Spectrum of Business Activities
Business is all around us and it is the mainspring of modern life. But very few people understand its true nature and its role in society. The study of business is essential for training oneself for a carrier. The study of the principles and practices of business organizations helps in understanding events from their proper perspective and in tackling the problem of satisfying human wants through the use of available resources.
Business Activities Concept
Literally, the term ‘business’ implies ‘busyness’ or the state of being busy. But this is not the proper concept of business as it covers every human activity. Business is an economic activity as it is concerned with earning money and acquiring wealth. It is the human activity directed towards the acquisition of wealth through the production and exchange of goods and services.
A business enterprise is an economic institution it is engaged in the production and distribution of goods and services in order to earn profits and acquire wealth. According to Wheeler, “Business is an institution organized and operated to provide goods and services to society under the incentive of private gain.”
Nature and Characteristics of Business Activities
All business enterprises irrespective of the size (Tata Steel or the vendor outside a college gate) and nature of business (Hotel Ashok or Hindustan Unilever Ltd.)have the following features:
1. Sale, Transfer, or Exchange: The foremost characteristic of business is the exchange or transfer of goods and services for price or value. Production or purchase of goods and services for personal use or for presenting as gifts to others does not constitute business as no sale or transfer for value is involved. For example, a farmer who keeps cows to obtain milk for his family is not running a business.
But if he keeps cows to sell the milk obtained from them it becomes business provided the other conditions are also satisfied. Business is different from church, army, etc. because it sells something. “Any organization that fulfills itself through marketing a product or service is a business. Any organization in which marketing is either absent or incidental is not a business. “*Business is founded upon exchange and in buying and selling lies the essence of business.
2. Dealing in Goods and Services: Dealings in goods and services are another distinguishing feature of business. Every business enterprise comes into existence to provide goods or services to society. The goods or services may be procured by an enterprise through production or purchase. The goods may be consumer goods such as bread, rice, cloth, shoes, etc. or producer’s goods like tools, components, machinery, etc. The consumer’s goods are meant for direct consumption in the original or processed form. Producer’s goods or capital goods are used for producing other goods. Services are intangible like electricity, gas, insurance, transportation, banking, etc.
3. Regularity in Dealings: Dealing with goods and services constitutes business only when they are carried on regularly. A single transaction like the sale of an old newspaper by a housewife or the sale of one’s old scooter is not business though the seller gets money in exchange. But the Hindustan Times Limited and Bajaj Auto Limited are business concerns because they are regularly dealing with the same article. A recurring sale rather than an isolated deal is the hallmark of the business. Usually, no business is set up for the liquidation of a single transaction.
4. Profit Motive: Every business is carried on with the purpose of earning money and acquiring wealth. It is the hope of making money that induces people to go into business. No Business can survive for long without earning profits. Even government enterprises are expected to earn profit or surplus. However, the exchange should be for the mutual advantage of both the seller and the buyer. Profits must be earned through legal and fair means or by serving society and not by exploiting it. It is because of this reason that making money through gambling, cheating, smuggling, and black marketing cannot be called business.
5. Risk or Uncertainty: Risk implies the uncertainty of reward or the possibility of loss. The element of risk is present in almost all economic activities but it is more significant in business. Though business aims at profits, losses are quite possible and common. Before an activity can be called business there must, therefore, exist not only the goal of profit but the risk of loss. Risk or uncertainty arises because the future is unknown and the business has practically no control over several factors affecting profits.
Business is exposed to several types of risks some of which are as follows:
(a) Changes in consumers’ tastes, fashions, and demand.
(b) Changes in technology result in the obsolescence of plants, machinery, and techniques of production.
(c) Changes in the degree of competition in the market.
(d) Changes in government policies.
(e) Shortage of raw material, power fuel, etc.
(f) Deterioration in industrial relations leading to strikes, lock-outs, gheraos, etc.
(g) Faulty managerial decisions concerning the use of capital and other resources,
(h) Fire, theft, and natural calamities can be insured against.
In view of the above-mentioned characteristics, a business may be defined as an economic activity concerned with the regular production and/or exchange of goods and services with the objective of earning profits through the satisfaction of human wants and involving an element of uncertainty or risk. Business includes all activities concerned with the production and distribution of goods and services and the activities incidental thereto.
Various activities may be classified into two broad categories-
The industry is concerned with the production of goods while commerce involves their distribution. According to Haney,” On the other hand, business rests on the technical process of manufacture; on the other hand, it looks to the market. At the junctions stands the businessman, either directing the technical process of production or gauging the market, or doing both, but always engaged in buying and selling for the purpose of gain.”1 industry and commerce may be further subdivided as shown in the figure.
Industry and Its Types
The term industry is used to refer to the processes by which useful things are extracted from the environment and transformed, processed, fabricated, and multiplied into other products. The industry is of the following types:
1. Extractive Industries: The industries extract or draw out various products from natural sources such as Earth, soil, water, air, etc. The products raised by these industries are provided by nature and collected by human beings. Agriculture, mining, hunting, fishing, lumbering, oil exploration, quarrying, etc. are examples of extractive industries. The products of such industries are used for manufacturing and construction industries.
2. Genetic Industries: Genetic implies heredity or percentage. Genetic Industries involve the breathing or reproduction of plants and animals. Plant-breeding nurseries, cattle breeding farms, poultry farms, fish hatcheries, and commercial kernels are examples of genetic industries.
3. Manufacturing Industries: These industries are concerned with the conversion or transformation of raw materials and semi-finished products into finished products. Such Industries, therefore, create ‘form utility’. Manufacturing industries supply most of the products for daily use. Goods supplied by these industries are known as factory production. Manufacturing industries are of the following types:
(a) Analytical: In an analytical manufacturing industry, basic raw material is analyzed or separated into a number of products. For instance, an oil refinery separates crude oil into kerosene, gasoline, diesel oil, lubricating oil, and petrol.
(b) Synthetical: In these Industries, two or more materials are combined or mixed together to manufacture a new product. Soaps, plastics, cement, paints, cosmetics, fertilizers, etc. are the products of synthetical industries.
(c) Processing: These industries are engaged in the processing of raw materials through different stages of production. Examples of processing industries include textiles, sugar, Steel, etc.
(d) Assembling: In this case, various components or parts are brought together to produce a finished product. Manufacturers of bicycles, radios, televisions, watches, and automobiles, are typical examples of the assembling industry.
4. Construction Industries. These industries are engaged in the erection or construction of buildings, bridges, roads, dams, canals, etc. Construction industries use the products of extractive industries e.g., stone, marble, wood, etc., and also the product of manufacturing industries such as cement, iron and steel, wires, etc. These Industries create the basic infrastructure for development. The distinguishing feature of these industries is that their products are made or fabricated at fixed sites. Their products are not carried to the market for sale.
Sometimes, industries are classified into primary industries and secondary industries. The primary industry consists of extractive and genetic industries which supply basic raw materials for further production. Manufacturing and constructive Industries constitute secondary industries. According to the scale of operations, industries may be classified as large-scale industries and small-scale industries.
Industries requiring huge investment and sophisticated technology e.g., shipbuilding, iron and steel, petroleum refining, etc. are known as heavy industries while the light industry which requires a small investment and small simple technology consists of sugar, paper, textiles, etc. But all such classifications are relative rather than absolute water-tight categories.
Concept of Commerce
Commerce embraces all those activities which ensure a free and smooth flow of goods and services from producers to consumers. It consists of trade and the activities which facilitate trade. According to Stephenson, “Commerce is concerned with the exchange of goods; with that, all is involved in the buying and selling of goods at any stage in their progress from raw materials to finished goods in the costumers’ hand.
It covers not only the functions of buying and selling and handling goods but also the many services which must be provided to finance, insure, store, and transport goods in the course of these exchanges. ”Commerce is thus an organized system for the exchange of goods and services between the members of the business world. It serves as a link between producers and consumers.
Role of Commerce
The process of exchange is best with several hindrances. The principal function of commerce is to remove these hindrances so as to ensure a free and uninterrupted flow of goods and services from producers to consumers. These hindrances have been described below:
1 Hindrance of Person: The manufacturers and ultimate consumers of goods are often unknown to each other. They are not always situated in the same place. Therefore, certain persons called traders are required to bridge the gap between them. Various types of traders such as wholesalers, retailers, and mercantile agents help to remove the hindrance of persons. Trade plays an important role in the field of commerce by establishing a link between sellers and buyers.
2 Hindrance of Place: Very often goods are produced at places away from the point of consumption. Various means of transport remove this barrier of distance and help to establish a link between the two. Packaging of goods to protect them from damage and pilferage in the course of transit also helps to remove the hindrance of place and thereby creates ‘place utility’.
3 Hindrance of Time: These days goods are produced in anticipation of demand. Therefore, it becomes necessary to store them and make them available as and when the consumers demand them. Warehouses perform this function of storage thereby balancing the time lag between production and consumption. they help to create ‘time utility’.
4 Hindrance of Risk: During transportation storage, goods are subject to several types of risk. Goods may be stolen or damaged. Fire, flood, earthquake, storm, and other calamities may result in the destruction of goods. Insurance removes this hindrance by covering the risk of loss, or damage to goods. Insurance also helps in the safe transportation and storage of goods.
5 Hindrance of Exchange: Large-scale exchange or sale of goods requires safe and economical arrangements for the payment of rice. Money serves as the medium of exchange and thereby removes the hindrance of exchange. Banks facilitate exchange by providing credit in various forms. Banking is, therefore, an important part of commerce and banks are useful commercial institutions. Payments for goods and services can be made easily and safely through banks.
6 Hindrance of Knowledge: The exchange of goods can take place only when the seller brings his products to the notice of prospective buyers. Advertising and publicity provide the necessary information to prospective buyers about the utility and features of various products. In this way, they help to remove the hindrance of knowledge. To sum up, Commerce is the sum total of those activities or processes that are engaged in the removal of hindrances of the person (through trade), Place (through transportation), time (through storage), risk (through insurance), exchange (through banking), and knowledge (through advertising and publicity).
Trade and Its Types
Trade is a branch of commerce that is concerned with the sale, transfer, or exchange of goods and services. It involves the buying and selling of goods and services like transportation, storage, insurance, banking, packaging, advertising, etc. revolve around trade. The super-structure of commerce is built upon the foundation of trade. Trade is of the following types:
1. International or Home Trade: It implies the buying and selling of goods within the boundaries of a country. Payment for the goods sold is made in national currency either in cash or through the banking system. Such trade is also known as domestic trade or inland train trade. Internal trade may be further classified into two categories as follows:
(a) Wholesale Trade: It refers to purchasing and selling goods of a specific variety in bulk. A wholesaler buys goods in large quantities directly from the manufacturer(s) and sells them in comparatively small quantities to the retailers. Wholesale trade constitutes a link between the producers and the retailers.
(b) Retail Trade: It involves the sale of goods to the ultimate consumers. A retailer buys goods from wholesalers or manufacturers and sells them to the final consumers. He serves as the last link in the chain of distribution. Retail trade is carried on in several forms, e.g., departmental stores, multiple shops, mail-order houses, super bazaars, etc. Small-scale traders like hawkers, pedlars, Street stall holders, pavement dealers, and neighborhood stores also carry on retail trade.
2. International or Foreign Trade: It consists of the exchange of goods and services between persons or organizations operating in two or more countries. International trade is also known as external trade. It involves the use of foreign currency and international means of transport such as shipping and airways. International trade is also carried on between the governments of different countries. International trade may be further classified into the following categories:
|Import Trade||Export Trade||Entrepot Trade|
|It involves the purchase of goods from foreign countries for use or sale in the domestic market. For example, India imports machines from Germany.||It is concerned with the sale of domestic goods to foreign buyers or in foreign markets. For example, India exports tea to the U.K.||Entrepot or re-export trade involves the import of foreign goods with a view to re-export them. For example, India may buy petrol from Iran and sell a part of it to Sri Lanka.|
Auxiliaries to Trade
In addition to trade, commerce includes several ancillary services that facilitate the exchange of goods and services. These auxiliary services or aids to trade are described below:
1. Transportation: Transportation carries goods from producers to traders and finally to consumers. It bridges geographical distances and thereby performs a useful function in commerce. It makes for speed and efficiency in exchange. Transportation provides the wheels of commerce. It is because of transportation that a producer can sell his goods in different parts of the world. It creates ‘place utility’.
2. Warehousing or storage: It refers to the holding and preservation of goods until they are finally consumed. Goods have to be stored at every stage in the process of exchange. Warehousing performs a useful function by matching supply with demand. It helps to make available the seasonally produced goods throughout the year. In the absence of warehousing, a producer will have to dispose off the goods as soon as they are produced. Warehousing creates ‘time utility’.
3. Insurance: It facilitates trade by providing cover against the loss or damage to goods in the process of transit and storage. By getting their goods insured, producers and traders can avoid the risk of loss due to fire, theft, pilferage, etc. Packing also helps to protect the goods during transit and storage.
4. Banking: Banks are traders of money and credit. They help in the buying and selling of goods by providing a convenient and safe mode of payment. Banks also grant credit to businessmen with which they can carry on a large volume of trade.
5. Advertising: Advertising brings goods and services to the knowledge of prospective buyers. It helps to highlight the distinctive feature and utility of different products. With the help of such knowledge, consumers can obtain better value for their money. Marketing research helps to know and understand the requirements of consumers.
Inter-Relationship Between Industry, Commerce, and Trade
There is a closed inter-relationship between the different branches of business described above. One cannot function without the support of others. Commerce helps the industry before and after production through the purchase of materials and the sale of finished products. Production of goods and services is meaningless unless they are distributed among the consumers. Trade, involving buying and selling of goods, maintains a smooth flow of commerce and thereby supports the industry. At the same time, the industry provides the goods and services for distribution and thereby gives rise to commerce. As the industry develops, trade and commerce also grow. Industry, commerce, and trade are closely related to each other. For example, the industry provides goods and services which are distributed through commerce. No commercial activity is possible in the absence of industrial production. Sound industries base and infrastructure facilitate trade. At the same time industry and production cannot survive unless the goods and services are distributed among consumers through commerce. Therefore, industry and commerce are interdependent. The industry provides the base for commerce and commerce serves as the backbone of the industry. None of them can exist in isolation as each is essential for the other.
Trade involves buying and selling goods. It is the nucleus of commerce because all business activities revolve around transfer or exchange. Trade provides the solid foundation upon which the superstructure of commerce has been raised. It provides necessary support to industry and maintains a smooth flow of commerce. It provides necessary support to industry and maintains a smooth flow of commerce. This inter-relationship is shown in the following Figure.
Trade helps industry in determining what to produce when to produce, and for whom to produce. It facilitates the procurement of raw materials for industry and sells the output of the industry. The higher the volume of trade, the higher will be the need for the output of industry and allied services.
Comparison Between Industry, Commerce, and Trade
|Basis of Comparison||Industry||Commerce||Trade|
|Meaning||Extraction, reproduction conversion, processing, and construction of useful products.||Activities involving the distribution of goods and services.||Purchase and sale of goods and services.|
|Scope||Consists of all activities involving the conversion of materials and semi-finished products into finished goods.||Comprises trade and auxiliaries to trade.||Comprises exchange of goods and services.|
|Capital||Generally, a large amount of capital is required.||The need for capital is comparatively less.||Capital is needed to maintain stock and to grant credit.|
|Risk||The risk involved is usually high.||Relatively less risk is involved.||Relatively less risk is involved.|
|Side||It represents the supply side of goods and services.||It represents the demand side of goods and services.||It represents both supply and demand.|
|Utility Creation||It creates form utility by changing the form or shape of materials.||It creates place utility by moving goods from producers to consumers.||It creates possession utility through the exchange.|
1. Business refers to the production and distribution of goods and services with the object of earning profits by satisfying human wants.
2. Business differs from other economic activities such as profession and employment.
3. Sale, regular dealings, profit motive, and risk are the main features of the business.
4. Business comprises industry and commerce.
5. Industry involves production. The industry is of four types- extractive, genetic, manufacturing, and construction.
6. Commerce includes the distribution of goods and services. It comprises trade and auxiliary activities like transportation, warehousing, insurance, banking, and advertising.
7. Trade involves buying and selling. Trade is of two types-internal trade and international trade.
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What is the nature of the business activity?
The nature of business activity refers to the type of economic activity that a company engages in to generate revenue. There are three main types of business activities: service businesses, merchandising businesses, and manufacturing businesses, determined by the industry and products or services offered.
What is the classification of business activities?
Business activities can be classified into different categories based on various criteria. Some common classifications of business activities include industry classification, functional classification, size classification, ownership classification, legal classification, and geographical classification. Understanding these classifications is important for businesses and stakeholders to identify trends, compare performance, and make informed decisions.
What is the spectrum of business activities?
The variety of distinct activities that firms participate in to bring in money is referred to as the spectrum of business activities. This can cover a wide range of topics, such as manufacturing, production, marketing, sales, finance, accounting, and human resources, among others. The range of operations may be more or less broad depending on the industry and kind of business. For instance, a manufacturing firm could prioritize production and logistics, whereas a marketing firm might put more emphasis on sales and promotion. In the end, the range of business operations will differ based on the particular requirements and objectives of each distinct firm.