Meaning of Business
The term business is derived from the word ‘busy’. Thus, business means being busy in doing something on regular basis.
However, in a specific sense, business refers to an in which people regularly engage in activities related to purchase the goods and sales, production of goods and sell, and rendering of services with a view to earning profits.
Business
Remember goods and services both are covered in the business. Business is very broad term.
Business production, distribution, services
Economics Activities and Non Economics Activities.
If you look around you will observe that people undertake various activities to satisfy their needs. These activities may be broadly classified into two groups — Economics Activities and Non Economics Activities.
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Economic Activities |
Economic activities are those by which people can earn their livelihood. For example, a worker working in a factory, a doctor operating in his clinic, a manager working in an office and a teacher teaching in a school and they all are doing so to earn their livelihoods so this will be termed as they are, engaged in an economic activity Economic activities may be further divided into three categories, namely (i)Business, (ii)Profession and (iii)Employment. |
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Non-economic activities |
Non-economic activities are performed out of love, sympathy, sentiment, patriotism, etc. A housewife cooking food for her family, or a boy helping an old man cross the road. They are performing non-economic activities since they are doing this activities out of love or sympathy. |
From this picture identify whether it is Economics activities or Non economics Activities:
Types of Economics Activities- Business, Profession and Employment
As We have already read in previous class that economic activities may be divided into three major categories viz., Business, Profession and Employment. The difference between these three terms is given as following :
MNQ-RCR
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Basic |
Business |
Profession |
Employment |
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1. Mode of establishment |
Entrepreneur’s decision and other legal formalities, if necessary Reliance industries |
Membership of a professional body and certificate of practice
ICAI , IMA, BCI 1.The institute of chartered accountants of India, 2. Indian Medical Association 3. Bar Council Of India |
Appointment letter and service agreement Agreement |
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2. Nature of work |
Nature of work involves Providing goods and services to the public |
Nature of work involves Rendering of personalized, expert services To public. Audit, Medical treatment Fighting case |
Nature of work involves Performing work as per service contract or rules of service Preparing Mis |
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3. Qualification |
No minimum qualification is necessary Mukesh ambani Qualification |
Qualifications, expertise and training in specific field as prescribed by the professional body is a must Naresh terhan Qualification |
Qualification and training as prescribed by the employer Required or not required |
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4. Reward or return |
Profit earned |
Professional fee |
Salary or wages |
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5. Capital investment |
Capital investment required as per size and nature of business |
Limited capital needed for establishment |
No capital required |
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6. Risk |
Profits are uncertain and irregular; risk is present |
Fee is generally regular and certain; some risk |
Fixed and regular pay; no or little risk |
Characteristics of Business Activities
Business may be defined as an economic activity involving the production and sale of goods and services undertaken with a motive of earning profit by satisfying human needs in society.
Following are characteristics of business:
PURSE
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Production or procurement of goods and services |
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Profit earning |
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Uncertainty of return |
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Risk Elements - Element of risk |
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5 |
Regularly Dealings in goods and services |
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6 |
Sale or exchange of goods and services |
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7 |
Economic activity |
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1 |
Production or procurement of goods and services |
JSW manufactures steels, Tata power produces electricity. Aggarwal trading company, Seth Girdhari lal trading company. Medanta hospital provides services, DPS school provides services, Taj mahal hotel provides services. Before goods are offered to people for consumption, these must be either produced or procured by business enterprises. Thus, every business enterprise either manufactures the goods it deals in or acquires them from producers, to be further sold to consumers or users. Goods may consist of consumable items of daily use, such as sugar( Shree Renuka Sugars Ltd.), ghee Patanjali shudh desi hgee, pen luxor , notebook class mates , etc., or capital goods, like machinery JCB , furniture Godrej Interio etc. Services may include facilities offered to consumers, business firms and organisations in the form of transportation sriRAM TRANSPORT banking STATE BANK OF INDIA , electricity NTPC , etc. |
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2 |
Profit earning |
Profit earning: One of the main purpose of business is to earn income by way of profit. No business can survive for long without profit. That is why, businessmen make all possible efforts to maximise profits, by increasing the volume of sales or reducing costs. |
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Uncertainty of return |
Uncertainty of return refers to the lack of knowledge relating to the amount of money that the business is going to earn in a given period. Every business invests money (capital) to run its activities with the objective of earning profit. But it is not certain as to what amount of profit will be earned. Also, there is always a possibility of losses being incurred, despite the best efforts put into the business. |
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Risk Elements - Element of risk |
Element of risk: Risk is the uncertainty associated with an exposure to loss. It is caused by some unfavourable or undesirable event. Risks are related with factors, like changes in consumer taste and fashion, changes in method of production, strike or lockout at workplace, increased competition in market, fire, theft, accidents, natural calamities, etc. No business can altogether do away with risks. |
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Regularly Dealings in goods and services |
Business involves dealings in goods or services on a regular basis. One single transaction of sale or purchase, therefore, does not constitute business. Thus, for example, if a person sells his/ her domestic radio set even at a profit, it will not be considered a business activity. But if he/she sells radio sets regularly either through a shop or from his/her residence, it will be regarded as a business activity |
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Sale or exchange of goods and services |
Directly or indirectly, business involves transfer or exchange of goods and services for value. If goods are produced not for the purpose of sale but for personal consumption, it cannot be called a business activity. Cooking food at home for the family is not business, but cooking food and selling it to others in a restaurant is business. Thus, one essential characteristic of business is that there should be sale or exchange of goods or services between the seller and the buyer. |
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Economic activity |
Business is considered to be an economic activity because it is undertaken with the objective of earning money or livelihood and not out of love, affection, sympathy or any other emotion. It may be mentioned here that this activity can be undertaken either on small and individual level, e.g. (purchase and sale by a shopkeeper) or on large scale in a more formal and organised level (purchase and sale by a cooperative society or company). |
Hence, commerce is said to consist of activities of removing the hindrances of persons, place, time, risk, finance and information in the process of exchange of goods and services
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industry |
The term industry refers to groups of firms producing similar or related goods and services and competing for same byers
1.Automobile Industry Hyundai India Tata Motors Mahindra & Mahindra General Motors India Honda Motor Company 2.Cotton textile industry refers to all manufacturing units producing textile goods from cotton. 1.Arvind Mills Ltd. 2.Vardhman Textiles Ltd. ... 3.Welspun India Ltd. ... 4.Raymond Ltd. ... 5.Trident Ltd. ... 3.Electronic industry : 1.Bosch India.... 2,Havells India. ... 3.Godrej and Boyce. ... 4.Whirlpool India. ... 5.Voltas.
Electronics industries mein aata kaya hain ye bhi dekh the branch of physics that deals with the emission and effects of electrons and with the use of electronic devices
1.Mobile Devices. 2.TVs, Set Top Boxes, Monitors. 3.Laptops, Tablets, Computers.
4.Computers, Printers, Scanners
Used in common Sense too in common parlance, certain services, like Film Industry Banking and insurance industry
But about these we will study in commerce. In reality Industry is concerned with the production or processing of goods and materials.
We will study in detain in next classes Industries may be divided into three broad categories namely Industry - PST-Primary, Secondary and Tertiary Primary – Extractive and Genetics Secondary-Manufacturing And Construction Manufacturing-ASAP-Analytical, Synthetical, Assembling, Processing ASAP- Analytical,
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commerce |
Commerce includes all those activities, which are necessary for facilitating the exchange of goods and services.
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Types of Industry in detail
Industry refers to economic activities, which are connected with conversion of resources into useful goods. Generally, the term industry is used for activities in which mechanical appliances and technical skills are involved. These include activities relating to producing or processing of goods, as well as, breeding and raising of animals.
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Primary |
Extractive |
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Genetic |
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Secondary |
Manufacturing I Analytical Ii Synthetical iii. processing |
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iv. Assembling |
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3 |
Tertiary |
transport, banking, insurance, warehousing, communication, packaging and advertising |
(i) Primary industries: These include all those activities which are concerned with the extraction and production of natural resources and reproduction and development of living organisms, plants, etc. These are divided as follows.
(a) Extractive industries: These industries extract
or draw products from natural sources. Extractive industries supply some basic raw materials that are mostly products of geographical or natural environment. Products of these industries are usually transformed into many other useful goods by manufacturing industries. Important extractive industries includes mining of oil, coal, gold, iron, copper and other minerals, from the earth. The industrial processes for extracting minerals include drilling and pumping, quarrying, and mining. It also includes
(b) Genetic industries
These industries are engaged in breeding plants and animals for their use in further reproduction. Seeds and nursery companies are typical examples of genetic industries. In additional, activities of Cattle breeding farms, Poultry farms, and fish hatchery come under genetic industries.
(ii) Secondary industries:
These are concerned with using materials, which have already been extracted at the primary sector. These industries process such materials to produce goods for final consumption or for further processing by other industrial units. For example, mining of iron ore is a primary industry, but manufacturing of steel by way of further processing of raw irons is a secondary industry.
TATA Steel, JSW STEEL, JSPL, etc
Secondary industries may be further divided as follows:
Manufacturing industries: and construction industry.
These industries are engaged in producing goods through processing of raw materials and, thus, creating form utilities. They bring out diverse finished products, that we consume, or use through the conversion of raw materials or partly finished materials in their manufacturing operations. Manufacturing industries may be further divided into four categories on the basis of method of operation for production.
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Analytical industry |
Analytical industry is the industry where raw material is converted into several useful materials. For example, crude oil is separated into petrol, diesel etc Analytical industry which analyses and separates different elements from the same materials, as in the case of oil refinery. |
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Synthetical industry |
Synthetical industry which combines various ingredients into a new product, as in the case of cement. Cement manufacturing is a complex process includes limestone and clay, to a fine powder, called raw meal, which is then heated to a sintering temperature as high as 1450 °C. |
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Processing industry |
Processing industry which involves successive stages for manufacturing finished products, as in the case of sugar and paper |
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Assembling industry |
Assembling industry which assembles different component parts to make a new product, as in the case of Television, Car, Computer, etc |
Construction industries: These industries are involved
In the construction of buildings, dams, bridges, roads as well as tunnels and canals. Engineering and architectural skills are an important part in construction industries.
(iii) Tertiary industries:
The tertiary industry is a technical name for the service sector of the economy, which encompasses a wide range of businesses, including financial institutions, schools, hotels, and restaurants. As an economy becomes more developed, it tends to shift its focus from primary to secondary and tertiary industries.
These are concerned with providing support services to primary and secondary industries as well as activities relating to trade. These industries provide service facilities. As business activities, these may be considered part of commerce because as auxiliaries to trade these activities assist trade. Included in this category are transport, banking, insurance, warehousing, communication, packaging and advertising.
Meaning of Commerce and types of commerce.
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Trade |
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i |
Internal trade |
Whole Sales |
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Retail |
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ii |
External |
Import |
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Export |
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Entrepôt |
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2 |
Auxiliaries to trade |
Transportation, Warehousing, Insurance, Banking and Finance, Advertising |
Commerce includes two types of activities, viz.,
Trade and Auxiliaries to trade.
Buying and selling of goods is termed as trade. But there are a lot of activities that are required to facilitate the purchase and sale of goods. These are called services or auxiliaries to trade and include transport, banking, insurance, communication, advertisement, packaging and warehousing.
Commerce, therefore, includes both, buying and selling of goods, i.e., trade, as well as, auxiliaries, such as transport, banking, etc.
Commerce provides the necessary link between producers and consumers. It embraces all those activities, which are necessary for maintaining a free flow of goods and services. Thus, all activities involving the removal of hindrances in the process of exchange are included in commerce. The hindrances may be in respect of persons, place, time, risk, finance, etc. The hindrance of persons is removed by trade, thereby, making goods available to consumers from the possession or ownership producers.
Transport removes the hindrances of place by moving goods from the place of production to the markets for sale.
Storage and warehousing activities remove the hindrance of time by facilitating holding of stocks of goods to be sold as and when required.
Goods held in stock, as well as, goods in course of transport are subject to a risk of loss or damage due to theft, fire, accidents, etc. Protection against these risks is provided by insurance of goods. Capital required to undertake the above activities is provided by banking and financing institutions.
Advertising makes it possible for producers and traders to inform consumers about the goods and services available in the market.
Hence, commerce is said to consist of activities of removing the hindrances of persons, place, time, risk, finance and information in the process of exchange of goods and services.
Elements of Auxiliaries to trade
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Transport and Communication |
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Insurance |
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Warehousing: |
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Banking and Finance |
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5 |
Advertising and Public Relations |
Detailed :
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Transport and Communication: |
Production of goods generally takes place in particular locations. For instance, tea is mainly produced in Assam; cotton in Gujarat and Maharashtra; jute in West Bengal and Odisha; sugar in U.P., Bihar and Maharashtra and so on. But these goods are required for consumption in different parts of the country. The obstacle of place is removed by transport through road, rail or coastal shipping. Transport facilitates movement of raw material, to the place of production and the finished products from factories to the place of consumption. Along with transport facility, there is also a need for communication facilities so that producers, traders and consumers may exchange information with one another. Thus, postal services and telephone facilities may also be regarded as auxiliaries to business activities. |
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Insurance: |
Business involves various types of risks. Factory building, machinery, furniture, etc., must be protected against fire, theft and other risks. Material and goods help in stock or in transit are subject to the risk of loss or damage. Employees are also required to be protected against the risks of accident and occupational hazards. Insurance provides protection in all such cases. On payment of a nominal premium, the amount of loss or damage and compensation for injury, if any, can be recovered from the insurance company. |
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Warehousing: |
Usually, goods are not sold or consumed immediately after production. They are held in stock to make them available as and when required. Special arrangement must be made for the storage of goods to prevent loss or damage. Warehousing helps business firms to overcome the problem of storage and facilitates the availability of goods when needed. Prices are, thereby, maintained at a reasonable level through continuous supply of goods |
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Banking and Finance: |
Business activities cannot be undertaken unless funds are available for acquiring assets, purchasing raw materials and meeting other expenses. Necessary funds can be obtained by businessmen from a bank. Thus, banking helps business activities to overcome the problem of finance. Commercial banks, generally lend money by providing overdraft and cash credit facilities, loans and advances. Banks also undertake collection of cheques, remittance of funds to different places, and discounting of bills on behalf of traders. In foreign trade, commercial banks help exporters in collecting money from importers. Commercial banks also help promoters of companies to raise capital from the public. |
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Advertising and Public Relations |
There is an old saying “Advertising is what you pay for and PR is what you pray for”. Both advertisement and PR activities are the tools to commerce, influence and promote your product, services or an idea to you potential customers and motivate you target customers to recognise your accomplishments. Advertising and public relation activities are one of the most important methods of promoting the sale of products and services in a market place. It is practically impossible for producers and traders to contact each and every customer. Thus, for promoting sales, information in made available through advertisements and publicity tools about their features, price, etc., to the potential customers. Also, there is a need to persuade potential customer’s and buyers about the utility featuress, quality, price, competitive information about the goods and services, etc. The publicity of such attributes of products and services are done using various techniques of maintaining public relation tools. The popular PR tool is the use of press release in print and social media platforms. Advertising and Public Relations activities helps in providing information about available goods and services and inducing customers to buy particular items. Advertisements are always a paid activity where business occupies space in print or non-print media to promote its product or a service. PR activities, on the other hand, are normally unpaid where business enters into a strategic communication to build a mutually beneficial relationship. |
Objectives of Business
An objective is the starting point of business. Every business is directed to the achievement of certain objectives. Objective are end results towards all resources are directed. Objectives refer to all that the entrepreneur want to get in return for what they do.
Followings are objectives of the organization:
Economics, Social and Human
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Economics Objectives |
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Survival |
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II |
Stability |
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III |
Growth or Expansions |
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IV |
Market standing |
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V |
Innovation |
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VI |
Earning profits |
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VII |
Productivity |
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VIII |
Physical and financial resources |
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2 |
Social objectives |
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3 |
Human objectives |
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Detail -
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Economics Objectives |
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Survival |
Survival of the business is the first objective of the business. For survival of the business , entrepreneur must take care of all stake holder of the business. Different stake holder of the business are 1.Customers. The customer is a primary stakeholder, which is an entity that is directly linked to the company and its economic. (Philips Kotler said) 2.Employees. ... 3.Governments. ...( Vijay Malaya and king fishers 4.Investors and shareholders. ... 5Local communities. ... 6Suppliers and vendors. 7.Societies Too much emphasis on profit may exclude other objectives of the business. Obsessed with profit, business managers may neglect all other responsibilities towards customers, employees, investors and society at large. They may even be inclined to exploit various sections of society to earn immediate profit. This may result in the non-cooperation or even opposition from the affected people against the malpractices of business enterprises. The enterprises might lose business and may be unable to earn profit. This is essential for its own survival and prosperity |
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Stability |
Stability means continuity of business. An enterprise or business should achieve stability in terms of customer satisfaction, creditworthiness, employee satisfaction etc. Example of TATA- it is being increasingly realised nowadays that business enterprises are part of the society and need to fulfil several objectives, including social responsibility, to survive and prosper in the long run. |
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Growth or Expansions |
Growth objectives refers to redefine the business. Business can achieve the growth objectives by intensification strategy ( CCD),Diversification strategy ( TATA) TATA TEA , TATA SKY, TATA SALT , TITAN WATCH,TATA CAR , TATA BUILDING , TATA PHONE , TCS , .THIS IS THE DIVERSIFICTION OF BUSINESS. Objectives are needed in every area that influences the survival and growth of business. Since a business has to balance a number of needs and goals. Business requires multiple objectives. Business has to follow objectives in every function. Different function of business can be as Marketing function, Research function Production function Finance function, Human resources function Logistic function Accounts function. etc Business cannot follow only one objective and expect to achieve excellence. Objectives have to be specific in every area and sphere of business. Objectives also enable the business to analyse their own performance and take steps as necessary to improve their performance in future. |
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Market standing |
Steve job and Apple- Other brand will come and go like vivo , Oppo, etc but apple will be apple. Marinating goodwill and reputation of ones’ business is paramount to succeed and prosper. It helps in forming a distinct identity in the market and is referred to as market standing in relation to its competitors. A business enterprise must aim at standing on stronger footing in terms of offering competitive products at reasonable prices to its customers and serving them to their satisfaction |
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Innovation |
EXPLAIN – TATA MOTOR -HARRIER FEATURES.USING TECHNOLOGY OF JAGWAR, LANDS ROVER ETC. Innovation is central to the growth of any business enterprise. It helps business to scale up and give competitive edge to the enterprise in the market. Innovation is defined as an introduction of new ideas or methods in the way something is done or made. However, it does not imply that a new product is to be manufactured. Any modification in the existing product to enhance its operation also denotes innovativeness. There are two kinds of innovation in every business, i.e., innovation in product or services; and innovation in various skills and activities needed to supply products and services. No business enterprise can flourish in a competitive world without innovation. Therefore, innovation becomes an important objective. Watch this ads of Philips and you. |
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Earning profits |
Profit is found to be a leading objective but not the only one. One of the objectives of business is to earn profits on the capital employed. Profitability refers to profit in relation to capital investment. Every business must earn a reasonable profit which is so important for its survival and growth.
It is generally believed that business activity is carried out only for profit. Business persons themselves proclaim that their primary objective is to produce or distribute goods or services for profit. Although earning profit cannot be the only objective of business, its importance cannot be ignored. Profit may be regarded as an essential objective of business for various reasons: Profit is a source of income for business persons, Profit can be a source of finance for meeting expansion requirements of business, Profit indicates the efficient working of business, Profit can be used for social developments, and Profit builds the reputation of a business enterprise |
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Productivity or efficiency |
Input to output ration. Productivity is ascertained by comparing the value of output with the value of inputs. It is used as a measure of efficiency. In order to ensure continuous survival and progress, every enterprise must aim at greater productivity through the best use of available resources. Instead of profit, business should focus on increasing the efficiency of all resources. Man, money . machine, materials and methods. |
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VIII |
Physical and financial resources |
CASE STUDIES AGAR ROTI BABANAI HAIN - EXPLAIN KITCHEN SET UP. Any business requires physical resources, like plants, machines, offices, etc., and financial resources, i.e., funds to be able to produce and supply goods and services to its customers. The business enterprise must aim at acquiring these resources according to their requirements and use them efficiently |
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Social objectives |
Social responsibility refers to the obligation of business firms to contribute resources for solving social problems and work in a socially desirable manner. Now government has made rule to spend 2% of net profit as CSR. |
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Human objectives |
Focusing on well being of employee and another stakeholder. |
Business Risk
The term ‘business risk’ refers to the possibility of inadequate profits or even losses due to uncertainties or unexpected events. For example, demand for a particular product may decline due to change in tastes and preferences of consumers or due to increased competition from other producers. Lower demand results in long sales and profits. In another situation, the shortage of raw materials in the market may shoot up its price. The firm using these raw materials will have to pay more for buying them. As a result, cost of production may increase which, in turn, may reduce profits.
Types of Risk
Business enterprises constantly face two types of risk
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Speculative Risk - Gain or loss .Change in demands. Change in government policy. Demonetization show the case of PAYTM. |
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2 |
Pure Risk - Possibility of loss or no loss just. fire, theft , strike , lockout. |
Detail:
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1 |
speculative |
Speculative risks involve both the possibility of gain, as well as, the possibility of loss. Speculative risks arise due to changes in market conditions, including fluctuations in demand and supply, changes in prices or changes in fashion and tastes of customers. Favorable market conditions are likely to result in gains, whereas, unfavorable ones may result in losses. |
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2 |
pure |
Pure risks involve only the possibility of loss or no loss. The chance of fire, theft or strike are examples of pure risks. Their occurrence may result in loss, whereas, non-occurrence may explain absence of loss, instead of gain |
Nature of Business Risks
Nature of business risks can be understood in terms of their peculiar characteristics:
RUN-4 Profit
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Risk is an essential part of every business |
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Business risks arise due to uncertainties |
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3 |
Degree of risk depends mainly upon the nature and size of business |
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Profit is the reward for risk taking |
Risk is an essential part of every business:
Every business has some risk. No business can avoid risk, although the amount of risk may vary from business to business. Risk can be minimized, but cannot be eliminated.
Business risks arise due to uncertainties:
NO BODY CAN PLAN POLITICAL CHANGES, TECHNOLOGICAL CHANGES, ECONOMICS CHANGES, SOCIAL CHANGESM LEGAL CHANGES, CUSTOMER BEHAVIOUR CHANGES, ORGANISATIONAL CHANGES, MARKET DYNAMICS CHANGES, COMPETITOR STRENGTH.
Uncertainty refers to the lack of knowledge about what is going to happen in future. and prices, improvement Natural calamities, change in demand and prices, changes in government policies in technology, etc., are some of the examples of uncertainty which create risks for business because the outcomes of these future events are not known.
Degree of risk depends mainly upon the nature and size of business:
Nature of business (i.e., type of goods and services produced and sold) and size of business (i.e., volume of production and sale) are the main factors which determine the amount of risk in a business. For example, a business dealing in fashionable items has a high degree of risk.
(AMERICAN RUUNING TO GIVE FIFT TO GIRL FRIEND)
Similarly, a largescale business generally has a higher risk than what a small scale has.
Profit is the reward for risk taking: ‘No risk, no gain’ is an age-old principle which applies to all types of business.
Greater the risk involved in a business, higher is the chance of profit. An entrepreneur undertakes risks under the expectation of higher profit. Profit is thus the reward for risk taking.
Cause of Business Risks
Business risks arise due to a variety of causes, which are classified as follows:
NHEO- NATIONAL HIGHWAY EO)
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Natural causes: |
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Human causes |
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Economic causes |
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Other causes |
Natural causes: SUNAMI, Hurricane Katrina, CYCLONE TITLY, EARTHQUAKE, KOI CONTROL NI HAIN ISSPAR.
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