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There are several types of business ownership, each with advantages and disadvantages.
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Certain types of business ownership are more effective for marketing certain products in different countries.
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Business Ownership
Six Types of Business Ownership
Sole Proprietorships
Partnerships
Corporations
Subchapter S
Corporations
Limited Liability
Companies (LLC)
Multinational
Corporations
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Sole Proprietorships
Most businesses are sole proprietorships .
In the United States, almost 80 percent of businesses are sole proprietorships.
sole proprietorship a type of business ownership in which one person owns the business
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Advantages of Sole
Proprietorships
Advantages of Sole Proprietorships
You can be your own boss.
You can set your own hours.
Starting this type of business is easy to set up.
Paperwork is limited, and there are fewer regulations.
All profits made go to the owner.
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Disadvantages of Sole
Proprietorships
Disadvantages of Sole Proprietorships
This form of business has unlimited liability.
The owner might have to use his or her personal savings.
Capital is required to start operations.
Financial risks are high.
Operating is challenging with lots of competition.
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Partnerships
In a partnership , the partners share the risk and the profits.
The simplest partnership is a 50/50 division.
Partnership a type of business ownership in which one person owns the business
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Advantages of Partnerships
Advantages of Partnerships
Each partners brings different skills to the company.
Because of the diversity, partnerships can sell products internationally.
More partners means more capital to expand to the global marketplace.
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Disadvantages of Partnerships
Disadvantages of Partnerships
Breaking up a partnership is difficult.
The death of a partner dissolves the partnership.
Each partner is liable for debts and injuries caused by the business.
Partnerships assume unlimited liability.
Partnerships across international borders are difficult to maintain.
It is difficult and complex to arrange financing.
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Corporations
A corporation can own property and enter into contracts, and must pay taxes on income and profit.
corporation a type of business ownership in which many people, whom the law treats as one person, own the business
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Corporations
Two Types of Corporate Structures
Closely Held Corporation Publicly Held Corporation
A private corporation whose shares are owned by a small group
An organization that sells its shares openly in stock markets
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Characteristics of Corporations
Corporations must have a set of officers, or board directors.
Corporations offer shares of stock.
Stockholders earn profits through:
– Dividends
– Increase in stock value
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Advantages of Corporations
Advantages of Corporations
The owners, or shareholders, have limited liability.
The business continues to exist no matter who owns shares of stock.
Stakeholders can sell shares, and they can also buy more shares.
A corporation can raise capital by selling additional shares of stock.
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Disadvantages of Corporations
Disadvantages of Corporations
Corporations are costly to start up and require lots of paperwork.
A corporation can be taken over by another company.
The founder can lose control of the company through a takeover.
Corporation profits are double taxed.
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Subchapter S Corporation
A Subchapter S corporation is not a taxpaying entity.
The business owners pay taxes from personal earnings.
Subchapter S corporation a corporation that is taxed like a partnership
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Limited Liability Company
A limited liability company (LLC) is similar to a corporation and limited partnership.
limited liability company (LLC) a company whose owners and managers enjoy limited liability and some tax benefits
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Multinational Corporations
A multinational corporation (MNC) develops partner relationships with corporations based on other countries.
mutinational corporation (MNC) an organization that operates in more than one country
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Home and Host Countries
When a corporation evolves into a multinational corporation, the firm is no longer tied to a home country.
The MNC leaders have a worldwide view of the organization and its role.
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Characteristics of Multinational
Corporations
Characteristics of MNCs include:
Focusing on universally accepted products
Changing human resources (HR) policies to include workers from various nations
Being good guests in each country
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Modes of Entry
For all forms of business ownership, the decision to “go global” must consider a mode of entry .
mode of entry the method a company uses to sell products in another country
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Modes of Entry
Typical modes of entry include:
Indirect exporting
Direct exporting
Turnkey projects
Licensing
Franchising
Joint ventures
Strategic alliances
Wholly owned subsidiaries
Foreign direct investments
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Indirect Exporting
Indirect exporting is managed by independent companies.
If a business chooses this mode of entry, it must find an independent company in the destination country.
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Direct Exporting
Direct exporting occurs when a company exports its own goods and services.
This mode of entry is more expensive, but it gives the business more control over its products.
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Turnkey Projects
Company “A” designs a new business.
Company “A” builds the new business in a foreign country.
Company “A” gets the new business up and running in a foreign country.
Turnkey projects are found in many developing countries.
Company “A” arranges exporting business with company “B.”
Company “A” sells the business to
Company “B”, a local company.
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Licensing
Licensing means a company transfers the rights and grants permission to produce and sell its products to a foreign firm.
The licensing company receives a fee or royalty from the foreign firm.
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Franchising
When a company (franchisor) sells a franchise, the purchaser (franchisee) agrees to use the brand name and follow the standards and rules set up by the parent company.
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Franchising
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Franchising
Any franchisee that does not keep the agreement may be forced to close.
Analyze Why might fast-food businesses be the most common form of international franchise business?
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Joint Ventures
A joint venture is an agreement between two or more companies to work on a business project.
Companies agree to share costs, risks, and profits.
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Strategic Alliances
International strategic alliances are cooperative agreements between competitors or potential competitors from different countries.
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Wholly Owned Subsidiary
When a multinational corporation fully owns a company in another country, the company in the host country is called a “wholly owned subsidiary.”
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Foreign Direct Investment
When a company from one country buys land or other physical property in another country, the purchasing company has made a foreign direct investment.
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Exporting Decisions
Around the world, companies use modes of entry into new global markets.
Each type of business analyzes and chooses the method of exporting with the most effective and efficient means for selling goods and services in other countries.
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When in China…
Meeting and Greeting Shake hands upon meeting.
Chinese may nod or bow. If a group of Chinese greet you with applause, applaud back.
Business Etiquette Meetings begin on time. Exchange business cards and gifts when introduced.
Business Dress Men wear sports coats and ties.
Women wear dresses or pantsuits and no heavy makeup.
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