Unit 1 | INTRODUCTION TO BUSINESS
Concept of business
The word business means ‘a state of being busy’. Human beings are generally involved in two activity i.e economic activity and non-economic activity. Being busy in economic activity is known as business. Such as a person involved in commercial activity for his livelihood or profit. Being busy in non-economic activity is not regarded as a business. For example, a mother caring for her child is not business but if the same mother involves caring for other children as a profession for earning is known as business. An organization engaged in commercial, industrial or professional activities to earn profit through the satisfaction of costumers is known as a business.
Business involves regular production, distribution, and exchange of goods and services to earn profit by satisfying the costumers. The concept of business can be further divided into two concepts as follows;-
a. Traditional concept
The traditional concept of business explains that business is to earn profit through production and marketing products. The main motto of business is to maximize profit as per the traditional concept.
b. Modern concept
Customer satisfaction is the center point of the modern concept of business. It says that profit can be earned by maintaining social responsibility and satisfying the customer. Modern business is the social-economic institution that is always responsible for society according to a modern concept.
Characteristics/ features of Business
Business is a human economic activity that deals in production, distribution, and exchange of goods and services. To earn profit by satisfying the customers. In the light of this statement the characteristics of business can be explained as follows;-
1. Human economic activity
Business is an economic activity of human beings. It qualifies all-important criteria of economic activities such as the creation of utility, a satisfaction of human wants, regular dealing and economic gain. The business can be taken as an activity which can be executed only through human effort.
An entrepreneur is a person who starts a new business and bears the whole risk for the retire of his job. He assembles necessary resources, establishes the business concerned and operates the business. Therefore, the entrepreneurial ability is a must for starting any business.
3. Production, Distribution, and exchange
Business activities are related to production, distribution, and exchange of goods and services to satisfying consumers for earning profit. Production of goods and services for self-consumption is not a business.
4. Regular dealing
Business is a continuous job buying and selling of goods and services just for once in life in not called a business. It must be conducted regularly or in a continuous manner throughout the life of a business organization.
5. Profit motive
Only those production, distribution and exchange activities that have profit motive can be termed as a business. Profit is essential to reward the factors of production. It is also essential for survival, growth, and expansion of a business. No private entrepreneur will start a business unless he hopes to earn a profit.
6. Creation of utility
Utility refers to the value or usefulness for which there exists price. Business creates different utilities in goods for consumers. They are form, place, time, promotion, risk, etc utilities. These utilities provide satisfaction to consumers.
7. Risk and uncertainty
Risk refers to the likelihood of incurring loss rather than earning profit. Uncertainty refers to the chances of occurring unfavorable situations that may cause loss to the business. No business is free from risk and uncertainty. Entrepreneurs establish and operate the business to make a profit under the conditions of risk and uncertainty.
8. Element of courage
The business consists of risks and uncertainties. To bear risk, one must possess courage. Only those who are courageous can do business and earn a profit. In addition to this, the ability to operate a business efficiently is equally essential to avoid risk and uncertainty to earn a profit.
9. Element of Investment
Investment of capital is an unavoidable element of business because no business can be started or run without the investment of sufficient capital. So, capital can be taken as the lifeblood of the business.
Components of Business
Businesses can be divided into three components. Such as a) Industry, b) Commerce, and c) service
The term industry refers to the production of goods through the utilization of various resources. It is the process of extraction, conversion, and fabrication of products by the use of human resources and technological power. The types of industries are explained below:-
a. Primary industry
Industries engaged in farming, fishing, oil extraction and all other farms that extract natural resources. So that they can be used and produced by other businesses is called primary industries. It can be classified into types:-
1. Genetic industry
Those industries which reproduce plants and animals for generating value are called the genetic industry. For example nurseries of plants, meat, and eggs from a poultry farm, milk, and leather from animal husbandry, wool and meat from sheep, fish from viniculture, etc
2. Extractive industry
Extractive of materials and products having a commercial value from nature. Such as earth, air, climate, soil, etc is called extractive industries. For example coal, gold, oil, gas, fishing from the sea, electricity from air and rivers, crops from soil and climate.
b. Secondary industry
Secondary industries are involved in transforming raw materials or semi-processed materials into finished goods. They are explained as follows:-
1. Construction industry
Industries that are involved in the construction development works are known as construction industries. These industries construct roads, bridges, buildings, dams, canals, etc
2. Manufacturing industry
Manufacturing industries are involved in converting or transforming raw materials or semi-processed materials into finished goods. They create form utility in goods and services. They can be classified into four types as follows:-
3. Synthetic industries
Synthetic industries employee synthetic process in the production of goods which means two or more raw materials are mixed and processed together to formed one finished product. For example, cement is produced by mixing limestone, red soil, stones, chemical, gypsum, and coal.
4. Processing industries
Under processing industries, raw materials are processed through different stages of production to obtain the final product. For example in the jute industry, raw jute is passed through different stages of spinning, weaving, sewing, dying to produce jute bags.
5. Assembling industries
Assembling industries are those industries where different components or parts already manufactured by other industries are brought together and assembled to produce the final product. For example, automobiles, computers, television, mobile phone, watch, bicycles, etc are the products of assembling industries.
6. Analytical industries
Analytical industries are those industries which employee analytical process in the production of goods. It means it breaks down the raw materials into two or more products. For example, curd, cheese, panir, cream, butter, sweets, ghee, etc are produced from single raw material milk.
Commerce is the act of buying and selling goods and services between buyers and sellers. It includes the exchange of goods or services between two persons or parties. The modern concept of commerce includes all the activities connected with the transfer of goods and services from the producer to the final consumer. So, commerce includes the act of buying and selling of goods as well as other auxiliary activities to trade like transporting communicating, banking, warehousing, etc. it can be divided into two groups as follows:-
a. Trade :
The word ‘trade’ denotes the activity of buying and selling or exchanging goods and services between people or countries. It refers to the process of exchange, sell or transfer of goods for money or other goods. It is an integral (main, important) part of the business in which the ownership of goods is transferred from one person to another for profit. There are two types of trade:-
1. Home trade
Home trade is also known as domestic or internal trade which is considered within the geographical boundary of the country. It is conducted between different states, towns, and cities in a country. It can be further divided into two types:-
- Wholesale trade:
Under wholesale trade, large quantities of goods are directly purchased from the producer and sold to the retailer in small quantities. The person involved in the wholesale business is called wholesaler who acts as a middle man between the manufacturer and the retailer. A wholesaler deals in a specific product in bulk quantities.
- Retail Trade:
Retail trade refers to the act of buying goods from a wholesaler and selling them to the final consumers in small quantities. The person involved in this business is known as a retailer who deals in a wide variety of goods.
2. Foreign Trade:
The trade conducted between two or more countries is called foreign or international trade. In other words, it denotes the act of buying and selling goods between citizens, business organizations or governments of different countries. A country that purchases goods is known as an importer and a country that sales the goods are known as an exporter. Foreign trade can be divided into the following three types:-
- Import trade:
When a country purchases from another country than it is known as import trade. For example, Nepal purchases machinery products from India.
- Export Trade:
If the goods are sold to a foreign country than it is called export trade. For example, Nepal exports handicraft items to Germany.
- Inter-import trade:
If the goods are imported from one country and again exported to another country than it is called an inter-import trade. I another word, when trader purchases from one country and sells the same goods to another country is called an inter-import Trade. For example, Nepal purchases high-quality basmati rice from Bangladesh and again sells the same rice to America.
Auxiliaries of trade:
Auxiliaries of trade are necessary for the smooth running of commercial activities. In this trade, physical goods are not produced but it helps in the buying and selling process. Without the auxiliaries of trade, it would be difficult to conduct the business. So, they are also called aids of trade. For example banking, insurance, communication, warehousing, advertising, etc are essential auxiliaries for a business which are explained as follows:-
No one can think of a modern business without banking. It helps for the smooth operation of business by providing short term and long term loans, making payments to suppliers, remitting money from one place to another, etc.
Packaging helps to create the product’s image with the help of promotion. It also makes easy for handling the goods. It helps to recognize the product for the consumers. In modern days the packaging of goods has emerged as an important business.
Distribution is a chain of middle man between the producers and consumers to facilitate the supply of goods. Wholesaler, retailer, stockiest, agents, broker, etc. helps in effective distribution.
Warehousing is concerned with securely storing products to meet the time gap between production and consumption of goods. It creates time utility in goods. Cold storage centers, godowns, etc are examples of warehousing.
The process of caring for goods and products from producers to the place of consumption is called transportation. It creates place utility in goods and products. it can be carried out by the different modes of transport like roadways, airways, railways, waterways, pipelines, etc.
Trade involves several risks such as losing goods during transport and storage, destroying goods by fire, flood, and theft. The insurance covers the risk of loss through financial compensation to the trader. It creates risk-utility in goods and properties. It can be categorized into insurance, fire insurance, and marine insurance.
Advertising is the process of educating customers to create the image of goods and services for increasing sells and profit. It creates awareness of the availability of various goods and services in the market. There are several media of advertising such as newspapers, radio, television, the internet, etc.
Communication means transferring messages, knowledge, experience, and ideas between one person to another person. It reminds buyers about the goods and services. The means of communication can be in the form of letters, newspapers, magazines, radio, television, internet, website, etc.
The business which is established for providing services instead of producing physical goods is known as service enterprises. A hotel doesn’t sale a room but provides accommodation to stay for a few days. The service industry plays an important role in modern business. It includes education, medical, accounting, information, legal services, etc. which are explained as follows:-
a. Educational services:
Education service institutions like schools, universities, etc provide education facilities to educate the person living in society.
b. Medical services:
Hospitals, clinics, nursing homes, health posts, etc provides medical services to needy people.
c. Information services:
Information service organizations like consultancies, banks, reports of different organizations, etc provide information to the citizen of the country.
d. Legal services:
A legal service provider provides legal service facilities to needy people. For example lawyers, judges, courts, etc provides different legal services.
e. Accounting services:
Accounting service institution provides accounting facilities or software to the business organization. For example auditors, bookkeepers, charter accountants, etc provides accounting facilities to the business organization.
Tourism industry helps the visitors and tourists for the sight-seeing for the scenic beauty of the particular places. Travel organizations, tourist guides, hotels, etc. provides tourism facilities in a particular location.
Hotels provide accommodation to stay for a few days to visitors and tourists. It provides various facilities that a human being needs to stay for a few days. For example hotels, motels, etc. provide accommodation to the visitors.
Functions of business:
Business organizations are established to achieve predetermined goals which are only possible through effective functions. It performs various functions which are interrelated to each other. All the functions should be properly integrated to achieve the objectives of the organization. The major functions of the business are explained as follows:-
1. Production function:
A production function is one of the major functions of the business which is concerned with the transformation of inputs like men, material, money, machine, and method into a specific product. It involves various functions like product planning, procurement of raw materials, storage function, plant location, and layout, etc. generally, manufacturing is involved in the production of goods.
2. Distribution function:
Distribution Is concerned with the distribution of goods and services from the place of production to the place of ultimate consumption. It involves various functions like buying, selling, storing, risk-bearing, etc. all the functions should be done properly to distribute the goods in the right place at the right time.
3. Marketing function:
Marketing function includes distribution of goods, determination of reasonable price, advertising, transportation, warehousing, insurance and obtaining market information. This function is done to satisfy consumers.
4. Organizing function:
Organizing function is concerned with the accumulation and coordination of required resources such as:- men, material, money, machine, method (5m). to produce goods and services business organizations must coordinate and control all these factors of production.
5. Financing function:
Finance is the lifeblood of the organization. Business cannot be operated without finance. The financing function is related to gathering sufficient funds for the smooth operation of the business. It includes the estimation of the required budget, allocating fixed and working capital, etc
6. Research and development function:
Research and development function is another important function of the business. It is carried to adjust the changing environment of business. It is only possible through conducting the research program which provides up to date information as per the interest of consumers. It helps to develop new designs, models, sizes of the product, etc to satisfy the consumers.
7. Employment function:
Various types of employees are required for conducting business activities like trade, production, service, etc. business creates employment opportunities to the members of the society. They also have to solve the unemployment problems of the nation.
Objectives of business:
Objectives are the end desired to be achieved. Does it indicate what we want to get? What do we want to give? And where we want to go? Every human effort has a certain objective.
According to Urwick, “ Earning of profit cannot be the objectives of the business any more than eating is the objective of living.”
According to another famous scholar named Appleby, “The enterprise that is coldly and solely motivated by the making of money seldom fares well in the long run.”
From the above definition, it is clear that apart from earning a profit every business should have some other objectives as well. The objectives of the business are multiple and can be classified into three categories which are described below:
A. Economic objectives:
Economic objectives of a business are related to money, wealth, change and development, etc. every business has certain economic objectives which are explained as follows:-
1. Earning profit:
Earning profit is the most economic objective of any business. Profit is an essential factor to reward the factor of production. It is the reward that goes to the businessman for bearing the risk. It is essential for survival, growth expansion of a business. So, every business should have an objective of earning profit by satisfying the consumers.
2. Production of goods and services:
Production of goods and services is another economic objective of business to fulfill the needs of consumers. While producing the goods and services, the producer has to consider the purchasing power, needs, wants, tastes and preferences of the consumer.
3. Creation of customer:
Another important economic objective of the business is to create customers. Customers can be created by satisfying their needs with the right quality of goods and services at the right place, at the right price and at the right time. Similarly, the business can create customers by offering something new or unique which the competitors do not offer. So, they are satisfied and the number of customers.
Innovation refers to the development of a new product or improving an existing product in terms of design, quality or some other features. It also helps in improving the production process and technology to built the competitive business environment, those businesses will be successful and long-lasting which innovate continuously both in terms of product and process.
B. Social objectives:
Business is a social institution; therefore, it must have social objectives to fulfill social obligations. Social objectives refer to the objectives of serving the society. According to Henry Ford, “Service first and profit next should be the motto of every businessman.”
Some social objectives are as follows:-
1. Supply of quality goods and services:
The most important social objective of the business is to supply quality goods and services at a reasonable price to society. It should not produce inferior or hazardous goods which will be against business ethics. Every businessman must study the needs and wants of consumers and provides quality goods to them.
2. Avoidance of profiteering and anti-social practices:
It is never argued that businesses should not earn the profit. Earning profit is desirable but profiteering is not. To promote the welfare of society and customer, a business should not involve in anti-social trade practices like adulteration, creating artificial scarcity, black-marketing, etc. involvement in such anti-social activities puts the business in trouble.
3. Providing employment:
The business employs a large number of people of the society and E Enhance their purchasing power and living standard. A business should employ the person suffering from social injustice, it should also provide reservations for employment to the women, disabled people, people with low income and people belonging to scheduled. Castes, tribes, etc
4. Utilizing the scarce resources properly:
Resources are always scarce and businesses must aim for the effective utilization of such resources provided by society. No business is free to damage or pause the depletion of natural resources.
5. Avoiding social nuisances:
Environmental pollution caused by a business is a social nuisance because they harm the people and the ecosystem. A business should be responsible for the environmental pollution and the effects resulting from them. Every business should avoid such social nuisances and maintain cleanliness, public health and let everyone and everything lives peacefully.
C. Human objectives:
Human activities of business involve satisfying the needs and expectations of people associated with the business. Various groups of people like- workers, investors, consumers, etc contribute to the success of the business and therefore, it should also take care of the needs and expression of these peoples. Major human objectives of a business are explained as follows:-
1. Fair deal to employees:
Employees work day and night and lead a business to earn maximum profit. Therefore, every business should aim to provide various facilities and benefits such as attractive wages and salaries, bonus, housing facilities, education facilities, etc. it should also provide regular training to the workers so that they can enhance their skill, ability which is beneficial to both the employees and employer. It should also involve employees in the decision-making process of the organization.
2. Satisfaction to shareholder:
A business should aim to provide the satisfaction to the shareholders by providing the information on the business matter regularly rate of return on their investment.
3. The satisfaction of consumers:
A business should aim to provide satisfaction to the consumer by providing quality goods and services as per the needs, wants, preferences and purchasing power of the consumer. Those businesses can survive which is capable of providing consumers satisfaction.
4. Help to government:
Governments help a business by formulating appropriate policies, providing security, supplying public utilities like electricity, drinking water, telephone, etc. therefore, every business should help the government to solve various social and environmental problems. The business should create enough employment opportunities and help the government to solve the unemployment problem.
Importance of business:
Business not only fulfills our basic needs of food, cloth, and shelter, etc but also enhances our quality of life. Therefore, business is the most important human activity. In the light of the above statement the importance of business are explained as follows:-
1. Fulfillment of human wants:
Human wants are unlimited and keep unchanging. Business fulfills such human wants through the production and supply of goods and services. It provides simple to complex goods at a reasonable price and satisfies the wants and desires of the human being. In the absence of business activities, human wants remain unfulfilled.
2. Improvement of quality of life:
Business improves human life in two ways. Firstly, it provides high-quality goods and services to the people required for their enjoyment, comfort, and health. Secondly, it offers employment opportunities to the people by which they can generate income and improve their quality of life.
3. Utilization of natural resources:
Every nation has certain valuable natural resources like minerals, water, gas, oil, fertile land, green forest, etc. business identifies such natural resources, extracts and converts them into goods and services for human consumption. In the absence of business activities, resources of a nation remain unused.
4. Employment generation:
Business creates employment opportunities for a large number of people in any country. During the production process, different manpower is required which are employed by the business organization. Business is one of the main areas for generating employment in any country.
5. The economic development of a country:
The economic development of a country is highly defined by the development of industry and commerce. Industries utilize various natural resources available in the country and export the surplus products to foreign countries to earn foreign currency which increases the national income of a country. Furthermore, the development of banks, and the financial institution, insurance companies, transport, and communication help for the economic development of the country.
6. Earning of foreign currency:
Business is an important source of earning foreign currency. Foreign currency can be earned by exporting goods to foreign countries which can again be used in importing necessary goods and services for the economic development of a country.
7. Increase in government revenue:
Business organizations pay different kinds of taxes to the government. Besides, the registration and renewal charges also increase revenue to the government. Therefore, business is the main source of government revenue.
The business helps a country to be self-sufficient. It produces almost all types of goods and services needed in the country which helps to reduce the import. A country no longer has to depend on other countries and can enhance self-respect as well.
9. Fostering international relations:
Business is one of the important means of establishing good international relations. People of different countries come in contact with each other during a business transaction. This helps to share the views, ideas, culture, tradition, technology, etc. business helps to build up government to government relationship which is essential to maintain peace in the world.
10. Promoting national unity:
Due to the growth of the business, people of one village, town, village, town, district, zone or region come in contact with each other. They get the opportunity to share their ideas, experience, culture, tradition, etc. as a result; the good relationship is established between them which promotes national unity.
Social Responsibility of Business
The responsibility of business to pursue the goals of society is known as the social responsibility of business. In other words, the obligation or liability of the business to fulfill the goals or expectations of society is known as the social responsibility of business.
Business is a social institution and it is operated within the society for the people and by the people living in society. It utilizes natural resources in the production and distribution of goods and services. It operates with the help of society and supports various sections of society. Therefore, it has a particular obligation towards a society which is known as the social responsibility of business.
A business should consider the interest of different sections of the society such as investors, consumers, employees, community, government, etc. for example creditors grant credit facility, suppliers supply raw, material, the government provides security, shareholders invest capital and workers work day and night to make them successful. These groups have certain expectations from the business. Hence, the social responsibility of business is concerned with fulfilling their expectations towards these interest groups.
Social responsibility is essential to improve and build up the image of the business, to create a better social environment to provide, economic benefits to the nation. so that the business is accepted by customers, employees, government, and society.
Some popular definitions of social responsibility of business are as follows:
According to Keith Davis and Blomstrom, “refers to the obligation of decision-makers of the business to take actions which protect and improve the welfare of the society as a whole along with their interest.”
According to Robbins and Decenzo, “social responsibility is a firm’s obligation to pursue long term goals that are good for society.”
From the above meaning and definition, it can be concluded that business has a responsibility towards different interest groups and its obligation to fulfill the needs and expectations of these interest groups can be termed as a social responsibility of business. Service first and profit next should be the motto of every business organization.
The important social responsibilities towards different interest groups are explained as follows:-
Social responsibility of business towards investors:
Shareholders are the owners of the business who invest capital and bear the risks. They invest capital for the regular operation of business activities. The following are the main social responsibilities of business towards shareholders or owner or investors:-
- Utilizing the fund and other resources with wastages for the growth of a business.
- Providing a fair adequate return on shareholder’s investment.
- Supplying regular and accurate information about business affairs and a result of the organization.
- Providing equal organization to all the shareholders to participate in the management of the business as required by the law.
Social responsibility of business towards consumers:
Consumers are the king of the market. A business operation is meant for consumers. consumers support the business by purchasing goods and services provided by the business. So, a business should also fulfill the responsibilities of consumers.
- Understanding consumers’ needs, wants taste and preferences through market study and taking necessary steps to satisfy them.
- Supplying quality products and services regularly at a reasonable price.
- Avoiding unfair trade practices like profiteering, adulteration, creating artificial scarcity, using defective weights and measures.
- Hearing and handling consumers’ problems and grievances(complaints).
- Conducting research and improving the quality of goods and services and introducing new products.
- Providing after-sales services in case of durable and technical products.
- Providing information about the changes introduced by the business.
- Providing prompt and fair customer service through polite and courteous treatment to them.
Social responsibility of business toward employees and workers:
Employees and workers are the greatest assets for all businesses. Businesses cannot be operated alone by investors and owners only. It needs the help of employees and workers. Employees and workers work down to dusk to make the business successful. Therefore, a business should also fulfill the following responsibilities towards employees and workers:-
- Paying reasonable remuneration and other financial benefits to improve their living standards.
- Providing job security and creating healthier and comfortable working conditions.
- Providing welfare facilities like housing, medical services, educational facilities and so on.
- Providing opportunities for training, promotion and carrier development.
- Offering participation in decision making and profit-sharing programs.
- Creating a cordial relationship between management and workers.
- Allowing employees to form unions and developing good relationships with union leaders.
- Hearing and handling the grievances of employees and workers.
Social responsibility of business towards the community:
The community represents a group of people in the immediate surroundings of the business. These groups of people also have certain expectations from the business. A business should serve the community in different ways. The success of the business depends upon the support and good wishes of community members. Therefore, a business has following social responsibility towards its community:-
- Protecting the environment from all kinds of pollution by adopting anti-pollution measures.
- Providing financial helps to the educational institutions, hospitals, libraries, clubs, etc for their operation.
- Utilizing the resources of the community optimally.
- Conserving scarce resources and developing its alternative whenever and wherever possible.
- Providing maximum employment opportunity to the people of the community and helping weaker, backward and underprivileged groups of the society.
- Sponsoring social and cultural functions are organized within the community.
- Promoting the social values and norms in the community.
Social responsibility of business towards government:
The government is the partner of all businesses. It plays an important role in creating favorable conditions for the establishment, operation, and growth of the business by formulating policies and developing necessary infrastructure. Similarly, it also provides security to the business. Therefore, the business has the following responsibilities towards the government.
- Paying taxes regularly and honestly.
- Following the rules, regulations, and laws of the country.
- Supporting the government in solving national problems such as- unemployment, poverty, illiteracy, regional disparity, etc.
- Adopting fair dealings in foreign trade to maintain the image of the country around the world.
- Providing information and advice to the government whenever required.
- Supporting the government to improve the quality of life of the people.