CHAPTER 1 ; EVOLUTION AND FUNDAMENTALS OF BUSINESS

Classification of Activities

1. Economic Activities: Economic activities are any activities that are carried out with the goal of earning money and livelihood. For example, a worker working in a factory , a teacher teaching in school.

It is  majorly of three types:

• Business

• Profession

• Employment.

2. Non Economic activities: Activities which are performed out of love, affection, sympathy, etc , and without the aim of earning profit are called non economic activities. For Example social work, religious activities etc.

Role of Business in The Development of Economy:

Business activities have been undertaken since the ancient era. There existed transfer of goods both within and outside the country, and the income received from such economic business activities were used for further investments.

Hundi: It is an instrument of exchange used in old times which involved a contract that warrants the payment of money, a  promise or order which is unconditional,  and can be exchanged through transfer by valid negotiation.

Business

Any economic activity that is undertaken regularly and continuously to satisfy the societal needs as well as to earn profit through the mechanism of sale and purchase of goods and services is called a business.

Profession:

Any economic activity which is carried out by a person with specialised knowledge and skills in order to serve society is called profession.

Employment

Any economic activity which involves doing work for someone else in consideration of money is termed as employment.

Characteristics of Business Activities

1. An economic activity: Business consists of sale or exchange of goods and services with the primary objective of earning money. Hence it is an economic activity.

2. Sale or exchange of goods and services for creating value: In business there should be transfer or exchange of goods or services for value. Production of goods for the purpose of personal consumption is not termed as business.

3. Regularity in dealings: To constitute a business there should be dealings in goods and services on regular intervals. Doing one single transaction does not constitute business. For example selling your old books, or furniture and purchasing a new one is not termed as business.

4. Production or procurement of goods and services: In every business enterprise before the consumption, production takes place. As a result, a business either manufactures the goods on its own or purchases them from producers, and then sells them to end customers.

5. Profit earning : The primary objective of every business is to earn more and more profit. No business can survive without earning profit. Hence all the efforts of the businessman are directed towards the earning of sufficient profit.

6. Uncertainty of return: It’s not certain how much profit a business is going to earn, as there is a possibility of losses as well because of the changing environment. Every business has to handle both losses as well as profits.

7. Risk: Every business is exposed to certain risks, these risks can either be due to natural factors, human factors, financial factors, or personal factors. Therefore, both profit and losses walk hand in hand and every business has to take some risk in order to survive.
   
   
   Objectives of Business

1. Market standing: For every business, goodwill is the most important aspect to stand out from its competitors. Every business must give quality products at reasonable prices to earn better goodwill.

2. Innovation: It means developing new products or modification in existing products. Every business in order to survive in a competitive environment should  innovate its products or  develop new ideas to tackle competition.

3. Productivity: It is a measure of efficiency. Every business must aim at increasing its productivity through the efficient use of resources.

4. Earning profit: Every business objective is to earn more and more profit in order to survive and also for growth purposes.

5. Physical and financial resources: Every business enterprise must acquire physical resources like land , plant and financial resources like funds according to their requirements and use them efficiently.

6. Social responsibility: Every business must work in a socially desirable manner and contribute some resources for solving social problems.

Classification of Business Activities:

The business activities are mainly classified into:

• Industry

• Commerce

  • Trade

  • Auxiliaries to Trade
    
    

A. Industry

It is basically concerned with the production of goods and services for an economic motive. It is further divided into following categories:

• Primary 

• Secondary 

• Tertiary

1. Primary Industry: 

It includes all those activities which are concerned with the extraction and production of natural resources and development of plants, etc. 

It is further divided into two parts:

1 .Extractive industries: These industries provide some basic raw materials that are mostly products of the natural environment. It includes farming, mining, etc.

2 . Genetic industries: These industries do breeding of plants and animals for their use in further reproduction. Example- cattle breeding, poultry farms.

2. Secondary Industries:

These industries are concerned with further processing of the material extracted at the primary sector so as to convert them into a finished product. Example, Mining of iron ore. 

It is further divided into two parts:

a. Manufacturing industries: These industries engage in producing goods through processing of raw materials and creating utilities. 

It is further divided into four parts:

• Analytical Industry: Separates and refines elements from raw materials to produce various by-products (e.g., petrol and diesel from crude oil).

• Synthetical Industry: Combines materials from different sources to create new products (e.g., cement production).

• Processing Industry: Extracts and processes raw materials into semi-finished or finished products (e.g., sugar, paper, textiles).

• Assembling Industry: Combines different components from various sources to form new products (e.g., assembling of televisions, computers, cars).

a. Construction industries: These industries are involved in the construction sector, and it involves constructive works such as building dams, bridges , buildings , etc.

3. Tertiary Industry

Provide support services to both primary and secondary industries to facilitate their operations.

B. Commerce

Commerce includes all the activities which are required for the exchange of goods and services. It also involves all the activities that assists in removal of hindrances of people, place, time, finance, risk, information faced during the exchange of goods and services.

It includes two types of activities:

• Trade

• Auxiliaries to Trade
  
  Trade

  The buying and selling of goods and services with an aim to earn profit is termed as trade. The people who are involved in trade are referred to as traders..
  
  Trade can be of two types :
  
  Internal trade:  It involves buying and selling within the boundaries of a country.
  
  Local Trade: Buying and selling within a local area.

• State Trade: Buying and selling within a single state. That is intra-state trade.

• National Trade: Buying and selling between the states. That is Inter-state trade.
  
  a) wholesale trade - when goods are brought and sold in bulk quantities
  b) retail trade - when goods are brought and sold in smaller quantities.
  
  
  b. External Trade: It involves buying and selling of goods and services outside the domestic borders of a country. it involves:

  1. Imports: It refers to the purchase of goods and services from other countries.

  2. Exports: Selling goods and services to other countries.

  3. Entreport: Importing goods and services from one country and exporting to some third country

Auxiliaries to Trade

1. Transport and Communication

   1. Transport: Moves raw materials and finished products from production to consumption, overcoming place-related hindrances.

   2. Communication: Facilitates interaction between distant parties, addressing place-related challenges.

2. Banking and Finance: Provides loans and credit facilities, addressing financial constraints and supporting business operations.

3. Insurance: Offers protection against risks such as fire and theft, mitigating risk-related challenges.

4. Warehousing: Solves storage issues and ensures the availability of goods, addressing time-related hindrances.

5. Advertising and Public Relations: Promotes products and services to increase sales and expand customer base, addressing information-related challenges.

Business Risk: Business risk refers to the probability of losses or inadequate profits due to uncertainties or unexpected events, which are beyond control.

Nature of Business Risks

• Risk is an essential part of every business. It can only be reduced but not eliminated in full.

• It arises due to uncertainties like natural calamities such as earthquakes, floods etc., which are unavoidable.

• The extent of risk depends upon the nature and size of business.

• ’No risk, no gain’ is applicable to every business. Hence, profit is the reward for risk taking.
  
  
  Causes of Business Risks

  1. Natural Causes:

     1. Events like floods, earthquakes, and other natural disasters.

     2. Businesses have little to no control over these risks.

  2. Human Causes: Includes negligence, power failures, and dishonest practices by employees or customers.

  3. Economic Causes: Changes in the economy, such as technological advancements, political disturbances, price fluctuations, and tax rate adjustments.

  4. Other Causes: Factors not covered by the above categories, such as exchange rate fluctuations.