Under what type of marketing does kliptech operate

William M. Pride Texas A&M University

Robert J. Hughes Dallas County Community Colleges

Jack R. Kapoor College of DuPage

Foundations of Business

Australia • Brazil • Mexico • Singapore • United Kingdom • United States

5e

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Foundations of Business, Fifth Edition William M. Pride, Robert J. Hughes, and Jack R. Kapoor

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To Nancy, Allen, Carmen, Mike, Ashley, Charlie, J.R., and Gracie Pride

To the memory of 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

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Part 1 the Environment of Business 2 Chapter 1 Exploring the World of Business and Economics 2 Chapter 2 Being Ethical and Socially Responsible 37 Chapter 3 Exploring Global Business 68

Part 2 Business Ownership and Entrepreneurship 104 Chapter 4 Choosing a Form of Business Ownership 104 Chapter 5 Small Business, Entrepreneurship, and Franchises 132

Part 3 Management and Organization 164 Chapter 6 Understanding the Management Process 164 Chapter 7 Creating a Flexible Organization 188 Chapter 8 Producing Quality Goods and Services 210

Part 4 Human resources 244 Chapter 9 Attracting and Retaining the Best Employees 244 Chapter 10 Motivating and Satisfying Employees and Teams 272

Part 5 Marketing 304 Chapter 11 Building Customer Relationships Through Effective Marketing 304 Chapter 12 Creating and Pricing Products That Satisfy Customers 329 Chapter 13 Distributing and Promoting Products 362

Part 6 Information, accounting, and Finance 400 Chapter 14 Exploring Social Media and e-Business 400 Chapter 15 Using Management and Accounting Information 433 Chapter 16 Mastering Financial Management 466

Glossary G-1 Name Index NI-1 Subject Index SI-1

The following appendixes appear on the companion site www.cengage.brain.com Appendix A: Understanding Personal Finances and Investments A-1 Appendix B: Careers in Business B-1 Appendix C: Enhancing Union–Management

Relations C-1 Appendix D: Risk Management and Insurance D-1 Appendix E: Business Law, Regulation,

and Taxation E-1

Brief Contents

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iv

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About the Author xii Acknowledgments xiii

PArT 1 The Environment of Business 2 Chapter 1: Exploring the World of Business and Economics 2

5 Inside Business: Visa’s Vast Global Payments Empire 3 Your Future in the Changing World of Business 4

Why Study Business? 5 • Special Note to Business Students 8 Personal App: Be the employee you’d like to hire! 7 Business: A Definition 10

The Organized Effort of Individuals 10 • Satisfying Needs 11 • Business Profit 12

Types of Economic Systems 12 Capitalism 14 • Capitalism in the United States 15 • Command Economies 17

Measuring Economic Performance 18 The Importance of Productivity in the Global Marketplace 18 • The Nation’s Gross Domestic Product 19 • Important Economic Indicators That Measure a Nation’s Economy 20

The Business Cycle 21 Career Success: Career Moves and the Business Cycle 22 Types of Competition 23

Perfect Competition 23 • Monopolistic Competition 25 • Oligopoly 26 • Monopoly 26

Entrepreneurial Success: Meet the Teenaged Founder of Fish Flops 26

American Business Today 27 Early Business Development 27 • Business Development in the 1900s 28 • A New Century: 2000 and Beyond 29 • The Current Business Environment 29 • The Challenges Ahead 31

Social Media: Government Agencies Go Social 30 Summary 32 Key Terms 34 Discussion Questions 34 Video Case: KlipTech Turns Recycled Paper into Products

and Profits 34 Building Skills for Career Success 35

Endnotes 36

Chapter 2: Being Ethical and Socially Responsible 37

5 Inside Business: Tesla Motors 38

Business Ethics Defined 39 Ethical Issues 39

Fairness and Honesty 39 • Organizational Relationships 40 • Conflict of Interest 40 • Communications 41

Factors Affecting Ethical Behavior 41 Individual Factors Affecting Ethics 42 • Social Factors Affecting Ethics 42 • Opportunity as a Factor Affecting Ethics 43

Encouraging Ethical Behavior 43 Government’s Role in Encouraging Ethics 43 • Trade Associations’ Role in Encouraging Ethics 44 • Individual Companies’ Role in Encouraging Ethics 44 • Social Responsibility 46

The Evolution of Social Responsibility in Business 47 Historical Evolution of Business Social Responsibility 47 • Two Views of Social Responsibility 49 • The Pros and Cons of Social Responsibility 49

Ethical Success or Failure Businesses Feel Pressure Over Conditions in Suppliers’ Factories 50

Public Responsibilities of Business 51 Consumerism 51 • Public Health 53

Personal App: Do you always know what you’re buying? 52 Social Media: The FTC Blogs and Tweets Too 53 Employment Practices 55

Affirmative Action Programs 56 • Training Programs for the Hard-Core Unemployed 57 • Programs to Reduce Sexual Harassment and Abusive Behavior 57

Environmental Concerns 58 Pollution 59 • Effects of Environmental Legislation 59 • Business Response to Environmental Concerns 60

Career Success: Aiming to Be a Chief Sustainability Officer? 59

Implementing a Program of Social Responsibility 62 Commitment of Top Executives 62 • Planning 62 • Appointment of a Director 62 • The Social Audit 62

Summary 63 Key Terms 64 Discussion Questions 64 Video Case: PortionPac Chemical Is People-Friendly,

Planet-Friendly 65 Building Skills for Career Success 65

Endnotes 66

Contents

Contents v

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vi Contents

Chapter 3: Exploring Global Business 68

5 Inside Business: Walmart’s Global Business Strategy 69 The Basis for International Business 70

Absolute and Comparative Advantage 70 • Exporting and Importing 71

Methods of Entering International Business 73 Licensing 73 • Exporting 74 • Joint Ventures 76 • Totally Owned Facilities 77 • Strategic Alliances 77 • Trading Companies 77 • Countertrade 77 • Multinational Firms 78

Entrepreneurial Success: Advice from Global Entrepreneurs 75 Personal App 76 Restrictions to International Business 78

Types of Trade Restrictions 79 • Reasons for Trade Restrictions 81 • Reasons Against Trade Restrictions 82

The Extent of International Business 83 The Economic Outlook for Trade 83

International Trade Agreements 86 The General Agreement on Tariffs and Trade and the World Trade Organization 86 • International Economic Organizations Working to Foster Trade 88

Career Success: Aiming for an Overseas Job? 87 Sources of Export Assistance 90 Financing International Business 91

The Export-Import Bank of the United States 91 • Multilateral Development Banks 91 • The International Monetary Fund 93 • The Challenges Ahead 93

Social Media: The IMF Goes Social Around the World 93 Summary 94 Key Terms 95 Discussion Questions 95 Video Case: Keeping Brazil’s Economy Hot 95

Building Skills for Career Success 96 Running a Business: Part 1: Let’s Go Get a Graeter’s! 98 Building a Business Plan: Part 1 100

Endnotes 102

PArT 2 Business Ownership and Entrepreneurship 104

Chapter 4: Choosing a Form of Business Ownership 104

5 Inside Business: GoPro’s Global Growth Began by Bootstrapping 105

Sole Proprietorships 106 Advantages of Sole Proprietorships 107 • Disadvantages of Sole Proprietorships 108 • Beyond the Sole Proprietorship 109

Social Media: Small Business Resources 109 Partnerships 109

Types of Partners 110 • The Partnership Agreement 111 Advantages and Disadvantages of Partnerships 112

Advantages of Partnerships 112 • Disadvantages of Partnerships 113 • Beyond the Partnership 114

Corporations 114 Corporate Ownership 115 • Forming a Corporation 115 • Corporate Structure 118

Entrepreneurial Success: Should Your Company Be a Benefit Corporation? 116

Personal App: Are you a stockholder? 117 Advantages and Disadvantages of Corporations 119

Advantages of Corporations 119 • Disadvantages of Corporations 120

Special Types of Business Ownership 121 S Corporations 121 • Limited-Liability Companies 122 • Not-for-Profit Corporations 123

Joint Ventures and Syndicates 123 Joint Ventures 124 • Syndicates 124

Ethical Success or Failure Tough Decisions for Entrepreneurs in Tough Situations 124

Corporate Growth 125 Growth from Within 125 • Growth Through Mergers and Acquisitions 125 • Merger and Acquisition Trends for the Future 127

Summary 128 Key Terms 129 Discussion Questions 129 Video Case: Project Repat Gives Old T-Shirts New Life 130

Building Skills for Career Success 130 Endnotes 131

Chapter 5: Small Business, Entrepreneurship, and Franchises 132

5 Inside Business: Bark & Co. Provides for Pampered Pooches 133

Small Business: A Profile 133 The Small-Business Sector 134 • Industries That Attract Small Businesses 135

Social Media: Small Business Saturday 135 Personal App: Have you worked for a small

business? 136 The People in Small Businesses: The Entrepreneurs 136

Characteristics of Entrepreneurs 137 • Other Personal Factors 137 • Motivation 138 • Women as Small-Business Owners 138 • Teenagers as Small-Business Owners 139 • Why Some Entrepreneurs and Small Businesses Fail 139

Career Success: Plan Now for an Entrepreneurial Venture Later 138

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Contents vii

The Importance of Small Businesses in Our Economy 140 Providing Technical Innovation 141 • Providing Employment 142 • Providing Competition 142 • Filling Needs of Society and Other Businesses 142

The Pros and Cons of Smallness 143 Advantages of Small Business 143 • Disadvantages of Small Business 144 • The Importance of a Business Plan 144 • Components of a Business Plan 145

The Small Business Administration 146 SBA Management Assistance 146 • Help for Minority-Owned Small Businesses 148 • SBA Financial Assistance 149

Franchising 150 What Is Franchising? 150 • Types of Franchising 150

Entrepreneurial Success: Is a Franchise in Your Future? 152

The Growth of Franchising 152 Are Franchises Successful? 153 • Advantages of Franchising 153 • Disadvantages of Franchising 154 • Global Perspectives in Small Business 155

Summary 156 Key Terms 157 Discussion Questions 157 Video Case: From Two Men and a Truck to 220

Franchises and 1,400 Trucks 158 Building Skills for Career Success 158 Running a Business: Part 2: Graeter’s: A Fourth-Generation Family Business 160 Building a Business Plan: Part 2 162

Endnotes 162

PArT 3 Management and Organization 164

Chapter 6: Understanding the Management Process 164

5 Inside Business: Managing Walt Disney for a Second Century of Creativity and Success 165

What is Management? 165 Personal App: Are you already a manager? 166 Basic Management Functions 167

Planning 167 • Organizing the Enterprise 171 • Leading and Motivating 171 • Controlling Ongoing Activities 172

Kinds of Managers 173 Levels of Management 173 • Areas of Management Specialization 174

Key Skills of Successful Managers 175 Conceptual Skills 176 • Analytic Skills 176 • Interpersonal Skills 177 • Technical Skills 177 • Communication Skills 177

Career Success: Collaborate Your Way to Success 176 Leadership 177

Formal and Informal Leadership 177 • Styles of Leadership 178 • Which Leadership Style Is the Best? 179

Entrepreneurial Success: Elon Musk’s Far-Out Ideas Are Crazy like a Fox 178

Managerial Decision Making 179 Identifying the Problem or Opportunity 180 • Generating Alternatives 180 • Selecting an Alternative 180 • Implementing and Evaluating the Solution 181

Ethical Success or Failure: CVS Backs Words with Actions 181

Managing Total Quality 181 Summary 183 Key Terms 184 Discussion Questions 184 Video Case: Meet Heidi Ganahl, Top Dog at Camp Bow

Wow 185 Building Skills for Career Success 185

Endnotes 186

Chapter 7: Creating a Flexible Organization 188

5 Inside Business: Can Structural Changes Re-Ignite McDonald’s Growth? 189

What is an Organization? 189 Developing Organization Charts 190 • Major Considerations for Organizing a Business 192

Job Design 192 Job Specialization 192 • The Rationale for Specialization 192 • Alternatives to Job Specialization 192

Career Success: Flexible Work Space: Are You Ready to Sit Next to the CEO? 193

Departmentalization 193 By Function 193 • By Product 194 • By Location 194 • By Customer 194 • Combinations of Bases 194

Delegation, Decentralization, and Centralization 195 Delegation of Authority 195 • Decentralization of Authority 196

The Span of Management 197 Wide and Narrow Spans of Management 197 • Organizational Height 198

Forms of Organizational Structure 198 The Line Structure 198 • The Line-and-Staff Structure 199 • The Matrix Structure 201 • The Network Structure 202

Personal App: Do you have a mentor? 199 Ethical Success or Failure: If We Get Ethics Right, Will

Compliance Follow? 200 Entrepreneurial Success: Entrepreneurs Set the Tone of

Corporate Culture 202 Corporate Culture 203 Committees and Task Forces 204 The Informal Organization and the Grapevine 205 Summary 206 Key Terms 207

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Discussion Questions 207 Video Case: Zappos Wants to Make Customers (and

Employees) Happy 207 Building Skills for Career Success 208

Endnotes 209

Chapter 8: Producing Quality Goods and Services 210

5 Inside Business: How Detroit Bikes Makes Bikes in Detroit 211

What is Production? 212 How American Manufacturers Compete in the Global Marketplace 212 • Careers in Operations Management 214

Social Media: Inside Boeing’s Factories 213 The Conversion Process 215

Manufacturing Using a Conversion Process 215

The Increasing Importance of Services 216 Planning Quality Services 216 • Evaluating the Quality of a Firm’s Services 217

Where do New Products and Services Come From? 218 Research and Development 218 • Product Extension and Refinement 218

Entrepreneurial Success: Have a New Product Idea? Think Quirky 219

How do Managers Plan Production? 220 Design Planning 220 • Site Selection and Facilities Planning 222 • Operational Planning 224

Career Success: How Would You Plan for Peak Holiday Deliveries? 225

Operations Control 226 Purchasing 226 • Inventory Control 227 • Scheduling 228 • Quality Control 228 • Production Planning: A Summary 231

Personal App: Nobody likes complaints! 229 Improving Productivity with Technology 232

Productivity Trends 232 • Improving Productivity Growth 233 • The Impact of Automation, Robotics, and Computers on Productivity 233 • Sustainability and Technological Displacement 235

Summary 236 Key Terms 237 Discussion Questions 237 Video Case: Chobani Gives the World a Taste for Greek

Yogurt 238 Building Skills for Career Success 239 Running a Business: Part 3: Graeter’s Grows Through Good Management, Organization, and Quality 240 Building a Business Plan: Part 3 242

Endnotes 242

PArT 4 Human resources 244

Chapter 9: Attracting and Retaining the Best Employees 244

5 Inside Business: Netflix Stands Ready to Change 245 Human Resources Management: An Overview 245

HRM Activities 246 • Responsibility for HRM 247 Personal App: How many skills do you have? 246 Human Resources Planning 247

Forecasting Human Resources Demand 247 • Forecasting Human Resources Supply 248 • Matching Supply with Demand 249

Entrepreneurial Success: Hiring Your First Employee: Key Questions to Consider 248

Cultural Diversity in Human Resources 250 Job Analysis 251 Recruiting, Selection, and Orientation 252

Recruiting 252 • Selection 254 • Orientation 256 Social Media: Recruiting Via Social Media 253 Compensation and Benefits 256

Compensation Decisions 256 • Comparable Worth 257 • Types of Compensation 258 • Employee Benefits 259

Career Success: What Are the Job Perks at Apple? 260 Training and Development 260

Analysis of Training Needs 261 • Training and Development Methods 261 • Evaluation of Training and Development 262

Performance Appraisal 262 Common Evaluation Techniques 262 • Performance Feedback 264

The Legal Environment of HRM 265 National Labor Relations Act and Labor–Management Relations Act 265 • Fair Labor Standards Act 265 • Equal Pay Act 266 • Civil Rights Acts 266 • Age Discrimination in Employment Act 266 • Occupational Safety and Health Act 266 • Employee Retirement Income Security Act 267 • Affirmative Action 267 • Americans with Disabilities Act 267

Summary 268 Key Terms 269 Discussion Questions 269 Video Case: The Container Store Hires Great Employees

to Sell Empty Boxes 269 Building Skills for Career Success 270

Endnotes 271

Chapter 10: Motivating and Satisfying Employees and Teams 272

5 Inside Business: What Makes a “Best Company to Work For”? 273

What is Motivation? 273 Historical Perspectives on Motivation 274

Scientific Management 274 • The Hawthorne Studies 275 • Maslow’s Hierarchy of Needs 276 • Herzberg’s Motivation– Hygiene Theory 277 • Theory X and Theory Y 279 • Theory Z 280 • Reinforcement Theory 281

viii Contents

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Contemporary Views on Motivation 281 Equity Theory 281 • Expectancy Theory 282 • Goal-Setting Theory 283

Key Motivation Techniques 284 Management by Objectives 284 • Job Enrichment 285 • Behavior Modification 286 • Flextime 286 • Part-Time Work and Job Sharing 287 • Telecommuting 288 • Employee Empowerment 289 • Employee Ownership 289

Career Success: Is Flextime for You? 287 Personal App: Can you work from home? 288 Entrepreneurial Success: A Time to Micromanage 290 Teams and Teamwork 290

What Is a Team? 291 • Types of Teams 291 • Developing and Using Effective Teams 292 • Roles Within a Team 293 •

Team Cohesiveness 293 • Team Conflict and How to Resolve It 294 • Benefits and Limitations of Teams 294

Ethical Success or Failure: When Teamwork Doesn’t Work 293 Summary 295 Key Terms 296 Discussion Questions 296 Video Case: Putting the Focus on People at the Fruit

Guys 297 Building Skills for Career Success 297 Running a Business: Part 4: At Graeter’s, Tenure Is “a Proud Number” 299 Building a Business Plan: Part 4 301

Endnotes 301

PArT 5 Marketing 304

Chapter 11: Building Customer Relationships Through Effective Marketing 304

5 Inside Business: Starbucks: What’s Not to Love 305 Managing Customer Relationships 305 Utility: The Value Added by Marketing 307 The Marketing Concept 308

Evolution of the Marketing Concept 308 • Implementing the Marketing Concept 309

Markets and their Classification 310 Developing Marketing Strategies 310

Target Market Selection and Evaluation 310 • Creating a Marketing Mix 313

Entrepreneurial Success: Small Businesses Create Big Buzz 315

Marketing Strategy and the Marketing Environment 316 Social Media: Warby Parker: Social Media Star 316 Developing a Marketing Plan 317 Personal App: Do you have a personal marketing plan? 318 Market Measurement and Sales Forecasting 318 Marketing Information 318

Marketing Information Systems 318 • Marketing Research 319 • Using Technology to Gather and Analyze Marketing Information 319

Types of Buying Behavior 321 Consumer Buying Behavior 321 • Business Buying Behavior 323

Ethical Success or Failure: Should E-Cigarettes Be Marketed to Young People? 322

Summary 324 Key Terms 325 Discussion Questions 325 Video Case: Raleigh Wheels Out Steel Bicycle Marketing 326

Building Skills for Career Success 327 Endnotes 327

Chapter 12: Creating and Pricing Products That Satisfy Customers 329

5 Inside Business: GoldieBlox Gets the Gold for Capitalizing on Free Marketing Opportunities 330

Classification of Products 331 Consumer Product Classifications 331 • Business Product Classifications 332

The Product Life-Cycle 332 Stages of the Product Life-Cycle 333 • Using the Product Life-Cycle 335

Personal App: Do you have one of these? 334 Product Line and Product Mix 335 Managing the Product Mix 336

Managing Existing Products 336 • Deleting Products 337 • Developing New Products 338 • Why Do Products Fail? 340

Entrepreneurial Success: BucketFeet: A Gift of Hand- Decorated Sneakers Creates a $1 Million Business 339

Branding, Packaging, and Labeling 340 What Is a Brand? 341 • Types of Brands 341 • Benefits of Branding 341 • Choosing and Protecting a Brand 343 • Branding Strategies 344 • Brand Extensions 344 • Packaging 344 • Labeling 346

Social Media: Going Boldly Where No Cookie Has Gone Before 342

Pricing Products 346 The Meaning and Use of Price 346 • Price and Non-Price Competition 347 • Buyers’ Perceptions of Price 347

Ethical Success or Failure: What is the Real Price…? 348 Pricing Objectives 348