1.

6 SCOPE OF BUSINESS
Business activities can be classified into industry and commerce. While
industry produces goods and services, these are distributed through
commerce. Further, commerce encompasses trade and auxiliaries to trade
There is a close interrelationship between trade, industry and commerce.
Each one of them functions with the support of others. Commerce helps
industry before and after production through the purchase of materials and
sale of finished products. Further more, production of goods and services
is
meaningless unless these are distributed among the consumers through
commerce. Trade through sale and purchase of goods and services maintains
a smooth flow of commerce, thereby supporting
industry. Finally, industry
provides goods and services for distribution giving rise to commerce. As
industry develops, trade and commerce grow. Industry provides the base
for commerce and commerce serves as the backbone of industry. In this
manner, industry, commerce and trade are interdependent, as shown is
Chart 1.1.

Chart 1.1 Interrelationship between Industry, Commerce and Trade

Industry

Commerce Trade
 Introduction to Business Environment
1.17
Board classification of
business activities has been summarised in Chart 1.2.
Chart 1.2

Classification of Business Activities

Industry Commerce

Trade Aids to Trade

Extractive Genetic Manufacturing Construction

Domestic
Foreign
Analytical Synthetical Processing Assemblingg

Wholesale Retail

Imports Exports Entrepot

(Re-export)|

Transportation Warehousing Banking nsurance and Advertising Marketing

Banking Research
1.6.1 Industry
It is that branch of business which is concerned with the
production of goods
and services. Industry depicts the processes by which useful
things extracted
are
from environment, transformed, processed, fabricated and converted into other
products. It is of following types.
(1) Extractive Industries: Such industries extract or draw out products from
natural resources like
earth, soil, water, air, etc. The products drawn by
these industries are provided by nature and procured by human
beings.
The products of these industries can be used by manufacturing and
construction industries. Oil exploration, fishing, mining, quarrying, etc.
are some examples.

(2) Genetic Industries: Genetic or parentage industries involve reproduction

of certain species of plants and animals. Forestry, plant breeding nurseries,
cattle breeding farms, poultry farms, etc. are some examples.
(3) Manufacturing Industries: These industries transform raw materials
and semi-finished products, thus giving form utility. Manufacturing
industries supply most of the products for daily use. These industries
supply goods what may be known as factory production. These industries
may be analytical, synthetical, processing and assembling. The examples
are oil refinery, cement, textiles and automobiles respectively.
1.18 Business Environment

(4) Construction Industries: Such industries are engaged in the

construction of buildings, bridges, dams, canals, etc. by using the
products ofextractive industries, e.g., stone, marble, bricks, etc. They also
use the products of manutacturing industries such as cement, iron and
steel, wires etc. These industries create the basic infrastructure for the
development by using the fabrication process. In case of construction
industries, products are not taken to the market for sale. Rather, these
are made or fabricated at the fixed sites.

1.6.2 Commerce
In includes all such activities that enable a free and smooth flow of goods and
services from producers to the consumers, bridging the gap between them. It
involves an organized system or process for the interrupted exchange of goods
and services by removing the following hindrances.
(1) Person (through Trade): The producers and ultimate consumers are
not situated at the same place, who is often unknown to each other.
Here,
traders are the persons who can bridge the gap between them. These
traders like wholesalers, retailers and mercantile agents establish contact
between sellers and buyers.
(2) Plan (through Transportation): Goods are often produced at places
far away from the points of consumption. The barrier of distance can be
removed through the means of transportation,
providing place utility.
(3) Time (through Storage): Warehouses perform the function of storage
balancing the time gap between production and consumption,
generating time utility. The need for storage arises as the goods are often
produced in anticipation of demand. With storage facility, the goods can
be made available when the consumers demand themn.
(4) Risk (through Insurance): During transportation and
storage, goods
may be subject to theft or damage due to fire, flood, earthquake, storm,
riot, etc. Here, insurance overcomes this hindrance
of loss to the goods.
by covering the risk
(5) Exchange (through Banking):
economical arrangement for
Exchange of goods requires safe and
payment as per schedule of time and place.
Money removes this hindrance of exchange by serving as a medium of
exchange. Here, banking system facilitates exchange by providing credit
is various forms.

(6) Knowledge (through Advertisement):

Exchange of
goods is not
possible
unless sellers bring these goods to the
knowledge of
buyers. Advertisement and sales promotion provide theprospective
necessary
information to the potential buyers about the
various products.
utility and features of
 Introduction to Business Environment
1.19

1.6.3 Trade
Trade is the branch of commerce involving the sale, transfer or
exchange of goods
and services. It is the nuclears of commerce, because all business activities revolve
around transfer or exchange. Trade provides the solid foundation upon which
the superstructure of commerce has been raised.
(1) Domestic Trade: Domestic or internal or inland or home trade is
concerned with the sale and purchase of goods within the boundaries of
a country. Here, the
payment for the goods sold is made in domestic
currency either in cash or through the banking system. Domestic trade
may be whole sale or retail trade. The former involves the sale or purchase
of goods of a specific variety in bulk, serving as a link between the
producers and the retailers. The latter involves the sale of goods to the
ultimate consumers after purchasing the same from the wholesalers or
manufactures, thereby serving as a last link in the chain of distribution.
(2) Foreign or International Trade: Foreign trade is concerned with the
exchange of goods and services between persons or organisation
operating in two or more countries. It involves the use of foreign
currency and international means of transport. It may be classified as
import or export trade. It can also be entrepot or re-export trade
involving the import of foreign goods so as to re-export them.

1.6.4 Aids to Trade

In addition to trade, commerce also includes several auxiliaries services that
facilitate exchange of goods and services. These include:

(1) Transportation: Through transportation, goods are carried fromm

producers to traders and finally to the consumers. It beings speed and
efficiency in exchange by bridging the geographical distances.
Transportation thus, provides place utility. It gives the wheels to the
commerce and facilitates trade throughout the world.
(2) Storage: Warehousing or storage facility enables the holding and
preservation of goods until these are ultimately consumed. In this
manner, warehousing matches supply with demand. It makes available
the reasonably produced goods throughout the year. In the absence of

warehousing, producers would have to dispose of the goods as soon as

there are produced. Thus, warehousing provides time utility.
(3) Insurance: Insurance facilitates trade by providing a cover against the
loss or damage of goods in the process of transit and storage. Suitable

packaging can also be used to protect the goods during transit and

storage.
(4) Banking: Banks help in the sale and purchase of goods by providinga
convenient and safe mode of payment. They also make available credit

to business firms for expansion of trade.

1.20 Business Environment

(5) Advertising: Advertising and publicity brings goods and services to the
knowledge of potential buyers by highlighting the distinguishing
features and utilities of different products. As a result, consumers can
get better value for their money.

= Check Your Progress

1. Explain the meaning and nature of business environment.
2. Discuss the significance and aims to study the environment of business.
3. Define the term 'business environment. What are the different types of
environment?
4 Explain the various elements of internal environment of business.
5. Distinguish between micro and macro environment. Explain the factors that
affect the external environment of business.
6. What are the various components of external environment? Discuss the
environmental factors influencing business.
7. Explain the economic and non-economic factors affecting the business.
8. "The term environment refers to the totality of all the factors which are
external to and beyond the control of individual business enterprises and
their management." Explain.
9. "Business environment is very complex, with heterogeneous elements in
the environment.
10. "Sociological environment affects and gets affected by the economic
environment of business." Comment.
11. Explain socio-cultural environment and polico-legal environment.
12. Define socio-cultural environment? What factors constitute this
environment? Explain each of them.
13. Define the term 'business. Describe the
main characteristics of business.
14. Enumerate the branches of business.
Explain the various types of industry.
15. Commerce is the sum total of all those
activities which are engaged in the
removal of the hindrances of person, place, time,
Elucidate. exchange and knowledge.
16. Explainthe scope of business
highlighting the interdependence among
industry, commerce and trade.
17. What do you mean by the term trade?
Discuss the various aids to trade.
2.4 MANAGING DIVERSITY IN SECTORS
Tounderstand the concept of managing diversity in sectors, it is necessary to
know about the concept of diversity and how the diversity is found in sectors,
Diversity means differentiation. As we know that there is diversity in nature
of the people, habits of the people, culture of the society, language of the people
in different states, and case of the people etc. Sectors are mainly classified in
three ways generally.
(1) Primary Sector: It is mainly related with agriculture and its allied
activities like fishing, mining, quarrying, animal husbandry
or
agricultural farming, etc.
(2) Secondary Sector: It is known as manufacturing sector in which all types
of industries are included in it, which convert raw material into finished
products like small scale industries, cottage industries, large scale
industries, etc.
(3) Tertiary Sector: It is called as service sector in which all types of services
like banking, insurance, transport, communication,
shipping corporation
etc. are included.

Other forms of sectors are:

(a) Public Sector: It is established, managed and controlled by the
Government agencies.
(b) Private Sector: It is controlled and managed by the private sectors.
To know about diversity in sectors, we can conclude that there is lot of
diversity in different sectors of an economy and country's people.
Managing diversity is a business process that extends beyond the training
environment to a company's business planning and operational
practices.
Industrial Environment
2.9
According to
"Taylor Cox, managing diversity effectively is essential for the
success of organisation. It has many benefits which are
an

(1) Lower Costs: In many organisations, works of

explained below:
different
to different
regions, case, culture and language. As people belong
becomes more diverse, lack of organisation
integration of workers from different
cultural backgrounds leads to higher cost. If this
well, employees of an organisation will not feeldiversity
is not managed
comfortable in doing
their task or work. Theretore, it is
necessary to manage diversity in an
effective manner so that different people can work
feel more comfortable in their work environment andefficiently and they
give better results
to an organisation. It will lead to
lowering the costs.
(2) Better Staffing: To manage cultural diversity successfuly in an
organisation, provide better staff or employees than others. Better
staffing can fulfill or can complete their duties timely or efficiently.
Some companies become favoured employers for women and ethnic
minorities.
They will wind the competition for the best personnel.
(3) Marketing Advantage: Organisation that manage multicultural issues,
gain an insight into markets consisting of minority groups and women.
(4) Creativity: Diverse background group of people can be more creative
than homogeneous background of people. They can share their beliefs
and values around which they can express their differences and get more
knowledge about different things and may develop more creativity in
their thoughts. If all people are of same nature, habits and culture, they
will be able to share nothing with others. They will have lack of creativity
and their thought will not develop.

(5) Problem Solving: Diverse group of people or heterogeneous group can

produce better decisions through a wider range of prospective and
though more analysis of problems and issues.
and
(6) Flexibility: Ability to manage diversity increases the flexibility
to internal and
adaptability of an organisation. More quick response
external issues became possible. Quicker response to environmental
organisation.
to
change provides a competitive advantage
an

in work force. It must also

Management must know about the diversity
know about the of dealing with such diverse workers or employees.
way
efficiency.
increase the creativity and
managed properly, diversity
it can
labour
diversity may increase the cost production,
of
Failure to manage
turnover and interpersonal conflicts.
between employees
(7) Productivity: Individual differences or diversity
innovation
are essential component
for high productivity, creativity,
can perform well and they can
and competitive advantage. People
the management between the work of
become more productive when
in group of workforce will be better.
an organisation and diversity
2.10 Business Environment

will also improve the

(8) Organisational Reputation: Managing diversity
is done by the spirit of team work
reputation of an organisation. If work
with diverse group of people, it will be more profitable for an
that does not value
organisation. On the other hand, if organisation
an

as out of touch. It is bad for an

diversity, will increasingly be seen
organisation reputation or image.
decrease the
(9) Risk Mitigation: Managing diversity successfully may
unfair treatment with different cast or group of people. It may also
decrease the discrimination with different races, class, culture or

different language people.

(10) Recruitment and Retention: As we know diverse or ditterent groups
of people are working in different places nowadays due to lack of
in their home town. For example, in Kerala al1
job opportunities
people are fully literate or educated, but they are mass unemployed.
So, Kerala's people work in different places where there is
to diverse
requirement for educated people whether they belongs
communities or different states.

Framework for Managing Diversity

According to Taylor Cox and Stacy Blake, it consists of three related tasks which
are described here:
(1) Managing Cultural Diversity: In order to develop more diverse and
effective workforce for the success of a company/organisation, it is
necessary to manage cultural diversity. It will help the organisation by
providing an advantage in recruitment, retention and motivation of
workers. A culturally diverse workforce will maximise the organisation's
ability to deal with a culturally diverse market place.
(2) Managing Individual Diversity: After managing cultural diversity,
organisation must also learn to manage individual diversity. Within each
culture, each individual may be different in many ways like religion,
customs, caste, nature, knowledge, etc. Therefore, the American saying.
"Different stroke for different folks" need to be applied carefully and
selectively.
(3) Managing Workforce Diversity: Today's world is more competitive
and more globalised. As business enterprises become more global,
more challenges of diversity will occur. The success of an
organisation depends upon the ability of managing complicated
workforce diversity in such as manner, so that organisation can
achieve their goal. Many problems like miscommunication, mistrust,
poor cohesiveness and stereo-typing (conservative) may arise. These
problems can be solved by a well-integrated system of organisation
development.
Industrial Environment
2.11
Chart 2.1: Nature of Workforce Diversity

Gender Size Schedule Caste/Tribe

Disabled Workforce Age

Eduction Productivity

A strong designed programme for management of diversity will consist of the

following
(1) Strong and visible support from top management should be provided.
(ii) Telecommunication opportunities for non-conventional workers and
foreign workers who do not wish to migrate.
(iii) Flexible programmes for recruitment, training, retention and upward
mobility of a diverse workforce.
(iv) Career development and promotion to maximise the upward mobility
of diverse employees to overcome the glass ceiling that tend to hold
them back.
(v) Support groups that can help to build minority network for the support
2oandguidance of applicable employees.
success for an organisation
o Managing diversity in sectors provided
and workforce
which deals with divers culture, individual diversity
coordination between
diversity, Management should set up a way of
etc.
the organisation and the divers' workforce.