Introduction to business

Lecture 2
Components and scope of business
• The word “Business” includes all human
activities concerned with earning money. In
other words, business is an activity in which
various persons regularly produce or exchange
goods and services for mutual gain or profit.
 Components of business
• Business has the following components.
– Industry

– Commerce
 Industry
Industry is connected with the production and
preparation of goods and services. It is a
place where raw material is converted into finished
or semi‐finished goods, which have the ability to
satisfy human needs or can be used in another
industry as a base material.
In other words, industry means that part of
business activity, which is concerned with the
extraction, production and fabrication of products.
 Kinds of industry
• Primary industry
– Extractive
– Genetic
• Secondary industry
– Construction
– Manufacturing
– Services
 Primary industry
• Primary industry is engaged in the production o
r extraction of raw materials, which are used
in the secondary industry.
Extractive industry:
Extractive industries are those industries, which
extract, raise or produce raw material from
below or above the surface of the earth.
For example, extraction of oil, forestry,
agriculture, Mining of coal etc.
• Genetic industry: Genetic industries are
those, which are engaged in
reproducing and multiplying
certain species of animals and plants and
selling them in the market for profit.
• For example poultry farm, fishing
farm, diary farm, plant nurseries etc.
 Secondary industry
• These industries use raw materials and make
useful goods. Raw material of these industries
is obtained from primary industry.
– Constructive industry
– Manufacturing industry
– Services industry
• Constructive industry: all kinds of
constructions are included in this industry. For
example buildings, canals, roads and bridges
etc.
• Manufacturing industry: in this industry
material is converted into some finished good
or semi finished goods, for example textile
mills, sugar mills etc.
• Service industry: These include those
industries which are engaged in providing
services of professionals such as lawyers,
doctors, teachers etc.
 Commerce
• Commerce is the second component of
business.
• The term “commerce” includes all activities,
functions and institutions, which are
involved in transferring goods, produced
in various
industries, from their place of production to
ultimate consumers.
 Scope of commerce
• The scope of commerce can be explained as
– Trade
– Aids to trade
• Trade :
Trade is the whole procedure of transferring or
distributing the goods produced by different
persons or industries to their ultimate consumer
s In other words, the system or channel, which
helps the exchange of goods, is called trade.
 Types of trade
• There are 2 types of trade.
– Home trade
– Foreign trade
• Home trade: the purchase and sale of good
inside the country is called home trade. It is
also known as ‘domestic’, ‘local’, or internal
trade.
• It has 2 types
• Whole sale trade.
• Retail trade.
• Whole sale trade:
It involves selling of goods in large quantities
to shopkeepers, in order to resale them to the
consumers. A wholesaler is like a bridge
between the producers and retailers.
• Retail trade:
Retailing means selling the goods in small qua
ntities to the ultimate consumers.
• Retailer is a middleman, who purchase
goods from manufacturers or wholesalers
and provide
these goods to the consumers near
their houses.
 Foreign trade
• Trade or exchange of goods and services
between two or more
independent countries for
their mutual advantages is called foreign trade
. It is also called international trade.
• Foreign trade has two types:
– Import trade
– Export trade
• Import trade: when goods or services are
purchased from other country it is called
import trade.
• Export trade: when goods or services are sold
to any other country it is called export trade.
 Aids to trade
• Trade means buying and selling of goods, whereas, aids
to trade means all those things which are helpful in
trade. They include
– Banking
– Transportation
– Insurance
– Warehousing
– Agents
– Finance
– Advertising
– communication
 Aids to trade
• Banking: In daily business
routine, commercial banks and other
financial institutions help the seller and the
buyer in receiving and making payments.
• Transportation:
The goods which are manufactured in mills and
factories reach the consumers by different means of
transportation like air, roads, rails, seas etc.
 Aids to trade
• Insurance: The transfer of goods from one place
to another is not free from risk of loss. There is
a risk of loss due to accident, fire, theft etc. The
insurance companies help out the traders with
this problem through insurance policy.
• Warehousing: the manufacturers today produce
goods in large quantity. Therefore a need for
warehouses arises in order to store the
manufactured goods.
 Aids to trade
• Agents: they are the persons who act as
agents of either buyer or seller. They perform
these activities for commission.
• Finance: a large amount is needed to set up
the industry. Financial institutions provide
long term finance to the producers. The
producers alone are unable to manufacture
goods without financial help.
 Aids to trade
• Advertising: the consumer may sometime not
know about the availability of goods in the
market. The producer must sell his goods in
order to remain in business. Advertisement is
an easy way to inform large number of
customers about the goods. This can be done
through TV, newspaper, radio etc.
 Aids to trade
• Communication: The producers, wholesalers,
retailers,
transporters, banks, warehouse‐keepers,
advertisers and consumers live at different
place.
• Thus post office, telephone,
internet and other similar media is very useful
for promotion of trade and industry.