Business Studies

Any activity that a human being performs to meet his requirement is called human activity. Human needs can be related to earning money as well as getting mental satisfaction. On this very basis they can be divided into the following two categories:

1. Economic Activities

Those activities whose objective is to earn money are called economic activities. They include buying and selling of goods.

Economic activities are of the following three types:

Business : Business refers to that economic activity which is conducted on regular basis to earn profit through the production and sale of goods and services. For example, a cloth shop, a transport company, etc.

Profession: Profession refers to that economic activity which is conducted by a person having some special knowledge and skill and which is used impartially to serve the different sections of society. This includes legal practice, medical practice, etc.

Employment: Employment is a kind of contract under which one works for others in lieu of remuneration. For example, working in factories, government offices, etc.

2. Non-economic Activities

Non-economic activities are those activities which aim at not earning money but are undertaken with a view to gain mental satisfaction. For example, propagating religion, doing social work, etc. We shall now study all the economic activities in detail.

TYPES OF ECONOMIC ACTIVITIES

Business

(Involves providing goods and services to earn profits)

Profession

(Involves providing personalised services to earn fees)

Employment

(Involves performing work as per service contract to earn salary)

CONCEPT OF BUSINESS

The term 'Business' means busy-ness or a 'state of being busy'. A person may be busy in playing computer games or watching TV. However, in such cases, he will not be doing any business as 'Economic Element' is missing in these activities. So, business means a state of being busy in economic activities.

CHARACTERISTICS OF BUSINESS

The main features or characteristics of business are as follows:

An Economic Activity: Business is an economic activity as it is undertaken with the aim of earning money or livelihood and not because of love, affection or any other psychological reason.
Production or Procurement of Goods and Services: Business exists to satisfy wants of the consumers. So, every business either itself produces the goods or services or procures them from others in order to sell them to consumers or users.

• Goods may consist of consumer goods (like sugar, pen, etc.) or capital goods (like machinery, furniture, etc.).

• Services may include facilities in the form of transportation, banking, electricity, etc.

Sale or Exchange of Goods and Services: All business activities are directly or indirectly concerned with transfer or exchange of goods and services for value.

• Production or purchase of goods for personal consumption cannot be called a business activity as there is no sale or transfer for value.

• For example, cooking food at home for the family is not business. However, cooking food in a restaurant for customers and charging from them is business.

Dealings in goods and services on a regular basis: Business involves exchange of goods and services on a regular and recurring basis.A single transaction of sale or purchase does not constitute business.

• For example, if a person sells his mobile at a profit, it does not constitute business. However, if he keeps a stock of mobile sets and regularly sells them (either from shop or from home), then it will constitute business.

Profit Earning: The main aim of every business is to earn profit. No business can survive for long without earning profit. For example, business selling goods at less than cost or free of cost (as charity), cannot continue for long. Due to this reason, businessmen make all possible efforts to maximise profits.

If a businessman continuously suffers loss in a particular business activity, then he will have to leave it sooner or later.

Uncertainty of Return: Every business aims to earn profits. However, there exists uncertainty of return that the businessman may earn on his investment. It is not certain as to what amount of profit will be earned. There is always a possibility of losses, inspite of best efforts put into the business.
Element of Risk: Risk is the uncertainty associated with an exposure to loss.

it is related with certain factors like changes in consumer tastes and fashions, changes in methods of production, strike, increased competition, fire, theft, etc.
Every business in the world involves some degree of risk. No business can altogether do away with risk.

CONCEPT OF PROFESSION

Profession includes those activities, which require special knowledge and skill to be applied by individuals in their occupation to earn fees.

People engaged in profession are known as professionals. For example, Lawyers, Doctors, Chartered Accountants, etc.

Characteristics of Profession

The main features or characteristics of profession are:

1. Well-defined body of knowledge: Every profession has a systematised body of knowledge, which can be learnt through instructions.

2. Restricted Entry: Every profession restricts the entry on the basis of examination or education. An individual can enter a profession, like Doctor or Lawyer, only after acquiring knowledge and skills through formal education and training.

3. Professional Association: All professions are affiliated to a professional association which regulates entry, grants certificate of practice and develops code of conduct. For example, lawyer has to become a member of Bar Council, to practice law in India.

4. Code of conduct: A strict code of conduct exists in every profession. Members of a profession are required to follow the code sincerely and honestly.

5. Service Motive : The basic motive of a profession is to serve clients with dedication. For example, task of lawer is to ensure that his client gets justice,Reward or Return: Professionals earn income in the form of professional fees.

7. Nature of work: Professionals provide consultancy and advisory services to their clients.

CONCEPT OF EMPLOYMENT

Employment refers to the occupation in which people work for others and get remunerated in return, in the form of salary or wages.

Those who are employed by others are known as employees, like managers, assistants, clerks, peons, etc. People who engage such employees are known as employers.

Characteristics of Employment

The main features or characteristics of employment are:

1. Contractual Relation: Employment is the outcome of a contract between the employer and employee. The contract may be written or oral. It consists of terms and conditions of employment.

2. Reward or Return: The employee is paid salary or wages for his services, at regular time intervals.

3. Nature of work: Employee is required to perform work as prescribed by the employer.

4. Capital Investment: Employment does not require any investment and involves negligible risk.

5. Code of conduct: Employee has to follow norms of behaviour as laid down by the employer.

6. Qualification: Under employment, employee is required to possess qualification and training as prescribed by the employer.

CLASSIFICATION OF BUSINESS ACTIVITIES

Industry

(Concerned with Production or Processing of Goods and Services)

Commerce

(Concerned with Exchange of Goods and Services)

INDUSTRY

Industry refers to economic activities, which are connected with conversion of resources into useful goods.

It includes all those processes by which goods are produced by the application of human or mechanical power.

• The term industry is also used to mean group of firms producing similar or related goods.

• For example, cotton textile industry refers to all manufacturing units producing textile goods from cotton. Similarly, electronic industry would include all firms producing electronic goods.Thus, it is rightly said that ‘Industry creates Form Utility’.

Goods produced by industry may be Consumer's Goods or Producer's Goods.

(i) Consumer's Goods: These goods are meant for direct consumption by the consumer. For example, shoes, clothes, TV, etc.

(ii) Producer's Goods: These goods are used in the production of other goods. For example, steel, machinery, factory buildings, etc.

Industrial activities lead to production of variety of goods for various purposes. These are divided into three broad categories:

1. Primary Industry

2. Secondary Industry

3. Tertiary Industry

Primary Industry

Primary industry includes all those activities, which are connected with extraction and production of natural resources and reproduction and development of living organisms, plants, etc. These industries can be further classified into 2 categories:

(i) Extractive Industries: It includes all those industries, which are engaged in raising products from natural sources (like soil, air, water or from beneath the surface of the earth). For example, extracting minerals from earth, fish from rivers, etc.

They supply some basic raw materials that are usually transformed into many other useful goods by manufacturing industries. Important extractive industries include farming, mining, lumbering, hunting and fishing operations.

(ii) Genetic Industries: It includes all those industries, which are engaged in breeding plants and animals for their use in further reproduction. For example, rearing of cattle for milk. Important genetic industries include poultry farming, cattle breeding, fish hatchery, etc.

Secondary Industry

Secondary industry includes all those activities, which are connected with using the materials, which have already been extracted at the primary stage. These industries process such materials to produce goods for final consumption or for further processing by other industrial units. For example, sugarcane is produced in primary industry, but sugar is produced (by using sugarcane as raw material) in the secondary industry.

Secondary Industry can be further classified into two categories:

(i) Manufacturing Industry: It includes all those industries, which are engaged in processing of raw materials to produce finished goods.

- They create form utility by changing the form of raw materials (obtained from extractive and genetic industries) into finished products.
- For example, cotton textile industry makes use of cotton that is produced by the extractive industry.

Manufacturing industries may be further divided into four categories :-

Analytical Industry: In this industry, the basic raw materials are analysed and separated into different finished products. For example, crude oil is processed into many finished products, such as kerosene, petrol, diesel, etc.
Synthetical Industry: In this industry, two or more raw materials are combined together in manufacturing process to make the final product. For example, various chemicals are mixed together to manufacture cement.
Processing Industry: In this industry, a product passes through various stages to become a final product. For example, sugar industry, paper industry, etc.
Assembling Industry: In this industry, different components are assembled to make a new product. For example, Automobile industry, TV industry, etc.

Tertiary Industry

Tertiary industry includes all those activities, which are concerned with providing support services to primary and secondary industries as well as activities relating to trade. It is also known as Service Industry.

It provides service facilities like transport, banking, insurance, warehousing, communication, etc.
Tertiary Industry tries to remove various hindrances or obstacles which arise during production and distribution of goods and services.

COMMERCE

Commerce is a wide term consisting of all those activities, which are necessary for sale, transfer or exchange of goods and services.

It provides the necessary link between producers and consumers to ensure proper distribution of goods.

• Commerce basically aims to ensure supply of goods at the right place, in the right quantity and at the right time.

• In this way, commerce ensures free and smooth exchange by removing various hindrances or obstacles in the way of exchange.

• The hindrances may be in respect of persons, place, time, risk, finance and information.

BRANCHES OF COMMERCE

Commerce includes two types of activities

1. Trade: It implies buying and selling of goods.

2. Aids or Auxiliaries to Trade: It implies activities required to facilitate the purchase and sale of goods.

Let us discuss the two branches in detail.

Trade

Trade refers to buying and selling of goods and services with the aim of earning profits. It is an essential part of commerce. It helps in making the goods produced available to ultimate consumers or users.

• In the absence of trade, both producers and consumers will have to search for each other and it would not be possible to undertake production activities on a large scale.

• Trade removes this 'hindrance of person' by creating a link between producers and consumers.

• The persons who are engaged in trade are known as Traders or Middlemen.

CLASSIFICATION OF TRADE

Internal Trade

External Trade

Internal trade is of two types:

(i) Wholesale Trade: It involves buying and selling of goods in large quantities. The wholesaler buys goods from manufacturers in large quantities and sells them in small quantities to the retailer. He maintains large stocks of goods.

(ii) Retail Trade: It involves buying and selling of goods in small quantities. A retailer serves as a link between the wholesaler, manufacturer and consumers. He maintains 'personal contacts with ultimate buyers.

2. External Trade: It is concerned with the buying and selling of goods and services between persons or organisations operating in two or more countries. Such trade is also known as Foreign Trade or International Trade.

External trade is of three types:

Import Trade: It refers to purchase of goods from a foreign country. For example, purchase of toys from China into India is the case of Import Trade.
Export Trade: It refers to sale of goods to a foreign country. For example, sale of tea from India to Japan is the case of Export Trade.
Entreport Trade: It refers to import of goods for the purpose of export to other countries. For example, India imports many commodities from European countries to export them to Nepal.

Aids or Auxiliaries to Trade

It refers to those activities which facilitate the purchase and sale of goods, i.e. which are meant for assisting trade.

• These activities are generally referred as services because these are in the nature of facilitating the activities relating to industry and trade.

Transport, Banking, Insurance, Warehousing and Advertising are regarded as auxiliaries to trade because they play a supportive role.

• These activities not only support trade, but also the industry. Hence, auxiliaries are an integral part of entire business activities.

Auxiliaries to trade help in removing various hindrances which arise in production and distribution of goods. The various auxiliaries to trade are:

1. Transport and Communication: involves all those activities which are undertaken for the movement of goods from one place to another.

• The production of goods takes place in particular locations, whereas, such goods are required for consumption in different part of the country.

• For example, Tea is mainly produced in Assam, but is consumed all over the country. Transport overcomes the hindrance of place through various means of transportation like 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.

In addition to transport facility, 'Communication' is also an important service. It facilitates exchange of information among producers, traders and consumers. The common means of communication are postal services, telephone facilities, etc.

2. Banking and Finance: It involves all those activities which are concerned with providing finance for various business activities.

• Banks and Financial Institutions overcome the hindrance of finance by providing funds for acquiring assets and meeting day-to-day expenses.

• Commercial Banks provide the facility of overdraft, cash credit and various types of 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, they arrange for payments on behalf of importers and exporters. Banks also help in raising capital from the public.

3. Insurance: It involves all those activities which are concerned with providing protection from various kinds of risk.

• Business involves several types of risk. Through insurance, a businessman can protect himself from many risk.

• For example, risk of loss due to fire, theft, accident or loss due to damage of goods, can be covered by taking an insurance policy.

Insurance also provides protection to employees against the risk of accident and occupational hazards.

• Businessmen have to pay a nominal amount of premium, and in return, they can recover the amount of loss or damage from the insurance company.

• In this way, insurance removes the hindrance of risk to a considerable extent.

4. Warehousing: It is concerned with storing goods in order to facilitate their supply to the market at the right time.

Usually, there is a time gap between production and consumption of goods as goods are not sold or consumed immediately after production.
Warehousing removes this hindrance of time by providing facility of storage of goods. It facilitates the availability of goods as and when required.
Special arrangements have to be made to prevent loss or damage during storage. Warehousing also help in maintaining reasonable level of prices by ensuring continuous supply of goods.

5. Advertising: If involves all those activities which are concerned with providing information about the product to the consumers.

• It is practically impossible for producers and traders to contact each and every customer. Advertising informs the consumers about the availability of various products.

It creates product awareness by providing necessary information about the product, its features, price, uses, quality, etc. In this way, advertising helps in removing the hindrance of information.