Introduction to Business
Business Business is an economic activity consisting of production, distribution, exchange, and auxiliary function to satisfy the changing need and demands of customers to meet the economic goal of the organization. According to Lewis H. Henry, “a human activity directed towards producing and acquiring wealth through buying and selling goods.”
- Concept of Business
- Characteristics of Business
- Components and Scope of Business
- Functions and Objectives of Business
- Importance of Business
- 6. Social responsibilities of Business
Concept of Business
Business is an economic activity consisting of production, distribution, exchange, and auxiliary function to satisfy the changing need and demands of customers to meet the economic goals of the organization.
All the functions which are performed by human beings to satisfy their wants with limited available resources are known as human activities. A teacher teaches in a school, farmers work in the field, workers work in industries and lawyers work in law firms, etc. are related to human activities.
The word “Business“ is derived from the word “busy” which literally means the state of being busy. in other words
An organization or economic system where goods and services are exchanged for one another or for money.
Every business requires some form of investment and enough customers to whom its output can be sold on a consistent basis in order to make a profit.
According to Lewis H. Henry, “a human activity directed towards producing and acquiring wealth through buying and selling goods.”
Characteristics of Business
- Creation of utilities: Business involves many components and each component creates certain utility such as form, place, time, risk, finance, etc. The manufacturers create form utility, transportation creates place utility, warehousing creates time utility, etc. Such utilities of business facilities to fulfill different types of needs of the customer.
- Production, distribution, and exchange: Production, distribution, and customer exchange of goods and services are part of business activity. Manufacturing organizations involved in the production of goods and services from raw material. Similarly, trading organizations distribute goods and services to final consumers. In the course of exchange of goods and services they earn profit
- Continuous process: Business is a continuous process. Business is not one time financial activity but it’s a continuous activity. A business organization should deal with goods and services in a regular manner. For instance, if a person sold his old motorcycle to purchase a new one should not be considered as a business Batam cycle dealer sales motorcycles on regular basis for the purpose of profit comes under business
- Risk and uncertainty: It’s saying that where there is no risk, there is not the business. In business, there is a risk of loss due to an uncertain future. There are many factors that may affect on business activities of an organization.
- Profit motive: Profit is essential for the survival and growth of the business. As an economic activity, the primary objective of a business is to earn profit and maximize wealth. It is considered as the reward to the investors in return for their investment. The ability of a business is measured by its profit earning capability.
- Consumers satisfaction: In a competitive market economy, the satisfaction of consumers is taken as one of the important requirements of the business. For the satisfaction of the consumers, business organizations need to supply the right quality of goods at the right time at the right price. They need to change business strategy on the basis of changing the demand of the consumers.
- Mutual advantages: In business, both buyers and sellers are benefited The sellers are benefited by getting money in return for the supply of goods. Similarly, buyers are benefited by having goods and services that satisfy their needs. Business activity is based on the concept of mutual benefit where both parties fulfill their needs.
- Investment (Finance) of capital: Capital is essential both for the establishment and for day to day business activities. Generally, long term capital is required for established business such as for purchasing land, building plant and machinery, etc Working capital is required for day to day business activity such as for purchasing raw materials, payment of wages to workers, and other expenses.
- Economic activity: Business involves the production, distribution, and exchange of goods and services for economic gain. A business organization supplies goods and services according to the demands of the customers. A Business Organization tries to satisfy its customer by supplying goods and services in proper time, quantity, quality, and price. Business organizations give emphasize the satisfaction of customers. It is the reason that business is also known as a socio-economic activity.
- Organization: The formation of organizational structure is one of the elements of the business. It is necessary for the effective functioning of business activities. In every business organization, there should be a system of the proper division of work, rules and regulations, working procedures, and system. It is helpful for the effectiveness of business activities and for the achievement of the economic objectives of the business.
Components and Scope of Business
Business Covers Large or wide area. It involves all kinds of economic activities. Broadly business may be classified into two categories viz. Industries and Commerce. The industry involves producing goods and services whereas commerce is concerned with the distribution of goods and services from manufacturers to the customers.
- Industries ( Industry & Service Industry)
“Industry” refers to the production of goods by manufacturing or processing. It converts raw materials into finished goods and thus creates form utility. Goods produced by industry may be “consumers’ goods” or “producers’ goods” Industry may be further divided into Two Types.
- Primary Industries:
- Secondary Industries
- Primary Industries: The primary sector of the economy is the sector of an economy making direct use of natural resources. This includes agriculture, forestry, fishing, and mining.
- Genetic Industries: Genetic Industry is related to the reproducing, breeding, and multiplying of certain species of plants and plants and animals with the object of earning profit from their sale.
- Extraction Industries: The Extractive Industry concerned with the extraction or drawing out products from natural sources. It supplies basic raw materials to other industries.
- Secondary Industries: Any industry that processes raw materials that are then provided to the primary industry for the manufacture of products. This sector also called the manufacturing industry,
- Construction Industry: This industry is concerned with the construction, erection, fabrication, or building of products. Examples of such industries are road, bridge, dams, canals, buildings, construction, etc.
- Manufacturing Industry: Generally the term ‘industry’ refers to the manufacturing industry. This industry is mainly concerned with the production of different types of goods by using raw materials or semi-finished goods.
- Analytical Industry: In this industry, many types of products are manufactured by analyzing and separating different elements from the same material.
- Synthetic Industry: In this industry, various raw materials are put together in the manufacturing process to make a final product.
- Processing Industry: In this industry raw material is processed through different stages of production resulting in the final product.
- Assembling Industry: In this industry various instruments or component parts already manufactured are assembled to make new useful products.
Exchange of goods or services for money or in kind, usually on a scale large enough to require transportation from place to place or across the city, state, or national boundaries.
- Auxiliaries of Trade
- Trade: Trade is related to buying and selling goods and services for earning profit. Those activities which are related to buying, selling, and distributing goods in the market is known as trade
Types of Trade:
- Home Trade: Home trade means national, domestic, or internal trade i.e. Buying and selling within a nation. •
- Wholesale Trade: When a trader buys goods in bulk amount and resell to retail in small volume is called wholesale trade.
- Retail Trade: When a trader buys goods in bulk amount and resells to the customer in a small volume is called retail trade.
- Foreign Trade: Foreign trade means international, global, external trade i.e. Buying and selling is between two or more nations.
- Import: A good or service brought into one country from another is called import.
- Export: A good or service sold to another country from one is called export.
- Entry Port: The trade in which a country purchases the goods from one country and sells it to another country is called entry port trade.
Auxiliaries of trade: It supports or assists the trade activities. It helps to run the business smoothly or all the commercial activities, which support trade dealing, are auxiliaries of trade.
- Transportation: Goods and services are produced in a particular region, however, they are consumed by many consumers in various places. The transportation system plays a crucial role in the physical delivery of goods from manufacturers to various places for utilization. It brings uniformity in price by supplying goods in a continuous way as per requirements. In other words, it brings a balance between demand and supply. The development of the modern transportation system widens the scope of trade at the national as well as the international level.
- Communication Communication is concerned with the transformation from one person to another person having common Interest. A trading concern can contact the customer with the help of communication without a personal introduction. On the basis of the requirement and nature of the business, various an of communication can be used. The modem communication system has contributed to the development of the global economy.
- Banking: Bank deals with money and credit. It provides support to the trading organizations by granting loans and advances and other services. It grants loans for the establishment of the trading organizations and to maintain regular business activities. It provides support for the development of national and international trade. Specially, in international trade, the bank is playing an important role as a medium of payment.
- Insurance: Insurance is a system that takes the responsibility of compensation loss of goods and services of trading enterprises due to specified reasons. Insurance is an important auxiliary of trade. In business, there is a risk of loss of goods and services from the process of manufacturing to the distribution to final consumers.
- Warehousing: Goods are produced at a time in large quantity but they are consumed in small quantities on a uniform basis. Therefore, it is necessary to store goods until their final distribution. It is the warehousing system that preserves all the products in a protective way for a long time.
- Promotion: Promotion is the process of introducing products among customers. According to the nature of products and requirements, various means of promotion can be used. Advertising and publicity are the mass means of promotion Personal selling are single means of promotion.
The function of Business:
A business is an organization of human, material, and other intangible resources. the function of a business is to create, retain, and satisfy profitable customers as a means of successfully achieving the desired ends of the enterprise.
- Production function: the production function involves various activities like product planning procurement of raw material, proper storage of raw material, and systematic arrangement of Machinery.
- Distributing function: Distribution helps to deliver the product as per the demand of the customer. Trading enterprises are involved in the distribution of goods and services from manufacturers to consumers.
- Organizing function: In every business, there should be a proper system for every activity/performance. organizing function is really necessary and helpful for performing business activities in systematic and effective manners.
- Financing function: Capital considers the lifeblood of business. It requires for a different purpose from the establishment to day to day activities of the business. it is the function of the business to manage capital in a systematic manner.
- Promotional function: Promotion is the process of introducing a product to the customer. Business organizations use different types of promotion methods as per the nature of the product and capability of the organization.
- Research and development function: “Today’s happy customer will not be tomorrow’s happy customer”. Customer needs/demand/interest is changing so quickly. R&D helps with the innovation of new concepts, models, knowledge, and technology. It helps to innovate a new product or develop the existing product.
- Public relations function: Today’s competitive market is different from the traditional market. Back in the traditional business time period, the producer was more powerful than the customer but now customers are the ones who determined the market. Businesses need to make good relations with customers as well as all the stakeholders so that they can run the business smoothly.
- Marketing function: The marketing function is able to satisfy the needs of the customers through consumption of goods or services. It helps to transfer those goods and services from producer to the end customer. It also helps in the fixation of price as well as sales promotion.
- Human Resource Management: It deals with human activities. It is related o the utilization of people to perform different activities. It is also called the staffing function. It helps in the management of resources.
- Creating employment.
Objectives of Business:
Generally, it is believed that any business activity is carried on only for profit because it measures the effectiveness and soundness of business efforts and it is also the risk premium to cover the cost. It should also be kept in mind that the business is carried on to meet the needs of society through a continuous supply of goods and services. Therefore, the main objective of the business should be to serve the society Economic Objectives, Social Objectives & Human Objectives
- Economic Objectives: The economic objective of a business is to earn sufficient profit to give reasonable rewards to the investors of capital and to provide for further capital.
- Earning Profit:
- Production of Commodities
- Creation of Market
- Technical Improvement
- Social Objectives A business is a part of a society whose ethical and moral code of conduct should not be violated. Business does not exist in a vacuum unless it meets the needs of society. The philosophy of running a business should be in tune with what is considered right by society.
- Supply Quality Food
- Utilizing Resources
- Providing Employment
- Avoiding Social Stigma
- Human Objectives: A business organization deals with two important parties of society: employees & customers. The business enterprise should treat them as human beings.
- Satisfaction of Employees
- Payment to Creditors
- The satisfaction of Customers
- The satisfaction of Shareholders
Importance of Business:
The economic growth of a country is produced by the business. The business provides services, goods, and incomes for both, employees and business holders. The development of a country is sustained by multinational corporations, medium, and small-sized businesses. This development is usually perceived as being supported by the multinational corporations, but mostly the family businesses and individual entrepreneurs are the greatest contributors to this development.
- Economic development: Business is playing an important role in the development of the country. The development of industry activities facilitates the utilization of different available resources of the country. Likewise, the development of commercial activities contributes to the exchange of goods and services. The development of business activities helps to fulfill the needs of the consumer.
- Creation of utilities: One of the benefits of business is that it creates ties of goods and services to fulfill the needs and expectations of customers. Business involves many components and each component creates certain utility such as form, place, time, risk, finance, etc. Such utilities of business facilities to fulfill different types of needs of the customers.
- Utilization of resources: Business plays an important role in the proper utilization of available resources. Different countries are rich in different resources, for example, Nepal is rich in natural beauty and Saudi Arabia is rich in petroleum resources. Some countries are rich in human and science and technology. The proper utilization of resources is necessary for the economic development of the country.
- Generation of employment: Business organizations need skilled, semi-skilled, and skilled employees according to nature and level of business both in management and technical jobs. Development of industry, commerce, and service sector enterprises generate employment opportunity to the people. They can get employment opportunities in business organizations on the basis of academic qualification skills.
- Self-sufficiency: The development of business activities minimizes dependence on others for the supply of goods and services. It also helps to save me currency by minimizing imports. By developing business, a country can produce and supply some of the basic and other needs of the society of its own. A self-sufficient country has distinct prestige and status at the international level
- Earning foreign currency: The development of industry and commerce is helpful for the production of goods and services. Foreign currency can be earned by exporting surplus products and services to foreign countries. The development of export trade brings a favorable balance in payment.
- Sources of government revenue: Business is an important source of government revenue. The development of business activities contributes more to maximize government revenue. The government imposes various taxes on business organizations. Government invests such revenue for the betterment of social work and infrastructure development work
- Provide investment opportunities: The development of business activities provides more scope to get the return on investment and also for maximization of business value and wealth. The persons who have sufficient capital can invest their capital in business on the basis of their interest, capability, and knowledge. They can also invest their capital in a new area of business and also in a new line of products and services Supply
- quality goods: All business organizations need to maintain the quality of their products in order to satisfy customers and to survive in competitive Emphasize should be given on supply of proper quality of the product in reasonable price. The supply of quality goods is essential to maintain the health and welfare of the people. A business organization has to consider social, moral, and ethical values for its long term survival and development.
- Development of international relationships: For the promotion of business activities, many people visit different countries. They share and exchange culture, tradition, knowledge, and technology among the peoples. Trading activities help for maintaining people to people to contact International trade is playing an important role in the development of harmonious relations among nations.
Social Responsibilities of Business:
Social responsibility is the idea that businesses should balance profit-making activities with activities that benefit society; it involves developing businesses with a positive relationship with the society in which they operate.
Social responsibility is the obligation of a business organization towards a society where it establishes, exists and grows and expands business activities. According to Keith Davis & Robert L. Blomtrom, “Social Responsibility refers to the obligation of decision-makers to take actions which protect and improve the welfare of society as a whole along with their own interest.”
According to Peter F Drucker, ”social responsibility to requires the manager to consider whether their action is likely to promote the public goods, to advance the basic beliefs of the society, to contribute to its stability, strength and harmony”
The major responsibilities of the business are:
- Towards Employee
- Towards Creditors
- Towards Customers/Consumers
- Towards Investors
- Towards Government
- Towards Society
SROB towards Employee: Employee The successful functioning of a business totally depends on the activities of employees. They are the assets of the business and must motivate and encourage for their better performance.
- Provides a better working environment to satisfy the employees
- It provides a salary, bonus, provident funds, and job security.
- It also provides financial and non-financial supports.
- Enriches employees’ performance
- Provide training to develop their skills.
- listen and handle their complaints and issues.
SROB towards Creditors: Creditors are the ones who provide loans and supplies good/raw material in credit when the company is in need. It’s a business responsibility to pay back and clear the debt of the creditor.
- Make duly payment
- the satisfaction of creditors with the proper relationship
- Helping them to create their own market.
- Entrusting the right of proper selling of goods and services of their goods
- Copyright and other legal rights.
SROB towards Customers/Consumers: Consumer’s needs and desires are changing and satisfying by fulfilling their needs and wants as per their preference help to sustain in the market.
- Better quality of goods and services by charging a reasonable price
- The supply of commodities is also to be done according to the needs of the customer
- Helps to achieve needs and wants
- Provide the right goods at the right place at the right time.
- Provide proper pre-sale and post-sale information
- Provide proper information about new products
SROB towards Investors: Investors invest capital fixed and working capital for the establishment of business and for day to day activities. Investors have a direct interest in the business and it’s the business’s responsibility to fulfill the expectation of investors.
- True information about earning power of business
- The objectives are to provide a reasonable rate of return to shareholders.
- Provide information about the plan of the business.
- Ensure safe investment
- Promote utilization of resources without leakage
- Ensure transparency of business activities
SROB towards Government: Government is the responsible institution for the administrative and developmental work of the country. Its business responsibility to conduct business as per the government rule and regulation.
- Increase in tax i.e. Increase in government revenue
- Fulfill demand of government
- Non-violation of rules and regulation of government.
- Avoid unfair trade
- Provide essential information to the government.
- Solve national problems like natural calamities.
- Avoid malpractice like black marketing, adulteration, smuggling
SROB towards Society: Every business organization performs its business activities inside the society and normally the public expects some social welfare activities from the business organization
- Protect the environment
- Employment opportunities generation.
- Utilize Resources
- Maintain Social Value
- Participate in Social Welfare