D E A R S T U D E N T S , WELCOME TO THE THIRD EDITION OF FOUNDATIONS OF BUSINESS! This is where you can fi nd out what it takes to be successful in today’s competitive business world. Based on our many years of teaching and working with students, we know how hard it can be to start your career, get the promotion you really want, start your own business, or become the person you want to be. That’s why we chose “SUCCESS” as the theme for this new edition. Learning about It’s important to begin reading this text with one thing in mind: Learning about business and how you can become successful can be fun. There is so business and how much that is exciting about business—it aff ects virtually everything we do, from our work lives, to our politics, to even what we do for entertainment. you can become So to really learn about business is never boring—because we are learning successful can about ourselves. Beginning in Chapter 1, we discuss what it takes to be successful in the workplace. Then the theme of success is reinforced when be fun. we discuss the functional areas of business—management, marketing, information, accounting, and fi nance in the rest of the text. In addition, important topics like ethics and social responsibility, forms of business ownership, and small business receive special attention and are highlighted throughout the third edition. We’ve also done everything possible to eliminate the problems that students encounter in a typical class. All the content and features in the text along with powerful online learning tools on the student companion Web site (www.cengagebrain.com) are designed not only to improve your grade in this course, but to help you to become a better employee, business owner, consumer, or investor. Special features including Personal Apps, Building Skills for Career Success, and Social Networking are designed to help you apply information in each chapter to your life. And the Test Yourself feature at the end of each chapter can help you prepare for exams. We encourage you to examine the visual guide in the front of the book to see how the features in this new edition of Foundations of Business can help you learn about business. We want you to be successful—in this course, in your career, and in your life! Finally, we invite you to email us if you need more information or if you have suggestions for improving this book. Sincerely, Bill Pride, [email protected] Bob Hughes, [email protected] Jack Kapoor, [email protected] 8800115544__IIFFCC..iinndddd 22 1100//1188//1111 1122::2200 PPMM This page intentionally left blank This is an electronic version of the print textbook. Due to electronic rights restrictions, some third party content may be suppressed. Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. The publisher reserves the right to remove content from this title at any time if subsequent rights restrictions require it. For valuable information on pricing, previous editions, changes to current editions, and alternate formats, please visit www.cengage.com/highered to search by ISBN#, author, title, or keyword for materials in your areas of interest. 8800115544__ffmm..iinndddd xxiiii 1100//1111//1111 22::3344 PPMM FOUNDATIONS OF BUSINESS 3E William M. Pride Texas A&M University Robert J. Hughes Dallas County Community Colleges Jack R. Kapoor College of DuPage Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States 8800115544__ffmm..iinndddd ii 1100//1111//1111 22::3344 PPMM Foundations of Business, Third edition © 2013, 2011 South-Western, Cengage Learning William M. Pride, Robert J. Hughes, Jack ALL RIGHTS RESERVED. No part of this work covered by the copyright herein R. 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Sr. Art Director: Stacy Jenkins Shirley Internal and Cover Designer: KeDesign Cengage Learning WebTutor™ is a trademark of Cengage Learning. Cover Image: ©Artic-Images/Getty Rights Acquisitions Specialist (text): Sam A. Marshall Library of Congress Control Number: 2011939830 Rights Acquisitions Specialist (image): Deanna ISBN-13: 978-1-111-58015-5 Ettinger ISBN-10: 1-111-58015-4 South-Western 5191 Natorp Boulevard Mason, OH 45040 USA Cengage Learning products are represented in Canada by Nelson Education, Ltd. For your course and learning solutions, visit www.cengage.com Purchase any of our products at your local college store or at our preferred online store www.cengagebrain.com Printed in the United States of America 1 2 3 4 5 6 7 15 14 13 12 11 8800115544__ffmm..iinndddd iiii 1100//1111//1111 22::3344 PPMM To Nancy, Allen, Mike, Ashley, and Charlie Pride To my wife Peggy and to my mother Barbara Hughes To my wife Theresa; my children Karen, Kathryn, and Dave; and in memory of my parents Ram and Sheela Kapoor 8800115544__ffmm..iinndddd iiiiii 1100//1111//1111 22::3344 PPMM BRIEF CONTENTS PART 1 THE ENVIRONMENT OF BUSINESS 1 Chapter 1 Exploring the World of Business and Economics 2 Chapter 2 Being Ethical and Socially Responsible 34 Chapter 3 Exploring Global Business 67 PART 2 BUSINESS OWNERSHIP AND ENTREPRENEURSHIP 102 Chapter 4 Choosing a Form of Business Ownership 103 Chapter 5 Small Business, Entrepreneurship, and Franchises 131 PART 3 MANAGEMENT AND ORGANIZATION 162 Chapter 6 Understanding the Management Process 163 Chapter 7 Creating a Flexible Organization 188 Chapter 8 Producing Quality Goods and Services 210 PART 4 HUMAN RESOURCES 240 Chapter 9 Attracting and Retaining the Best Employees 241 Chapter 10 Motivating and Satisfying Employees and Teams 270 PART 5 MARKETING 302 Chapter 11 Building Customer Relationships Through Effective Marketing 303 Chapter 12 Creating and Pricing Products that Satisfy Customers 330 Chapter 13 Distributing and Promoting Products 366 PART 6 MANAGING INFORMATION, ACCOUNTING, AND FINANCE 405 Chapter 14 Understanding Information and e-Business 406 Chapter 15 Using Accounting Information 439 Chapter 16 Mastering Financial Management 468 Notes N-1 Answer Key AK-1 Glossary G-1 Name Index NI-1 Subject Index SI-1 TAAAAAhpppppeppppp feeeeeonnnnnlldddddowiiiiixxxxx inABCDE:g::: : BCaEURunpainssrphkdeiena eeMnnerrdsssca tsiinican nLeang asgBd wUaueinp,msn giRpinoee eePnnagesr-tusr M o asl aon naBtn dnit-oha1a Inlegn ,F secaiuonmnrmadaenn pnTccaatee nxRs ai eoa tDlninao -dtsn1iio t I enn Evsw-e 1 w sCtwm-1.ceenntgs a gAe-b1rain.com © Laurent davoust/iStockphoto 12228883 iv 8800115544__ffmm..iinndddd iivv 1100//1144//1111 55::4411 PPMM CONTENTS PART 1 THE ENVIRONMENT OF BUSINESS 1 5COH FIBn AlBosicPUdkTebS uBEIsuNRtse iEr1n BSe:usSEssi: Xn AeTPsNhsLe DR OWe saREultClI tDNsO isG3nNe TOy HCMoEmI CWpaSnO yR2’s LScDrip t for 5BCSuOH sIinnCAseIiPsdAsTe EL BEtLhuRYisc is 2n RDe:EesBsfSi:nE PEeIcdONo -3NGF6ri SeEnITBdlHyL CEICa rAs3 B4Le cAomNeD B ig Business 35m Jurica/iStockphoto 497781 Your Future in the Changing World of Business 4 Ethical Issues 36 © Ji Why Study Business?, 5 Fairness and Honesty, 37 • Organizational Relationships, 37 Career Success: Clicking Your Career into High Gear 6 • Conflict of Interest, 38 • Communications, 38 Spotlight: How Important Are Employee Benefits? 7 Factors Affecting Ethical Behavior 38 Special Note to Students, 8 Individual Factors Affecting Ethics, 38 • Social Factors Affecting Ethics, 39 Business: A Definition 10 The Organized Effort of Individuals, 10 • Satisfying Needs, 10 Ethical Challenges & Successful Solutions: Green or • Business Profit, 11 Greenwashing? 39 “Opportunity” as a Factor Affecting Ethics 40 Types of Economic Systems 12 Capitalism, 13 • Capitalism in the United States, 14 Encouraging Ethical Behavior 40 • Command Economies, 16 Government’s Role in Encouraging Ethics, 40 • Trade Associations’ Role in Encouraging Ethics, 41 • Individual Measuring Economic Performance 17 Companies’ Role in Encouraging Ethics, 41 The Importance of Productivity in the Global Marketplace, 17 • Important Economic Indicators that Measure a Nation’s Social Responsibility 44 Economy, 18 Going for Success: American Express “Crowdsources” The Business Cycle 20 Philanthropy 46 Types of Competition 21 The Evolution of Social Responsibility in Business 47 Perfect Competition, 21 • Monopolistic Competition, 23 Historical Evolution of Business Social Responsibility, 47 • Oligopoly, 23 • Monopoly, 24 Two Views of Social Responsibility 49 American Business Today 24 The Economic Model, 49 • The Socioeconomic Model, 49 • The Early Business Development, 24 • Business Development in the Pros and Cons of Social Responsibility, 49 1900s, 25 • A New Century: 2000 and Beyond, 26 Sustain the Planet: Sustainability 50 Entrepreneurial Success: Meet Scott Heiferman, Meetup Consumerism 51 Entrepreneur 26 The Six Basic Rights of Consumers, 51 • Major Consumerism The Current Business Environment, 27 Forces, 52 Sustain the Planet: Avon Says: “Hello Green Employment Practices 54 Tomorrow” 27 Affirmative Action Programs, 54 • Training Programs for the The Challenges Ahead, 28 Hard-Core Unemployed, 55 Summary 29 Concern for the Environment 56 Key Terms 30 Effects of Environmental Legislation, 57 Discussion Questions 30 Spotlight: Recession and Responsibility 58 Test Yourself 31 Who Should Pay for a Clean Environment?, 60 Video Case: Entertainment Means Profits for Nederlander Implementing a Program of Social Responsibility 60 Concerts 32 Developing a Program of Social Responsibility, 60 • Funding Building Skills for Career Success 33 the Program, 61 vv 8800115544__ffmm..iinndddd vv 1100//1133//1111 55::2211 PPMM Summary 62 World Trade and Global Economic Crisis, 81 • International Key Terms 63 Economic Organizations Working to Foster Trade, 81 Discussion Questions 63 Methods of Entering International Business 84 Test Yourself 63 Licensing, 84 • Exporting, 85 Video Case: Scholfield Honda—Going Green with Honda 65 Going for Success: LEGO Builds on Licensing for Global Building Skills for Career Success 65 Growth 85 Joint Ventures, 87 • Totally Owned Facilities, 87 • Strategic CHAPTER 3: EXPLORING Alliances, 87 • Trading Companies, 88 • Countertrade, 88 • Multinational Firms, 88 GLOBAL BUSINESS 67 Sources of Export Assistance 90 5 Inside Business: PepsiCo Gobbles Up Growth in Global Financing International Business 90 Markets 68 The Export-Import Bank of the United States, 91 • Multilateral Development Banks, 91 The Basis for International Business 69 Sustain the Planet: Selling Eco-Friendly Goods, Services, Absolute and Comparative Advantage, 69 • Exporting and Importing, 70 and Technologies 91 The International Monetary Fund, 92 Restrictions to International Business 71 Summary 92 Types of Trade Restrictions, 72 • Reasons for Trade Restrictions, 74 • Reasons Against Trade Restrictions, 75 Key Terms 93 Discussion Questions 93 The Extent of International Business 75 Test Yourself 94 The World Economic Outlook for Trade, 76 Video Case: Evo: Creatively Exceeding Customer Career Success: Today’s Global Career Path 78 Expectations Here and Abroad 95 International Trade Agreements 79 Building Skills for Career Success 96 The General Agreement on Tariffs and Trade and the World Trade Organization, 79 Running a Business: Part 1: Let’s Go Get a Graeter’s! 97 Spotlight: Leading Exporters in World Merchandise Trade, Building a Business Plan: Part 1 99 2009 79 PART 2 BUSINESS OWNERSHIP AND ENTREPRENEURSHIP 102 CHAPTER 4: CHOOSING A FORM Corporate Growth 122 Growth from Within, 122 • Growth Through Mergers and OF BUSINESS OWNERSHIP 103 Acquisitions, 122 • Merger and Acquisition Trends During an 5 Inside Business: Raising Cane’s Serves Up Small Business Economic Crisis, 124 Summary 125 Success 104 Key Terms 126 Sole Proprietorships 105 Discussion Questions 126 Advantages of Sole Proprietorships, 105 • Disadvantages of Test Yourself 127 Sole Proprietorships, 107 Video Case: Annie’s Homegrown: A Corporation with Entrepreneurial Success: Student Business Incubators 108 Entrepreneurial Spirit 128 Beyond the Sole Proprietorship, 108 Building Skills for Career Success 129 Partnerships 108 Types of Partners, 109 CHAPTER 5: SMALL BUSINESS, Social Media: Going Social with SCORE 109 ENTREPRENEURSHIP, AND FRANCHISES 131 The Partnership Agreement, 110 • Advantages of Partnerships, 111 • Disadvantages of Partnerships, 112 5 Inside Business: Small Businesses Get Boost from Big • Beyond the Partnership, 112 Business 132 Corporations 113 Corporate Ownership, 113 • Forming a Corporation, 114 Small Business: A Profile 133 • Corporate Structure, 116 • Advantages of Corporations, 116 The Small-Business Sector, 133 • Industries that Attract Small • Disadvantages of Corporations, 117 Businesses, 134 Spotlight: Business Profits 117 The People in Small Businesses: The Entrepreneurs 135 Characteristics of Entrepreneurs, 135 • Other Personal Special Types of Business Ownership 119 Factors, 136 • Motivation, 136 • Women as Small-Business S-Corporations, 119 • Limited-Liability Companies, 119 Owners, 136 • Not-for-Profit Corporations, 120 Career Success: Looking for an Internship? Think Small 137 Going for Success: Growth through Global Joint Ventures 121 Teenagers as Small-Business Owners, 137 • Why Some Joint Ventures and Syndicates 121 Entrepreneurs and Small Businesses Fail, 138 Joint Ventures, 121 • Syndicates, 122 The Importance of Small Businesses in Our Economy 139 vi Contents 8800115544__ffmm..iinndddd vvii 1100//1111//1111 22::3344 PPMM