Meaning of Business

 Business is an economic activity as it is concerned with earning money and acquiring wealth.
 “Business means an enterprise engaged in production and distribution of goods for sale in the
market or rendering of services for a price”
 A decision-making organization involved in the process of using inputs to produce good and/or
provide services.
 Businesses exist to satisfy the needs and wants of people, organizations, and governments.
 Peter Drucker: the only purpose of a business is to create customers.

Characteristics
The following are the ten important characteristics of a business:

1. Economic activity:

Business is an economic activity of production and distribution of goods and services. It provide
employment opportunities in different sectors like banking, insurance, transport, industries, trade etc. it is
an economic activity corned with creation of utilities for the satisfaction of human wants.

It provides a source of income to the society. Business results into generation of employment
opportunities thereby leading to growth of the economy. It brings about industrial and economic
development of the country.

2. Buying and Selling:

The basic activity of any business is trading. The business involves buying of raw material, plants and
machinery, stationary, property etc. On the other hand, it sells the finished products to the consumers,
wholesaler, retailer etc. Business makes available various goods and services to the different sections of the
society.

3. Profit Motive:

Profit is an indicator of success and failure of business. It is the difference between income and
expenses of the business. The primary goal of a business is usually to obtain the highest possible level of
profit through the production and sale of goods and services. It is a return on investment. Profit acts as a
driving force behind all business activities.

Profit is required for survival, growth and expansion of the business. It is clear that every business
operates to earn profit. Business has many goals but profit making is the primary goal of every business. It is
required to create economic growth.

4. Risk and Uncertainties:

Risk is defined as the effect of uncertainty arising on the objectives of the business. Risk is associated
with every business. Business is exposed to two types of risk, Insurable and Non-insurable. Insurable risk is
predictable.
 Predictable factors are controllable to some extent, such as:
a) Taxes
b) Change in the volume of expected sales
c) Cost of supplies and equipment
d) Overhead costs
e) Salaries
f) Cost of goods and services offered

Unpredictable factors include:

a) Changes in trends and tastes of customers.
b) Impact of the local economy on customer base.
c) Any unexpected action taken by your competitors.
The calculation and management of the risk is vital to ensure the success of a business firm. Insurance and
Risk management helps in minimizing the risk associated with the business

5.Creative and Dynamic:

Modern business is creative and dynamic in nature. Business firm has to come out with creative ideas,
approaches and concepts for production and distribution of goods and services. It means to bring things in
fresh, new and inventive way.

One has to be innovative because the business operates under constantly changing economic, social and
technological environment. Business should also come out with new products to satisfy the growing needs
of the consumers.

6. Customer satisfaction:

The phase of business has changed from traditional concept to modern concept. Now a day, business
adopts a consumer-oriented approach. Customer satisfaction is the ultimate aim of all economic activities.

Modern business believes in satisfying the customers by providing quality product at a reasonable price.
It emphasize not only on profit but also on customer satisfaction. Consumers are satisfied only when they
get real value for their purchase.

The purpose of the business is to create and retain the customers. The ability to identify and satisfy the
customers is the prime ingredient for the business success.

7. Social Activity:

Business is a socio-economic activity. Both business and society are interdependent. Modern business
runs in the area of social responsibility. Business has some responsibility towards the society and in turn it
needs the support of various social groups like investors, employees, customers, creditors etc. by making
goods available to various sections of the society, business performs an important social function and meets
social needs. Business needs support of different section of the society for its proper functioning.

8. Government control:
Business organisations are subject to government control. They have to follow certain rules and regulations
enacted by the government. Government ensures that the business is conducted for social good by keeping
effective supervision and control by enacting and amending laws and rules from time to time.

Some important acts framed by the government include:

i. The Competition Act, 2002

ii. Foreign Exchange Management Act, 1999
iii. The Environment Act, 1986
iv. Indian Companies Act, 1956
v. Consumer protection Act

9. Optimum utilization of resources:

Business facilitates optimum utilization of countries material and non-material resources and achieves
economic progress. The scarce resources are brought to its fullest use for concentrating economic wealth
and satisfying the needs and wants of the consumers.

Before we describe business objectives, it is desirable to be a clear about related concepts, viz.,

 Vision

 Mission

VISION:

A Vision is a broad explanation of why the firm exists and where it is trying to lead.
A vision gives the organisation a sense of purpose and a set of values that unite employees in a common
destiny.

Visioning
One of the most important things to do in the preparation stage is to VISUALIZE things in your mind.

A Vision Statement
Says what you want out of Business.
Details principles and beliefs.
Gives you the power to create and design your business around your values.
In Summary
You have to have a plan for success!
It starts with a vision.
You get the vision by reaching each goal.
You reach goals by hard work, dedication, and perseverance.

Mission
A Mission statement outlines the fundamental purpose of the organisation.

A Mission statement incorporates four elements:

1. Customer needs, or what is being satisfied.
2. Customer groups, or who is being satisfied.
3. The company’s activities, technologies, and competencies, or how the firm goes about creating and
delivering value to customers and satisfying their needs.
4. The company’s concern for survival, its philosophy, its self-concept and its concern for public image.

Objectives :

No business can prosper in the long run unless fair wages are paid to the employees and customer
satisfaction is given due importance. Again a business unit can prosper only if it enjoys the support and
goodwill of people in general. Business objectives also need to be aimed at contributing to national goals
and aspirations as well as towards international well-being. Thus, the objectives of business may be
classified as;

A. Economic Objectives:

Economic objectives of business refer to the objective of earning profit and also other objectives that are
necessary to be pursued to achieve the profit objective, which include, creation of customers, regular
innovations and best possible use of available resources.

(i) Profit Earning:

Profit is the lifeblood of business, without which no business can survive in a competitive market.

(a) Creation of customers:

(b) Regular innovations:

(c) Best possible use of resources:

B. Social Objectives:

Social objective are those objectives of business, which are desired to be achieved for the benefit of
the society. Since business operates in a society by utilizing its scarce resources, the society expects
something in return for its welfare. No activity of the business should be aimed at giving any kind of trouble
to the society.

(i) Production and Supply of Quality Goods and Services:

Since the business utilizes the various resources of the society, the society expects to get quality goods
and services from the business he objective of business should be to produce better quality goods and
supply them at the right time and at a right price It is not desirable on the part of the businessman to supply
adulterated or inferior goods which cause injuries to the customers.

ii) Adoption of Fair Trade Practices:

In every society, activities such as hoarding, black- marketing and over-charging are considered
undesirable. Besides, misleading advertisements often give a false impression about the quality of products.
iii) Contribution to the General Welfare of the Society:

Business units should work for the general welfare and up -liftment of the society. This is possible through
running of schools and colleges better education opening of vocational training centres to train the people
to earn their livelihood, establishing hospitals for medical facilities and providing recreational facilities for
the general public like parks, sports complexes etc.

С. Human Objectives:

Human objectives refer to the objectives aimed at the well-being as well as fulfillment of expectations
of employees as also of people who are disabled, handicapped and deprived of proper education and
training. The human objectives of business may thus include economic well-being of the employees, social
and psychological satisfaction of employees and development of human resources.

(i) Economic Well-being of the Employees:

In business employees must be provided with good remuneration and incentive for performance benefits of
provident fund, pension and other amenities like medical facilities, housing facilities etc.

ii) Social and Psychological Satisfaction of Employees:

This is possible by making the job interesting and challenging, putting the right person in the right job and
reducing the monotony of work Opportunities for promotion and advancement in career should also be
provided to the employees.

(iii) Development of Human Resources:

Employees as human beings always want to grow. Their growth requires proper training as well as
development.

(iv) Well-being of Socially and Economically Backward People:

Business units being inseparable parts of society should help backward classes and also people those are
physically and mentally challenged

D. National Objectives:

Being an important part of the country, every business must have the objective of fulfilling national goals
and aspirations. The goal of the country may be to provide employment opportunity to its citizen, earn
revenue, become self-sufficient in production of goods and services, promote social justice, etc.

(i)Creation of Employment:

One of the important national objectives of business is to create opportunities for gainful employment of
people. This can be achieved by establishing new business units, expanding markets, widening distribution
channels, etc.

(ii) Promotion of Social Justice:

As a responsible citizen, a businessman is expected to provide equal opportunities to all persons with whom
he/she deals. He/ She is also expected to provide equal opportunities to all the employees to work and
progress. Towards this objectives special attention must be paid attentiion to weaker and backward
sections of the society.

(iii) Production According to National Priority:

Business units should produce and supply goods in accordance with the priorities laid down in the plans and
policies of the government. One of the national objectives of business in our country should be to increase
the production and supply of essential goods at reasonable prices.

(iv) Contribute to the Revenue of the Country:

The business owners should pay their taxes and dues honestly and regularly. This will increase the revenue
of the government, which can be used for the development of the nation.

(v) Self-sufficiency and Export Promotion:

To help the country to become self-reliant, business units have the added responsibility of restricting
import of goods. Besides, every business units should aim at increasing exports and adding to the foreign
exchange reserves of the country.

vi) Global Objectives:

Liberal economic and export-import policy, restrictions on foreign investments have been largely abolished
and duties on imported goods have been substantially reduced.

(i) Raise General Standard of Living:

Growth of business activities across national borders makes quality goods available at reasonable prices all
over the world. The people of one country get to use similar types of goods that people in other countries
are using. This improves the standard of living of people.

(ii) Reduce Disparities among Nations:

Business should help to reduce disparities among the rich and poor nations of the world by expanding its
operation. By way of capital investment in developing as well as underdeveloped countries it can foster
their industrial and economic growth.

(iii) Make Available Globally Competitive Goods and Services:

Business should produce goods and services which are globally competitive and have huge demand in
foreign markets. This will improve the image of the exporting country and also earn more foreign exchange
for the country

Classification of Business

Business activities are undertaken to satisfy human wants by producing goods or rendering services.
Two broad categories

(a) Industry: Industry is concerned with the production and processing of goods. This type of business
units is called ‘industrial enterprises’ which produce consumer goods as well as machinery and
equipments.

(b) Commerce: includes all those activities which are necessary for the storage and distribution of
goods. Such units are called ‘commercial enterprises’ which include trading and service activities like
transport, banking, insurance and warehousing.

Types of Industries

Industries are divided into three broad categories:

Primary industries
a) Extractive Industries:
Extraction of materials, sea and air such as mining, farming, fishing and hunting etc. Products of these
industries are used either directly for consumption such as food grains, fruits and vegetables or as raw
materials such as cotton, sugar-cane, etc.

b) Genetic Industries:

rearing and breeding of animals and birds and growing plants. Reproduction and multiplication is the main
activity in these industries, such as, agriculture, animal husbandry, dairy, poultry, pisciculture etc.

ii) Secondary industries

Manufacturing Industries :

A) Conversion of raw materials or semi-finished products into finished product are called manufacturing
industries. Cotton is converted into textiles

b) Construction Industries

The activities of Construction industries include erection of buildings, bridges, roads, railways canals etc.
Their output do not consists of movable goods. It makes use of the output of other industries like
brick,cement, steel etc

Tertiary sector (non-productive enterprises, e.g. trade, transport, banks)

The tertiary sector of industry involves the provision of services to other businesses as well as final
consumers. Services may involve the transport, distribution and sale of goods from producer to a consumer,
as may happen in wholesaling and retailing, or may involve the provision of a service, such as in pest
control or entertainment.

B) Commerce:

Commerce is the activity of distribution of goods and services to people.From an economic point of view,
the business of producing a commodity is not complete until it has reached the consumer. For carrying
these commodities to consumers certain services of an ancillary nature like transportation, banking,
insurance, etc. are necessary.

Commerce = Trade + Aids to Trade (or Auxiliary Services).

(a) Trade:

Trade refers to buying and selling of goods.

Trade is basically of two types:

(i) Home trade or domestic trade or internal trade.

(ii) Foreign trade or international trade or external trade.

Following is a brief comment on these two types of trades:

(i) Home Trade:

On the basis of scale of operations home trade may be – wholesale trade and retail trade. The wholesaler
buys goods in large quantities from manufacturers and sells them in small quantities to retailers. The
retailer ultimately sells goods bought from the wholesaler in very small quantities to the final consumer.

(ii) Foreign Trade:

Foreign trade refers to buying and selling of goods between two or more countries.

(b) Auxiliaries to Trade:

Activities which help in carrying out Trade/Trading Activity.Auxiliaries to trade means those services
which smoothen the flow of exchange between the trader and the consumer; by removing hindrances of
place, contact, time, risk, finance and information.

Following is a brief account of various auxiliaries to trade:

(i) Transportation:

Producers and consumers are usually wide apart. Transportation creates ‘place utility’ and brings the
goods from the place of producer to the place of the consumer. In fact, without transportation, trade would
not have been possible. Transportation is the mother of all trade.

(ii) Communication:

Because of distance between producers/traders and consumers, another problem arises which is that of
contact between the two-so that business deals could be finalized. Means of communication remove the
hindrance of contact. Letters, telephone ,emails etc. are means of communication between parties.

However, modern modes of communication like telex, fax, internet, e-mail etc. have revolutionized the
process of communication and have greatly aided trade to be done quickly and conveniently.
(iii) Warehousing:

There is usually a time-lag between production and consumption; because goods are produced in
anticipation of demand. During this period, goods have to be stored; so that these are made available to
consumers just right at the time of consumption. Warehousing (or storage) of goods removes this hindrance
of time and creates time utility.

(iv) Insurance:

There are many types of risks in business e.g. risk of loss of goods by fire, damage to goods in transit,
likely losses of destruction of business properties, risk of theft etc. Many business risks can be insured with
insurance companies, on payment of a normal premium. In case of foreign trade, risks are much more than
in case of home trade. Insurance removes the hindrance of risks and greatly facilities home trade and
foreign trade.

(v) Banking and Finance:

No business is possible without adequate finances. Finances are needed by all-producers, traders and
consumers. Banking and finance companies greatly facilitate trade by providing timely finances to
producers, traders and even consumers (to buy goods) and remove the hindrance of finances. Role of
banking is still greater in case of foreign trade; where banks provide assurance to exporters towards
payment of price by importers.

(vi) Advertising:

Advertising, in fact, removes the greatest hindrance of knowledge; and creates information or knowledge
utility. In fact, without consumers having knowledge of useful goods and services available in the market for
the satisfaction of their needs; no exchange of goods is possible between producers and consumers.
Advertising brings the existence of goods/services to the knowledge of consumes; and greatly facilitates
trade

CLASSIFICTAION BASED ON COMPETITIVE STRUCTURE

Perfect Competition:

Def. a market structure in which a large number of firms (businesses) produce the same product.
Only reason to choose one firm over another is the PRICE
Free entry and exit to industry
Homogenous product – identical so no consumer preference
Large number of buyers and sellers – no individual seller can influence price
Sellers are price takers – have to accept the market price
Perfect information available to buyers and sellers

Oligopoly – Competition amongst the few

Industry dominated by small number of large firms

Many firms may make up the industry
High barriers to entry
Products could be highly differentiated – branding or homogenous
Non–price competition
Price stability within the market - kinked demand curve?
Abnormal profits
High degree of interdependence between firms
Examples of oligopolistic structures:
Supermarkets
Banking industry
Medicinal drugs
Broadcasting

Monopoly
Monopolistic Competition

Duopoly