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Chapter 3Business

Organizations

3

CHAPTER INTRODUCTION

SECTION 1 Forms of Business Organization

SECTION 2 Business Growth and Expansion

SECTION 3 Other Organizations

CHAPTER SUMMARY

CHAPTER ASSESSMENT

Click a hyperlink to go to the corresponding section.Press the ESC key at any time to exit the presentation.

4

Economics and YouDo you work at a business? Belong to a church? Participate in a club? Chances are these institutions play a significant role in your life.

Click the Speaker button to listen to Economics

and You.

5

Chapter Objectives

• Describe the characteristics of the sole proprietorship.

• Understand the advantages and disadvantages of the partnership.

• Describe the structure and features of the corporation.

Section 1: Forms of Business Organization

Click the mouse button or press the Space Bar to display the information.

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Chapter Objectives

• Explain how businesses can reinvest their profits to grow and expand.

• Recognize the reasons that cause firms to merge.

• Identify two different types of mergers.

Section 2: Business Growth and Expansion


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Chapter ObjectivesSection 3: Other Organizations


• Describe nonprofit organizations.

• Explain the direct and indirect role of government in our economy.

Click the mouse button to return to the Contents slide.

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Study GuideMain Idea

Businesses may be organized as individual proprietorships, partnerships, or corporations.

Reading StrategyGraphic Organizer As you read about business organizations, complete a graphic organizer similar to the one on page 57 of your textbook to explain how the three types of business organizations differ from one another.

Click the mouse button or press the Space Bar to display the information. Section 1 begins on page 57 of your textbook.

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Key Terms

– proprietorship – unlimited liability – inventory – limited life – partnership – limited partnership – bankruptcy – corporation – charter

– sole proprietorship

Study Guide (cont.)


– stock – stockholder – shareholder – dividend – bond – principal – interest – double taxation

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ObjectivesAfter studying this section, you will be able to:

Applying Economic ConceptsUnlimited Liability How is personal liability affected by the type of business owned?

Study Guide (cont.)

– Describe the characteristics of the sole proprietorship.

– Understand the advantages and disadvantages of the partnership.

– Describe the structure and features of the corporation.

Click the Speaker button to listen to the Cover Story.


12Click the mouse button or press the Space Bar

to display the information.

Introduction• There are three main forms of business

organizations in the economy today–the sole proprietorship, the partnership, and the corporation.

• Each offers its owners significant advantages and disadvantages.



Did You Know?• In 1997 Dun & Bradstreet reported that

corporation start-ups increased by 2 percent to reach a new high of 798,917. New corporations in Florida and New York represented 25 percent of that total.



Sole Proprietorships

• A sole proprietorship is a business run by one person. It is the smallest type of business organization in size, yet the most numerous and profitable.

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Sole Proprietorships (cont.)

• The advantages to sole proprietorships are: ease of start-up; ease of management; owner gets all the profits; business itself pays no income taxes; taxes only on the owner’s personal income; psychological satisfaction of owning one’s business; ease of closing the business.

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Sole Proprietorships (cont.)

• The disadvantages to sole proprietorships are: the owner has unlimited liability; it is hard to raise financial capital; owner may not be able to hire enough personnel or stock enough inventory to operate efficiently; owner may have limited managerial experience; hard to attract qualified employees; business has limited life and legally stops existing when the owner dies or sell the business.

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Discussion Question

Why do you think so many business owners are sole proprietors despite the fact that they hold unlimited liability?

Answers will vary. Students should support their opinions with a rationale.

Click the mouse button or press the Space Bar to display the answer.



Partnerships

• A partnership is a business jointly owned by two or more persons. It is the least and has the second smallest proportion of sales and net income.

• General partnerships are a type of business in which all partners are involved in the management and finances. In a limited partnership, at least one partner is not involved in management. This partner may have helped to finance the business.



Partnerships (cont.)

• Articles of the partnership document spell out how the partners divide up the profits or losses.

• The advantages of partnerships are: the ease of start-up; ease of management; no special taxes on a partnership; easier to raise capital through bank loans or new partner; larger size aids efficient operations; easier to attract skilled employees.



Partnerships (cont.)

• The disadvantages of partnerships are: partners are responsible for the acts of each and every partner, except in a limited partnership where the limits are spelled out; limited life of partnerships ends if a partner leaves; potential for partner conflicts.

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Discussion Question

Which type of partnership would you favor—general or limited?

Answers will vary. Students should support their positions with a rationale.




Corporations

• Corporations receive a charter, or government permission to create a corporation, which includes details about stock ownership.

• A corporation is a business organization recognized by law as a separate legal entity with all the rights of an individual.

• Investors who buy common or preferred stock in a corporation become owners of the firm.



Corporations (cont.)

• The disadvantages of corporations are; a charter is expensive; ownership and management are separated so shareholders have little say in running the business; corporate income is taxed twice; subject to government regulation.

• The advantages of corporations are: ease of raising capital; professionals may run the firm instead of the owners (shareholders); owners have limited liability; business’s life is unlimited; easy to transfer ownership.




Figure 3.2Stock OwnershipFigure 3.2Stock Ownership

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Figure 3.3Ownership, Control, and Organization of a Typical CorporationFigure 3.3Ownership, Control, and Organization of a Typical Corporation

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Discussion Question

Who are really the owners of a corporation?

Stockholders




Government and Business Regulation

• Federal and state governments regulate interest rates and utility rates.

• State governments may offer industrial development bonds to help industries relocate or tax credits to draw investments.

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Discussion Question

What are some recent examples of business development incentives in your state or community?

Answers will vary. Students should describe what the proposed benefit offers.


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Section Assessment

Main Idea Using your notes from the graphic organizer activity on page 57, explain why partnerships are able to attract more capital than sole proprietorships.

partnerships are bigger, better established, have a better chance of getting a bank loan; new partners bring financial capital


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Section Assessment (cont.)

Identify the characteristics and organization of the sole proprietorship.

owned by one individual; all decisions made by owner; owner receives all profits, responsible for debts, losses; limited life


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Discuss the advantages and disadvantages of the partnership.

advantages: ease of establishment and management, no special taxes, can attract financing and top talent, more efficient; disadvantages: all partners equally responsible for business losses (except in limited partnerships), limited life, potential conflict among partners


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Discuss the structure and features of the corporation.

It is a separate legal entity with all the rights of the individual. It possesses a charter and shares of stock that are sold to investors. Investors purchase common stock or preferred stock.


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Drawing Conclusions When a corporation wants to introduce a potentially profitable but risky product, it frequently sets up a separate company that has its own corporate structure. Why do you think the corporation does this?

limited liability–the first corporation limits its exposure by setting up a separate corporation


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Discuss which business form you think is the most important for the American economy.

Section Close

36Click the mouse button or press the Space Bar to display the information. Section 2 begins on page 68 of your textbook.


Businesses grow through merging with other companies and by investing in the machinery, tools, and equipment used to produce goods and services.

Reading StrategyGraphic Organizer As you read the section, complete a graphic organizer similar to the one on page 68 of your textbook by comparing a vertical merger to a horizontal merger.


Key Terms

– income statement – net income – depreciation – cash flow – horizontal merger – vertical merger – conglomerate – multinational

– merger

Study Guide (cont.)

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Applying Economic ConceptsBusiness Growth Businesses can grow by reinvesting their profits in themselves, or they can combine with another business. What influences growth?

Study Guide (cont.)

– Explain how businesses can reinvest their profits to grow and expand.

– Recognize the reasons that cause firms to merge.

– Identify two different types of mergers.



Introduction

• A business can grow in one of two ways.

• First it can grow by reinvesting some of its

profits. • A business can also expand by engaging in

a merger–a combination of two or more businesses to form a single firm.



Did You Know?• The federal government’s Bureau of

Economic Analysis reported that, in contrast to the American public’s suspicions, U.S.-based multinational companies do not establish most of their manufacturing affiliates in low-wage countries. In 1996, 87 percent of U.S. multinational affiliates’ employment was reported in relatively high-wage countries, primarily in Europe.



Growth Through Reinvestment

• Business revenue can be used to invest in factories, machinery, or new technologies.

• Before reinvesting, a business must estimate its cash flow. The business first records its total sales and then subtracts all expenses, taxes, and depreciation. The result is the business’s net income.



Growth Through Reinvestment (cont.)

• Depreciation is added back to net income to get cash flow, or the bottom line—the real measure of business profit.

• Business owners then decide whether part of the cash flow should be reinvested in the business to generate additional sales and more profits.



Growth Through Reinvestment (cont.)

Figure 3.4Figure 3.4

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Discussion Question

What do you predict may happen when a business has little or no cash flow?

Answers will vary. Students should indicate that without additional machinery and newer technologies, the business will eventually lose business to its competitors.




Growth Through Mergers• When firms merge, one gives up its

separate legal identity.

• A company may merge with another to grow faster; become more efficient; acquire or deliver a better product; eliminate a rival; or change its image.

• A horizontal merger is the joining of firms that make the same product. A vertical merger is the joining of firms involved in different stages of manufacturing or marketing.



Growth Through Mergers (cont.)

• A conglomerate is composed of four or more businesses, each making unrelated products, none of which is responsible for a majority of its sales.

Figure 3.6

Conglomerate Structure



Growth Through Mergers (cont.)

• A multinational is a corporation with manufacturing and service operations in several countries, which are subjected to each nation’s business regulations.

Figure 3.6

Conglomerate Structure

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Discussion Question

Why have some multinational companies been criticized?

Answers may include: paying low wages to workers, exporting scarce natural resources, driving out local businesses. Discuss with students that economists believe the advantages of multinationals outweigh the disadvantages.


49

Section Assessment

Main Idea Using your notes from the graphic organizer activity on page 68, explain how mergers improve efficiency.

Mergers can diminish cost and increase buying power.


50


Describe how a firm can generate funds internally to grow and expand.

A firm can reinvest revenue from sales into the company in the form of new plants, equipment, and technologies.


51


Identify five reasons why firms merge.

grow faster, increase efficiency, acquire new product lines, eliminate rivals, or change corporate image


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Describe the different ways a business can merge.

horizontal: two or more firms that produce the same product merge; vertical: firms in different steps of manufacturing or marketing merge


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Making Comparisons What are the benefits and drawbacks of multinationals to their host countries?

benefits: help spread new technology, generate new jobs, produce tax revenues for host countries; drawbacks: may exploit workers, export scarce natural resources, or adversely interfere with local business


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Discuss the statement “The world is shrinking,” in relation to the role that multinationals play in the global economy.

Section Close



Producer and worker cooperatives are associations in which the members join in production and marketing to lower costs for their members’ benefit.

Reading StrategyGraphic Organizer As you read the section, complete a graphic organizer similar to the one on page 75 of your textbook by describing the different kinds of cooperatives.


Key Terms

– cooperative – co-op – credit union – labor union – collective bargaining – professional association – chamber of commerce – Better Business Bureau – public utility

– nonprofit organization

Study Guide (cont.)

58




Applying Economic Concepts

Nonprofit Organizations How do churches, clubs, or civic organizations fit into our economic system?

Study Guide (cont.)

– Describe nonprofit organizations. – Explain the direct and indirect role of

government in our economy.



Introduction• Most businesses use scarce resources to

produce goods and services in hopes of earning a profit for their owners.

• Other organizations operate on a “not-for-profit” basis.

• A nonprofit organization operates in a businesslike way to promote the collective interests of its members rather than to seek financial gain for its owners.



Did You Know?• The National Center for Charitable

Statistics reported that nearly 1.5 million organizations had registered with the federal government in 1997 as tax-exempt, private nonprofit organizations. Because some organizations do not need to register with the Internal Revenue Service, this number does not include all types of nonprofit organizations described in Section 3.



Community and Civic Organizations• A nonprofit organizations is in business to

promote its members’ collective interests, not to seek financial gain.

• Many nonprofit organizations incorporate to take advantage of a corporation’s unlimited life and limited liability

• If the nonprofit organization has money after its expenses are paid, its board of directors may apply the surplus to other projects that further the organization’s mission.

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Discussion Question

How might a hospital’s board of directors decide to spend a year’s surplus?

Answers will vary. Students should support their examples with how the product or service benefits a hospital’s mission of helping the sick.




Cooperatives

• A cooperative is voluntary association of people who carry on an economic activity that benefits its members.

Figure 3.7Cooperatives in the United StatesFigure 3.7Cooperatives in the United States



Cooperatives• Consumer cooperatives buy food and other

necessities in bulk. Members donate time to the co-op, and members pay lower prices for goods.

• Service cooperatives, such as credit unions, offer services to its members at lower rates.

• Producer cooperatives help members, such as farmers, promote or sell their products.

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Discussion Question

Why might a credit union member qualify for a car loan from the credit union in a shorter time than for a car loan from a dealer or a bank?

The loan approval officer likely knows the member much better than the dealer or the banker does.




Labor, Professional, and Business Organizations

• Labor unions represent workers’ interest and negotiate with management through collective bargaining..

• Professional associations set standards for those in the profession and influence government policies on issues concerning members’ interest.

• Business associations are industries or trade associations that represent specific kinds of businesses. Some business associations, such as the Better Business Bureau, help protect the consumer.

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Discussion Question

The National Council for the Social Studies is a professional association for social studies teachers. What might it offer its members?

Answers will vary, but students may indicate publications with social studies lesson plans, standards for social studies courses, and conferences for teachers.




Government• Government plays a direct role in the

economy when its agencies produce and distribute goods and services to consumers such as the Tennessee Valley Authority (electricity), and the U.S. Postal Service (stamps and mail delivery).

• Government corporations have boards of directors, but Congress’s money rather than investor’s money supports their work.

• Government plays an indirect role when it regulates public utilities or when it grants money to people in the form of Social Security and student financial aid.

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Discussion QuestionNational and local security come under the jurisdiction of the federal and local governments. How do national defense and local police protection directly and indirectly impact the economy?

The labor and goods purchased to run a police department or support the military have a direct influence on the economy. Indirect influences include the expectation among citizens that their wealth and belonging will be protected.


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Section Assessment

Main Idea Using your notes from the graphic organizer on page 75, describe the different types of cooperatives.

consumer: buy goods in bulk/offer members reduced prices; service: provide service instead of goods; producer: help members promote/sell products


71



Identify the purpose of the different types of nonprofit organizations.

community/civic organizations: provide goods and services and promote a common good; cooperatives: carry on activities that benefit members; labor, professional, and business organizations: promote interests of members; government: regulate economy

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Provide examples that illustrate the government’s direct and indirect roles as an economic institution.

direct: police and fire protection, schools, court systems; indirect: regulation of public utilities and quasi-monopolies, subsidies

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Classifying Information Make a list of 10 activities performed by your local government. Classify each as to its direct or indirect influences on the local economy.

Lists should demonstrate an understanding of the economic roles of government.

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Making Comparisons Why do many people prefer to deal with credit unions rather than banks?

They can borrow at better rates.

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Discuss which of the institutions examined in this section has the most impact on your life and why.

Section Close

77

Section 1: Forms of Business Organization


• Sole proprietorships are small, easy-to-manage enterprises owned by one person. They are relatively numerous and profitable. Disadvantages include raising financial capital and attracting qualified employees.

• Partnerships are owned by two or more persons. Their slightly larger size makes it easier to attract financial capital and qualified workers. Disadvantages include the unlimited liability of each general partner for the acts of the other partners, the limited life of the partnership, and the potential for conflict among partners.



Section 1: Forms of Business Organization (cont.)

• Corporations are owned by shareholders who vote to elect the board of directors. Shareholders have limited liability and are not liable for the actions or debts of the corporation. The relatively large size of the corporation allows for specialized functions and large-scale manufacturing within the firm.

• Disadvantages of corporations include the cost of obtaining charters, limited shareholder influence over corporate policies, and having to deal with some government regulations.

• The corporation is recognized as a separate legal entity and so must pay a separate corporate income tax not paid by proprietorships and partnerships.



Section 2: Business Growth and Expansion

• Businesses can grow by reinvesting their cash flows in plant, equipment, and new technology.

• Businesses can also expand through mergers. Most mergers take place because firms want to become bigger, more efficient, acquire a new product, catch up to or eliminate a competitor, or change its corporate identity.

• A horizontal merger takes place when two firms that produce similar products come together. A vertical merger is one that involves two or more firms at different stages of manufacturing or marketing.



Section 2: Business Growth and Expansion (cont.)

• A conglomerate is a large firm that has at least four different businesses, none of which is responsible for a majority of sales.

• A multinational can be an ordinary corporation or a conglomerate, but it has manufacturing or service operations in several different countries. Multinationals introduce new technology, generate jobs, and produce tax revenues for the host countries.



Section 3: Other Organizations• Nonprofit organizations function like a business,

but on a not-for-profit basis to further a cause or for the welfare of their members.

• The cooperative, or co-op, is one of the major nonprofit organizations. The co-op can be organized to provide goods and services, or to help producers.

• Professional associations work to improve the working conditions, skill levels, and public perceptions of their profession.

• Businesses often form a chamber of commerce or a Better Business Bureau to promote their collective interests.

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Section 3: Other Organizations (cont.)

• Government plays a direct role in the economy when it provides goods and services directly to consumers; it plays an indirect role when it provides Social Security, veterans’ benefits, unemployment compensation, and financial aid to college students, or when it regulates businesses.

84

bond _______________________________________

stock _______________________________________

cooperative __________________________________

dividend _____________________________________

unlimited liability_______________________________

charter ______________________________________

labor union ___________________________________

professional association _________________________

limited partner _________________________________

credit union ___________________________________

Click the mouse button or press the Space Bar to display the answer. The Chapter Assessment is on pages 82–83.

Identifying Key TermsClassify each term below into the following categories:

Sole Proprietorships Corporations

Partnerships Nonprofit Organizations

corporations

corporations

nonprofit organization

corporations

sole proprietorships; partnerships

corporations; nonprofit organizations

nonprofit organizations


partnerships



to display the answer.

Explain the strengths of a sole proprietorship.

ease of establishment, ease of management, owner keeps all profits, no separate taxes, psychological benefits, ease of getting out of business

Reviewing the Facts



Identify the weaknesses of a partnership.

all partners equally responsible for business losses (except limited partnerships), limited life, potential conflict among partners

Reviewing the Facts (cont.)




Explain the structure and strengths of a corporation.

structure: A board of directors, elected by owners of common stock, sets broad policies and goals. The board hires a professional management team to run the business on a daily basis. Strengths: ease of raising financial capital, ability to hire best managers, limited liability for owners, unlimited life, and ease of transfer of ownership




Explain how the firm obtains, and then disposes of, its cash flow.

Cash flow is obtained by adding net income to non-cash charges. A firm may pay this sum back to the owners or reinvest in itself.




Describe the difference between a horizontal and a vertical merger.

horizontal merger: two or more firms that produce the same product join forces; vertical merger: firms in different steps of manufacturing or marketing come together




Explain why a corporation might choose to become a conglomerate.

Its overall sales and profits will be protected from isolated economic happenings.



Describe the difference between a nonprofit institution and other forms of business organizations.

Nonprofits do not seek financial gain.




List three examples of cooperative associations.

consumer: a food co-op; service: a credit union; producer: a farmers’ co-op





Describe the purpose of a labor union.

to work for its members’ interests



Identify three types of business or professional organizations.

professional (American Bar Association); business to promote members’ interests: (chamber of commerce); business to help consumers (Better Business Bureau)




Compare the direct and the indirect roles of government.

direct role: producer and consumer of goods and services; indirect role: regulates, makes payments to individuals




Making Comparisons If you were planning to open your own business, such as a sportswear store or a lawn service, which form of business organization would you prefer–sole proprietorship, partnership, or corporation? Give reasons for your answer. To help you organize your response, begin by setting up a diagram like the one on page 82 of your textbook.

Answers should demonstrate understanding of advantages offered by the form chosen.

Thinking Critically



Drawing Conclusions Do you think mergers are beneficial for the U.S. economy? Defend your response.

Answers should include reason for response.

Thinking Critically (cont.)



Synthesizing Information List the strengths and weaknesses of each type of business organization. Then share the list with the owner of a business in your community. Ask the owner which items on the list were the most influential in deciding how to organize his or her business. Write a report summarizing your findings.

Answers should identify strengths and weaknesses of each organization.

Thinking Critically (cont.)



Applying Economic Skills

Economic Institutions Cite a case in your community where a cooperative would fulfill a definite economic need. Explain why you think so, and then tell what kind of cooperative you would set up.

Answers will vary, but should indicate an understanding of the concept.



Applying Economic Skills (cont.)

The Role of Government Which do you think is more appropriate–the direct or indirect role of government? Defend your position.

Answers should indicate an understanding of the concept.




Unlimited Liability What is the difference between the unlimited liability of proprietorships and partnerships, and the limited liability of corporations?

unlimited: the owner(s) is/are personally and fully responsible for all losses and debts of the business; limited: the corporation itself, not the owners, is fully responsible for its debts and losses




Business Growth What advantages might a multinational bring to a host nation?

Multinationals transfer new technology, generate new jobs, and produce tax revenues for the host nation.




Nonprofit Organizations In what ways does a consumer cooperative differ from a service cooperative?

A consumer co-op offers goods to its members, whereas a service co-op offers services.

104

Identify at least one similarity and one difference between someone who owns common stock and a citizen of our country.

Both have the right to vote for people who direct the entity’s business by setting policies and goals. Differences include how many votes a citizen or stockholder has. A citizen has only one vote while a stockholder may have many votes.


Continued on next slide.

Visit your local chamber of commerce. Investigate the procedures for establishing various forms of businesses. Share your findings with the class.

Explore online information about the topics introduced in this chapter.

Click on the Connect button to launch your browser and go to the Economics: Principles and Practices Web site. At this site, you will find interactive activities, current events information, and Web sites correlated with the chapters and units in the textbook. When you finish exploring, exit the browser program to return to this presentation. If you experience difficulty connecting to the Web site, manually launch your Web browser and go to http://epp.glencoe.com/sec/socialstudies/economics/econprinciples2005/index.php

http://www.glencoe.com/sec/socialstudies/economics/econprinciples2005/index.php

Explore online information about the topics introduced in this chapter.

Click on the Connect button to launch your browser and go to the BusinessWeek Web site. At this site, you will find up-to-date information dealing with all aspects of economics. When you finish exploring, exit the browser program to return to this presentation. If you experience difficulty connecting to the Web site, manually launch your Web browser and go to http://www.businessweek.com

http://www.businessweek.com/

Business Inventories The Business Inventories report measures the monthly percentage changes in inventories from manufacturers, retailers, and wholesalers. The report is useful in predicting inventories within the gross domestic product (GDP), which can be volatile from quarter to quarter. Business inventories are reported monthly by the Commerce Department. Business inventories data, released in the third week of each month, show the monthly percentage change in inventories from manufacturers, retailers, and wholesalers. Because the majority of the data is old by the time it is released, it is usually not a key report to the markets. One portion of the report that does draw a bit of attention, though, is the inventory-to-sales ratio. This particular component is useful in forecasting, since increasing inventory-to-sales ratios signals a cutback in production.

Corporations in Japan Annual shareholder meetings in Japan are much different than in the United States. Every corporation in that country holds its annual meeting on the same day. The meetings are usually packed with loyal employees, and some meetings last less than an hour.

When You Say Profits, Smile

World Markets

Click on a hyperlink to choose that topic.

When You Say Profits, Smile Just as foreigners are striving to learn more about American culture, Americans traveling abroad are wise to learn more about foreign cultures. The following are examples or taboos in other countries:• In many parts of the world, it is deeply offensive

to offer something or to eat with the left hand• In parts of Latin America, it’s considered rude to

yawn in public.• It’s insulting to tip in China.

World Markets In the 1990s, Avon Products found its sales lagging in the United States and Europe. With more women in the labor force, fewer people are at home when the Avon sales representative calls, or are willing to work for Avon as part-time salespeople. In Asia, Eastern Europe, Africa, and Latin America, however, people (typically women) are eager to supplement their incomes as Avon representatives, and their customers are happy to buy what they consider to be chic American products. Since Avon relies on door-to-door sales, it fits in well in developing countries that don’t have good retailing infrastructures.

Each year, Fortune magazine provides a list of the top 500 U.S. companies, called the “Fortune 500.” The companies are ranked by sales revenue. In 2002, the top ten companies were:

6. Citigroup

7. Chevron Texaco

8. International Business Machines

9. American International Group

10. Verizon Communications

1. Wal-Mart Stores 2. General Motors

3. Exxon Mobil

4. Ford Motor

5. General Electric

Source: Fortune Magazine

More About … Dell Computers and Online Auctions

Internet Business Forms

Click on a hyperlink to choose that topic.

More About … Dell computers and Online Auctions Michael Dell started Dell Computers from his dorm room at the University of Texas at Austin with a few computers and $1,000. His biggest innovation was eliminating the middleman by selling computers directly to customers. That enabled Dell not only to keep prices down, but also to offer more reliable service and support to customers. Dell’s superior service was very well received by consumers and eventually prodded other computer manufacturers to offer better service.There are now many online auction sites, but eBay has a distinct advantage over all of them–it’s the largest. Sellers are drawn to eBay because it gives them access to the greatest number of potential buyers. Buyers flock there because it also offers the largest selection. Continued on next slide.

More About … Dell computers and Online Auctions (cont.)

One rival, Rbid.com, promoted its new auction site in May 1999 by offering $60,000 in prize money. It didn’t work. On August 13, or example, the auction site had only 16 items listed, and no bidders for any of them. A new site called AuctionRover.com also sprang up in an attempt to diminish eBay’s advantage. This site enabled buyers to check out several auction sites at once by doing the searching for them. By 2001, both Rdid.bom and AuctionRover.com were out of business, leaving eBay as the reigning auction site. Have students research and report on other innovative companies that have benefited from advances in communication.

Internet Business Forms What kind of business organization is best suited to selling books on the Internet? The largest online bookstores, such as Amazon and Barnes & Noble, are corporations. This allows them to acquire large amounts of financial capital so that they can maintain a huge inventory of books, provide reliable service to their customers, and advertise heavily. But some sole proprietorships and partnerships are also succeeding at selling books on the Internet. While it’s difficult for them to offer the selection, low prices, and service of the larger online bookstores, some of them have found a niche selling used, rare, or out-of-print books. Since these bookstores are usually too small to attract many users to their own sites, many of them list their books on Web sites like Bibliofind.com, which puts potential buyers in contact with sellers.


Cosmetic companies like L’Oréal have found a profitable strategy: acquire smaller cosmetic companies and promote the culture from which they came. With this formula, and with the help of chief executive Lindsay Owen-Jones, L’Oréal’s profits have dramatically increased.

Read the BusinessWeek Newsclip article on page 74 of your textbook. Learn how L’Oréal’s profits have increased.

The Beauty of Global Branding

This feature is found on page 74 of your textbook. Click the Speaker button to listen to an audio introduction.



Analyzing Information How has L’Oréal become more competitive in the global market?

by acquiring smaller companies and promoting the cultures from which they came

Click the mouse button or press the Space Bar to display the answer. This feature is found on page 74 of your textbook.



Summarizing Information In your own words, explain why it is a challenge for a company to “add brands, yet keep differentiation.”

It is usually easier and more efficient to make all company products look the same; in L’Oréal’s case, however, differentiation gives the company a competitive edge.

• Name common types of business organizations. • Describe how stocks and bonds are used in

corporate finance. • Identify the characteristics of a franchise. • Explain the relationship between the franchisor and

the franchisee.

After viewing Business Organizations, you should be able to:



Economics and YouVideo 4: Business

Organizations

Side 1Disc 1

Chapter 4Click the Videodisc button anytime throughout this section to play the complete video if you have a videodisc player attached to your computer.

Click the Forward button to view the discussion questions and other related slides.



Organizations

Click inside the box to play the preview.

When a company sells stock, it allows individuals to become part owners. In return, if the company earns a profit, stockholders receive a share of the profits, which is called a dividend. When a company sells bonds, it borrows money from the buyer of the bond for a fixed period of time. In return, the company pays the bond owner a fixed rate of interest until it repays the debt.


Organizations

Side 1Disc 1

Chapter 4


How do stocks and bonds differ as a means of financing a corporation’s needs?


Effective note taking involves more than just writing facts in short phrases. It involves breaking up the information into meaningful parts so that it can be understood and remembered.

This feature is found on page 80 of your textbook.

Taking Notes


Learning the Skill

Taking Notes

• To take good notes, follow these steps.

– When taking notes on material presented in class, write the key points, along with the important facts and figures, in a notebook.

– Write quickly and neatly, using abbreviations and phrases.

– Copy words, statements, or diagrams drawn on the chalkboard.

Click the mouse button or press the Space Bar to display the information. This feature is found on page 80 of your textbook.


Learning the Skill (cont.)

Taking Notes

– Ask the teacher to repeat important points you have missed or do not understand.

– When studying textbook material, organize your notes into an outline.

– When outlining written material, first read the material to identify the main ideas.



Learning the Skill (cont.)

Taking Notes

– Next, identify the subheads. Place details supporting or explaining subheads under the appropriate head.


– For a research report, take notes on cards. – Notecards should include the title, author, and the

page number of sources.


Practicing the Skill

Taking Notes

• Suppose you are writing a research report on the topic Business Organizations.

• First, identify main idea questions about this topic, such as “What are the different kinds of business organizations?” “How are they formed?” and “What are their advantages and disadvantages?”

• Then find material about each main-idea question.


Practicing the Skill (cont.)

Taking Notes

• Using this textbook as a source, read the material on “Forms of Business Organization,” beginning on page 57.

• Then, review the material and prepare notes like those on page 80 of your textbook.


This feature is found on page 67 of your textbook.


Click the picture to learn more about Kenneth I. Chenault. Be prepared to answer the questions that appear on the next two slides.

Kenneth I. Chenault 1951–

Drawing Conclusions What personal qualities do you think Chenault has that helped make him a success?

Answers will vary, but should at least imply that Chenault is intelligent and hard working.





For Further Research Learn about and report on Chenault’s philanthropic contributions in New York City.

Answers will vary.


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