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- Unit-1 Nature of BusinessUnit-1
Unit-1 Nature of Business
Introductory unit for the preparatory course in Commerce.
What do you mean by business? Briefly explain the various types of business activities?
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Any activity carried with profit motive is business. The term business can be defined as production of good and services and all those activities that are involved inflow of good from the point of production to the point of consumption or final use with a view to earn profit. Soap manufacturer or an aircraft manufacturer or a provision store or a pan shop or a cloth shop or a medical store or a hotel are examples of business. A person who is engaged in business is known as Businessman/ Entrepreneur. A unit formed for the purpose of carrying on some business activity is called as Business Firm/ Enterprise.
Various types of business activities are:
Industry: The term industry refers to that part of the business activity which is concerned with:
- Extracting materials like coal, iron ore, petroleum (called extractive industry).
- Processing and converting raw materials into finished products like soap, bread, fans, machines, cement (called manufacturing industry).
- Construction activity like buildings, dams, bridges, roads (called construction industries).
- The activities of human beings engaged in extraction, production, processing, construction and fabrication of goods come under industry.
- Industry means a group of factories usually specializing in a particular product line.
- Examples: Cotton Factories, Cement Factories.
Commerce: Commerce is mainly concerned with distribution of goods. While industry is concerned with the production of goods, commerce is concerned with making the same available to those who need them. It embraces all those functions which are essential for maintaining a free and uninterrupted flow of goods. The term commerce includes 'trade' and 'aids to trade’.
Trade: The term 'trade' is used to denote buying and selling.
Trader: One who buys and sells is a trader. A trader is a middleman between the producer and the consumer.Trader can be of two types:
- Wholesale trade: In this a wholesale trader purchases in large quantities from the producers, and sells in small quantities to the retail traders.
- Retail Trade: In this a retail trader is one who purchases from the wholesale trader or sometimes directly from the producer, and sells in smaller quantities to the ultimate consumers.
Aids to Trade: All activities that facilitate smooth flow of goods from manufacturing centers to the consumption centers are called aids or auxiliaries to trade.
- Transportation: Selling all the goods produced at or near the production centers is not possible. Hence, goods are to be sent to different places where they are demanded. The medium which moves men and materials from one place to another is called transport. Transport can be of three types:
- Land transport - road, rail
- Water Transport - Boat,ship
- Air Transport - Air Plane
- Warehousing: Storage is indispensable in these days of mass production. The goods should be stored carefully from the time they are produced till the time they are sold. Hence, the need for warehousing. Warehouses are used to store goods. Warehouses are also called godowns.
Advertising is an effective aid in selling the goods.
The producer, through advertisement, communicates all information about his goods, to the prospective consumers and create in them a strong desire to buy the product.
Advertising can be carried in different ways:
- Indoor advertising: Communicating with people through advertising, when they are in their homes, is called indoor advertising.Example: Advertising through newspapers, radio, 'television, etc.
- Outdoor advertising: Communicating with people, when they go out from their homes, is called outdoor advertising.
- Examples: Advertisements in cinema theatre, wall posters, and hoardings at prominent places.
Banking: A bank is an organization which accepts deposits of money from the public, withdrawable on demand or otherwise, and lends the same to those who need it. Banks also provide many services required for the business activities.
Insurance: The goods may be destroyed while in production process or in transit due to accidents, or in storage due to fire or theft, etc. The businessmen would like to cover these risks. Insurance companies come to their rescue in this regard. They undertake to compensate the loss suffered due to such risks. For this purpose, the business has to take an 'insurance policy' and pay a certain amount regularly, called 'premium’.