OCM- Ch.1 Introduction of Commerce and Business

Non-Economic Activities

Human activities which are performed to satisfy personal, social, religious, cultural and sentimental requirement without monetary expectations.

Economic Activities

Activities that involve production, distribution and consumption of goods and services for money or money’s worth at all levels within a society

Business Activities according to Prof.Haney

“Those human activities which are directed towards the production and processing of wealth.”

Business Activities according to Prof. Pride, Hughes and Kapoor

“The organized efforts of individuals to produce and sell for a profit, the goods and services that satisfy society’s needs.”

Characteristics of a Business (5m)

1) An Economic Activity : Business is an economic activity as it is undertaken to earn money or livelihood.

2) Two Parties : Every business transaction involves an exchange. Minimum two parties are required for exchange i.e. the seller and the buyer.

3) Profit Motive : Businessmen try to maximize profits either by increasing the volume of sales or reducing its costs. It is the spine of business which keeps the business going on in the long term.

4) Production of Goods and Services : Goods are either manufactured or procured from the supplier, with the aim of selling it further to the consumers for profit.

5) Exchange of Goods and Services : Business involves transfer of goods and services directly or indirectly with money or money’s worth.

6) Dealings in Goods and Services : Every type of business transaction is concerned with either goods or services.

7) Continuity in Dealings : Every business requires regularity in transactions. One single transaction does not constitute business.

8) Uncertain Returns: In business, the returns are never predictable or guaranteed. Businessman may earn profit or suffer a loss.

9) Element of Risk : Risk is the key element of every business which is concerned with exposure to loss. It is due to some unfavorable or undesirable event. Intensity of risk can be minimized but can’t be avoided.

10) Customer Satisfaction : Customer satisfaction is the ultimate aim of all economic activities and business is not an exception to it.

Profession

The part of economic activities under which a person uses his educational knowledge and special skill to render services for earning some income.

Characteristics of a Profession (5m)

1) Aim : Every profession is practiced for earning money.

2) Qualification : A profession can be practiced only after acquiring required qualifications.

3) Financial Returns : Professionals get fees in exchange of their services. Income received by professional is not fixed.

4) Capital : Profession can be practiced independently or professionals accept a job in any organization.

5) Registration and Membership : Some professions have a council which regulates the activities of professionals. These professionals have to register themselves with their respective council and get certificate of practice e.g. Bar Council of India for lawyers, ICAI for Chartered Accountants, etc.

6) Non transferability : Profession can not be transferred to other person on the will of professional.

7) Nature of Work : Professionals charge fees in exchange of expert services e.g. an architect designs the layout of office for fees.

Economic Objective of a Business

a) Earning Profit : Required for survival of the business and for its growth.

b) Searching New Customers : Create new customers and also to maintain the existing customers.

c) Innovations : It has to spend money on R& D (Research and Development), market survey, use of technology etc.

d) Best Possible Use of Resources : Optimum use of resources ultimately leads to increasing profits.

Social Objectives of a Business

a) Supplying Quality Products : Every business has to provide quality products to its customers. Quality means a combination of purity, safety, durability, utility etc.

b) Avoiding Unfair Trade Practices : Unfair trade practices like black marketing, misleading advertisements, wrong measurement etc. should be avoided. It is important for survival and growth of a business unit.

c) Employment Generation : Business is a socio-economic institution. Business should create jobs for skilled and unskilled people.

d) Welfare of Employees : Skilled and unskilled workers are the part of the society. So if employees are properly taken care of, it brings welfare to the society.

e) Help to Solve Social Problems: Due to rapid industrialization, many social problems arise like traffic jams, growth of slums, air and water pollution etc. Business should be aware of this and should try to reduce them.

f) Contributing to the Welfare of the Society : Business house should take care of general welfare of the society.

Role of Profit in Business

a) Returns to Investors : The people who invests money in the business expect fair returns on their capital. This is possible if adequate profits are earned by business.

b) Research and Development (R&D) : Adequate profit enables a firm to spend more on R & D . This can lead to better technology and lower costs.

c) Growth and Expansion : Retention of profit is the internal source of funds. This profit can be used for increasing the volume of business through expansion and diversification. The portion of the profit is re-invested in the business for further development.

d) Increases Efficiency : Profits facilitate payment of various dues in time. It also motivates the employees working in the organization. This finally leads to increase in overall efficiency of the organization.

e) Means of Livelihood :Businessmen earn profits which is their means of livelihood. By earning sufficient profits they can live a decent standard life through satisfaction of various wants.

f) Reward for Risks : Profit is considered as a reward for assuming several business risks. Profits also serve as a protection against those risks which cannot be insured e.g. fall in demand, adverse government policy etc.

Survival : Profit means survival in competitive environment

Business in terms of Industry

Industry is concerned with the production of goods and providing services.

The economic activities that are associated with the conversion of resources into goods that are ready for use. This involves production and processing of goods, mining, breeding and rearing of animals.

There are 2 types of Goods:

1. Consumer : the goods are directly consumed.

2. Capital: are, used by another industry.

Primary Industry

Concerned with nature and usually acts as input for the secondary industry.

Primary- Agriculture Industry

This includes farming and cultivation of land. The quality of products depend on many factors like fertility of land, climatic conditions, rainfall etc.

Primary- Extractive Industry

This industry draws out products from natural resources i.e. soil, air and water. Generally the products are in raw form and they are used by manufacturing and construction industries for producing finished products e.g.. extracting oil and minerals from underground, fishing and forestry etc. It may be used in crude form and may be sent to other industries for further processing.

This industry draws out products from natural resources i.e. soil, air and water. Generally the products are in raw form and they are used by manufacturing and construction industries for producing finished products e.g.. extracting oil and minerals from underground, fishing and forestry etc. It may be used in crude form and may be sent to other industries for further processing.

Primary- Genetic Industry

c) Genetic Industry : Genetic industries are engaged in reproduction and multiplication of plants and animals. e.g. animal husbandry, sericulture, horticulture etc.

Secondary Industry

These industries depend on primary industries. They convert the raw material provided by primary industry into finished products. e.g. Tomatoes provided by primary industry are used for making sauce and ketchup.

Secondary- Manufacturing Industry

These industries are engaged in transforming raw material into finished product with the help of machine and manpower.

Secondary- Construction Industry

These industries are engaged in the construction of buildings, dams, bridges, roads, tunnels, canals, metro etc.This is only industry which creates immovable wealth.

Tertiary Industries

They provide support services to primary and secondary industries. Service facilities are provided by these industries.

Commerce

Part of business activity which is concerned with distribution of goods and services produced by Industry. It includes all those activities which are essential for maintaining a free and un-interrupted flow of goods.

Commerce bridges the gap between producers and consumers by exchanges of goods and services for money or money’s worth. Commerce is further divided in Trade and Auxiliaries to Trade.

Trade 

Trade is an exchange of goods and services with money or money’s worth.

Home Trade/ Internal Trade

In this trade, buying and selling of goods and services takes place within the geographical boundries of a country. It uses local currency for the exchange of goods and services.

i) Wholesale Trade : In wholesale trade, goods are purchased and sold in bulk. Link between Producers and Retailers

ii) Retail Trade : Retail trade is business activity associated with the sale of goods to the final consumers. Link between wholesaler or sometimes manufacturer and ultimate consumer.

Foreign Trade / External Trade

When trade takes place between different countries. Different currencies are used.

i) Import Trade : When goods and services are purchased from another country.

ii) Export Trade : When goods and services are sold to foreign buyers.

iii) Entrepot Trade : It is the combination of import/export trade. It involves importing the goods from one country and reselling these goods to another country. e.g. Indian Seller importing goods from Japan and re-exporting same goods to Africa.

Auxiliaries to Trade

1) Transport: facilitate movement of men and materials from one place to another.

2) Warehousing: In the gap of production and consumption goods should be stored carefully in places such as godowns.

3) Insurance: There are various risks involved in business, such as damage to goods due to various reasons. So to protect the business from loss, an insurance compensates the loss.

4) Banking: Banks provide funs to start the business by providing cheques, loans and other services to make it easier for traders to carry out their business.

5) Advertising: Communicates all info of the product and convinces the need of the product to the buyer. Ex- Billboards, Ads, etc.

6) Mercantile Agents: Customers are spread over a wide area so it is difficult for seller to connect to them. This problem is solved by brokers, agents, etc.

7) Communication: is very important for the sellers, producers, consumers to contact each other for the cycle to continue smoothly. This is made possible by phones, email, etc.