Stockholders must be individuals, estates, or certain trusts.
The corporation has no nonresident, alien shareholders.
There can be only one class of outstanding stock.
The firm must be a domestic corporation eligible to file for S
corporation status.
All stockholders must agree to the decision to form an S
corporation.
Becoming an S corporation can be an effective way to avoid
double taxation while retaining the corporation’s legal benefit
of limited liability.
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scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
Limited-Liability Companies
Limited-liability company (LLC) – a form of business
ownership that combines the benefits of a corporation and a
partnership while avoiding some of the restrictions and
disadvantages of those forms of ownership
Example: BMW of North America
Advantages:
Avoids double taxation of a corporation
Retains the corporation’s legal benefit of limited liability
Provides more management flexibility and fewer restrictions
than corporations
The difference between an S corporation and an LLC is that an
LLC is not restricted to 100 stockholders.
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website, in whole or in part.
TABLE 4-3 Some Advantages and Disadvantages of a
Regular Corporation, an S Corporation, and a Limited-Liability
CompanyRegular
C-CorporationS CorporationLimited- Liability CompanyDouble
taxationYesNoNoLimited liability and personal asset
protectionYesYesYesManagement
flexibilityNoNoYesRestrictions on the number of owners/
stockholdersNoYesNoInternal Revenue Service tax
regulationsManyManyFewer

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website, in whole or in part.
Not-for-Profit Corporations
Not-for-profit corporation – a corporation organized to provide
a social, educational, religious, or other service rather than to
earn a profit
Various charities, museums, private schools, colleges, and
charitable organizations are organized in this way, primarily to
ensure limited liability.
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website, in whole or in part.
31
Joint Ventures
Joint venture – an agreement between two or more groups to
form a business entity in order to achieve a specific goal or to
operate for a specific period of time
Example: To take advantage of the production and marketing
expertise of General Mills and the worldwide presence of
Nestle, the two companies formed a joint venture called Cereal
Partners Worldwide.
Once the goal is reached, the period of time elapses, or the
project is completed, the joint venture is dissolved.

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32
Syndicates
Syndicate – a temporary association of individuals or firms
organized to perform a specific task that requires a large
amount of capital
Example: A syndicate consisting of Goldman Sachs &
Company, Morgan Stanley, J.P. Morgan, and other Wall Street
firms helped U.S. Foods Holdings, a company that markets and
distributes fresh, frozen, and dry food and nonfood products to
consumers in the United States, sell stock to investors. With the
syndicate’s help, U.S. Foods raised over $1 billion through its
initial public offering and used the money to improve its cash
balance and fund growth and expansion.
Like a joint venture, a syndicate is dissolved as soon as its
purpose has been accomplished.
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33
Growth from Within
Most corporations grow by expanding their present operations.
Some introduce and sell new but related products.
Others expand the sale of present products to new geographic

markets or to new groups of consumers in geographic markets
already served.
Example: Walmart was started by Sam Walton in 1962 with one
discount store. Today, Walmart has nearly 11,500 stores in the
United States and 27 other countries.
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website, in whole or in part.
Growth Through Mergers
and Acquisitions (slide 1 of 2)
Merger – the combining of two corporations or other business
entities to form one business
An acquisition is essentially the same thing as a merger, but the
term generally is used in reference to a large corporation’s
purchases of other corporations.
To pay for an acquisition, a leveraged buyout may be used.
Leveraged buyout – a financing method that uses borrowed
money to pay for the company that is being taken over
Although most mergers and acquisitions are often friendly,
hostile takeovers also occur.
Hostile takeover – a situation in which the management and
board of directors of a firm targeted for acquisition disapprove
of the merger
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Growth Through Mergers
and Acquisitions (slide 2 of 2)
Classifications of mergers:
Horizontal merger – a merger between firms that make and sell
similar products or services in similar markets
Vertical merger – a merger between firms that operate at
different but related levels in the production and marketing of a
product
Conglomerate merger – a merger between firms in completely
different industries
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website, in whole or in part.
FIGURE 4-5 Three Types of Growth by Merger
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Merger and Acquisition Trends
for the Future (slide 1 of 2)
The issue of whether mergers and acquisitions are good for the
economy and companies is still hotly debated.
Takeover advocates argue that:
For companies that have been taken over, the purchasers have

been able to make the company more profitable and productive
by installing a new top-management team, reducing expenses,
and forcing the company to concentrate on the firm’s most
important business activities.
Takeover opponents argue that:
Takeovers do nothing to enhance corporate profitability or
productivity.
The only people who benefit from takeovers are investment
bankers, brokerage firms, and takeover “artists,” who receive
financial rewards by manipulating corporations rather than by
producing tangible products or services.
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38
Merger and Acquisition Trends
for the Future (slide 2 of 2)
Most experts predict future mergers and acquisitions will be the
result of cash-rich companies looking to acquire businesses that
will enhance their position in the marketplace or an industry.
Analysts also anticipate more mergers that involve companies or
investors from other countries.
Future mergers and acquisitions will be driven by solid business
logic and the desire to compete in the international marketplace.
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39
* Your task is to briefly explain (in your 1-page report) the
Marketing Strategy implemented by
“Home Office Systems”.
Identify the “Elements of the Marketing Mix” (the 4P’s:
product, place, promotion, price) being
utilized by this firm to reach its target markets.
Bring this sheet along with your 1-page report to class on
Thursday, Jan. 31 - further analyses and
evaluations will thereupon be conducted in-class then………
Chapter 3
Global Business
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website, in whole or in part.
LEARNING OBJECTIVES
3-1 Explain the economic basis for international business.
3-2 Explore the methods by which a firm can organize for and

enter into international markets.
3-3 Discuss the restrictions nations place on international
trade, the objectives of these restrictions, and their results.
3-4 Outline the extent of international business and the
economic outlook for trade.
3-5 Discuss international trade agreements and international
economic organizations working to foster trade.
3-6 Describe the various sources of export assistance.
3-7 Identify the institutions that help firms and nations finance
international business.
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website, in whole or in part.
The Basis for International Business
International business – all business activities that involve
exchanges across national boundaries
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3
Absolute and
Comparative Advantage
Absolute advantage – the ability to produce a specific product
more efficiently than any other nation

Comparative advantage – the ability to produce a specific
product more efficiently than any other product
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4
Exporting and Importing (slide 1 of 3)
Exporting – selling and shipping raw materials or products to
other nations
Example: The Boeing Company exports its airplanes to a
number of countries for use by their airlines.
Importing – purchasing raw materials or products in other
nations and bringing them into one’s own country
Example: Buyers for Macy’s department stores purchase rugs in
India and have them shipped back to the United States for
resale.
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5
FIGURE 3-1 Selected Top Merchandise-Exporting States

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Exporting and Importing (slide 2 of 3)
Balance of trade – the total value of a nation’s exports minus
the total value of its imports over some period of time
If a country imports more than it exports, its balance of trade is
negative and is said to be unfavorable.
Trade deficit – a negative balance of trade
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7
FIGURE 3-2 U.S. International Trade in Goods and Services
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Exporting and Importing (slide 3 of 3)
Balance of payments – the total flow of money into a country
minus the total flow of money out of that country over some
period of time
Includes:
Imports and exports

Investments
Money spent by foreign tourists
Payments by foreign governments
Aid to foreign governments
All other receipts and payments
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website, in whole or in part.
9
Licensing
Licensing – a contractual agreement in which one firm permits
another to produce and market its product and use its brand
name in return for a royalty or other compensation
Example: Yoplait yogurt is a French yogurt licensed for
production in the United States. The U.S. producer pays Yoplait
a percentage of its income from sales of the product.
Advantage:
It provides a simple method for expanding into a foreign market
with virtually no investment.
Disadvantages:
If the licensee does not maintain the licensor’s product
standards, the product’s image may be damaged.
A licensing arrangement may not provide the original producer
with any foreign marketing experience.
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website, in whole or in part.

10
Exporting (slide 1 of 3)
A firm may manufacture its products in its home country and
export them for sale in foreign markets.
Advantage:
It can be a relatively low-risk method of entering foreign
markets.
Disadvantage:
It is not a simple method.
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11
Exporting (slide 2 of 3)
At the most basic level, the exporting firm may sell its products
outright to an export-import merchant, which is essentially a
merchant wholesaler.
Alternatively, the exporting firm may ship its products to an
export-import agent, which arranges the sale of the products to
foreign intermediaries for a commission or fee.
An exporting firm may also establish its own sales offices, or
branches, in foreign countries.
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website, in whole or in part.
12
Exporting (slide 3 of 3)
Exporting to International Markets
Letter of credit – issued by a bank on request of an importer
stating that the bank will pay an amount of money to a stated
beneficiary
Bill of lading – document issued by a transport carrier to an
exporter to prove that merchandise has been shipped
Draft – issued by the exporter’s bank, ordering the importer’s
bank to pay for the merchandise, thus guaranteeing payment
once accepted by the importer’s bank
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13
Joint Ventures
Joint venture – a partnership formed to achieve a specific goal
or to operate for a specific period of time
A joint venture may be used to produce and market an existing
product in a foreign nation or to develop an entirely new
product.
Advantage:
A joint venture with an established firm in a foreign country
provides immediate market knowledge and access, reduced risk,
and control over product attributes.
Disadvantages:

Joint-venture agreements established across national borders
can become extremely risky.
Joint-venture agreements generally require a very high level of
commitment from all the parties involved.
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14
Totally Owned Facilities (slide 1 of 2)
Totally owned facilities – a firm’s own production and
marketing facilities in one or more foreign nations
Advantage:
The direct investment provides complete control over
operations.
Disadvantage:
It carries a greater risk than a joint venture.
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website, in whole or in part.
Totally Owned Facilities (slide 2 of 2)
Direct investment may take either one of two forms:
The firm builds or purchases manufacturing and other facilities
in the foreign country and uses these facilities to produce its
own established products and market them in that country.

Example: General Motors and Colgate-Palmolive have
worldwide manufacturing facilities.
A firm purchases an existing firm in a foreign country under an
arrangement that allows it to operate independently of the
parent company.
Example: When Sony Corporation (a Japanese firm) decided to
enter the motion picture business in the United States, it chose
to purchase Columbia Pictures Entertainment, Inc., rather than
start a new motion picture studio from scratch.
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Strategic Alliances
Strategic alliance – a partnership formed to create competitive
advantage on a worldwide basis
Example: New United Motor Manufacturing, Inc. (NUMMI),
formed by Toyota and General Motors, combines the quality of
engineering of Toyota with the marketing expertise and market
access of General Motors.
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website, in whole or in part.
Trading Companies
Trading company – provides a link between buyers and sellers

in different countries
A trading company is not involved in manufacturing or owning
assets related to manufacturing; it buys products in one country
at the lowest price consistent with quality and sells to buyers in
another country.
It takes title to products and performs all the activities
necessary to move the products from the domestic country to a
foreign country.
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18
Countertrade
Countertrade – an international barter transaction
Example: Philip Morris’s sale of cigarettes to Russia in return
for chemicals used to make fertilizers
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website, in whole or in part.
19
Multinational Firms
Multinational enterprise – a firm that operates on a worldwide
scale without ties to any specific nation or region

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20
TABLE 3-1 The Ten Largest Foreign and U.S. Multinational
Corporations2016 RankCompanyBusinessCountryRevenue
($ millions) 1Walmart StoresGeneral MerchandiseUnited
States482,130 2State GridPower GridsChina329,601 3China
National PetroleumEnergyChina299,271
4SinopecEnergyChina294,344 5Royal Dutch
ShellEnergyNetherlands272,156 6ExxonMobilEnergyUnited
States246,204 7VolkswagenAutomobilesGermany236,600
8ToyotaAutomobilesJapan236,592 9AppleComputers/
Office EquipmentUnited States233,71510BPEnergyUnited
Kingdom225,982
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website, in whole or in part.
TABLE 3-2 Steps in Entering International Markets (slide 1
of 3)StepActivityMarketing Tasks1Identify exportable
productsIdentify key selling features
Identify needs that they satisfy
Identify the selling constraints that are imposed2Identify key
foreign markets for the productsDetermine who the customers
are
Pinpoint what and when they will buy
Do market research

Establish priority, or “target,” countries3Analyze how to sell in
each priority market (methods will be affected by product
characteristics and unique features of country/market)Located
available government and private-sector resources
Determine service and backup sales requirements
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website, in whole or in part.
TABLE 3-2 Steps in Entering International Markets (slide 2
of 3)StepActivityMarketing Tasks4Set export prices and
payment terms, methods, and techniquesEstablish methods of
export pricing
Establish sales terms, quotations, invoices, and conditions of
sale
Determine methods of international payments, secured and
unsecured5Estimate resources requirements and returnsEstablish
financial requirements
Establish human resources requirements (full- or part-time
export department or operation)
Estimate plant production capacity
Determine necessary product adaptations6Establish overseas
distribution networkDetermine distribution agreement and other
key marketing decisions (price, repair policies, returns,
territory, performance, and termination)
Know your customer (use U.S. Department of Commerce
international marketing services)
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website, in whole or in part.

TABLE 3-2 Steps in Entering International Markets (slide 3
of 3)StepActivityMarketing Tasks7Determine shipping, traffic,
and documentation procedures and requirementsDetermine
methods of shipment (air or ocean freight, truck, rail)
Finalize containerization
Obtain validated export license
Follow export-administration documentation
procedures8Promote, sell, and be paidUse international media,
communications, advertising, trade shows, and exhibitions
Determine the need for overseas travel (when, where, and how
often?)
Initiate customer follow-up procedures9Continuously analyze
current marketing, economic, and political situationsRecognize
changing factors influencing marketing strategies
Constantly re-evaluate
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website, in whole or in part.
Types of Trade Restrictions (slide 1 of 3)
Tariffs
Import duty (tariff) – a tax levied on a particular foreign
product entering a country
Two types of tariffs:
Revenue tariffs – imposed solely to generate income for the
government
Protective tariffs – imposed to protect a domestic industry from
competition by keeping the price of competing imports level
with or higher than the price of similar domestic products
Dumping – exportation of large quantities of a product at a
price lower than that of the same product in the home market

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website, in whole or in part.
25
Types of Trade Restrictions (slide 2 of 3)
Nontariff Barriers
Nontariff barrier – a nontax measure imposed by a government
to favor domestic over foreign suppliers
Nontariff barriers include:
Import quota – a limit on the amount of a particular good that
may be imported into a country during a given period of time
Embargo – a complete halt to trading with a particular nation or
in a particular product
Foreign-exchange control – a restriction on the amount of a
particular foreign currency that can be purchased or sold
Currency devaluation – the reduction of the value of a nation’s
currency relative to the currencies of other countries
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website, in whole or in part.
26
Types of Trade Restrictions (slide 3 of 3)
Cultural Barriers
Cultural barriers can impede acceptance of products in foreign
countries.

Examples: illustrations of feet are regarded as despicable in
Thailand; black and white are the colors of mourning in Japan
and, thus, should not be used in packaging
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website, in whole or in part.
27
Reasons for and Against
Trade Restrictions
Reasons for Trade Restrictions:
To equalize a nation’s balance of payments
To protect new or weak industries
To protect national security
To protect the health of citizens
To retaliate for another nation’s trade restrictions
To protect domestic jobs
Reasons Against Trade Restrictions:
Higher prices for consumers
Restriction of consumers’ choices
Misallocation of international resources
Loss of jobs
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website, in whole or in part.
28

The Extent of International Business
Restrictions or not, international business is growing.
In the United States, international trade now accounts for over
one-fourth of gross domestic product (GDP).
As trade barriers decrease, new competitors enter the global
marketplace, creating more choices for consumers and new
opportunities for job seekers.
International business will grow along with the expansion of
commercial use of the Internet.
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website, in whole or in part.
The Economic Outlook for Trade
(slide 1 of 2)
Canada and Western Europe
The U.S.–Canada economic relationship is the most efficient,
most integrated, and most dynamic in the world.
The two nations generated $669.4 billion in bilateral trade in
2015.
More than 96,000 American companies currently export to
Canada, and 70 percent of Canada’s exports come to the United
States.
The U.S. trade with the European Union (EU) is one of the
largest and most complex in the world; generating an estimated
goods flow of over $687 billion in 2016, and representing an
estimated 30 percent of global trade.
Mexico and Latin America
Latin American exports are growing annually.

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30
The Economic Outlook for Trade
(slide 2 of 2)
Japan
Japan is the world’s third largest economy and the United
States’ fourth largest trading partner.
Other Asian Countries
China has grown to be the world’s second largest economy, and
the United States shares more than half a trillion dollars in
annual bilateral trade—our largest trading relationship.
India’s vast market promises U.S. companies’ continued strong
demand for goods and services.
Africa
U.S. trade to and from Africa has tripled over the past decade,
and U.S. exports to this region exceed $22.3 billion.
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website, in whole or in part.
31

TABLE 3-3 U.S. Exports and Imports for Selected World
Areas in 2016
in Billions of DollarsSelected World
AreaExportsImportsNorth America $498 $572Europe $318
$483Euro Area $200 $326European Union $270
$417Pacific Rim $362 $809South/Central America
$137 $108Africa $22 $27OPEC $71 $78Other
Countries $67 $159
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website, in whole or in part.
TABLE 3-4 Top Trading Partners: Value of U.S.
Merchandise Exports and Imports, December
2016RankCountryExports
($ billions)Imports
($ billions)Total Trade ($ billions)Percent of Total Trade1China
115.8 462.8 578.6 15.92Canada 266.8
278.1 544.9 15.03Mexico 231.0 294.1
525.1 14.44Japan 63.3 132.2 195.5
5.45Germany 49.4 114.2 163.6 4.56Korea, South
42.3 69.9 112.2 3.17United Kingdom 55.4 54.3
109.7 3.08France 30.9 46.8 77.7 2.19India 21.7
46.0 67.7 1.9 10Taiwan 26.1 39.3 65.4 1.8
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website, in whole or in part.
The General Agreement on Tariffs and Trade and the World
Trade Organization (slide 1 of 2)

General Agreement on Tariffs and Trade (GATT) – an
international organization of nations dedicated to reducing or
eliminating tariffs and other barriers to world trade
Most-favored-nation status (MFN) was the famous principle of
GATT.
It meant that each GATT member nation was to be treated
equally by all contracting nations.
From 1947, the body sponsored eight rounds of negotiations to
reduce trade restrictions, including:
The Kennedy Round (1964–1967)
The Tokyo Round (1973–1979)
The Uruguay Round (1986–1993)
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34
The General Agreement on Tariffs and Trade and the World
Trade Organization (slide 2 of 2)
World Trade Organization (WTO) – powerful successor to
GATT that incorporates trade in goods, services, and ideas
Created by the Uruguay Round
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website, in whole or in part.
35

International Economic Organizations Working to Foster Trade
Economic community – an organization of nations formed to
promote the free movement of resources and products among its
members and to create common economic policies
A number of economic communities now exist, including:
The European Union
The North American Free Trade Agreement
The Central Free Trade Agreement
The Association of Southeast Asian Nations
The Commonwealth of Independent States
Trans-Pacific Partnership (TPP)
The Common Market of the Southern Cone (Mercosur)
The Organization of Petroleum Exporting Countries
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36
FIGURE 3-3 The Evolving European Union
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website, in whole or in part.
TABLE 3-5 U.S. Government Export Assistance Programs
(slide 1 of 2)1U.S. Export Assistance Centers,
https://www.sba.gov/managing-business/exporting/us-export-

assistance-centersProvides assistance in export marketing and
trade finance2International Trade Administration,
www.ita.doc.gov/Offers assistance and information to exporters
through its domestic and overseas commercial officers3U.S. and
Foreign Commercial Services, www.export.
gov/Helps U.S. firms compete more effectively in the global
marketplace and provides information on foreign
markets4Advocacy Center,
http://2016.export.gov/advocacy/Facilitates advocacy to assist
U.S. firms competing for major projects and procurements
worldwide
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website, in whole or in part.
TABLE 3-5 U.S. Government Export Assistance Programs
(slide 2 of 2)5Trade Information Center,
http://selectusa.commerce.
gov/investment-incentives/trade-information-center-
tic.htmlProvides U.S. companies information on federal
programs and activities that support U.S. exports6STAT-
USA/Internet, https://www.usa.gov/statisticsOffers a
comprehensive collection of business, economic, and trade
information on the Web7Small Business Administration,
www.sba.gov/oit/Publishes many helpful guides to assist small-
and medium-sized companies8National Trade Data Bank,
http://grow.exim.gov/finance-
guide?gclid=CK3H0p2KndlCFUi5wAodTiQH3gProvides
international economic and export-protection information
supplied by more than 20 U.S. agencies

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Financing International Business
Financial assistance is available from U.S. government and
international sources.
One source is the U.S. Small Business Administration.
The U.S. Small Business Administration provides up to $5
million in short-term loans to U.S. small business exporters.
The agency also provides small businesses that have exporting
potential, but need funds to cover the initial costs of entering an
export market, with up to $500,000 in export development
financing to buy, produce goods, or provide services for
exports.
Other sources include multilateral development banks, the
Export-Import Bank, and the International Monetary Fund.
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40
The Export-Import Bank
of the United States
Export-Import Bank of the United States – an independent
agency of the U.S. government whose function is to assist in
financing the exports of American firms
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41
Multilateral Development Banks
Multilateral development bank (MDB) – an internationally
supported bank that provides loans to developing countries to
help them grow
Include:
The World Bank
The Inter-American Development Bank
The Asian Development Bank
The African Development Bank
European Bank for Reconstruction and Development
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website, in whole or in part.
The International Monetary Fund
International Monetary Fund (IMF) – an international bank that
makes short-term loans to developing countries experiencing
balance-of-payment deficits
Main goals:
Promote international monetary cooperation
Facilitate the expansion and balanced growth of international
trade
Promote exchange rate stability
Assist in establishing a multilateral system of payments
Make resources available to members experiencing balance-of-

payment difficulties
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