Introduction to Business
Business: An Important Human Activity
Business is the process of creating, providing, and exchanging goods and services in order to satisfy human needs and wants. Businesses are essential to the functioning of a modern economy, as they create jobs, generate income, and stimulate innovation. They also play a vital role in society by providing goods and services that improve our quality of life.
Here are some of the specific ways in which business is an important human activity:
- Business creates jobs. Businesses need employees to operate, so they create jobs for people of all skill levels. This helps to boost the economy and improve the standard of living for people in the community.
- Business generates income. Businesses generate income through the sale of goods and services. This income is then used to pay employees, invest in new technologies, and expand the business. This cycle of income generation helps to create a more prosperous economy for everyone.
- Business stimulates innovation. Businesses are constantly looking for new ways to improve their products and services. This process of innovation drives economic growth and helps to create new industries.
- Business provides goods and services that improve our quality of life. Businesses provide us with the goods and services we need to live our lives, from food and clothing to transportation and entertainment. These goods and services make our lives easier, more comfortable, and more enjoyable.
Here are some definitions of business by scholars:
- Peter Drucker: “Business is the activity of making things people want and need, and distributing them to people who want and need them.”
- Michael Porter: “Business is the activity of creating and delivering value to customers.”
- Henry Mintzberg: “Business is the coordinated effort of a group of people to produce and sell, for a profit, the goods and services that satisfy society’s needs.”
- Frederick Taylor: “Business is the art of creating customers.”
- Jim Collins: “Business is the systematic, purposeful creation of value through the application of intellect and effort.”
These definitions all emphasize the importance of businesses in creating value for customers, generating profits, and contributing to society. They also highlight the need for businesses to be organized and efficient, and to use their intellect and effort to succeed.
In conclusion, business is an important human activity because it plays a vital role in the economy, society, and our individual lives. Businesses create jobs, generate income, stimulate innovation, and provide goods and services that improve our quality of life.
Characteristics of Business
Businesses are organizations that engage in the production, distribution, and exchange of goods and services. They are characterized by the following 10 common features:
- Creation of utility: Businesses create utility by transforming raw materials or services into products or services that are more useful to consumers. This can be done by adding value to the product or service, such as by improving its quality, making it more convenient to use, or making it more affordable.
- Production, distribution, and exchange: Businesses engage in the production, distribution, and exchange of goods and services. Production is the process of creating goods and services. Distribution is the process of moving goods and services from the producer to the consumer. Exchange is the process of trading goods and services for money or other goods and services.
- Continuous activity: Business is a continuous activity. Businesses must continually produce, distribute, and exchange goods and services in order to survive. They cannot simply produce a product once and then sit back and wait for customers to come to them.
- Risk and uncertainty: Business involves risk and uncertainty. There is always the possibility that a business will not be successful and that it will lose money. Businesses must take risks in order to succeed, but they must also manage those risks in order to minimize their chances of failure.
- Profit: The goal of most businesses is to make a profit. Profit is the difference between the revenue a business generates and the expenses it incurs. Businesses need to make a profit in order to survive and grow.
- Consumer satisfaction: Businesses need to satisfy their customers in order to be successful. If customers are not satisfied with the products or services they receive, they will not come back. Businesses need to focus on providing high-quality products and services that meet the needs of their customers.
- Mutual benefit: Businesses should strive to create mutually beneficial relationships with their customers, suppliers, employees, and other stakeholders. This means that everyone involved in the business should benefit from the business’s activities.
- Capital investment: Businesses need to invest capital in order to operate. This includes money spent on things like equipment, inventory, and marketing. Businesses need to make wise investment decisions in order to be successful.
- Socio-economic activity: Businesses are an important part of the socio-economic fabric of society. They provide jobs, create wealth, and contribute to economic growth. Businesses also have a responsibility to give back to society and to help solve social problems.
- Organization: Businesses are organized entities that have a clear structure and hierarchy. This structure helps to ensure that the business is run efficiently and effectively.
These are just some of the common characteristics of business. The specific characteristics of a business will vary depending on the type of business and the industry it is in. However, these characteristics are essential for all businesses that want to be successful.
Dimensions of Business
An industry is a group of businesses that are involved in the production of similar goods or services. Industries can be classified into different categories based on the type of goods or services they produce, the stage of production they are involved in, or the technology they use.
Different types of industries are:
Extractive industry: An extractive industry is an industry that extracts raw materials from the earth. Examples of extractive industries include mining, oil and gas drilling, and logging.
Manufacturing industry: A manufacturing industry is an industry that transforms raw materials into finished goods. Manufacturing industries can be classified into different categories based on the type of products they produce, the type of technology they use, or the stage of production they are involved in.
- Analytical industry: An analytical industry is a manufacturing industry that produces products that are used to analyze other products or materials. Examples of analytical industries include the chemical industry and the pharmaceutical industry. “Creating different products by using single raw material is the analytical manufacturing industry.”
- Synthetic industry: A synthetic industry is a manufacturing industry that produces products that are created by combining different materials. Examples of synthetic industries include the plastics industry and the rubber industry. “An industry that produces a single new product through mixing or synthesizing two or more raw materials is the synthetic industry.”
- Processing industry: A processing industry is a manufacturing industry that transforms raw materials into intermediate products. Examples of processing industries include the food processing industry and the beverage industry.
- Assembling industry: An assembling industry is a manufacturing industry that combines different components to create a finished product. Examples of assembling industries include the automobile industry and the electronics industry.
Construction industry: The construction industry is an industry that builds structures, such as buildings, roads, and bridges. The construction industry can be classified into different categories based on the type of structures they build, the type of materials they use, or the stage of construction they are involved in.
Genetic industry: The genetic industry brings improvement or development in the creature of nature through scientific and technological intervention. The industry attempts to reproduce a development from the plants and animal species. in other words, the genetic industry is an industry that uses genetic engineering to develop new products and services. Examples of genetic industries include the pharmaceutical industry and the agricultural industry.
These are just some of the different dimensions of the industry. The specific industries that exist will vary depending on the country or region.
Commerce refers to the exchange of goods and services between individuals, businesses, or countries. It encompasses various activities that facilitate the buying and selling of goods and services, including trade, distribution, marketing, and financial transactions. Commerce plays a crucial role in the global economy by connecting producers and consumers and ensuring the efficient flow of products and services.
Trade is a fundamental aspect of commerce and involves the buying and selling of goods and services. It can be categorized into two main types:
1. Home Trade: Home trade, also known as domestic trade, occurs within the boundaries of a single country. It involves the exchange of goods and services between individuals or businesses within the same nation. Home trade can further be divided into wholesale trade and retail trade.
- Wholesale Trade: Wholesale trade involves the purchase of goods in bulk from manufacturers or producers and their subsequent resale to retailers or other businesses. Wholesalers act as intermediaries between producers and retailers, helping to distribute products efficiently.
- Retail Trade: Retail trade involves selling goods directly to the end consumers. Retailers operate stores or online platforms where consumers can purchase products for personal use. Retailers offer convenience, variety, and personalized shopping experiences.
2. Foreign Trade: Foreign trade, also known as international trade, occurs between different countries. It involves the exchange of goods and services across international borders. Foreign trade can be further categorized into different types:
- Import Trade: Import trade involves bringing goods and services into a country from another country. It allows consumers to access products that are not produced domestically or to meet specific demands.
- Export Trade: Export trade involves selling goods and services produced domestically to other countries. Exporting can help a country generate revenue, boost its economy, and utilize its surplus production.
- Entrepot Trade: Entrepot trade involves importing goods into a country and then re-exporting them to other countries without significant processing. Entrepot trading hubs often serve as distribution centers or trading posts.
B. Service Enterprise:
A service enterprise refers to a business that provides intangible services rather than tangible goods. Services are activities or tasks performed for others to fulfill specific needs. Examples of service enterprises include consulting firms, healthcare providers, financial institutions, transportation companies, and entertainment services. Service enterprises play a critical role in modern economies by offering expertise, convenience, and various solutions to consumers and businesses.
C. Auxiliary to Industry and Trade
Auxiliary activities support industry and trade by providing essential services. Transportation, warehouses, insurance, banking, communication, promotion, and packaging facilitate the movement, protection, and promotion of goods. Other activities like market research, legal services, and customs clearance contribute to the efficiency and success of businesses in industry and trade.
1. Transportation: Transportation refers to the movement of goods and people from one place to another. It plays a crucial role in both industry and trade by ensuring that products reach their intended markets and consumers efficiently. Various modes of transportation, such as road, rail, air, sea, and pipelines, facilitate the movement of raw materials, finished goods, and other resources.
2. Warehouse: A warehouse is a facility used for storing goods before they are distributed or sold. Warehouses are important in both industry and trade as they provide a central location for inventory management, allowing businesses to store products in bulk, manage stock levels, and ensure a steady supply to meet customer demands.
3. Insurance: Insurance is a risk management tool that provides financial protection against potential losses or damages. In industry and trade, insurance helps mitigate risks associated with various aspects, such as transportation, storage, production, and distribution. It provides businesses with a safety net in case of unexpected events that could lead to financial losses.
4. Banking: Banking services are essential in facilitating financial transactions related to both industry and trade. Banks offer services like deposit accounts, loans, payment processing, and international transactions, which are vital for businesses to manage their finances, invest, and conduct trade activities across borders.
5. Communication: Communication involves the exchange of information, ideas, and instructions between different parties. In industry and trade, effective communication is crucial for coordinating activities within a business, maintaining relationships with suppliers and customers, and ensuring smooth trade transactions.
6. Promotion: Promotion refers to marketing and advertising activities aimed at creating awareness, generating interest, and influencing consumer behavior. Promotion is crucial in both industry and trade to inform potential customers about products and services, build brand recognition, and stimulate demand.
7. Packaging: Packaging involves designing and creating containers or coverings for products. It serves multiple purposes, including protection, preservation, branding, and convenience. Proper packaging is essential in both industry and trade to ensure that products remain intact during transportation and appeal to customers on store shelves.
8. Other Auxiliary Activities: These are additional activities that support industry and trade but may not fall into the categories mentioned above. These could include activities like market research, quality control, advertising, legal services, customs clearance, and trade fairs. These auxiliary activities contribute to the overall efficiency, competitiveness, and success of businesses involved in industry and trade.
In summary, auxiliary activities play a vital role in supporting and enhancing the operations of industries and trade by providing services that enable the smooth movement, promotion, and protection of goods and services in the market.
Objectives of Business
A. Economic Objectives
The economic objectives of a business refer to the financial and quantitative goals that a company aims to achieve to ensure its sustainability, growth, and profitability.
1. Profit: Profit is one of the primary economic objectives of a business. It involves earning revenue that exceeds the costs and expenses incurred in producing and selling goods or services. Profitability ensures business sustainability, expansion, and the ability to reward stakeholders.
2. Creation of Customers: Creating customers involves attracting and retaining a loyal customer base. It focuses on delivering products or services that meet customer needs, leading to repeat business and positive word-of-mouth referrals, which contribute to long-term profitability.
3. Innovation: Innovation is the pursuit of new ideas, products, processes, or technologies that provide a competitive edge. It fosters growth and helps businesses adapt to changing market dynamics, improving efficiency, customer satisfaction, and overall profitability.
4. Productivity: Productivity aims to optimize resource utilization to increase output while minimizing costs. Improved productivity enhances efficiency, reduces waste, and contributes to higher profitability by producing more with the same or fewer resources.
5. Market Share: Market share refers to the percentage of total market sales that a business captures. Expanding market share demonstrates business competitiveness and growth. It can lead to increased revenue and profitability, often through capturing more customers from competitors.
In summary, the economic objectives of a business encompass goals related to generating profit, building and retaining customer loyalty, fostering innovation, enhancing productivity, and increasing market share. These objectives collectively contribute to the financial health and success of the business in the competitive market.
B. Social Objectives
Social objectives of business refer to the goals and responsibilities that a company pursues to contribute positively to society and the well-being of various stakeholders. These objectives go beyond financial considerations and emphasize the broader impact of business activities on the community and environment.
1. Supply of Desired Goods and Services: Businesses aim to provide products and services that fulfill the needs and wants of customers. Meeting customer demands contributes to consumer satisfaction and enhances the overall quality of life.
2. Supply of Quality Goods and Services at Fair Price: Businesses have a responsibility to offer products and services of high quality. This includes ensuring that these offerings are affordable and accessible to a wide range of consumers, contributing to equitable access.
3. Creation of Employment: Businesses play a significant role in generating employment opportunities. Providing jobs not only supports individual livelihoods but also contributes to the economic development of the community.
4. Supply of Goods and Services on Time: Timely delivery of products and services is essential to ensure that customers’ needs are met efficiently. It also contributes to maintaining trust and positive relationships with customers.
5. Maintain Healthy Social Environment: Businesses should actively contribute to the creation of a healthy social environment by adhering to ethical business practices, promoting diversity and inclusion, and respecting human rights.
6. Fair Dealing with Suppliers and Competitors: Treating suppliers and competitors fairly and ethically fosters healthy competition and collaboration within the business ecosystem. It contributes to creating a positive business environment and maintaining trust among stakeholders.
In summary, the social objectives of business focus on promoting social well-being, ethical conduct, and responsible business practices.
C. Human Objectives
Human objectives of business refer to the goals and commitments that center around the well-being, development, and satisfaction of employees, stakeholders, and investors. These objectives recognize the importance of people in the success of a business and emphasize creating a positive and supportive work environment.
1. Cordial Relations with Employees: Maintaining cordial relations involves creating a positive workplace culture where employees are treated with respect, fairness, and dignity. It fosters teamwork, cooperation, and a sense of belonging among employees.
2. Human Resource Development: Human resource development focuses on enhancing the skills, knowledge, and capabilities of employees. Businesses invest in training, workshops, and professional development opportunities to empower their workforce and improve overall productivity.
3. Participation: Encouraging participation involves involving employees in decision-making processes that affect their work. This approach promotes a sense of ownership, motivation, and commitment among employees.
4. Job Satisfaction: Job satisfaction is the level of contentment employees derive from their work. Businesses aim to provide a work environment that aligns with employees’ needs, values, and expectations, thereby enhancing their morale and productivity.
5. Satisfaction to Investors: Satisfying investors involves meeting their financial expectations by ensuring a reasonable return on their investment. Businesses strive to maintain transparency, good governance, and effective financial management to instill confidence in their investors.
In summary, human objectives of business focus on fostering positive relationships with employees, nurturing their development, promoting participation and job satisfaction, and ensuring that investors receive satisfactory returns. These objectives contribute to creating a harmonious and productive work environment while fulfilling the expectations of key stakeholders.
D. National Objectives
National objectives are the broader goals that a country aims to achieve for the well-being, progress, and development of its citizens and overall society. These objectives guide policies and actions at the national level to ensure sustainable growth and improvement in various aspects of the nation’s economy and society.
1. Utilization of Resources: Effective resource utilization is a crucial national objective. It involves using a country’s natural, human, and capital resources efficiently and sustainably to meet present needs while ensuring resources are available for future generations.
2. Tax Payment: Tax payment is a responsibility of individuals and businesses toward the government. This revenue is used to fund public services such as infrastructure, healthcare, education, and social welfare programs, all of which contribute to the overall development and well-being of the nation.
3. Creation of Employment: A key national objective is to ensure sufficient employment opportunities for citizens. Governments aim to promote policies that stimulate job creation, reduce unemployment rates, and provide individuals with the means to support themselves and their families.
4. Balanced Development: Balanced development focuses on ensuring that progress is evenly distributed across regions, sectors, and population groups. This objective aims to prevent regional disparities, promote social equity, and ensure that the benefits of development reach all segments of society.
In summary, national objectives encompass utilizing resources efficiently, ensuring fair taxation, generating employment opportunities, and promoting balanced development to enhance the overall well-being and prosperity of a country and its citizens.
Functions of Business
The functions of a business are essential tasks that collectively contribute to its operations, success, and overall effectiveness. These functions encompass various aspects of managing and running a business entity:
- Organizing Function: The organizing function involves structuring the business’s resources, tasks, and activities to achieve its objectives efficiently. It includes designing the organizational hierarchy, defining roles and responsibilities, and establishing communication channels.
- Production Function: The production function focuses on creating goods and services. It involves the processes of designing, manufacturing, or assembling products, ensuring their quality, and managing the production process for optimal efficiency.
- Financial Function: The financial function encompasses managing the financial resources of the business. This involves budgeting, financial planning, raising capital, managing cash flow, accounting, and financial reporting.
- Distribution Function: The distribution function pertains to getting products from the production stage to the end consumers. It involves supply chain management, logistics, transportation, warehousing, and ensuring timely and efficient delivery.
- Service Function: The service function centers around providing post-sale support, assistance, and maintenance to customers. It ensures that products continue to perform well and that customers are satisfied with their purchases.
- Employment Function: The employment function involves managing human resources, including recruitment, selection, training, performance evaluation, and employee relations. It focuses on creating a capable and motivated workforce.
- Research and Development Function: The research and development (R&D) function focuses on innovation and improvement. It involves conducting research, designing new products, enhancing existing ones, and staying ahead of market trends and technological advancements.
- Human Resource Function: The human resource function emphasizes the well-being and development of employees. It includes employee engagement, training and development, compensation, benefits administration, and ensuring a positive work environment.
- Coordination Function: The coordination function involves aligning various departments and activities within the business to work harmoniously toward common goals. It ensures smooth communication, collaboration, and effective utilization of resources.
The business environment is the totality of external and internal factors that have a direct or indirect impact on the operations of a business. It is a complex and ever-changing environment that businesses must constantly monitor and adapt to in order to remain successful.
Components of Business Environment
The business environment can have a significant impact on a business’s success or failure. Businesses that are able to understand and adapt to the environment are more likely to be successful.
A. Internal Environment
The internal environment of a business refers to the set of factors and conditions within the organization that influences its operations, decision-making processes, and overall performance. It includes various elements that are under the control and influence of the organization’s management and leadership.
1. Owners: The owners or shareholders of a business are individuals or entities that hold ownership stakes in the company. Their objectives, values, and preferences can impact the company’s strategic direction and decision-making. Their level of involvement and the ownership structure (public, private, family-owned) shape the business’s governance.
2. Board of Directors: The board of directors is a group of individuals responsible for overseeing the company’s management and representing the interests of shareholders. They provide strategic guidance, make key decisions, and ensure the organization operates in alignment with its goals and values.
3. Organizational Resources: Organizational resources encompass the tangible and intangible assets a business possesses. These include financial resources, physical assets, intellectual property, technology, and human resources. Efficient utilization and management of these resources are essential for the business’s success.
4. Organizational Structure: The organizational structure defines how various roles, responsibilities, and functions are organized within the company. It specifies lines of authority, reporting relationships, and communication channels. A well-designed structure enhances coordination, decision-making, and efficiency.
5. Organizational Culture: Organizational culture refers to the shared values, beliefs, norms, and behaviors that shape the workplace environment. It influences how employees interact, make decisions, and approach their work. A strong and positive culture can enhance employee engagement, motivation, and overall organizational performance.
The external environment of a business consists of factors and influences that exist outside the organization and impact its operations, strategies, and overall performance. It can be broadly categorized into the general environment and the task environment.
1. General Environment: The general environment encompasses broader external factors that affect numerous industries and businesses. It includes:
a. Politico-Legal Environment: This refers to the laws, regulations, government policies, and political conditions that can affect business operations. It includes areas like taxation, trade policies, labor laws, and government stability.
b. Economic Environment: The economic environment involves economic conditions such as inflation, interest rates, economic growth, and unemployment rates that impact the overall business environment.
c. Socio-Cultural Environment: The socio-cultural environment involves societal norms, values, beliefs, demographic trends, cultural shifts, and consumer behaviors that influence businesses and their strategies.
d. Technological Environment: The technological environment pertains to advancements and innovations in technology that impact industries and businesses. This includes changes in digital technology, automation, and communication methods.
2. Task Environment: The task environment consists of specific external factors that directly affect a particular organization. It includes:
a. Customers: Customers are individuals or entities that purchase products or services from the business. Understanding customer needs, preferences, and behaviors is crucial for successful marketing and product development.
b. Suppliers: Suppliers provide the resources, materials, and inputs necessary for the business’s operations. Building strong relationships with reliable suppliers is essential for maintaining a steady supply chain.
c. Competitors: Competitors are other businesses operating in the same industry or offering similar products and services. Monitoring and analyzing competitors’ strategies and actions are important for maintaining a competitive edge.
d. Government: Government agencies regulate industries and businesses through policies, regulations, and laws. Adhering to legal requirements and maintaining a positive relationship with government bodies is crucial for compliance and smooth operations.
e. Pressure Groups: Pressure groups are organizations or individuals that advocate for specific social or environmental causes. They can influence business decisions and practices through public awareness campaigns and lobbying efforts.
f. Financial Institutions: Financial institutions such as banks provide funding and financial services to businesses. Access to capital and financial management plays a crucial role in a company’s growth and stability.
g. Strategic Alliances: Strategic alliances involve partnerships between businesses to achieve mutual benefits. Collaborations with other companies can provide access to new markets, technologies, and resources.