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Business Foundations

A Changing World twelfth edition

O.C. Ferrell Auburn University

Geoffrey A. Hirt DePaul University

Linda Ferrell Auburn University

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BUSINESS FOUNDATIONS: A CHANGING WORLD

Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2020 by McGraw-Hill Education. All rights reserved. Printed in the United States of America. 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 McGraw-Hill Education, 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 LWI 21 20 19

ISBN 978-1-260-56580-5 MHID 1-260-56580-7

Cover Image: ©Steve Allen/Getty Images

All credits appearing on page or at the end of the book are considered to be an extension of the copyright page.

The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites.

mheducation.com/highered

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Dedication To James Ferrell

To Linda Hirt

To George Ferrell

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Southeast Doctoral Consortium. He received the Harold Berkman Lifetime Service Award from the Academy of Marketing Science and, more recently, the Cutco Vector Distinguished Marketing Educator Award from the Academy of Marketing Science.

Dr. Ferrell has been involved in entrepreneurial engagements, co-founding Print Avenue in 1981, providing a solution-based printing company. He has been a consultant and served as an expert wit- ness in legal cases related to marketing and busi- ness ethics litigation. He has conducted training for a number of global firms, including General Motors. His involvement with direct selling com- panies includes serving on the Academic Advisory Committee and as a fellow for the Direct Selling Education Foundation.

Dr. Ferrell is the co-author of 20 books and more than 100 published articles and papers. His articles have been published in the Journal of Marketing Research, Journal of Marketing, Journal of Business Ethics, Journal of Business Research, Journal of the Academy of Marketing Science, AMS Review, and the Journal of Public Policy & Marketing, as well as other journals.

GEOFFREY A. HIRT Geoffrey A. Hirt of DePaul University previously taught at Texas Christian University and Illinois State University, where he was chairman of the Department of Finance

and Law. At DePaul, he was chairman of the Finance Department from 1987 to 1997 and

O.C. FERRELL O.C. Ferrell is the James T. Pursell Sr. Eminent Scholar in Ethics and Director of the Center for Ethical Organizational Cultures in the Raymond J. Harbert College of Business,

Auburn University. He was formerly Distinguished Professor of Leadership and Business Ethics at Belmont University and University Distinguished Professor at the University of New Mexico. He has also been on the faculties of the University of Wyoming, Colorado State University, University of Memphis, Texas A&M University, Illinois State University, and Southern Illinois University. He received his PhD in marketing from Louisiana State University.

Dr. Ferrell is president of the Academy of Marketing Science. He is past president of the Academic Council of the American Marketing Association and chaired the American Marketing Association Ethics Committee. Under his lead- ership, the committee developed the AMA Code of Ethics and the AMA Code of Ethics for Marketing on the Internet. In addition, he is a former member of the Academy of Marketing Science Board of Governors and is a Society of Marketing Advances and Southwestern Marketing Association Fellow and an Academy of Marketing Science Distinguished Fellow. He has served for nine years as the vice president of publica- tions for the Academy of Marketing Science. In 2010, he received a Lifetime Achievement Award from the Macromarketing Society and a special award for service to doctoral students from the

Authors

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Authors v

held the title of Mesirow Financial Fellow. He developed the MBA program in Hong Kong and served as director of international initiatives for the College of Business, supervising overseas programs in Hong Kong, Prague, and Bahrain, and was awarded the Spirit of St. Vincent DePaul award for his contributions to the university. Dr. Hirt directed the Chartered Financial Analysts (CFA) study program for the Investment Analysts Society of Chicago from 1987 to 2003. He has been a visiting professor at the University of Urbino in Italy, where he still maintains a rela- tionship with the economics department. He received his PhD in finance from the University of Illinois at Champaign-Urbana, his MBA at Miami University of Ohio, and his BA from Ohio Wesleyan University.

Dr. Hirt is currently on the Dean’s Advisory Board and Executive Committee of DePaul’s School of Music. The Tyree Foundation funds innovative education programs in Chicago, and Dr. Hirt also serves on the Grant Committee. Dr. Hirt is past president and a current member of the Midwest Finance Association, a former edi- tor of the Journal of Financial Education, and also a member of the Financial Management Association. He belongs to the Pacific Pension Institute, an organization of public pension funds, private equity firms, and international organiza- tions such as the Asian Development Bank, the IMF, and the European Bank for Reconstruction and Development.

Dr. Hirt is widely known for his textbook Foundations of Financial Management, published by McGraw-Hill/Irwin. This book, in its sixteenth edition, has been used in more than 31 countries and translated into more than 14 different languages. Additionally, Dr. Hirt is well known for his text- book Fundamentals of Investment Management, also published by McGraw-Hill/Irwin and now in its tenth edition. Dr. Hirt enjoys golf, swimming, music, and traveling with his wife, who is a pianist and opera coach.

LINDA FERRELL Linda Ferrell is Professor and Chair of the Marketing Department in the Raymond J. Harbert College of Business, Auburn University. She was for- merly Distinguished Professor

of Leadership and Business Ethics at Belmont University. She completed her PhD 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, University of Wyoming, and the University of New Mexico. She has also team-taught classes at Thammasat University in Bangkok, Thailand.

Her work experience as an account executive for McDonald’s and Pizza Hut’s advertising agen- cies supports her teaching of advertising, market- ing management, marketing ethics, and marketing principles. She has published in the Journal of Public Policy & Marketing, Journal of Business Research, Journal of the Academy of Marketing Science, Journal of Business Ethics, AMS Review, Journal of Academic Ethics, Journal of Marketing Education, Marketing Education Review, Journal of Teaching Business Ethics, Marketing Management Journal, and Case Research Journal, and she is co-author of Business Ethics: Ethical Decision Making and Cases (eleventh edition), Management (third edition), and Business and Society (sixth edition).

Dr. Ferrell is the immediate past president of the Academy of Marketing Science and a past president for the Marketing Management Association. She is a member of the NASBA Center for the Public Trust Board, on the Mannatech Board of Directors, and on the college advisory board for Cutco/Vector. She is also on the Board, Executive Committee, and Academic Advisory Committee of the Direct Selling Education Foundation. She has served as an expert witness in cases related to advertising, busi- ness ethics, and consumer protection.

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The twelfth edition represents a complete and comprehensive revision. This is because so many events and changes in the environment relate to the foundational concepts in business. This means that an introduction to business product has to pro- vide adequate coverage of dynamic changes in the economy as they relate to busi- ness decisions. We have listened to your feedback and incorporated needed changes in content, boxes, cases, exercises, support, online resources, and other features.

This is our fifth edition with a chapter on digital marketing and social network- ing in business. Since launching this chapter in the eighth edition, this dynamic area continues to change the face of business. Entrepreneurs and small businesses have to be able to increase sales and reduce costs by using social networking to commu- nicate and develop relationships with customers. The sharing, or “gig,” economy is transforming entrepreneurial opportunities for employees. For example, the number of independent contractors in our economy has increased to almost one-third of the workforce. The Internet is providing opportunities for peer-to-peer relationships for companies such as Uber, Lyft, TaskRabbit, as well as health care services like Dose. Digital marketing has helped many entrepreneurs launch successful businesses. The increase in independent contractors has contributed to a new trend called co- working. For example, WeWork, discussed in Chapter 10, is capitalizing on these co-working opportunities by offering flexible, agile workspaces to businesses rang- ing from freelancers to Fortune 500 companies.

Throughout the product, we recognize the importance of sustainability and “green” business. By using the philosophy reduce, reuse, and recycle, we believe every business can be more profitable and contribute to a better world through green initiatives. There is a “Going Green” box in each chapter that covers these environ- mental changes. Our “Entrepreneurship in Action” boxes also discuss many innova- tions and opportunities to use sustainability for business success. Sustainability is not only a goal of many businesses, but it is also providing career opportunities for many of our students.

We have been careful to continue our coverage of global business, ethics and social responsibility, and information technology as they relate to the foundations important in an introduction to business course. Our co-author team has a diversity of expertise in these important areas. O.C. Ferrell and Linda Ferrell have been rec- ognized as leaders in business ethics education, and their insights are reflected in every chapter and in the “Business Integrity” boxes. Geoff Hirt has a strong back- ground in global business development, especially world financial markets and trade relationships.

The foundational areas of introduction to business, entrepreneurship, small busi- ness management, marketing, accounting, and finance have been completely revised. Examples have been provided to which students can easily relate. An understanding 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,”

Welcome

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Welcome vii

“Entrepreneurship in Action,” “Going Green,” and “Business Integrity” 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 opportu- nity to play a significant role in improving our world. In this new edition, we have additional content to help our students understand how our free enterprise system operates and how we fit into the global competitive environment. This course is an opportunity for students to understand how they can create their own success and improve their quality of life.

O.C. Ferrell

Geoffrey A. Hirt

Linda Ferrell

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viiiviii

Business Foundations: A Changing World, twelfth edition, offers faculty and students a focused resource that is exciting, applicable, and happening! What sets this learning program apart from the competition? An unrivaled mixture of exciting content and resources blended with application focused text and activities, and fresh topics and examples that show students what is happening in the world of business today!

Our product contains all of the essentials that most students should learn in a semester. Business Foundations has, since its inception, delivered a focused presentation of the essential material needed to teach introduction to business. An unrivaled mixture of exciting content and resources, application-focused content and activities, and fresh topics and examples that show students what is happening in the world of business today set this text apart!

Focused, Exciting, Applicable, Happening

It’s easy for students taking their first steps into business to become overwhelmed. Longer products try to solve this problem by chopping out examples or topics to make ad hoc shorter editions. Business Foundations carefully builds just the right mix of coverage and applications to give your students a firm grounding in business principles. Where other products have you sprinting through the semester to get everything in, Ferrell/Hirt/Ferrell allows you the breathing space to explore topics and incorporate other activities that are important to you and your students. The exceptional resources and the Active Classroom Resource Manual support you in this effort every step of the way.

Focused!

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Focused, Exciting, Applicable, Happening ix

It’s exciting to see students succeed! It’s exciting to see more As and Bs in a course without grade inflation. Ferrell/Hirt/Ferrell makes these results possible for your course with its integrated learning package that is proven effective, tailored to each individual student, and easy to use.

Exciting

Applicable When students see how content applies to them, their life, their career, and the world around them, they are more engaged in the course. Business Foundations helps students maximize their learning efforts by setting clear objectives; delivering interesting cases and examples; focusing on core issues; and providing engaging activities to apply concepts, build skills, and solve problems.

Happening! Because it isn’t tied to the revision cycle of a larger book, Business Foundations inherits no outdated or irrelevant examples or coverage. Everything in the twelfth edition reflects the very latest developments in the business world—from the recent recession, high unemployment rates, and the financial instability in Europe to the growth of digital marketing and social networking. In addition, ethics continues to be a key issue, and Ferrell/Hirt/Ferrell use “Business Integrity” boxes to instill in students the importance of ethical conduct in business. To ensure you always know what’s happening, join the author-led Facebook group page supporting this text.

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xx

As always, when revising this material for the current edition, all examples, figures, and statistics have been updated to incorporate any recent developments that affect the world of business. Additionally, content was updated to ensure the most pertinent topical coverage is provided. We now provide bonus chapters in the text—Bonus Chapter A, The Legal and Regulatory Environment, and Bonus Chapter B, Personal and Financial Planning—to meet market demands. In addition, we have added a new online Appendix C, which provides the basics of risk management. Both insurable and noninsurable risk are covered in this appendix.

Here are the highlights for each chapter:

Chapter 1: The Dynamics of Business and Economics

• New boxed features describing real-world business issues • Updated unemployment statistics • New chart on online retailing

Chapter 2: Business Ethics and Social Responsibility

• New boxed features describing issues in business ethics and social responsibility • New data on global trust in different industries • New examples about ethical issues in the sharing economy • New content about aggressive financial or business objectives • New example of a bribery scandal

Chapter 3: Business in a Borderless World

• New boxed features describing issues in international business • Updated list of top 10 countries with which the U.S. has trade deficits/surpluses • New content on U.S. aluminum and steel tariffs • Updated Euro Zone details • New details on the EU’s General Data Protection Regulation (GDPR)

Chapter 4: Options for Organizing Business

• New boxed features describing real-world business issues • New chart of world’s biggest dividend payers • Updated table of America’s largest private companies

Chapter 5: Small Business, Entrepreneurship, and Franchising

• New boxed features describing current business issues • Examples of innovative small businesses • New information on artificial intelligence • Updated table of the fastest growing franchises • Updated table of the most business-friendly states

Chapter 6: The Nature of Management

• New boxed features describing current business issues • New content about business models

New to This Edition

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• New table of compensation packages of CEOs • New content on gender equality • New See for Yourself Videocase—JCF Fitness

Chapter 7: Organization, Teamwork, and Communication

• New boxed features describing current business issues • New examples of organizational culture • New content on artificial intelligence • New stats on email usage in the workplace • New See for Yourself Videocase—Freshii

Chapter 8: Managing Operations and Supply Chains

• New boxed features describing current business operational issues • New content on marketing research and artificial intelligence • New section on blockchain technology • New content on drone technology • Extensive overhaul of Managing the Supply Chain section

Chapter 9: Motivating the Workforce

• New boxed features describing current business issues • New examples of organizational culture

Chapter 10: Managing Human Resources

• New boxed features describing current HR issues • Updated common job interview questions • New content on wage gap • New example of how soft benefits inspire loyalty

Chapter 11: Customer-Driven Marketing

• New boxed features describing current marketing issues • New content on marketing orientation • New content on supply chain management • New content on marketing analytics dashboards

Chapter 12: Dimensions of Marketing Strategy

• New boxed features describing current marketing issues • Logistics added as key term • New definition for physical distribution key term • New See for Yourself Videocase—Zappos

Chapter 13: Digital Marketing and Social Media

• New boxed features describing current digital marketing issues • New stats on social media use by platform • New stats on mobile app activities

Chapter 14: Accounting and Financial Statements

• New boxed features describing current accounting issues • Updated rankings of accounting firms in the U.S. • Updated financial information for Microsoft

New to This Edition xi

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xiixii

Chapter 15: Money and the Financial System

• New boxed features describing current financial issues • Updated life expectancy of money • Updated cost to produce coins • New content on cryptocurrency • New See for Yourself Videocase—Kiva

Chapter 16: Financial Management and Securities Markets

• New boxed features describing current financial issues • Updated short-term investment possibilities • Updated U.S. corporate bond quotes • New content on electronic markets

xii New to This Edition

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Michael Bento Owens Community College

Patty Boyle Lane Community College

Dennis Brode Sinclair Community College

Angela Casler California State University

Steven M. Dunphy Indiana University Northwest

Terri Gonzalez-Kreisman Delgado Community College

Chad Grooms Gateway Community and Technical College

Ivan Franklin Harber Jr. Indian River State College

Dan Jones Ball State University

Stephen Konrad Portland State University

Hui Pate Skyline College

Daniel Pfaltzgraf University of Toledo

Linda L. Ridley CUNY Hostos Community College

Michael Rose Butler Community College

Amanda Stocklein State Fair Community College

Rhonda K. Thomas Butler Community College

Bruce Yuille Mid Michigan Community College

Acknowledgments

The twelfth edition of Business Foundations: A Changing World would not have been possible without the commitment, dedication, and patience of Jennifer Sawayda and Kelsey Reddick. Kelsey Reddick provided oversight for editing text content, and Jennifer Sawayda developed the cases, boxes, and the supplements. Anke Weekes, Executive Brand Manager, provided leadership and creativity in planning and imple- menting all aspects of the twelfth edition. Haley Burmeister, Product Developer, did an outstanding job of coordinating all aspects of the development and production process. Kathryn Wright was the Content Project Manager. Bruce Gin managed the technical aspects of Connect. Others important in this edition include Gabe Fedota (Marketing Manager) and Jessica Cuevas (Designer). Michael Hartline developed the Personal Career Plan in Appendix B. Vickie Bajtelsmit developed Bonus Chapter B on personal financial planning. Eric Sandberg of Interactive Learning assisted in developing the interactive exercises. Many others have assisted us with their help- ful comments, recommendations, and support throughout this and previous editions. Thank you for all of your insight and feedback. We’d like to express our sincere thanks to the reviewers who helped us shape the twelfth edition. Your time and thoughtful feedback has helped us greatly make this another great revision:

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xiv Acknowledgments

Brenda Anthony, Tallahassee Community College NaRita Gail Anderson, University of Central

Oklahoma Phyllis Alderdice, Jefferson Community College Vondra Armstrong, Pulaski Tech College John Bajkowski, American Association of Individual

Investors Gene Baker, University of North Florida Lia Barone, Norwalk Community College Ellen Benowitz, Mercer County Community College Stephanie Bibb, Chicago State University Gene Blackmun, Rio Hondo College Susan Blumen, Montgomery College Barbara Boyington, Monmouth–Ocean County Small

Business Development Center Suzanne Bradford, Angelina College Alka Bramhandkar, Ithaca College Dennis Brode, Sinclair Community College Harvey S. Bronstein, Oakland Community College Colin Brooks, University of New Orleans Eric Brooks, Orange County Community College Nicky Buenger, Texas A&M University Anthony Buono, Bentley College Tricia Burns, Boise State University Diana Carmel, Golden West College William Chittenden, Texas State University Michael Cicero, Highline Community College Margaret Clark, Cincinnati State Tech & Community

College Mark Lee Clark, Collin College Debbie Collins, Anne Arundel Community

College–Arnold Karen Collins, Lehigh University Katherine Conway, Borough of Manhattan Community

College Rex Cutshall, Indiana University Dana D’Angelo, Drexel University Laurie Dahlin, Worcester State College Deshaun H. Davis, Northern Virginia Community

College Yalonda Ross Davis, Grand Valley State University Peter Dawson, Collin County Community

College–Plano John DeNisco, Buffalo State College Tom Diamante, Corporate Consulting Associates, Inc. Joyce Domke, DePaul University Glenn Doolittle, Santa Ana College Michael Drafke, College of DuPage John Eagan, Erie Community College/City Campus

SUNY

Glenda Eckert, Oklahoma State University Thomas Enerva, University of Maine–Fort Kent Robert Ericksen, Business Growth Center Donna Everett, Santa Rosa Junior College Joe Farinella, University of North

Carolina–Wilmington Bob Farris, Mt. San Antonio College Gil Feiertag, Columbus State Community College James Ferrell, R. G. Taylor, P.C. Cheryl Fetterman, Cape Fear Community College Art Fischer, Pittsburg State University Jackie Flom, University of Toledo Anthony D. Fontes III, Bunker Hill Community

College Jennifer Friestad, Anoka–Ramsey Community College Chris Gilbert, Tacoma Community College/University

of Washington Ross Gittell, University of New Hampshire Connie Golden, Lakeland Community College Terri Gonzales-Kreisman, Phoenix College Kris Gossett, Ivy Tech Community College of Indiana Carol Gottuso, Metropolitan Community College Bob Grau, Cuyahoga Community College–Western

Campus Gary Grau, Northeast State Tech Community College Jack K. Gray, Attorney-at-Law, Houston, Texas Catherine Green, University of Memphis Claudia Green, Pace University Maurice P. Greene, Monroe College Phil Greenwood, University of Wisconsin–Madison David Gribbin, East Georgia College Selina Andrea Griswold, University of Toledo John P. Guess, Delgado Community College Peggy Hager, Winthrop University Michael Hartline, Florida State University Paul Harvey, University of New Hampshire Neil Herndon, University of Missouri James Hoffman, Borough of Manhattan Community

College MaryAnne Holcomb, Antelope Valley College Timothy D. Hovet, Lane Community College Joseph Hrebenak, Community College of Allegheny

County–Allegheny Campus Stephen Huntley, Florida Community College Rebecca Hurtz, State Farm Insurance Co. Donald C. Hurwitz, Austin Community College Scott Inks, Ball State University Steven Jennings, Highland Community College Carol Jones, Cuyahoga Community College–Eastern

Campus

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Acknowledgments xv

Sandra Kana, Mid-Michigan Community College Norm Karl, Johnson County Community College Janice Karlan, LaGuardia Community College Eileen Kearney, Montgomery County Community

College Craig Kelley, California State University–

Sacramento Susan Kendall, Arapahoe Community College Ina Midkiff Kennedy, Austin Community College Kathleen Kerstetter, Kalamazoo Valley Community

College Arbrie King, Baton Rouge Community College John Knappenberger, Mesa State College Gail Knell, Cape Cod Community College Anthony Koh, University of Toledo Regina Korossy, Pepperdine University Velvet Landingham, Kent State University–Geauga Jeffrey Lavake, University of Wisconsin–Oshkosh Daniel LeClair, AACSB Chad T. Lewis, Everett Community College Richard Lewis, East Texas Baptist College Corinn Linton, Valencia Community College Corrine Livesay, Mississippi College Thomas Lloyd, Westmoreland Community College Terry Loe, Kennerow University Terry Lowe, Illinois State University Kent Lutz, University of Cincinnati Scott Lyman, Winthrop University Dorinda Lynn, Pensacola Junior College Isabelle Maignan, ING Larry Martin, Community College of Southern

Nevada–West Charles Therese Maskulka, Youngstown State University Theresa Mastrianni, Kingsborough Community

College Kristina Mazurak, Albertson College of Idaho Debbie Thorne McAlister, Texas State University–San

Marcos Noel McDeon, Florida Community College John McDonough, Menlo College Tom McInish, University of Memphis Mark McLean, Delgado Community College Chris Mcnamara, Fingers Lake Community College Kimberly Mencken, Baylor University Mary Meredith, University of Louisiana at Lafayette Michelle Meyer, Joliet Junior College George Milne, University of Massachusetts–Amherst Daniel Montez, South Texas College Glynna Morse, Augusta College Suzanne Murray, Piedmont Technical College

Stephanie Narvell, Wilmington College–New Castle Fred Nerone, International College of Naples Laura Nicholson, Northern Oklahoma College Stef Nicovich, Lynchburg College Michael Nugent, SUNY–Stony Brook University

New York Mark Nygren, Brigham Young University–Idaho Lauren Paisley, Genesee Community College James Patterson, Paradise Valley Community College Wes Payne, Southwest Tennessee Community College Dyan Pease, Sacramento City College Constantine G. Petrides, Borough of Manhattan

Community College John Pharr, Cedar Valley College Shirley Polejewski, University of St. Thomas Daniel Powroznik, Chesapeake College Krista Price, Heald College Larry Prober, Rider University Vincent Quan, Fashion Institute Technology Michael Quinn, Penn State University Stephen Pruitt, University of Missouri–Kansas City Victoria Rabb, College of the Desert Gregory J. Rapp, Portland Community College Tom Reading, Ivy Tech State College Delores Reha, Fullerton College David Reiman, Monroe County Community College Susan Roach, Georgia Southern University Dave Robinson, University of California–Berkeley Carol Rowey, Surry Community College Marsha Rule, Florida Public Utilities Commission Carol A. Rustad, Sylvan Learning Cyndy Ruszkowski, Illinois State University Martin St. John, Westmoreland Community College Don Sandlin, East Los Angeles College Nick Sarantakes, Austin Community College Andy Saucedo, Dona Ana Community College–Las

Cruces Dana Schubert, Colorado Springs Zoo Marianne Sebok, Community College of Southern

Nevada–West Charles Jeffery L. Seglin, Seglin Associates Daniel Sherrell, University of Memphis Morgan Shepherd, University of Colorado Elaine

Simmons, Guilford Technical Community College Greg Simpson, Blinn College Nicholas Siropolis, Cuyahoga Community College Robyn Smith, Pouder Valley Hospital Kurt Stanberry, University of Houston Downtown Cheryl Stansfield, North Hennepin Community

College

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xvi Acknowledgments

Ron Stolle, Kent State University–Kent Edith Strickland, Tallahassee Community College Jeff Strom, Virginia Western Community College Lisa Strusowski, Tallahassee Community College Scott Taylor, Moberly Area Community College Wayne Taylor, Trinity Valley Community College Ray Tewell, American River College Rodney Thirion, Pikes Peak Community College Evelyn Thrasher, University of

Massachusetts–Dartmouth Steve Tilley, Gainesville College Amy Thomas, Roger Williams University Kristin Trask, Butler Community College Allen D. Truell, Ball State University

George Valcho, Bossier Parish Community College Ted Valvoda, Lakeland Community College Gunnar Voltz, Northern Arizona University–Flagstaff Sue Vondram, Loyola University Elizabeth Wark, Springfield College Emma Watson, Arizona State University–West Ruth White, Bowling Green State University Elisabeth Wicker, Bossier Parish Community College Frederik Williams, North Texas State University Richard Williams, Santa Clara University Pat Wright, University of South Carolina Lawrence Yax, Pensacola Junior College–Warrington Bruce Yuille, Cornell University–Ithaca

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Part 1 Business in a Changing World 1 The Dynamics of Business and Economics 2

2 Business Ethics and Social Responsibility 36

3 Business in a Borderless World 72

Part 2 Starting and Growing a Business 4 Options for Organizing Business 108

5 Small Business, Entrepreneurship, and Franchising 140

Part 3 Managing for Quality and Competitiveness 6 The Nature of Management 172

7 Organization, Teamwork, and Communication 202

8 Managing Operations and Supply Chains 234

Part 4 Creating the Human Resource Advantage 9 Motivating the Workforce 270

10 Managing Human Resources 298

Part 5 Marketing: Developing Relationships 11 Customer-Driven Marketing 332

12 Dimensions of Marketing Strategy 362

13 Digital Marketing and Social Media 400

Part 6 Financing the Enterprise 14 Accounting and Financial Statements 436

15 Money and the Financial System 474

16 Financial Management and Securities Markets 504 Bonus Chapters

A The Legal and Regulatory Environment 534

B Personal Financial Planning 556

Glossary 581 Indexes 597 Appendixes (Available Online and via Create)

A Guidelines for the Development of the Business Plan

B Personal Career Plan

C Risk: The Basics of Risk Management

Brief Contents

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xviii

Part 1 Business in a Changing World 1

CHAPTER 1

The Dynamics of Business and Economics 2

Enter the World of Business 3 Warren Buffet: The Oracle of Omaha 3

Introduction 4 The Nature of Business 4

The Goal of Business 4

The People and Activities of Business 5

Why Study Business? 7 The Economic Foundations of Business 8

Economic Systems 8

The Free-Enterprise System 11

The Forces of Supply and Demand 12

The Nature of Competition 13

Economic Cycles and Productivity 15 The American Economy 18

The Importance of the American Economy 18

Responding to Business Challenges 20 The Trix of the Trade: General Mills’ Brand Strategy 20

A Brief History of the American Economy 20

The Role of the Entrepreneur 22

Entrepreneurship in Action 23 ATA: Engineering Good Teamwork 23

Going Green 24 Rainforest Alliance Stands Out in a Forest of Nonprofits 24

The Role of Government in the American Economy 24

The Role of Ethics and Social Responsibility in Business 24

Can You Learn Business in a Classroom? 25

So You Want a Job in the Business World 27 Review Your Understanding 27 Critical Thinking Questions 28 Learn the Terms 28 Check Your Progress 29 Get Involved 29 Build Your Skills: The Forces of Supply and Demand 29 Solve the Dilemma: Mrs. Acres Homemade Pies 30 Build Your Business Plan: The Dynamics of Business and Economics 31 See for Yourself Videocase: Redbox Succeeds by Identifying Market Need 31 Team Exercise 32 Notes 32

CHAPTER 2

Business Ethics and Social Responsibility 36

Enter the World of Business 37 NFL Tackles Safety Expectations 37

Introduction 38 Business Ethics and Social Responsibility 38 The Role of Ethics in Business 40

Recognizing Ethical Issues in Business 41

Fairness and Honesty 47

Going Green 47 Chipotle Chips Away at Food Safety Advancements 47

Making Decisions about Ethical Issues 49

Improving Ethical Behavior in Business 50

Consider Ethics and Social Responsibility 52 Eaton Maintains a Successful Ethics Program 52

The Nature of Social Responsibility 53

Entrepreneurship in Action 55 A Step Ahead: Blake Mycoskie Provides Leadership for Social Entrepreneurship 55

Contents

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Contents xix

Social Responsibility Issues 56

Unemployment 61

So You Want a Job in Business Ethics and Social Responsibility 62 Review Your Understanding 63 Critical Thinking Questions 63 Learn the Terms 63 Check Your Progress 64 Get Involved 64 Build Your Skills: Making Decisions about Ethical Issues 64 Solve the Dilemma: Customer Privacy 65 Build Your Business Plan: Business Ethics and Social Responsibility 66 See for Yourself Videocase: Warby Parker: An Affordable World Vision 66 Team Exercise 67 Notes 67

CHAPTER 3

Business in a Borderless World 72

Enter the World of Business 73 Alibaba: China’s National Treasure 73

Introduction 74 The Role of International Business 74

Why Nations Trade 75

Trade between Countries 75

Balance of Trade 76 International Trade Barriers 77

Economic Barriers 77

Ethical, Legal, and Political Barriers 78

Entrepreneurship in Action 79 Kenya Counts on Mobile Banking 79

Responding to Business Challenges 82 Uber Attempts to Make a Right Turn 82

Social and Cultural Barriers 83

Technological Barriers 85 Trade Agreements, Alliances, and Organizations 85

General Agreement on Tariffs and Trade 85

The North American Free Trade Agreement 86

The European Union 87

Asia-Pacific Economic Cooperation 88

Association of Southeast Asian Nations 89

World Bank 90

International Monetary Fund 90

Getting Involved in International Business 90

Exporting and Importing 90

Trading Companies 92

Licensing and Franchising 92

Contract Manufacturing 93

Outsourcing 93

Offshoring 93

Going Green 94 Algae: A Biofuel Breakthrough 94

Joint Ventures and Alliances 94

Direct Investment 94 International Business Strategies 96

Developing Strategies 96

Managing the Challenges of Global Business 96

So You Want a Job in Global Business 97 Review Your Understanding 97 Critical Thinking Questions 98 Learn the Terms 98 Check Your Progress 99 Get Involved 99 Build Your Skills: Global Awareness 99 Solve the Dilemma: Global Expansion or Business as Usual? 100 Build Your Business Plan: Business in a Borderless World 101 See for Yourself Videocase: Electra Bikes: Better, Cooler, Awesomer! 101 Team Exercise 102 Notes 102

Part 2 Starting and Growing a Business 107

CHAPTER 4

Options for Organizing Business 108

Enter the World of Business 109 Louisville Slugger Hits the Ball Out of the Park 109

Introduction 110 Sole Proprietorships 110

Advantages of Sole Proprietorships 111

Disadvantages of Sole Proprietorships 113 Partnerships 114

Types of Partnership 115

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xx Contents

Articles of Partnership 115

Advantages of Partnerships 115

Disadvantages of Partnerships 117

Taxation of Partnerships 118

Consider Ethics and Social Responsibility 119 Beer Hound Brews the Perfect Partnership 119

Corporations 119

Creating a Corporation 120

Types of Corporations 121

Elements of a Corporation 123

Advantages of Corporations 125

Disadvantages of Corporations 126

Going Green 127 To B or Not to B: Cascade Engineering Adopts B Corporation Certification 127

Other Types of Ownership 128

Joint Ventures 128

S Corporations 128

Limited Liability Companies 128

Entrepreneurship in Action 129 Moving on Up: The VIP Moving & Storage LLC Experience 129

Cooperatives 129 Trends in Business Ownership: Mergers and Acquisitions 130

So You’d Like to Start a Business 132 Review Your Understanding 133 Critical Thinking 134 Learn the Terms 134 Check Your Progress 134 Get Involved 134 Build Your Skills: Selecting a Form of Business 135 Solve the Dilemma: To Incorporate or Not to Incorporate 135 Build Your Business Plan: Options for Organizing Business 136 See for Yourself Videocase: PODS Excels at Organizing a Business 136 Team Exercise 137 Notes 137

CHAPTER 5

Small Business, Entrepreneurship, and Franchising 140

Enter the World of Business 141 Chick-fil-A Earns Grade A for Quality 141

Introduction 142 The Nature of Entrepreneurship and Small Business 142

What Is a Small Business? 143

The Role of Small Business in the American Economy 144

Consider Ethics and Social Responsibility 146 Shark Tank Takes a Bite of Success 146

Industries That Attract Small Business 146 Advantages of Small-Business Ownership 149

Independence 149

Costs 150

Flexibility 150

Focus 150

Entrepreneurship in Action 151 Sseko Helps Women Get a Step Ahead 151

Reputation 151 Disadvantages of Small-Business Ownership 151

High Stress Level 151

High Failure Rate 152 Starting a Small Business 153

The Business Plan 154

Forms of Business Ownership 154

Financial Resources 154

Approaches to Starting a Small Business 156

Help for Small-Business Managers 157

Going Green 158 Growing a Family Business: Haney’s Appledale Farm 158

The Future for Small Business 159

Demographic Trends 159

Technological and Economic Trends 159 Making Big Businesses Act “Small” 160

So You Want to Be an Entrepreneur or Small-Business Owner 161 Review Your Understanding 162 Critical Thinking Questions 162 Learn the Terms 163 Check Your Progress 163 Get Involved 163 Build Your Skills: Creativity 163 Solve the Dilemma: The Small-Business Challenge 164 Build Your Business Plan: Small Business, Entrepreneurship, and Franchising 165

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See for Yourself Videocase: Sonic—A Successful Franchise with an Old-Fashioned Drive-In Experience 165 Team Exercise 166 Notes 166

Part 3 Managing for Quality and Competitiveness 171

CHAPTER 6

The Nature of Management 172

Enter the World of Business 173 Home Depot Builds Effective Management System 173

Introduction 174 The Importance of Management 174 Management Functions 175

Planning 175

Entrepreneurship in Action 177 Rebecca Ray Designs Has It in the Bag 177

Organizing 179

Directing 179

Controlling 180 Types of Management 181

Levels of Management 181

Areas of Management 184 Skills Needed by Managers 185

Technical Expertise 186

Conceptual Skills 186

Analytical Skills 186

Human Relations Skills 186 Leadership 187

Going Green 189 New Belgium Brewing Brews Up “Green” Management Style 189

Employee Empowerment 189 Decision Making 190

Recognizing and Defining the Decision Situation 190

Developing Options 191

Analyzing Options 191

Selecting the Best Option 191

Responding to Business Challenges 192 Zappos Puts the Right Foot Forward 192

Implementing the Decision 192

Monitoring the Consequences 193

Management in Practice 193

So You Want to Be a Manager 194 Review Your Understanding 195 Critical Thinking Questions 195 Learn the Terms 195 Check Your Progress 196 Get Involved 196 Build Your Skills: Functions of Management 196 Solve the Dilemma: Making Infinity Computers Competitive 197 Build Your Business Plan: The Nature of Management 198 See for Yourself Videocase: Building a Strong and Healthy Business 198 Team Exercise 199 Notes 199

CHAPTER 7

Organization, Teamwork, and Communication 202

Enter the World of Business 203 Keurig Green Mountain Brews Effective Communication 203

Introduction 204 Organizational Culture 204 Developing Organizational Structure 205 Assigning Tasks 207

Specialization 207

Departmentalization 208 Assigning Responsibility 210

Delegation of Authority 210

Degree of Centralization 211

Span of Management 212

Responding to Business Challenges 213 Whole Foods Focuses on the Whole Team 213

Organizational Layers 213

Entrepreneurship in Action 214 Sugar Bowl Bakery Hits the Sweet Spot 214

Forms of Organizational Structure 214

Line Structure 214

Line-and-Staff Structure 214

Multidivisional Structure 216