International Business UNIT ONE Essay

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Domestic Business
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Making, buying, selling goods and services within one’s own country.
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International Business
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all business activities needed to create, ship, and sell goods and services across national borders.
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Trade Agreements
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such as the 1993 North American Free Trade Agreement (NAFTA) between Canada, the U.S. and Mexico eliminated taxes on goods between the three countries and eased the movement of these goods
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Global Dependency
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exists when items that consumers need and want are created in other countries
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Imports
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For the buyer, products bought from businesses in other countries.
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Exports
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For the seller, exports are products sold in other countries.
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Trade Barriers
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restrictions that reduce free trade among countries.
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Import Taxes
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increase the cost of foreign products
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Quotas
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restrict the number of imports
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What are the four major categories of the international business environment? (short answer question)
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1. Geographic Conditions (climate, terrain, seaways, natural resources) 2. Cultural & Social Factors (accepted behaviours, values, and customs; language, education, religion, social relationships) 3. Political and Legal Factors (type of government, political stability, government policies toward business) 4. Economic Conditions (type of economic system, general education level of the population, types of industries, level of technology)
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Scarcity
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refers to the limited resources available to satisfy the unlimited needs and wants that people have
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Economics
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The study of how people choose to use limited resources to satisfy their unlimited needs and wants
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Decision-making Process
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1. Define the problem 2. Identify the alternatives 3. Evaluate the alternatives 4. Make a choice 5. Take action on choice 6. Review the decision
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What are the main factors that effect prices?
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The main factors that effect prices are supply and demand
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Supply
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The relationship between the amount a good/service that businesses are willing and able to make available and the price
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Demand
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The relationship between the amount of a good/service that consumers are willing and able to purchase and the price.
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Market Price
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The point at which supply and demand cross (equilibrium price)
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Inflation
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An increase in the average price of goods and services in a country.
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What are the two basic causes of Inflation ?
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Demand-pull inflation and Cost-pull inflation
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Demand-pull Inflation
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occurs when demand exceeds supply and prices go up
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Cost-pull inflation
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occurs when business operating costs increase
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Natural Resources
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land, raw material that comes from the earth, water or air
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Human resources
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labour, people who work to produce goods/services
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Capital resources
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capital, buildings, money, equipment, factories
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Command Economy
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the government regulates the amount, distribution and price of everything produced and consumers usually have very few choices of what products to buy (communist countries like Cuba)
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Market Economy
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those in which individual companies and consumers make decisions about what, how, and for whom items will be produced
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Mixed Economy
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a blend between government involvement in business and private ownership
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What are the three levels of economic development? (short answer)
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industrialized countries, less-developed countries, and developing countries
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Industrialized Country
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is a country with strong business activity that is usually the result of advanced technology and a highly educated population (Canada, the U.S)
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Less-developed Country
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a country with low literacy, limited technology, and an emphasis on agriculture and mining (Bulgaria, Bangladesh)
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Developing Country
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are evolving from less developed to industrialized with improved literacy and technology, and decreasing dependence on agriculture and mining (Brazil, India, South Korea, Taiwan)
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What are the main influences on a country’s economic development? (short answer)
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literacy level, technology, and agriculture dependency
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Absolute Advantage
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when a country can produce a good or service at a lower cost than other countries
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Comparative Advantage
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a situation where a country specializes in the production of a good or service at which it is relatively more efficient
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Gross Domestic Product (GDP)
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measures the output of goods that a country produces within its borders
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Gross National Product (GNP)
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measures that total value of all goods and services produced by the resources of a country
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Balance of Trade
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the difference between a country’s exports (what it sells) and imports (what it buys)
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Trade Surplus
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when a country exports more than it imports
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Trade Deficit
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when a country imports more than it exports
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Foreign exchange rate
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the value of one country’s money in relation to the value of the money of another country
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Foreign debt
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the amount a country owes to other countries
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Consumer Price Index (CPI)
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data on price levels for various products and services in different regions of the country
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Culture
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culture is a system of learned, shared, unifying, and interrelated beliefs, values and assumptions
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Cultural Baggage
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the idea that you carry your beliefs, values, and assumptions with you at all times
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Subculture
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a subset or part of a larger, general culture, such as a business subculture
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Nuclear Family
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a group that consists of a parent or parents and unmarried children living together
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Extended Family
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consists of parents, children, and other relatives living together
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Class system
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a means of dividing the members of a cultural group into various levels based on factors such as education, occupation, heritage, inherited status and income
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Contexting
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refers to how direct or indirect communication is
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Low-context culture
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one that communicates very directly by attaching considerable value to words and interpreting them literally (Canada, the U.S. Germany)
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High-context culture
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is one that communicates indirectly, attaching little value to the literal meaning of words and interpreting them figuratively (Japan, Iraq)
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Values
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ideas that people cherish and believe to be important – can vary amongst cultures.
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Individualism
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the belief in the individual and her or his ability to function independently.
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Ethnocentrism
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the belief that one’s culture is better than other cultures
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Culture Shock
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a normal reaction to all the differences of another culture
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Reverse culture shock
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your normal reaction to becoming reacquainted with your own native culture
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Five things that affect cultural distinction (short answer)
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Family, education, gender roles, mobility, class
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Democracy
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all citizens take part in making the rules that govern them. People have equal rights and freedoms.
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Totalitarianism
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most people are excluded from making the rules by which they live. Political control is held by one person or a small group.
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Mixed systems
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characteristics of both systems and fall somewhere in between totalitarianism and democracy
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Host country
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the country in which a multinational enterprise is a guest
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Social responsibility
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the process whereby people function as good citizens and are sensitive to their surroundings and is key to the success of or failure of multinational enterprises
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Home country
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home country is the country in which a multinational enterprise is headquartered
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Trade barriers
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government actions or policies that make it difficult to trade across borders
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Protectionism
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Protectionism is a government policy of protecting local or domestic industries from foreign competition
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How do governments discourage international business? (short answer)
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Tariffs, quotas, boycotts and licensing requirements
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Tariffs
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can be placed on products that are traded internationally. Duties raise the cost of the product to the importer which discourages consumers from buying the imported product
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Quotas
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a limit on the quantity or monetary amount of the product that can be imported from a given country
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Boycotts
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government issues an absolute restriction on the import of certain products from certain countries
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Licensing requirements
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equires that companies have a government import license that grants permission to import a product, and that can be withdrawn at any time
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Types of political risk (short answer)
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Trade sanctions, expropriation, growth of economic nationalism, civil unrest
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Political Risk
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Government actions or political policies can change at any time, adversely affecting foreign companies
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Trade sanctions
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governments can impose trade restrictions ranging from tariffs to boycotts against another country to protest that country’s behaviour.
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Expropriation
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government takes control and ownership of foreign-owned assets and companies
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Growth of Economic nationalism
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restricting foreign ownership of companies and establishing laws to protect against foreign imports
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Civil unrest
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social disorder, revolutions, uprisings
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Customs Duty
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an import tax assessed on imported products
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Sales tax
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tax on the sale of products such as our goods and services taxes
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Excise tax
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levied on the sale or consumption of specific products such as tobacco, alcoholic beverages, and gasoline
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Pay-roll related tax
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taxes automatically deducted from an employees’ pay for things such as employment insurance and social security
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Value-added tax
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ax assessed in most European countries on the increase in value of goods from each stage of production to final consumption
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Income taxes
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tax on the amount a person or a corporation earns minus allowable deductions or credits.
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Free trade zones
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designated areas where products imported duty-free and then stored, assembled and used in manufacturing.
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Most-favoured nation status
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allows a country to export into the granting country under the lowest customs duty rates.
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Free trade agreements
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member countries agree to eliminate duties and trade barriers on products traded among members.
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Common markets
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members eliminate duties and other trade barriers, allow companies to invest freely in each members country, and allow workers to move freely across borders
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Tax incentives
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tax deductions or credits on foreign income
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double taxation avoidance treaties
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a tax incentive foreign governments use to attract Canadian companies to invest in their countries and create local jobs
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Tax holidays
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corporation does not pay corporate income taxes if they invest in their country
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Sole proprietorship
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a business owned by one person.
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Partnership
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partnership is a business that is owned by two or more people, but is not incorporated
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Corporation
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a business that operates as a legal entity separate from any of the owners
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Stock certificate
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a document that represents ownership in a corporation
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Dividends
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a share of the company’s profits
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Limited liability
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stockholders are only responsible for the debts of the corporation up to the amount they invested
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Municipal corporation
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in an incorporated town or city organized to provide services for citizens rather than to make a profit
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Non-profict corporation
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created to provide a service and are not concerned with making a profit.
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Cooperative
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a business owned by its members and operated for their benefit
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Multinational company or corporation
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an organization that has business operations in different countries
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Low risk methods for getting involved in an international business (short answer)
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1. Indirect exporting – company sells its products in a foreign market without any special activity for that purpose (lowest risk). Uses agents and brokers to bring buyers and sellers of products together; casual or accidental exporting 2. Direct exporting – company actively seeks and conducts exporting 3. Management contracting – company sells only its management skills 4. Licensing – selling the rights to use a production process, trademark, or brand name 5. Franchising – allowing the right to use a company name or business process in a specific way
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High risk methods for getting involved in an intentional business (short answer)
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6. Joint ventures – an agreement between two or more companies from different countries to share a business project. Strategic partnership allowing companies to cooperate for a common business purpose and to share costs, risks and profits 7. Foreign direct investment (FDI) – a company buys land or other resources in another country. 8. Wholly-owned subsidiary – a type of FDI whereby an independent company in one country is owned by a foreign parent company (highest risk)

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