This Document Contains Chapters 15 to 16 Chapter 15 Global Opportunities 1) Becoming a global entrepreneur requires: A) constant innovation. B) maintaining a high level of quality and constantly improving it. C) being sensitive to foreign customers' unique requirements and adopting a more respectful attitude toward foreign habits and customs. D) All of the above Answer: D 2) For an entrepreneur, expanding into international markets: A) guarantees its success in the marketplace. B) makes it a member of GATT automatically. C) helps it grow faster and survive competition better. D) leads to business failure for companies under $100 million in annual revenue. Answer: C 3) The first obstacle an entrepreneur must overcome on the way to creating a truly global business is: A) finding a joint venture partner. B) learning to think globally. C) locating motivated, multilingual managers for overseas assignments. D) finding overseas distributors for the company's products. Answer: B 4) Before going global, entrepreneurs should ask themselves questions regarding: A) profit potential and commitment of resources for a global effort. B) a viable exit strategy and the cost of not going global. C) the reasons, rationale, and understanding cultural differences. D) All the above Answer: D 5) All of these are steps small companies follow when they begin conducting global business on the Web except: A) connecting to e-mail. B) building a globally accessible Web site. C) setting up links to related company Web sites. D) using the Web to conduct international market research. Answer: C 6) Which of the following statements is/are true regarding export management companies? A) Most are merchant intermediaries that work on a buy-and-sell arrangement with domestic small companies. B) They provide small businesses with a low-cost, efficient, independent, international marketing department. C) Many specialize in particular products or product lines and offer services ranging from market research and advice or patent protection, to arranging financing and handling shipping. D) All of the above Answer: D 7) An export trading company: A) is a business that buys and sells products in many countries, either in its own name or as an agent for its buyer-seller clients. B) typically offers a wide range of services such as exporting, shipping, storing, distributing, and others to their clients. C) is formed by an agreement by which a licenser gives a foreign licensee the right to use a patent, trademark, copyright, technology, and products in return for a percentage of the licensee's sales or profits. D) Both A and C above Answer: D 8) Which of the following trade intermediaries lowers the risk of exporting for a small business? A) Export management companies B) Export trading companies C) Resident buying offices D) All of the above Answer: D 9) ________ act as international sales representatives in a limited number of markets for various noncompeting domestic companies, typically operating on a commission basis. A) Manufacturers' export agents B) Export merchants C) Resident buying offices D) Foreign distributors Answer: A 10) A resident buying office is: A) a business that buys and sells products in many countries, either in its own name or as an agent for its buyer-seller clients. B) a government-owned or business-owned facility set up in a foreign country to buy products that are made there. C) a firm in an overseas distribution network selling noncompetitive products made by other firms. D) formed by an agreement where a licenser gives a foreign licensee the right to use a patent, trademark, copyright, technology, and products in return for a percentage of the licensee's sales or profits. Answer: B 11) ________ are domestic wholesalers who do business in foreign markets, buying goods from domestic companies and selling them in foreign markets, often handling competing lines. A) Resident buying offices B) Export trading companies C) Foreign distributors D) Export merchants Answer: D 12) Foreign distributors offer small businesses which of the following benefits? A) A detailed knowledge of the local markets in which they sell B) The ability to cover a foreign sales territory thoroughly C) The ability to handle all of the marketing, distribution, and service functions in foreign markets D) All of the above Answer: D 13) In a(n) ________, two or more U.S. small businesses form an alliance for the purpose of exporting their goods and services. The companies get antitrust immunity and share responsibility for the business equally. A) foreign joint venture B) trade intermediary C) domestic joint venture D) export management company Answer: C 14) In a(n) ________, a domestic small business forms an alliance with a company in the target nation for the purpose of exporting to that market. A) foreign joint venture B) trade intermediary C) domestic joint venture D) export management company Answer: A 15) The most important ingredient for a successful joint venture is: A) targeting the right country in which to sell. B) getting government approval and avoiding antitrust charges. C) choosing the right partner. D) splitting costs and profits equally. Answer: C 16) Which of the following is a common problem in joint ventures? A) Incompatible management styles among partners B) Failure of partners to establish common goals C) Failure of partners to carefully determine each party's contributions and responsibilities, distribution of earnings, etc. D) All of the above Answer: D 17) Many joint ventures fail because the parties involved neglected to: A) select a partner who shares their company's values. B) spell out in writing exactly how the venture will work and who has decision-making authority. C) select a partner whose skills are different from, but compatible with, their own. D) All of the above Answer: D 18) Foreign licensing has its greatest potential in the licensing of: A) products. B) intangibles, such as technology, copyrights, and trademarks. C) goods. D) franchises. Answer: B 19) If a business owner cannot afford to invest in foreign facilities and does not have time to learn the foreign market, but is willing to give someone else the right to make and market her product for a fee and royalties, her best bet for entering the foreign market is: A) a foreign management company. B) joint venturing. C) foreign licensing. D) international franchising. Answer: C 20) Foreign licensing is: A) required when a business buys and sells products in many countries, either in its own name or as an agent for its buyer-seller clients. B) a government-owned or business-owned facility set up in a foreign country to buy products that are made there. C) the use by one firm (the carrier) of its overseas distribution network to sell noncompetitive products made by other firms (riders). D) an agreement in which a licenser gives a licensee in another country the right to use that licenser's patent, trademark, copyright, technology, and products in return for a percentage of the licensee's sales or profits. Answer: D 21) Domino's Pizza and McDonald's operating in Japan and Europe are examples of: A) foreign management companies. B) joint venturing. C) foreign licensing. D) international franchising. Answer: D 22) The first step in establishing a successful global franchise arrangement is to: A) generate lead for potential franchisees. B) structure the franchise deal. C) identify the country or countries that are best suited to the franchiser's business concept. D) select quality candidates. Answer: C 23) ________ is a transaction in which a company selling goods and services in a foreign market agrees to help promote investment and trade in that country. A) Countertrading B) Bartering C) Foreign licensing D) Exporting Answer: A 24) The drawbacks of countertrading include which of the following? A) Countertrade transactions can be complicated, cumbersome, and time consuming. B) Countertrade transactions can increase the chances that a company will be stuck with merchandise it cannot move. C) Countertrade transactions can lead to unpleasant surprises concerning the quantity and quality of products required in the countertrade. D) All of the above Answer: D 25) ________, the exchange of goods and services for other goods and services, is one way of trading with countries that lack convertible currency. A) Countertrading B) Bartering C) Foreign licensing D) Exporting Answer: B 26) Which of the following is/are often used by companies exporting to countries that lack a convertible currency? A) Countertrading B) Indirect exporting C) Bartering D) A and C only Answer: D 27) Nance Technologies, Inc., has agreed to sell some of its computers to a company in Bascovina, a country whose currency is worthless outside its own borders. As part of the agreement, Nance will sell the foreign customer its computers in exchange for a specified number of tons of coffee, a major export of Bascovina. Nance has already arranged to sell the coffee to a major processor for a set price in U.S. dollars. Nance has engaged in: A) bartering. B) foreign licensing. C) exporting. D) countertrading. Answer: A 28) Small companies with fewer than 20 employees account for more than ________ percent of U.S. export sales. A) 20 B) 60 C) 70 D) 90 Answer: C 29) The biggest barrier facing companies that have never exported is: A) finding the financing to launch an export program. B) not knowing where or how to start. C) locating a trade intermediary to represent them in foreign markets. D) winning government approval to begin selling in foreign markets. Answer: B 30) Two valuable resources for entrepreneur's to investigate for going global should include: A) U.S. Department of Commerce. B) International Trade Administration. C) A and B above D) Neither of these resources will provide real value or insight. Answer: C 31) The first step to create a sound export strategy is to: A) recognize that even the smallest companies and least experienced entrepreneurs have the potential to export. B) analyze your product or service. C) analyze your commitment. D) research markets and pick your target. Answer: A 32) The second step to creating a sound export strategy involves: A) analyzing the product or service. B) recognizing the potential to export. C) analyze your commitment. D) research market and pick your target. Answer: A 33) One of the biggest barriers to small business exports is lack of: A) access to adequate financing. B) attractive countries that are not already saturated by franchising efforts. C) effective distribution strategies. D) information to make informed decisions about franchising. Answer: A 34) The final step in creating a sound export strategy is to: A) find your customer. B) ship your goods. C) collect your money. D) find financing. Answer: C 35) A ________ is an agreement between an exporter's bank and the foreign buyer's bank that guarantees payment to the exporter for a specific shipment of goods. A) bank draft B) letter of credit C) repurchase agreement D) trade acceptance Answer: B 36) A ________ is a document an exporter draws on a foreign buyer, requiring the buyer to pay the face amount, either on sight or on a specified date, once the goods are shipped. A) bank draft B) letter of credit C) repurchase agreement D) trade acceptance Answer: A 37) Which of the following is not one of the three major advantages to establishing an international location? A) Lower production costs B) Need for smaller staff C) Lower marketing costs D) Development of an intimate knowledge of customer preferences Answer: B 38) In the United States alone, companies import more than ________ worth of goods and services annually. A) $3.2 million B) $1.2 trillion C) $3.2 trillion D) $2.3 trillion Answer: C 39) Entrepreneurs who are considering importing goods and services or outsourcing their manufacturing to foreign countries should begin by: A) making sure that importing or outsourcing is right for their business. B) do your research before you leave home C) establish a target market for your product. D) do your groundwork once you arrive Answer: A 40) The most frequently encountered impediment to international trade for small and medium-sized manufacturers is: A) foreign sales not sufficiently profitable. B) transportation and shipping costs. C) language and cultural barriers. D) foreign regulations. Answer: B 41) The most frequently encountered impediment to international trade for small and medium-sized service firms is: A) foreign sales not sufficiently profitable. B) transportation and shipping costs. C) language and cultural barriers. D) foreign regulations Answer: A 42) Which of the following is a domestic barrier to small business exporting? A) The attitude, "I'm too small to export" B) A lack of information about how to get started in exporting C) A lack of export financing for small companies D) All of the above Answer: D 43) Old assumptions regarding global business assumptions for exporting includes: A) I am "too small" to go global and my product or service won't sell outside the U.S. B) Exporting is too risky for my small company and my domestic market is currently secure. C) Getting paid is difficult and this will impede my success. D) All of the above Answer: D 44) Many nations have lowered tariffs they impose on products and services brought into their border and rely on other: A) nontariff structure as protectionist trade barriers. B) taxes. C) duty fees. D) dumping. Answer: A 45) Malcolm won a contract to provide nuts, bolts, and washers to a small African country's military. Unfortunately, neither his bankers nor venture capitalists would provide the loans needed to buy the material to produce the order. The bank did not do international loans. Which barrier to international trade is Malcolm experiencing? A) Financing B) Information C) Cultural D) Attitude Answer: A 46) A tariff is: A) a law that a government uses to regulate products that are imported into the country. B) the maximum amount of a product that can be imported or exported. C) a prohibition or suspension of foreign trade of specific imports or exports. D) a duty, or tax, that a government puts on products that are imported into the country. Answer: D 47) The small country of Bascovina wanted to protect its infant basket industry and imposed a 400 percent tariff on all imported baskets. The high tariff dropped the bottom out of imported basket sales, and imports of baskets stops. Why did this happen? A) The citizens realized that because the government imposed the tariff, imported basket purchases were undesirable. B) The tariff reduced the price of imported baskets and consumers felt that because of the low prices, the baskets were of low quality and stopped their purchases. C) The tariff barred all shipments of baskets to Bascovina. D) The tariff makes the price of imported baskets so high that they are not competitive. Answer: D 48) John wants to expand into the foreign markets, but he cannot convince his partners. They believe that international markets are the domain of large corporations. John is facing which barrier to international trade? A) Financing B) Political C) Cultural D) Attitude Answer: D 49) A quota is: A) a duty or tax that a government puts on products that are imported into the country. B) the maximum amount of a product that can be imported into a country. C) a prohibition or suspension of foreign trade of specific imports or exports. D) a law that a government uses to regulate products that are imported into the country. Answer: B 50) An embargo is: A) a duty, or tax, that a government puts on products that are imported into the country. B) the maximum amount of a product that can be imported or exported. C) a prohibition or suspension of foreign trade of specific imports or exports. D) a law that a government uses to regulate products that are imported into the country. Answer: C 51) ________ is the practice of selling substantial quantities of a product in a foreign market at prices that are below either the home-market price or below the full cost of producing it. A) Exporting B) Bartering C) Dumping D) Price discrimination Answer: C 52) An American executive went to a foreign country to sign a business contract. While there, he found that there were numerous complex government regulations his company needed to meet before closing the deal. This executive was experiencing which barrier to international trade? A) Tariff B) Political C) Cultural D) Domestic Answer: B 53) Business owners new to international business are sometimes shocked: A) by the wide range of labor costs they encounter. B) that practices common in the United States, such as overtime, women workers, and employee benefits, are restricted, disfavored, or forbidden in other cultures. C) that what appear to be "bargain" labor rates turn out to be excessively high after accounting for the quality of the labor force and the benefits their governments mandate. D) All of the above Answer: D 54) The ________ of a nation includes the belief, values, views, and mores that its inhabitants share. A) political atmosphere B) culture C) tariffs D) free trade area Answer: B 55) An American executive went to a Middle Eastern country to sign an oil contract. Before the contract was signed, the American and the Arab official met for tea. Relaxing, the American put his feet up on a table. The official became angry and left the room. Later it was found that showing the soles of shoes was a serious insult. This represents which barrier to international trade? A) Tactical B) Political C) Strategic D) Cultural Answer: D 56) As of 2003, the World Trade Organization (WTO) had 155 member countries that represent over ________ of all world trade. A) 97 percent B) 39 percent C) 76 percent D) 52 percent Answer: A 57) The North American Free Trade Agreement, also known as NAFTA, served to: A) bring South America, Mexico, the U.S., and Canada together as one market. B) eliminate all tariffs among member nations, effective immediately, and raise them to non-members. C) mostly benefit the trading relationship between Canada and the United States. D) create a unified market of 465 million people and $18.1 trillion in goods and services. Answer: D 58) The North American Free Trade Agreement (NAFTA) created a free trade area among: A) Canada, Mexico, and the United States. B) Japan, Mexico, and Canada C) Mexico, Japan, and the United States D) None of the above Answer: A 59) The North American Free Trade Agreement has which of the following provisions? A) The immediate elimination of all tariff and quota barriers on all goods B) The elimination of tariffs on most goods C) A lowering of safety and air quality standards D) The formation of a North American Trade Organization Answer: B 60) Which of the following is a guideline for becoming a successful international competitor? A) Make yourself at home in all of the world's key markets-North America, Europe, and Asia. B) Become familiar with foreign customs and languages. C) Consider using partners and joint ventures to break into foreign markets you cannot penetrate on your own. D) All of the above Answer: D 61) Only about one-third of the world's purchasing power lies outside the borders of the United States. Answer: False 62) As the trend toward increased globalization continues, successful companies must consider themselves businesses without borders. Answer: True 63) Success in the global economy requires constant innovation, high quality, and flexibility and the ability to have a new perspective about the potential of a business. Answer: True 64) Small companies that take the plunge into global business can extend their products' life cycles, raise their quality levels, and increase sales and profits. Answer: True 65) Learning to think globally may be the first-and most threatening-obstacle an entrepreneur must overcome on the way to creating a truly global business. Answer: True 66) Some of the strategic options entrepreneurs have when deciding to go global include the Web, joint ventures, and franchising. Answer: True 67) Entrepreneurs can use the Web to generate sales leads by researching customers and market characteristics in other countries. Answer: True 68) Trade intermediaries are domestic agencies that serve as distributors in foreign countries for domestic companies of all sizes. Answer: True 69) Most export management companies (EMCs) are merchant intermediaries that work on a buy-and-sell arrangement with domestic small companies, providing small businesses with a low-cost, efficient, independent, international marketing department. Answer: True 70) Export trading companies are government-owned operations established in countries around the world (including the United States) for the purpose of buying goods there. Answer: False 71) While export management companies tend to focus on exporting, export trading companies usually perform both import and export trades across many countries' borders. Answer: True 72) Unlike an EMC or an ETC, manufacturers' export agents act as international sales representatives in a limited number of markets for various noncompeting domestic companies, typically operating on a commission basis. Answer: True 73) Most export merchants buy goods, often competing lines, from many domestic companies and then sell them in foreign markets. Answer: True 74) Selling to a resident buying office is just like selling to domestic customers since the buying office handles all of the details of exporting the products. Answer: True 75) Most small businesses getting started in conducting global business do not need the services of trade intermediaries because "going global" has become so easy that even the smallest businesses can do it alone. Answer: False 76) Foreign distributors offer exporting small businesses the benefit of knowledge of the local markets in which they sell, the ability to cover a foreign sales territory thoroughly, and the ability to handle all of the marketing, distribution, and service functions in foreign markets. Answer: True 77) In a domestic joint venture, a domestic company forms an alliance with a company in the target nation. Answer: False 78) When two small businesses in the target nation form an alliance, they have formed a foreign joint venture. Answer: False 79) Some foreign countries place limitations on joint ventures with host companies within their borders, for example by requiring the host company to own at least 51 percent of the venture. Answer: True 80) One reason joint ventures fail is because entrepreneurs did not select a partner who shares their company's values and standards of conduct. Answer: True 81) Foreign licensing is when a business buys and sells products in many countries, either in its own name, or as an agent for its buyer-seller clients. Answer: False 82) Foreign licensing is a relatively simple way for even the most inexperienced business owner to extend his reach into global markets. Answer: True 83) Before engaging in foreign licensing, a business owner should secure patent, trademark and copyright protection. Answer: True 84) The licensing potential for intangibles, such as technology, trademarks, and other forms of protection, is often greater than the licensing opportunities for products. Answer: True 85) As the domestic market for franchises has become increasingly saturated with outlets, the number of franchisers attracted to foreign markets has grown. Answer: True 86) Although franchising is a popular way to do business in the United States, it is not a popular strategy in international markets. Answer: False 87) Although franchise outlets operate throughout the world, the primary market for U.S. franchisers is Europe. Answer: False 88) Based on an assessment by the international Franchise Association, the least attractive country to enter with a franchise is Russia. Answer: True 89) One reason for McDonald's success in foreign markets is its decision to stick to exactly the same menu in every country that it offers in the United States. Answer: False 90) A countertrade is a transaction in which a company selling goods and services in a foreign country agrees to help promote investment and trade in that country. Answer: True 91) If a country's currency is not convertible into any other currency, companies exporting to that country usually engage in either countertrading or bartering. Answer: True 92) Successful bartering is easier than countertrade but requires finding a business with complementary needs. Answer: True 93) Researching potential export markets is a waste of time and resources for small business owners; the best way to find export opportunities is to travel abroad and sell. Answer: False 94) Among major industrialized nations, the United States spends the greatest amount per capita to promote exports. Answer: False 95) The U.S. Department of Commerce and the International Trade Administration have the market research available for locating the best target markets for a particular company and specific customers in those markets. Answer: True 96) Lack of export financing remains a significant barrier to small businesses selling in foreign markets. Answer: True 97) Collecting foreign accounts is usually less complex than collecting domestic ones. Answer: False 98) A letter of credit is an agreement between an exporter's bank and a foreign buyer's bank that guarantees payment to the exporter for a specific shipment of goods. Answer: True 99) FOB is when the seller must deliver goods to the carrier, obtain export licenses, pay export taxes, and bear the risk of loss until the goods are delivered to the buyer. Answer: False 100) The Foreign Corrupt Practice Act, passed in 1977, considers bribing foreign officials to be a criminal act. Answer: True 101) Most small businesses begin their global ventures by establishing international locations. Answer: False 102) The government of Palmeria placed a high import tariff on steel from Dano. Dano's steel is higher in quality and cheaper. Palmeria's actions result in higher prices for their consumers. Answer: True 103) The most frequently encountered impediments to international trade for small and medium-sized manufactures relates to U.S. regulations. Answer: False 104) A tariff is a limit on the amount of a product imported into a country. Answer: False 105) The three biggest domestic barriers to exporting facing small businesses are attitude, information, and financing. Answer: True 106) The biggest barrier facing companies that have never exported is not knowing where or how to start. Answer: True 107) The first and most difficult step to exporting for the small business is breaking the psychological barrier, "My company is too small to export." Answer: True 108) Even the smallest businesses have the potential to export. Answer: True 109) The key to success in international markets is choosing the correct target market and designing a strategy to reach it. Answer: True 110) A quota is a limit on the amount of certain products imported into a country, while an embargo is a total ban on imports of certain products. Answer: True 111) Dumping involves selling large quantities of a product in a foreign market below cost. Answer: True 112) Selling large quantities of a product in a foreign market below cost is the best way for a small company to begin its export program. Answer: False 113) To prove a charge of dumping under the U.S. Antidumping Act, a company must prove that a foreign company's prices on a product are lower here than in the home country and that U.S. companies are directly harmed. Answer: True 114) The only cultural barrier an American small business manager must overcome when conducting business internationally is the language gap. Answer: False 115) Learning the habits and the customs of the cultures in which they do business is essential for small business managers trying to go global. Answer: True 116) American business people can be on their best American behavior and go overseas and offend the locals. This is, in part, due to the fact that business customs that are acceptable, or even expected, in one country may be taboo in another. Answer: True 117) Fortunately for U.S. business owners, American customs and habits have become the standard for proper business behavior around the world. Answer: False 118) While the World Trade Organization had 155 member countries which represent over 97 percent of all world trade, the market formed by NAFTA has more than 465 million people and an annual output of $18.1 trillion in goods and services. Answer: True 119) A free trade area is an association of countries that have agreed to knock down trade barriers-both tariff and nontariff-among partner nations. Answer: True 120) NAFTA is an agreement among the U.S., Canada, Mexico, Argentina, and Chile, forming a free trade area among these countries. Answer: False 121) NAFTA includes provisions reducing tariff and nontariff barriers and toughening health and safety standards. Answer: True 122) An important guideline for companies wanting to successfully compete internationally is to appeal to the similarities within the various regions in which you operate, but recognize the differences in their specific cultures. Answer: True 123) An important guideline for companies wanting to successfully compete internationally is to familiarize yourself with foreign customs, languages, and cultures, including their lifestyles, values, customs, and business practices. Answer: True 124) Explain why it is important to "go global." What benefits can companies that take the plunge into global business expect? Answer: Small businesses can no longer consider themselves to be domestic companies if they truly want to compete. Political, social, cultural, and economic forces are driving small businesses into international markets. Powerful, affordable technology increases access to information on conducting global business, and the growing interdependence of the world economies makes it easier for companies of all sizes to engage in international trade. Since the global market offers more niches, the flexibility and speed of a small business can become a competitive advantage. Advantages of going global include the following: • Offsetting sales declines in the domestic market • Increasing sales and profits • Extending their products' life cycles • Lowering manufacturing costs • Improving competitive position and enhancing reputation • Raising quality levels • Becoming more customer oriented. 125) Outline the eight strategies for "going global" available to the small business owner. Answer: Launching a Web site-Small businesses should follow a three-step approach to conducting global business on the Web. Step 1: Establish an Internet connection and set up an e-mail account Step 2: Connect to and conduct international market research Step 3: Build a global Web site. Creating a Web site-An economical and flexible way to enter the global market 24 hours a day, 7 days a week. Relying on trade intermediaries-Rather than create an export program "from scratch," small companies can rely on trade intermediaries for assistance-export management companies (EMC), export trading companies (ETC), manufacturers' export agents (MEA), export merchants, resident buying offices, and overseas distributors all provide a variety of services for a fee. Typically, at least $50,000 in sales is required to make their fees affordable. Joint ventures-In a domestic joint venture, two or more U.S. small businesses form an alliance for the purpose of exporting their goods and services abroad, which typically lowers their individual risk. Special antitrust immunity is typically requested, allowing them to cooperate freely. In a foreign joint venture, a domestic small business forms an alliance with a company in the target nation. Foreign licensing-Small companies can license businesses in other nations to use their patents, copyrights, trademarks, technology, processes, or products in return for royalty payments from sales. Risks include losing control or the possibility of creating a competitor. International franchising-International outlets provide new sales to boost lagging sales and saturated U.S. markets. Most franchises have found they need to modify their normally standardized products for foreign tastes. Entrepreneurs have the backing of a large organization and need help in understanding different markets. Countertrading and bartering-When a target nation's currency is worthless outside its borders, companies often turn to barter-the exchange of goods and services for other goods and services. Exporting-Even the tiniest and least experienced entrepreneurs have the potential to export. The biggest barrier is not knowing where or how to start. Establishing international locations-Setting up an international office can require a significant investment. 126) One of the eight strategies a company uses to "go global" includes the use of trade intermediaries. Identify the six types of trade intermediaries and explain why a small business owner might use each one. Answer: 1. Export management companies (EMCs)-EMCs are merchant intermediaries that provide small businesses with a low-cost, efficient, independent international marketing department. Their focus is on exporting, and they typically do not handle competing firms. 2. Export trading companies (ETCs)-ETCs are businesses that buy and sell products in a number of countries and offer a wide variety of services-exporting, importing, shipping, storing, and distributing-to their clients who may be competitors. They focus on long-term relationships. 3. Manufacturers' export agents (MEAs)-MEAs are businesses that act as international sales representatives in a limited number of markets for various noncompeting domestic companies. They are commission based and focus on short-term commitments. 4. Export merchants-Export merchants are domestic wholesalers who buy goods from many domestic manufacturers and then market them in foreign markets. Most export merchants specialize in particular industries and often carry competing lines. 5. Resident buying offices-A government- or privately-owned operation established in a country for the purpose of buying goods from businesses there. The buying office handles all the details of exporting. 6. Foreign distributors-Domestic small companies export their products to foreign distributors who handle all of the marketing, distribution, and service functions in the foreign country. They offer exporting small businesses the benefits of knowledge in their local markets, the ability to cover a given territory thoroughly, and prompt sales and service support. 127) What advantages do taking on a partner in a joint venture offer a small business in an international business opportunity? Disadvantages? Answer: Domestic joint venture-two or more U.S. small businesses form an alliance for the purpose of exporting their goods and services abroad. Foreign joint venture-a domestic small business forms an alliance with a company in the target nation. Advantages of international joint venture: • Penetrate protected markets • Lower production costs • Share risks and high R&D costs • Gain access to marketing and distribution channels Disadvantages of international joint venture: • Failure of the venture • Relationships that sour • Becoming overly dependent on the partner 128) What strategies for trade can businesses use when exporting to countries whose currencies are not convertible to other currencies? What are the disadvantages? Answer: Countertrade is a transaction in which a company selling goods and services in a foreign country agrees to help promote investment and trade in that country, even though profits cannot be taken in the form of currency exchange. Countertrading transactions can be complicated, cumbersome, and time consuming. They also increase the chances that a company will get stuck with useless merchandise that it cannot move. They can also lead to surprises in the quantity and quality of products required in the counter trade. Bartering is the exchange of goods and services for other goods and services. Usually the traded goods are sold to a third party for cash. Barter transactions require finding a business with complementary needs, but they are much simpler than countertrading. 129) List and briefly explain the steps an entrepreneur should follow to establish an export program. Answer: The following steps provide guidance to an entrepreneur on how to establish an exporting program: 1. Recognize your potential regardless of your size. Recognize that even the tiniest companies and least experienced entrepreneurs have the potential to export. The size of the firm has nothing to do with the demand for its products. If the products meet the needs of global customers, there is a potential to export. 2. Analyze your product or service. Is it special? Is it new? Is it unique? Is it of high quality? Is it priced favorably because of lower costs or exchange rates? In which countries would there be sufficient demand for it? 3. Analyze your commitment. Are you willing to devote the time and energy to develop export markets? Does your company have the necessary resources? Export start-ups can take from six to eight months (or longer), but entering foreign markets isn't as tough as most entrepreneurs think. 4. Research markets and pick your target. Before investing in a costly sales trip abroad, entrepreneurs should make a trip to the local library or the nearest branch of the Department of Commerce. Exporters can choose from a multitude of guides, manuals, books, newsletters, videos, and other resources to help them research potential markets. Armed with research, small business owners can avoid wasting a lot of time and money on markets with limited potential for their products and can concentrate on those with the greatest promise. Research shows export entrepreneurs whether they need to modify their existing products and services to suit the tastes and preferences of their foreign target customers. Sometimes foreign customers' lifestyles, housing needs, body size, and cultures require exporters to make alterations in their product lines. Such modifications can sometimes spell the difference between success and failure in the global market. 5. Develop a distribution strategy. Should you use an export middleperson or sell directly to foreign customers? Small companies just entering international markets may prefer to rely on export middlepersons to break new ground. 6. Find your customer. Small businesses can rely on a host of export specialists to help them track down foreign customers. The U.S. Department of Commerce and the International Trade Administration should be the first stops on an entrepreneur's agenda for going global. These agencies have the market research available for locating the best target markets for a particular company and specific customers in those markets. They also have knowledgeable staff specialists experienced in the details of global trade and in the intricacies of foreign cultures. 7. Find financing. One of the biggest barriers to small business exports is lack of financing. Access to adequate financing is a crucial ingredient in a successful export program because the cost of generating foreign sales often is higher and collection cycles are longer than in domestic markets. The trouble is that bankers and other sources of capital don't always understand the intricacies of international sales and view financing them as excessively risky. Also, among major industrialized nations, the U.S. government spent the least per capita to promote exports. It is important to note that several federal, state, and private programs are working to fill this export financing void. 8. Ship your goods. Export novices usually rely on international freight forwarders and custom-house agents-experienced specialists in overseas shipping—for help in navigating the bureaucratic morass of packaging requirements and paperwork demanded by customs. These specialists, also known as transport architects, are to exporters what travel agents are to passengers and normally charge relatively small fees for a valuable service. They move shipments of all sizes to destinations all over the world efficiently, saving entrepreneurs many headaches. 9. Collect your money. Collecting foreign accounts can be more complex than collecting domestic ones, but by picking their customers carefully and checking their credit references closely, entrepreneurs can minimize bad-debt losses. Financing foreign sales often involves special credit arrangements such as letters of credit and bank (or documentary) drafts. 130) Identify and discuss the domestic barriers to trade. Answer: Three major domestic barriers to international trade are common: 1. An attitude of "I'm too small to export"-The first step to building an export program is recognizing that the opportunity to export exists. 2. Lack of information-Entrepreneurs should thoroughly research the possibility of going global and use every possible resource available to them-government and private organizations' international exporting and marketing information-in order to make valid decisions. In addition, companies must be willing to make the necessary adjustments to their products and services, promotional campaigns, packaging, and sales techniques in foreign markets. 3. Lack of available financing-Many entrepreneurs cite lack of financing as a major barrier to international trade. Before embarking on an export program, entrepreneurs should have available financing lined up. 131) Identify and discuss the international barriers to trade. Answer: International barriers include the following: Tariffs-a tax, or duty, that a government imposes on goods and services imported into that country. Imposing tariffs raises the price of the imported goods-making them less attractive to consumers-and protects the makers of comparable domestic products and services. Quotas-a limit on the amount of a product imported into a country, which helps to protect domestic markets by limiting opportunities for foreign competitors. Embargoes-a total ban on imports of certain products, which helps to protect domestic markets by keeping foreign competitors out. Dumping-selling large quantities of a product in foreign countries below cost. Under the U.S. Antidumping Act, a company must prove that the foreign company's prices are lower here than in the home country and that U.S. companies are directly harmed. 132) Describe the other barriers to trade, including political, business, and cultural: Answer: Political barriers-Although many U.S. business owners complain of excessive government regulation in the United States, they are often astounded by the complex web of governmental and legal regulations and barriers they encounter in foreign countries. Companies doing business in politically risky lands face the very real dangers of government takeovers of private property; attempts at coups to overthrow ruling parties; kidnapping, bombings, and other violent acts against businesses and their employees; and other threatening events. Their investments of millions of dollars may evaporate overnight in the wake of a government coup or the passage of a law nationalizing an industry (giving control of an entire industry to the government). Business barriers-American companies doing business internationally quickly learn that business practices and regulations in foreign lands can be quite different from those in the United States. Simply duplicating the practices they have adopted (and have used successfully) in the domestic market and using them in foreign markets is not always a good idea. Perhaps the biggest shock comes in the area of human resources management, where international managers discover that practices common in the United States, such as overtime, women workers, and employee benefits are restricted, disfavored, or forbidden in other cultures. Business owners new to international business sometimes are shocked at the wide range of labor costs they encounter and the accompanying wide range of skilled labor available. In some countries, what appear to be "bargain" labor rates turn out to be excessively high after accounting for the quality of the labor force and the benefits their governments mandate. In many nations, labor unions are present in almost every company, yet they play a very different role from the unions in the United States. Although management-union relations are not as hostile as in the United States and strikes are not as common, unions can greatly complicate a company's ability to compete effectively. Cultural barriers-The culture of a nation includes the beliefs, values, view, and mores that its inhabitants have. Differences in cultures among nations create another barrier to international trade. The diversity of languages, business philosophies, practices, and traditions make international trade more complex than selling to the business down the street. The assumption that the American way of doing things is universal is false. Many international business deals fail because businesspersons do not understand the importance of valuing diversity, or being sensitive and respectful to different ways of doing business. Entrepreneurs who want to be successful in international markets must understand the culture in which they plan to do business and adapt their business styles and their products to suit that culture. Mini-Case 15-1: The Grass Is Really Greener It's not usual for city people to be concerned about plants or grass-they see so little of them. Nevertheless, Martha Goldman has been interested in these things since her first biology course back in Brooklyn, New York. Martha won all the awards in the science fairs and eventually was the recipient of a scholarship to college. She chose to major in botany and became fascinated with the creation of hybrid plants and grasses. Martha was also concerned about the problem of hunger around the world. She knew that improved plants and grains increased the productivity of American agriculture, and hoped that someday she would find a way to play a small part in reducing world hunger. After college, with the help of her dad, she opened a small wholesale greenhouse. The business was a modest success and allowed Martha to experiment with new growing methods. Two years ago, Martha's research paid off. She had been working on developing a fast-growing grass that needed less water. One of the experiments produced a grass that seemed to have real potential. She tested it with a local cattle rancher. All tests so far have shown that the new hybrid grass is better for feeding cattle. Martha may have realized her dream-a grass that will grow better in parts of the world that could not previously support cattle. High protein beef cattle may now be able to thrive in parts of the world where previously it was not possible. 133) How should Martha proceed to determine the best way to export her new grass seed? Answer: It appears that Martha's product has definite potential. Now, she must target specific export markets, develop an export marketing strategy, and then implement it. Initially, she should target one or two "prime" markets using the wealth of published data from the U.S. Department of Commerce. Martha should explore many of the developing nations in arid regions. She should seek advice and assistance from export trading companies and export management companies. She should also contact the International Trade Association and conduct searches on the World Wide Web to determine which markets could be best to target first. (See Table 15.1 in the text for more international trade resources.) Martha should focus on locating dependable foreign distributors and invoice all sales in U.S. dollars. Chapter 16 Building a Team and Management Succession 1) ________ is the process of influencing and inspiring others to work to achieve a common goal and then giving them the power and the freedom to achieve it. A) Management B) Organizing C) Leadership D) Coordination Answer: C 2) Leadership is: A) essential to a company's success. B) not an easy skill to learn. C) influencing and inspiring others to work to achieve a common goal and then giving them the power and the freedom to achieve it. D) All of the above Answer: D 3) Which of the following pairs describing leadership (first column) and management (second column) is accurate? Answer: C 4) Which of the following is not a behavior typically exhibited by effective leaders? A) Define and constantly reinforce the vision they have for the company. B) Respect and support their employees. C) Require employees to gather necessary resources to complete their tasks; they will be more likely to "feel ownership" than if you did it for them. D) Create an environment in which people have the motivation, the training, and the freedom to achieve the goals they have set. Answer: C 5) Which of the following is not one of the vital tasks small business leaders must perform? A) Hire the right employees to the team and constantly improve their skills. B) Create a culture for retaining employees. C) Plan for "passing the torch" to the next generation of leadership. D) Keep flexible and do not be concerned about preparing for the next generation of management. Answer: D 6) A leadership style in which a leader takes on the role of a servant first and the role of a leader second is referred to as a ________ leader. A) servant B) passive C) managerial D) subservient Answer: A 7) Questions like "What are you deeply passionate about?", "What can you be the best in the world at?" and "What drives your economic engine?" are important to define your ________, according to the work of Jim Collins. A) hedgehog concept B) core competencies C) critical strategies D) keys to success Answer: A 8) Which of the following is true regarding hiring mistakes? A) Hiring mistakes are expensive. B) Companies' informal processes may lead to unpredictable outcomes. C) Small businesses are most likely to make hiring mistakes because they lack the human resources experts and the disciplined hiring procedures large companies have. D) All of the above Answer: D 9) One of the best sources for prospects for new positions may come from: A) colleges and universities. B) the Internet. C) current employees. D) employment advertisements. Answer: C 10) Which of the following techniques would you not recommend to a company desiring a stronger recruiting strategy? A) Look inside the company first; a promotion-from-within policy serves as an incentive for existing workers to upgrade their skills. B) Encourage employee referrals; reward employees for successful referrals. C) Ensure that your recruitment efforts are known-whether in traditional media, the Internet, or on college campuses. D) Avoid hiring retired workers; they too often fail to have anything to offer. Answer: D 11) Posting job openings on the Internet has proven to be: A) a relatively ineffective method of recruiting. B) a cost-effective method to attract candidates from other areas. C) an effective method to attract candidates and is relatively expensive. D) problematic for entrepreneurial businesses. Answer: B 12) A ________ is the process by which a company determines the duties and the nature of the jobs to be filled and the skills and experience required of the people who are to fill them. A) job analysis B) job description C) job specification D) management audit Answer: A 13) Luisa, the director of human resources, is discussing the duties and responsibilities of a new position and its working conditions with Delmar, the manager over the position. Luisa and Delmar are discussing a: A) job description. B) management audit. C) job specification. D) job analysis. Answer: A 14) Burt is applying for a position as a staff accountant. The job specification for the position might list all of the following items except: A) BBA in Accounting. B) 3 years of experience. C) prepare daily sales reports. D) knowledge of QuickBooks. Answer: C 15) A ________ identifies the duties and responsibilities of a position and its working conditions, while a ________ identifies the qualifications required of the job candidate in terms of skills, education, and experience needed. A) job specification; job description B) job description; job specification C) job analysis; job specification D) job analysis; job description Answer: A 16) The ________, published by the Department of Labor, lists more than 20,000 job titles and descriptions and serves as a useful tool for getting a small business owner started when writing job descriptions. A) Title IX Handbook B) Team Handbook C) Job Listing Directory D) Dictionary of Occupational Titles Answer: D 17) Which of the following types of questions should a business owner ask a candidate in a job interview? A) Questions calling for "yes or no" answers B) Questions about the candidate's religious beliefs C) Questions based on on-the-job scenarios that require open-ended answers D) Questions about the candidate's physical traits, characteristics, and family life Answer: C 18) A ________ interview is where the interviewer gives candidates a typical job-related situation to assess how they respond. A) situational B) puzzle C) circumstantial D) exploratory Answer: A 19) A ________ interview involves offbeat questions to determine how job candidates think and reason, allowing the interviewer to assess their capacity for creativity. A) situational B) puzzle C) circumstantial D) game-based Answer: B 20) Effective interviewers spend about ________ percent of the interview talking and ________ percent listening. A) 25; 75 B) 50; 50 C) 75; 25 D) 90; 10 Answer: A 21) Which of the following is not a recommended guideline for developing questions to ask candidates in job interviews? A) Develop a series of core questions and ask them of every candidate. B) Ask only questions calling for "yes or no" answers to avoid any controversy regarding the direction the job interview took; this way, you have better control of the situation. C) Create hypothetical situations candidates would likely encounter on the job and ask how they would handle them. D) Ask candidates to describe a recent success and a recent failure and how they dealt with them. Answer: B 22) Which of the following best represents the three phases of an effective job interview? A) Breaking the ice, asking informative questions, and providing as much information about the company-good and bad- as possible B) Breaking the ice, asking informative questions, and selling the candidate on the company C) Breaking the ice, asking informative questions, and selling the candidate on the company regardless of their potential fit D) Breaking the ice, asking questions in an interrogative manner, and selling the candidate on the company Answer: B 23) Successful interviewers always listen for these in an interview to see whether it matches the candidate's words. This interviewer is referring to the candidate's: A) work experience. B) job-related skills. C) nonverbal clues or body language. D) nervousness. Answer: C 24) Which government agency is responsible for enforcing employment laws? A) The Fair Labor Standards Commission B) The National Labor Relations Board C) The Equal Employment Opportunity Commission D) The Justice Department Answer: C 25) If a job candidate files charges of employment discrimination against a company, the burden of proof in the case falls on: A) the employer to prove that all pre-employment questions are job-related and non-discriminatory. B) the candidate to prove that some pre-employment questions and actions were discriminatory. C) the Equal Employment Opportunity Commission representing the job candidate in the lawsuit. D) None of the above Answer: A 26) Although many business owners see checking references as a formality and pay little attention to it, the process is: A) expensive and often meaningless. B) necessary and often invaluable. C) optional, based on the position's salary and relative importance. D) a questionable practice that may bias the hiring process. Answer: B 27) According to a survey by Career Builders, almost ________ of candidates either exaggerated or falsified information about their previous employment on their resumes. A) one-third B) three-fourths C) half D) two-thirds Answer: C 28) ________ is the distinctive, unwritten code of conduct that governs the behavior, attitudes, relationships, and style of an organization. A) Organizational structure B) Company culture C) Hierarchy of command D) Formal organization Answer: B 29) A company's culture manifests itself in: A) how workers dress. B) the language workers use. C) the way workers behave. D) All of the above Answer: D 30) Company culture has a powerful impact on: A) the way people work together in a business. B) how people in a company do their jobs. C) how people in a company treat their customers. D) All of the above Answer: C 31) Which of the following statements about a company's culture is false? A) Company culture manifests itself in a variety of ways, from how workers dress and act to the language they use. B) As a company grows larger, its culture tends to remain constant. C) Culture arises from an entrepreneur's consistent and relentless pursuit of a set of core values that everyone in the company can believe in. D) All of the above Answer: B 32) Successful organizational culture supports exceptional performance and is compatible with the firm's stated values and beliefs. Which of the following best illustrates this concept? A) A "do what is needed regardless" attitude, diversity, respect for work and life balance, a sense of purpose and a sense of fun, and participative management in a learning environment B) Honesty and integrity, diversity, respect for work and life balance, a sense of purpose and a sense of fun, and dictatorial management in a learning environment C) Honesty and integrity, diversity, respect for work and life balance, an appreciation for career limitations, and participative management in a learning environment D) Honesty and integrity, diversity, respect for work and life balance, a sense of purpose and a sense of fun, and participative management in a learning environment Answer: D 33) The type of job design that breaks work down into its simplest form and standardizes tasks is known as: A) job simplification. B) job enlargement. C) job rotation. D) horizontal job loading. Answer: A 34) The classic auto assembly line is based on which job design principle? A) Job enlargement B) Job enrichment C) Job simplification D) Job rotation Answer: C 35) The ________ design strategy adds more tasks to a job to broaden its scope. A) job simplification B) job enlargement C) job enrichment D) job rotation Answer: B 36) The advantages of job rotation include: A) the ability to move from one job to others. B) a greater number and variety of tasks. C) additional flexibility for the company. D) All of the above Answer: D 37) The type of job design that adds more tasks to a job to broaden its scope is known as: A) job rotation. B) job enlargement. C) horizontal job loading. D) Both B and C Answer: D 38) The ________ design strategy involves cross-training workers so they can move from one job in the company to others, giving them a greater number and variety of tasks to perform. A) job simplification B) job enlargement C) job enrichment D) job rotation Answer: D 39) The ________ design strategy involves building motivators into a job by increasing the planning, decision-making, organizing, and controlling functions workers perform. A) job simplification B) job enlargement C) job enrichment D) job rotation Answer: C 40) In job enrichment, ________ is the degree to which a job requires a variety of different skills, talents, and activities from the worker. A) skill variety B) task identity C) task significance D) autonomy Answer: A 41) In job enrichment, ________ is the degree to which a job gives a worker the freedom, independence, and discretion in planning and performing tasks. A) task identity B) task significance C) autonomy D) feedback Answer: C 42) In job enrichment, ________ is the degree to which a job gives the worker direct, timely information about the quality of his performance. A) task identity B) task significance C) autonomy D) feedback Answer: D 43) In job enrichment, ________ is the degree to which a job substantially influences the lives or work of others-employees or final customers. A) skill variety B) task identity C) task significance D) autonomy Answer: C 44) Type of job design that involves building motivators into a job by increasing the planning, decision-making, organizing, and controlling functions workers perform is: A) job enrichment or vertical job loading. B) job enlargement or vertical job loading. C) job enrichment or horizontal job loading. D) job simplification or lateral job loading. Answer: C 45) In job enrichment, ________ is the degree to which a job allows a worker to complete a whole or identifiable piece of work. A) skill variety B) task identity C) task significance D) autonomy Answer: B 46) An arrangement under which employees work a normal number of hours with options regarding when they start and stop work is: A) hoteling. B) flex time. C) job sharing. D) flex space. Answer: B 47) Cora arrived at work at 7 a.m. today, and she will get off at 4 p.m. so that she can watch her son's soccer game. Her office mate, Emma, is not a "morning person" and usually arrives at the office at 10 a.m. and gets off at 7 p.m. Their company uses: A) job sharing. B) flex time. C) flexplace. D) job enrichment. Answer: B 48) Arturo, a sales representative for a small manufacturer, works out of an office in his home, using his laptop computer, a fax machine, and a beeper to communicate with the home office, which is located in a city 58 miles away. Arturo actually goes to the main office, on average, once every 10 to 14 days. His company is using which work arrangement? A) Job sharing B) Flex time C) Flexplace D) Job enrichment Answer: C 49) Maria is excited about the new opportunity her company has offered her-she will be able to work from her home office with a company computer and a high speed internet connection while she spends time with her newborn son. This is possible because of the implementation of: A) telecommuting. B) hoteling. C) job sharing. D) job rotation. Answer: A 50) A compensation system in which employees' pay depends on how well they perform their jobs is known as: A) a profit-sharing plan. B) open book management. C) a pay-for-performance compensation system. D) a commission compensation plan. Answer: C 51) Chris openly shares the company's financial results with employees. This represents: A) a profit-sharing plan. B) a pay-for-performance approach. C) the cafeteria benefit plan. D) open book management. Answer: D 52) As a motivator, money: A) is the best motivator a business owner can use. B) is the most effective motivator for younger, "Generation X" workers. C) is only a short-term motivator, losing its impact over time. D) All of the above Answer: C 53) Studies regarding succession of family businesses reveal that: A) 70 percent of first-generation businesses fail to survive into the second generation. B) only 12 percent make it to the third generation. C) only 3 percent make it to the fourth generation and beyond. D) All of the above Answer: D 54) More than ________ percent of all companies in the world are family owned. A) 40 B) 60 C) 80 D) 90 Answer: C 55) Almost ________ percent of business founders intend to pass theirs on to their children; however, only ________ percent have created a formal management succession plan. A) 81; 47 B) 90; 65 C) 75; 50 D) 60; 10 Answer: A 56) The first step in creating a management succession plan is to: A) create a survival kit for the successor. B) groom the successor. C) promote an environment of trust and respect. D) select the successor. Answer: D 57) When building your management succession "survival kit," A) never assume your children want to take control of the business. B) keep your succession choice a secret to avoid conflict among other family members. C) remember that entrepreneurial skills and desire are largely hereditary. D) you may assume your children want to take control of the business. Answer: A 58) When transferring power in a management succession, the small business owner should do all but which of the following? A) Tell the successor where all the critical documents are-wills, trusts, insurance policies, etc. B) Provide the successor with a list of advisers, people who have given you good advice in the past. C) Be open to learn from, as well as to teach, the successor. D) Transfer power quickly and step back, letting the successor run the business completely without any advice or interference by the owner. Answer: D 59) During the transfer of power, how should the owner deal with company problems and mistakes the successor makes? A) Use them as a means for teaching. B) Step in and fix them herself, to prevent damage to the company. C) Explain how the owner would have handled it and insist it be done that way in the future. D) Use them as an opportunity to maintain control for as long as possible. Answer: A 60) A business founder relying on a lifetime gifting strategy to minimize the taxes on the estate she is passing on to her son can give him a maximum gift of ________ in company stock each year, tax exempt. A) $6,000 B) $13,000 C) $18,000 D) $24,000 Answer: B 61) A(n) ________ is the most basic type of trust, which allows a business owner to put up to $1.3 million into trust, naming his spouse as the beneficiary upon his death. The spouse receives the income from the trust throughout her life, but the principal in the trust goes to the couple's heirs, free of estate taxes, upon the spouse's death. A) grantor-retained annuity trust B) family limited partnership C) bypass trust D) estate freeze Answer: C 62) In a grantor-retained annuity trust (GRAT), A) there is an attempt to minimize taxes on a family by creating two classes of stock-preferred stock, whose value is locked in, and common stock, whose value reflects the market value of the business. B) a business owner can pass on up to $10,000 annually which is exempt from federal gift taxes. C) the grantor retains the voting power and interest income from the stock in the trust for up to ten years before the business goes to the beneficiaries. D) the surviving owner or heir of a family business has the right to purchase the stock of the deceased owner at a price established by a predetermined formula. Answer: C 63) In a grantor-retained annuity trust (GRAT): A) the grantor could put company stock in an irrevocable trust lasting for up to 10 years. B) the grantor retains the voting power and interest income from the stock in the trust. C) the company stock transfers to the beneficiaries at the end of the trust and is taxed at its discounted present value. D) All of the above Answer: D 64) A(n) ________ attempts to minimize taxes on a family business passed from one generation to the next by creating two classes of stock-one for the parents (preferred voting stock), whose value is locked in, and another for the children (nonvoting common stock), whose value reflects the market value of the business. A) grantor-retained annuity trust B) estate freeze C) bypass trust D) buy/sell agreement Answer: B 65) A family limited partnership (FLP) is a strategy that allows business owning parents to transfer their company to their children and ________ their estate taxes while retaining control over the business. A) lower B) modify C) avoid D) defer Answer: A 66) Entrepreneurs who are planning to retire often use two strategies: A) sell to outsiders or arrange for an IPO. B) assume the role of a silent partner or sell to nonfamily insiders. C) sell to outsiders or sell to nonfamily insiders. D) sell to outsiders or sell to relatives. Answer: C 67) A leveraged buyout is an arrangement in which managers and/or employees borrow money from a financial institution and pay the owners: A) a discounted price, over time, that leverages their good credit. B) the total agreed-on price at closing using the cash generated from the company's operations to pay off the debt. C) the total agreed-on price at closing using alternative financing sources to pay off the debt. D) the total agreed-on price at closing using the cash generated from additional stock issued by the company. Answer: B 68) An arrangement in which employees and/or managers contribute a portion of their salaries and wages, over time, toward purchasing shares of a company's stock from the founder until they own the company outright, is referred to as: A) an IPO. B) a leveraged buyout. C) a hostile takeover. D) an ESOP. Answer: D 69) Both leadership and management are essential to a small company's success, but leadership comes first. Answer: True 70) Leadership deals with doing things right; management deals with doing the right things. Answer: False 71) Although a small business manager must assume a wide range of ideas, tasks, and responsibilities, none is more important than the role of leader. Answer: True 72) Leadership gets a small business going; management keeps it going. Answer: True 73) Management and leadership are essentially the same. Answer: False 74) A strong leader does not share aspects of his or her company's financial health, its future plans, or her vision for it with employees. Answer: False 75) Effective leaders know they must punish workers who take risks and fail so that other workers do not make the same mistakes. Answer: False 76) Effective leaders know that what they do is more important than what they say because they set the example for their employees. Answer: True 77) Today's workforce responds best to a leadership style based on instilling fear and intimidation. Answer: False 78) Effective leaders make sure that workers have both the tangible and the intangible resources they need to do their jobs well. Answer: True 79) Effective leaders recognize that money is not the only reward that motivates workers. Answer: True 80) Questions like "What are you deeply passionate about?", "What can you be the best in the world at?" and "What drives your economic engine?" are important to define your hedgehog concept, according to the work of Jim Collins. Answer: True 81) Leadership is an easy skill to learn. Answer: False 82) The practice known as servant leadership was coined by Robert Greenleaf and states that leaders are servants first and leaders second, putting their employees and their employees' needs ahead of their own. Answer: True 83) Because their companies are small, entrepreneurs need not develop the leadership skills managers in larger companies need. Answer: False 84) If their companies are to grow and reach their potential, entrepreneurs must learn to be effective leaders. Answer: True 85) Every new employee a business owner hires determines the heights to which the company can climb or the depths to which it will plunge. Answer: True 86) Business owners must recognize that what they do before they start interviewing candidates for a position determines to a great extent how successful they will be in the hiring process. Answer: True 87) Companies desiring to improve their recruitment efforts are finding that the Internet offers tremendous reach at a relatively low cost and is very effective. Answer: True 88) Information gathered during a job analysis provides the foundation for creating job descriptions and job specifications. Answer: True 89) A job analysis describes what the job is, what its duties and responsibilities are, and what work conditions are involved. Answer: False 90) A job analysis describes the process by which a firm determines the duties and nature of the jobs to be filled and the skills and experience required of the people who are to fill them. Answer: True 91) A job description sets forth a job's duties and responsibilities; a job specification translates these duties into the qualifications needed for that job. Answer: True 92) The Dictionary of Occupational Titles, a listing of more than 20,000 job titles and descriptions, is a useful tool for getting a small business owner started when writing job descriptions. Answer: True 93) The job specification outlines the duties and responsibilities of a job and its working conditions, while the job description outlines the characteristics-skills, education, experience-a person needs to fill a job. Answer: False 94) Small companies are least likely to make hiring mistakes because most owners have developed clearly defined job specifications and job descriptions. Answer: False 95) To give the interviewing process more consistency, a business owner should develop a series of core questions and ask them of every candidate. Answer: True 96) The most effective job interviews are unplanned, unstructured interactions between the small business owner and the job applicant. Answer: False 97) A situational interview gives the candidate a typical job-related situation to see how they respond. Answer: True 98) The intent of a situational interview is to make the interviewee as uncomfortable as possible without violating legal or ethical standards. Answer: False 99) In the breaking-the-ice phase of the interview process, skilled interviewers often use the job description to explain the nature of the job and the company's culture to candidates. Answer: True 100) Effective interviewers ignore candidates' nonverbal clues ("body language") in interviews because they know that most candidates are so nervous that their nonverbal communication is meaningless. Answer: False 101) Effective interviewers spend about 75 percent of the interview talking and about 25 percent listening. Answer: False 102) Effective interviewers skip the breaking-the-ice phase of a job interview and immediately start asking candidates tough questions so they can see how the candidates respond under stress. Answer: False 103) An effective job interview contains three phases: breaking the ice, asking questions, and selling the candidate on the company. Answer: True 104) Interviewers should avoid asking job candidates questions based on hypothetical on-the-job scenarios and how the candidate would handle them because the Equal Employment Opportunity Commission considers such questions to be illegal. Answer: False 105) The Equal Employment Opportunity Commission (EEOC) supplies employers with a list of questions it considers illegal in interviews. Answer: False 106) In addition to contacting the references a job applicant provides, experienced employers also call an applicant's previous employers to attempt to get a clear picture of the applicant's job performance, character, and work habits. Answer: True 107) Small business owners should take the time to check every candidate's references. Answer: True 108) Company culture is the distinctive, unwritten code of conduct that governs the behavior, attitudes, relationships, and style of an organization. Answer: True 109) Growth requires changes in a company's management style, organizational strategy, and methods of operations. Answer: True 110) Studies comparing large companies to small ones have found that large companies' inability to react quickly is a major barrier to their growth. Answer: True 111) An assembly line is based on the principle of job simplification. Answer: True 112) Job enlargement is based on the premise that the best way to design a job is to break it down into its simplest form and to standardize each task. Answer: False 113) The principle of job enlargement is to make a job more varied and to allow employees to perform a more complete unit of work by broadening its scope. Answer: True 114) Job enrichment increases the planning, decision-making, organizing, and controlling functions in a job. Answer: True 115) The concept of empowering employees is based on the principle of job enrichment. Answer: True 116) To enrich employees' jobs, a business owner must build five core characteristics into them: skill variety, task identity, task significance, autonomy, and feedback. Answer: True 117) In job enrichment, task identity is the degree to which a job substantially influences the lives or the work of others, employees or final customers. Answer: False 118) Flex time is a work arrangement in which two or more people share the same 40-hour-a-week job. Answer: False 119) Companies using flex time schedules often experience lower levels of tardiness and absenteeism. Answer: True 120) Flexplace is a work arrangement in which employees work at a place other than the traditional office, such as a satellite branch closer to their homes or, in many cases, at home. Answer: True 121) Job sharing is a work arrangement in which two or more people share a single full-time job responsibilities. Answer: True 122) Telecommuting employees reap benefits such as flexibility and reduced commuting times and expenses. Answer: True 123) Money can be a powerful short-term motivational tool, but it usually does not have a lasting motivational effect. Answer: True 124) By linking employees' compensation directly to the company's financial performance, a business owner increases the likelihood that workers will achieve performance targets that are in their best interest and in the company's best interest. Answer: True 125) Although they are very inexpensive from a business owner's perspective, motivators such as praise, recognition, feedback, job security, and others are not very effective at encouraging workers to achieve higher levels of performance. Answer: False 126) The key to using rewards to motivate employees involves tailoring them to the needs and characteristics of the workers. Answer: True 127) Entrepreneurs tend to rely more on nonmonetary rewards such as praise, recognition, game tickets, dinners, and others to create a work environment where employees take pride in their work, enjoy it, are challenged by it, and get excited about it. Answer: True 128) More than 80 percent of businesses throughout the world are family owned. Answer: True 129) About one-third of Fortune 500 companies are family owned. Answer: True 130) The majority of first-generation family businesses do not survive into the second generation. Answer: True 131) Most business founders intend to pass their companies on to their children, and have a formal management succession plan for doing so. Answer: False 132) It is generally safe for a business founder to assume that his children will succeed him in managing the family business. Answer: False 133) The oldest child is the best choice for a successor to manage a company. Answer: False 134) A major advantage of family businesses is that there is always a guaranteed successor within the family whenever the owner decides to step down. Answer: False 135) The preparation of a successor is a two-way process, showing the direction of the business and what led to its success, but also learning and listening. Answer: True 136) For management succession to be successful, the process should start early in the successor's life. Answer: True 137) The process of transferring power should be quick and absolute. Answer: False 138) Once a business owner transfers power and control to her successor, he or she should not hesitate to step back into the business to fix problems when they occur. Answer: False 139) One of the primary concerns of entrepreneurs transferring their businesses to the next generation is minimizing the tax bite of the transfer. Answer: True 140) Without proper estate planning, the heirs to a successful business may be required to sell it just to pay the estate tax bill. Answer: True 141) A buy/sell agreement allows the founder of the business to sell it outright to the successor and avoid taxation on the transfer. Answer: False 142) The IRS permits annual gifts of up to $100,000 from a parent to each child per year to be exempt from federal gift taxes. Answer: False 143) A trust is a contract between a grantor and a trustee, which shields all assets from any federal tax and permits the small business owner to pass on his business without incurring tax liabilities. Answer: False 144) An estate freeze is a strategy that minimizes estate taxes by creating two classes of stock for a business, preferred voting stock for the parents and nonvoting common stock for the children. Answer: True 145) Creating a family limited partnership allows business-owning parents to transfer their company to their children (thus lowering their estate taxes) while still retaining control over it for themselves. Answer: True 146) Having a solid management succession plan in place, well before retirement is near, is absolutely critical. Answer: True 147) A leveraged buyout is an arrangement in which managers and/or employees borrow money from a financial institution and pay the owner the total agreed-on price, pro-rated over a seven-year period. Answer: False 148) An Employee Stock Ownership Program is an arrangement in which employees and/or managers contribute a portion of their salaries and wages, over time, toward purchasing shares of a company's stock from the founder until they own the company outright. Answer: True 149) "ESOP" is an acronym for Employee Stabilization Ownership Program. Answer: False 150) What is leadership? How does leadership differ from management? Answer: Leadership is the process of influencing and inspiring others to work to achieve a common goal and then giving them the power and the freedom to achieve it. Management and leadership are not the same; yet both are essential to a small company's success. Leadership without management is unbridled; management without leadership is uninspired. Leadership gets a small business going; management keeps it going. Leadership deals with people; management deals with things. Leadership deals with vision; management deals with logistics toward that vision. Leadership deals with doing the right things; management focuses on doing things right. Leadership comes first, then management, but both are necessary. 151) List at least ten of the seventeen behaviors that effective leaders exhibit. Answer: Effective leaders exhibit many of the following characteristics: 1. Create a set of values and beliefs for employees and passionately pursue them. 2. Establish a culture of ethics. 3. Define and then constantly reinforce the vision they have for the company. 4. Develop a strategic plan that gives the company a competitive advantage. 5. Respect and support their employees. 6. Set the example for their employees. 7. They are authentic. 8. Create a climate of trust in the organization. 9. Build credibility with their employees. 10. Focus employees' efforts on challenging goals and keep them driving toward those goals. 11. Provide the resources employees need to achieve their goals. 12. Communicate with their employees. 13. Value the diversity of their workers. 14. Celebrate their workers' successes. 15. Are willing to take risks. 16. Encourage creativity among their workers. 17. Maintain a sense of humor. 18. Create an environment in which people have the motivation, the training, and the freedom to achieve the goals they have set. 19. Create a work climate that encourages maximum performance. 20. Become a catalyst for change. 20. Develop leadership talent. 21. Keep their eyes on the horizon. Keep their eyes on the horizon. 152) Assume the role of a consultant to a small business owner who is about to conduct a job interview for the first time. Identify the guidelines that will help him develop interview questions. Also, explain the three phases of an effective interview. Answer: The guidelines for developing interview questions include: • Develop a series of core questions and ask them of every candidate. • Ask open-ended questions (including on-the-job "scenarios") rather than questions calling for "yes or no" answers. • Create hypothetical situations candidates would be likely to encounter on the job and ask how they would handle them. • Probe for specific examples in the candidate's past work experience that demonstrate the necessary traits and characteristics. • Ask candidates to describe a recent success and a recent failure and how they dealt with them. An effective interview consists of three phases: 1. Breaking the ice-The first phase is used to set the interviewee and the interviewer at ease. 2. Asking questions-In the second phase, the interviewer asks questions and listens to the candidate's responses and body language. Effective interviewers spend about 25 percent of the time talking and listen the remaining 75 percent. 3. Selling the candidate on the company-In the final phase, the employer tries to sell the candidate on her company. Usually in this phase, the interviewee asks several questions about the company, the job itself, and other relevant issues. 153) To be effective, a small business leader must perform three vital tasks. List and briefly explain these three tasks. Answer: 1. Hire the right employees and constantly improve their skills-Hiring mistakes are incredibly expensive, and there is no way to successfully compete without high-quality employees. Competition among businesses for quality workers is intense, and in order to assemble a quality workforce, the business owner must invest the time and money necessary to achieve this goal at the beginning of the staffing process by developing a sound recruiting process. Employers must create practical job descriptions and job specifications, plan and conduct effective interviews, and carefully check references. 2. Create a culture for retaining employees-Culture is the distinctive, unwritten, informal code of conduct that governs a company's behavior, attitudes, relationships, and style. It is the essence of "the way we do things around here" and originates with the founder. It is critical to create a culture that supports a company's strategy and makes it attractive for employees to continue to be a part of that culture. Employees must experience respect, purpose, fun, diversity, integrity, participate management, and a challenging learning environment in the organization's culture. 3. Plan for "passing the torch" to the next generation of leadership-The best way to avoid conflicts over control of the business is for the founder to develop a formal management succession plan. It increases the probability of survival to the next generation and eases the transition by reducing the tension and stress created by the "changing of the guard." Additionally, it allows business owners to minimize the impact of taxes on their businesses, their estates, and their successor's wealth. 154) Explain the differences among job simplification, job enlargement, job rotation, and job enrichment. Why should small business owners utilize these concepts? Answer: • Job simplification-In this type of job design, the work is broken down into its simplest form and then standardized into tasks. Job simplification evokes monotony and impersonal, unchallenging work. It allows small business owners and their employees to create specific job descriptions. • Job enlargement-In this type of job design, more tasks are added to a job in order to broaden its scope. The idea is to make the job more varied and to allow employees to perform a more complete unit of work. • Job rotation-This job design involves cross-training employees so that they can move form one job in the company to others. Job rotation, like the former, provides variety to workers and increases the skills and understanding of workers. • Job enrichment-This type of job design builds motivators into a job by increasing the planning, decision-making, organizing, and controlling functions that workers perform. The idea is to make every employee a manager, at least for his or her own particular job. 155) Why is developing a management succession plan so important to the founder of a family business? Identify and briefly describe the steps of a successful plan. Answer: The best way to avoid conflicts over control of the business is for the founder to develop a formal management succession plan. It increases the probability of survival to the next generation and eases the transition by reducing the tension and stress created by the "changing of the guard." Additionally, it allows business owners to minimize the impact of taxes on their businesses, their estates, and their successor's wealth. Planning for succession involves the following five steps: Step 1-Select the successor: Never assume that your children will want to take control of the family business. The successor does not have to be a family member. If it is a child, merit is a better standard to use than birth order. Step 2-Create a survival kit for the successor: Regularly visit with the successor about the key factors that have led to the success of the business; tie those key factors to performance and profitability; explain businesses strategies, values, and philosophies; document as much process knowledge as possible. Step 3-Groom the successor: Be an effective communicator and listener; establish reasonable expectations for the successor's performance; be patient and understand that the successor will make mistakes. Step 4-Promote an environment of trust and respect: Trust and respect on the part of the founder and others fuel the successor's desire to learn and excel and will help build his confidence; understand that this is a gradual process; there will be a greater likelihood that customers, creditors, suppliers, and staff members will gradually develop confidence in the successor. Step 5-Cope with the financial realities of estate and gift taxes: Structure the transition so as to minimize the impact of estate, gift, and inheritance taxes on family members and the business. Entrepreneurs who fail to consider the impact of these taxes may force their heirs to sell a successful business just to pay the state's tax bill. 156) List and briefly identify the five estate planning tools the owners of a family business should consider. Answer: 1. Buy/sell agreement-a contract that co-owners often rely on to ensure the continuity of a business. It states that each agrees to buy the others out in case of the death or disability of one, which allows the heirs to "cash out" of the business, leaving control of the business in the hands of the remaining owners. 2. Lifetime gifting-the owner of a successful business may transfer money to their children (or other recipients) from their estate throughout the parents lives; currently, the maximum allowable per person, per year that is exempt from federal gift taxes, is $10,000. 3. Trust-a contract between a grantor (the company founder) and a trustee (generally a bank officer or attorney) in which the grantor gives to the trustee legal title to assets (e.g., stock in the company), which the trustee agrees to hold for the beneficiaries (children). The beneficiaries can receive income from the trust, or they can receive the property in the trust, or both, at some specified time. There are several types of trusts, including a grantor-retained annuity trust (GRAT) and a bypass trust. 4. Estate freeze-minimizes estate taxes by having family members create two classes of stock for the business: (1) preferred voting stock for the parents and (2) nonvoting common stock for the children. 5. Family limited partnership-allows business-owning parents to transfer their company to their children (thus lowering their estate taxes) while still retaining control over it for themselves. The parents retain the general partnership interest, and the children become the limited partners. 157) Discuss the three options that entrepreneurs may consider when they sell their business to insiders. Answer: When entrepreneurs sell the business to "insiders" they may consider one of three options and what the advantages are for either the buyer or the seller: 1. A sale for cash plus a note-This involves financing a portion of the sales price and is popular with buyers because of its many creative financial options. 2. Leveraged buyout (LBO)-Managers and/or employees borrow money from a financial institution and pay the owner the total agreed-on price at closing and then use the money generated from the company's options to pay off the debt. The drawback of this technique is that it creates a highly leveraged business- one with debt. If properly structured, LBOs can be attractive to buyers and sellers because sellers get their money up front and the buyers have a strong incentive to make sure the business succeeds. 3. Employee stock ownership plans (ESOPs)-This long-term exit strategy option allows employees and/or managers to purchase the business gradually and frees up cash to finance the venture's future growth. Contributions continue until they own the company in total. One advantage is that buyers know what they are getting. Leveraged ESOPs offer tax advantages as the principal and the interest the ESOP borrows to buy the business are tax deductible. Mini-Case 16-1: Kansas Manufacturers and Assemblers Rose Richardson always knew that if she could land a major order for her firm, she could prove its quality to the industry. Kansas Manufacturing and Assemblers was a job shop manufacturing and assembling operation specializing in fast turnaround projects for manufacturers with orders in excess of production capacity. Each job Rose's firm did was on special order. In September, a major appliance manufacturer approached Rose and inquired about her ability and willingness to manufacture and assemble a new appliance. This order could mean a very substantial profit for the firm, as well as recognition throughout the industry. Rose was asked to undertake a project that would require a 100 percent assignment of the firm's personnel for seven months. In addition, any slight modification in design or material would require overtime. If this job went as most, changes could be expected. On this short notice, it would be impractical for Rose to hire additional personnel because it takes weeks, even months, to learn the necessary skills. Rose faces an interesting dilemma: If she doesn't take the job, it may be years before another one of this magnitude comes along; but if she takes the job and then fails to deliver on time, or fails to meet the quality specifications because of her overworked employees, her reputation will be hurt for years. Rose sees this opportunity as a crossroads in the firm's history, but knows that she must gain the full and unquestioned support of the employees if the project is to be a success. 158) If you were Rose, how would you go about gaining the commitment of your employees to a project that will last a full seven months and will likely require each person to work overtime and weekends and to forgo vacations for the duration of the project? Answer: Rose must win the commitment of her employees to this project if her company is to complete it successfully. She should consider having a meeting with her entire workforce to explain the importance of the project and what it means to finish it on time. If the workers are willing to commit to the project, Rose might sponsor a celebration at which employees sign "pledge cards," dedicating themselves to completing the project on time. Of course, Rose should consider sharing some of the financial benefits from the project with her employees. She could link performance on the project to financial incentives. She should also establish intermediate objectives as "checkpoints" along the way to completing the project and offer rewards (financial or nonfinancial) to workers if they achieve them. Mini-Case 16-2: Passing the Baton Carol Wingard started a small jewelry manufacturing company when she was in her late 20s, and has worked hard to build it into a highly successful family business. Now, 40 years later, she was "ready to sit down and enjoy life." Seven family members, including her two sons, Ralph and Cooper, work in the business. Ralph, with 30 years of experience, and Cooper, with 22 years of experience, are both vice presidents of the company. Carol has always intended to pass the business on to her sons, who together own 20 percent of the company's stock. However, she has always been too busy running the business to put together a formal management succession plan. For the past decade, many of the employees have whispered among themselves about who would be named president if Mrs. Wingard stepped down and exactly what would happen to the business. Now that she has decided to retire, Carol wants to begin developing a management succession plan. 159) Carol calls you and announces her plans to retire within a year. What advice would you offer her about a management succession plan? Answer: It's probably too late for Carol to develop a management succession plan. This is something she should have started at least 20 years ago. Since both Ralph and Cooper are actively involved in the business, Carol must name a successor soon. She should spend the next year coaching her successor, gradually handing over the reins of the business to him (or her, if neither Ralph nor Cooper is qualified). 160) What tools would you suggest to Carol to minimize the estate taxes involved in passing the business on to Ralph and Cooper? Explain the advantages and disadvantages of at least three choices and explain why you make the final recommendation that you do. Answer: By waiting so long, there is only so much Carol can do to minimize estate taxes. One option she should consider heavily is the estate freeze. Others include a buy/sell agreement (but at her age, insurance policies will be expensive) or even an ESOP. She will need the help of a capable attorney and a good accountant. Mini-Case 16-3: The Pride of Vicksburg Wallace Fry had been a lover of good food from the time he was a child. The only son of wealthy Southern parents, he spent hours with his mother watching her prepare meals for the family and friends. By the time Wallace was in high school, he had already won a number of awards for his original recipes. After leaving Vicksburg, Mississippi, to attend college in the Midwest, Wallace returned home to what must have been an unbelievable graduation present. His relatives purchased an old paddlewheel riverboat and had begun initial preparations to have it moored permanently at the foot of the Vicksburg landing on the Mississippi River. Wallace was presented with a 50 percent interest in the restaurant named "The Pride of Vicksburg." The complete renovations and restoration of the beautiful old riverboat took an additional four months. Wallace was planning to have his new restaurant open for the spring tourist season. A number of regional magazines had already run feature stories on the project. With the opening one month away, Wallace decided it was time to staff the restaurant. 161) Are job descriptions necessary in a restaurant? Answer: Yes, job descriptions form the foundation for providing quality food and service in a restaurant. They will help Wallace select the most qualified employees. 162) Has Wallace waited too long to begin searching for employees? Answer: Yes, Wallace has a tremendous amount of work to do in choosing qualified employees in one month. Selecting quality employees is especially important in the restaurant business since personal service is an integral part of the restaurant's image and ultimate success. Clearly, Wallace needs to develop job descriptions and specifications before he begins his search for personnel. 163) Develop a list of interview questions to help Wallace select the right person for the following jobs: • Head chef • Wait staff • Dishwasher • Host/Hostess Answer: The question lists students develop will be unique. However, the quality of their lists will be higher if they first work alone for a few minutes to develop questions, and then work in teams of two to five to brainstorm for other questions to add to their lists. 164) What criteria should Wallace use in selecting employees? Answer: Criteria Wallace should consider include: experience in the restaurant business, friendliness, personality ("outgoing" or not), "people-oriented," work ethic, honesty, appearance, attitude, and other factors. 165) What would be the most effective way to recruit personnel for this type of business? Answer: Sources of recruitment for Wallace include: Internet options, employment agencies, cooking schools, "help wanted" ads in trade papers and newspapers, other restaurants, and referrals. Mini-Case 16-4: Plumbers Don't Want Recognition "If I ever went out to those guys and asked them if they wanted a little more recognition, they would laugh me out of the shop. People work for money." Norm Schultz had been a plumber himself for 18 years before he saved enough money to open a small plumbing contractor business. The men who worked for Norm knew what was expected of them-a fair day's work for a fair day's pay. "You don't need to tell a person that he or she is doing a good job; the person is either doing the work or not working for me!" Norm's son-in-law was taking a management course at a local college. When Norm asked him what he was learning in class, he told him the management of people. Norm was very emphatic about managing the plumbers who worked for him. "Tell an employee what you expect from the beginning. Watch to see if they perform the job properly. Treat your people fairly and never cheat them." Norm went on to tell his son-in-law that this was the way good managers did things. "Recognition won't put bread on the table." 166) Is Norm Schultz correct in his attitude about workers not wanting recognition? Answer: No, Norm is correct in saying that "Recognition won't put bread on the table," but he fails to see that recognition can be a primary source of motivation for many employees. Some workers strive for a "pat on the back" from the boss, and, in some cases, recognition can be just as important as money. 167) What do you think about Norm Schultz's attitudes toward employees? Answer: While "treat people fairly and never cheat them" is good advice, Norm could go one step further and become a more effective manager by offering praise and recognition more often. 168) Would you like working for Norm? Why or why not? Answer: Most students probably would not like to work for Norm due to his attitude toward employee recognition. Working for Norm could be appealing if he provides a supportive and stimulating environment. However, without knowing more about his management style and values, it's hard to say definitively. If he fosters growth and values his team, it would be a positive experience. On the other hand, if his approach is overly rigid or unsupportive, it might be less enjoyable. Test Bank for Essentials of Entrepreneurship and Small Business Management Norman M. Scarborough 9780132666794, 9780273787129, 9780134741086, 9780136109594, 9780133930382
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