Concept of Business:
A business is an economic activity which is concerned with the production and distribution of goods and services to the society. It helps to earn profit by serving and satisfying the members of society. In simple words, the term business refers to business or the state of being busy for earning profit or generating wealth.
The real concept of business is to create a customers by providing them satisfaction they expect. Customer satisfaction is the main basis for exchange of goods and services. Therefore, a business can earn profit only through proper services to its customers.
According to L.H. Haney → “Business may be defined as a human activity directed towards producing and acquiring wealth through buying and selling goods.”
Business involves regular and recurring purchase and sale of goods and services with the purpose of earning profit through the satisfaction of human needs. Generally there are two types of concept of business:
A) Traditional concept: The traditional concept is a product-oriented concept, which gives emphasis to the sells of goods produced by business organization rather than to fulfill the needs, interest and wants of customers. In earlier days, the soul and exclusive objective of business was to maximize profit at any cost. Thus, the classical or traditional concept always focus on the money activities of the business.
B) Modern concept: Modern concept is customer-oriented concept i.e guarantee, warrantee, free service etc. So, that business firms produce goods and services by studying and identifying the needs and wants of customers. It states that business earn profit through customer satisfaction. Business without customers is not possible. Business should earn profit with social responsibilities. It should clear about the welfare of society and consumers.
Characteristics/features of Business are:
a: Creation of utilities: Business creates utilities of goods and services to fulfill need and expectations of customers. Business involves many component and each component creates utility such as form, place, time, risk, finance, etc. The manufacturers create form utility, transportation, creates place utility, warehousing creates time utility, insurance fulfills security utility, etc.
b. Production, distribution and exchange: Production, distribution and exchange of goods and services are the part of business activity. manufacturing organizations involve in production of goods and services from raw material. similarly, trading organizations distributes goods and services to final consumers.
c. Continuous process: Business is a continuous process. it is not one-time financial activity. A business organization should deal goods and services on regular manner. for instance, if a person sold his old motorcycle to purchase raw one should not be considered as a business.
d. Risk and uncertainty: It is known that, ‘there is no business if there is no risk.’ In business there is risk of loss due to uncertain future. There ae many factors that may affect on business activities of an organization like introduction of new product of similar nature; change in consumer taste, habit, fashion and desire; shortage of raw material, natural calamities changes in government policy etc.
e. Profit Motive: As economic activity, the primary objective of business is to earn profit and maximize wealth. Profit is essential for the survival and growth of a business. It is the reward to the investors in return of their investment. The ability of business measured by its profit earning capability.
f. Consumers satisfaction: In competitive market economy, satisfaction of consumers is taken as one of the important requirement of business. Business organizations produce and supply goods and services to consumers and obtain return only by satisfying them. for the satisfaction of the consumers, business organizations need to supply right quantity and quality of goods.
Components and scope of business:
A. Industry: Industry involves production of goods and service through the use of raw materials. some industries are involved in production of industrial products whereas others for the production of consumers’ goods. on the basis of nature of product, industry may be sub-classified into the following four types:
i. Genetic Industries: The word genetic means heredity. Genetic industries involve the production of goods from plants and animals. They collect various types of plants from the forest or nurseries, which are required for the production of medicines, scent, perfumes, etc.
ii. Extraction industries: These industries are involved to extract mineral resources from land, water, and air. They involve for collection or extraction of materials required for the production of finished goods. Generally, they supply raw materials for the production finished goods.
iii. Construction industries: These industries involve in construction of infrastructure development work such as construction of roads, bridge, buildings, dams, canals etc. Each construction industry is specialized in certain development work. They use products of manufacturing industries in construction work like cement, rod, bricks, stones etc.
iv. Manufacturing industries: Manufacturing industries creates form utility of goods and services. These industries produce finished goods from raw materials and semi-finished goods through some specific process. Generally, they collect raw materials from genetic and extraction industries to produce finished products.
These industries may be sub-classified into four types such as;
- Analytical industries
- Synthetically industries
- Processing industries
- Assembling industries
B. Commerce: Commerce is one of the important components of business. It is concerned with the buying, selling and distribution of goods and services to the market. The concept of business is not completed only with the production of commodities particular region. It is essential to distribute those products to consumers of different places. To distribute products from the manufacturers to the consumers for the purpose of the exchange, commerce is playing crucial role.
i. Trade: Trade is concerned with buying and selling of goods and services. It is an important branch of commerce and engaged in exchange of commodities between producers and consumers. Trade may be into the following two types:
a. Home trade: It is known as domestic trade or internal trade. Under this trade, buying and selling activities are done within the boundary of the nation. Both the buyer and seller are from same country. Generally, trading activities are done to different regions of a nation.
b. Wholesale trade: Trading activities performed by the wholesale enterprises is wholesale trade. Wholesalers watches good in large quantity a time directly from manufacturers and sell them to retailers in small units. In some cases, goods are sold to industrial users and industrial buyers.
c. Retail trade: In retail trade, small traders play important role. retail traders provide door to door services to the consumers at different places. Generally, they purchase goods from the wholesaler in small quantities and sell them to the ultimate consumers.
ii. Foreign trade: Foreign trade: foreign trade is also known as international trade. Under this trade, buying and selling activities are done with do trading enterprises for customers of foreign countries. Both the buyers and sellers are from two different countries.
a. Export trade: It is concerned with selling goods to foreign countries. Seller is known as exporter. Export trade plays important role for distribution of surplus products to friendly Nations and to earn foreign currency.
b. Import trade: It is concerned with purchasing goods from foreign countries. The purchaser is known as importer. Import plays an important role for fulfilment of basic and other needs of the people.
c. Entry-port trade: it is also one of the part of international trade. it refers to import in good from the suppliers of one country for the purpose of exporting them directly to the consumers of other countries
C. Service Enterprises: Besides auxiliaries of trade, many business organizations are directly involved in service sector business. The development of science and technology initiatives to develop service business. The emergence of globalization of business contributes for huge development service business. Service sector business covers many areas such as education, hospitals, hotels, travel agencies, trekking agencies, computer software companies, TV & film entertainment, cable network etc.
Function of Business:
A business organization is established for a definite objective. For achievement of pre-determined objective, it performs various functions which are interrelated and interdependent to each other. The major functions business are as follows:
1) Production: Manufacturing organizations are involved in production of goods and services Generally, they purchase raw material from supplier, processes in manufacturing plants and produce finished goods. The production functions involve various activities like product planning, procurement of raw materials, storage of raw materials and proper layout of plant and machineries.
2) Distribution: Distribution of goods and services is an important function of business. It fulfill place utility. Trading organizations are involved in distribution of goods and services from manufactures to final consumers. This function is necessary to fulfill the demands of the customers living in different places. Distribution functions involve various activities like buying, selling, advertising, etc.
3) Investment: Investment of capital is an important element of business function. It is also known as life-blood of business. It is required for the proper use of human and other physical resources of the business organization. It is the function of business to manage sufficient capital in terms of equity capital or loan and utilize it in systematic manner.
4) Organizing: Organizing functions is necessary for performing business activities in systematic and effective manners. In every business, organization there should be the system of proper division of work, rule and regulations, working procedures.
5) Creating employment: Organizing function is necessary for performing and creation of employment opportunity is the main function of business organization. Business organization needs various types of employee like skilled, semi-skilled and unskilled. They need employees both in managerial and in technical jobs. Some business organizations are involved in production and distribution whereas some are in customers’ service functions.
6) Research and development: Research and development is essential for every business organization to make itself up to date with the changing environment of market and society. It helps for innovation of new concept, model, size, design, structure, knowledge and technology. It contributes for generation of new products and services.
7) Promotional work: Promotion of goods and services is an important function of business. It is the process of introducing products among the
consumers. According to nature of products and requirements, various means of promotion can be used.
8) Human resource management: Human Resource Management involves all the activities necessary for manpower management. It refers to the philosophy, policies, procedures and practices concerned with management of employees of the organization. It is the process of acquisition, development, motivation and maintenance of human resources.
Objective of business:
| Objectives of Business | |||
| Economic Objective | Social Objective | Human Objective | National Objective |
| Economic gain | Supply of goods in time | Welfare of employee | Utilization of resources |
| Market understanding | Supply of quality goods | Return to investor | Payment of tax |
| Innovation | Supply of goods in proper price | Payment to creation | Generation of employment |
| Productivity | Creation of employment | Satisfaction of consumers | Balance development |
| Enhance market share | Maintain social environment | Welfare to community | Develop self sufficiency |
A. Economic Objective: Economic objectives focus on satisfying and fulfilling demands of customers by supplying goods and services with a purpose to earn profit. The fulfillment of economic objective is essential for survival and growth of business. The economic objectives of business are as follow:
i. Economic gain: Every business organization wants to earn profit by satisfying the needs of consumers. It is the reward to the investors. A business must earn profit to meet its factors of production and service. It is essential for survival of business in the market.
ii. Market standing: Market standing is concerned with long term activities of a business organization in market. For this purpose, satisfaction of current customers and searching of new customers in new territory is necessary. For long-term economic growth and return, a business organization needs to perform many activities like improve quality and quantity of products, minimize cost, develop new marketing strategy
iii. Innovation: In competitive business environment innovation is taken as one of the objectives of business. It is concerned with development of new concept idea, model design, structure, knowledge and technology. It is supportive for advancement in production and distribution of goods and services.
iv. Productivity: Productivity is concerned with best utilization of organizational resources through efficient management system. Resources involve manpower, money, material and machines. The proper use of resource helps to minimize wastage and maximize quantity of products.
v. Enhance market share: One of the objectives of business is to increase market share. It is essential to consider the changing needs and expectations of consumers. For this purpose, it is necessary to take necessary measures for continuous improvement of quality of products and services,
B. Social Objectives: A business organization is established with basic objectives of providing to the society. It performs business in the society and also grows in society. Therefore, it needs to fulfill social obligations. It needs to consider social tradition, rules, regulation, moral and ethics while doing business.
i. Supply of goods in times: The main objective of business is to supply
goods in the proper time to fulfill the needs of customers. It is the responsibility of businesses to supply goods in the market on a uniform basis by developing a network of distribution.
ii. Supply of quality goods: It is the responsibility of business quality goods to the customers. It has to maintain the minimum standard prescribed by the concerned department of the Government. Adulteration, supply of low quality goods, other unfair business practices must be avoided.
iii. Supply of goods in proper price: Price is the method of measurement of the value of products. It is one of the important components, which is considered by the customers while taking purchase decisions. business should supply goods and services at proper price. Necessary actions should be taken for minimizing the cost of products.
iv. Creating employment: Business is one of the important sources of employment. It creates employment opportunities both in management and technical works. The scope of business is vast and covers various areas like, trade, auxiliaries of trade and service sectors. Every activity of business requires various types of skilled, semi-skilled, and unskilled employees.
v. Maintaining social environment: Another objective of business is to maintain a social environment. It needs to take necessary precautions for safety and protection of the social environment. It has to control pollution, noise and other factors, which can affect public health.
C. Human Objectives: The prominent objective of business organization is to fulfil the interest and expectation of the people directly involved in business activities of the organization. Along with investors, various stakeholders have interest in business such as consumers, suppliers, creditors and community. Some major human Objective of business are as follows:
i. Welfare of employees: Employees directly involved in production and distribution activities of the business. They have direct interest in the welfare and development of the business. They spend their time and efforts in regular working hours. It is the objective of business to provide financial as well as welfare facilities.
ii. Return to investors: Investors invest capital and take risk. They invest fixed capital for establishment of business and working capital for day to day business activities. They expect a proper rate of return on investment and appreciation in the value of wealth of business.
iii. Payment to creditors: Creditors are the suppliers who supply raw material or finished goods on credit. They are also interested in the business. It is the objective of the business to make payment to the creditors in proper time. The satisfaction of creditors is supportive for uniform and smooth.
iv. Satisfaction of consumers: In a competitive market economy, satisfaction of consumers is taken as one of the objectives of business, Business organizations produce and supply goods and services to consumers and obtain return only by satisfying them. For the satisfaction of the consumers, business organizations need to supply right quantity and quality of goods.
v. Welfare to communities: The communities at large are also expecting welfare activities from business. They take indirect interest for the development of the business. A business organization should involve in some community welfare activities of the society.
D. National objective: Business organizations are the indispensable part of nation. They do business by considering national rules, regulation, norms, and value. They contribute for the development of socio-economic activities of the country. The main objective of business is to promote economic development of the country through proper use of resources. The following are the national objectives of business
i. Utilization of resources: Business organizations need to utilize national resources consisting of human, mineral, water, agriculture, forest and other natural resources. The proper utilization of resources is necessary for the economic development of the country.
ii. Payment of tax: One of the objectives of business organizations is to pay tax to the government on the basis of their business turnover and profitability position. Such tax involves value added tax, income tax, custom duty, clearing charge etc. It helps to maximize government revenue.
iii. Generation of employment: Generating employment opportunity is one of the objectives of business. Business is taken as an important source of employment. Business organizations need skilled, semi-skilled and unskilled employees both in management and technical jobs. Development of industry, commerce and service sector enterprises generate employment opportunity to the people.
iv. Balance development: The objective of business is to focus on balance development of all the regions and community of the country. It is essential to establish production plants and other business units in different regions of the country. It is supportive for proper utilization of resources available in different regions. The proper use of resources helps to promote economic activities in all the regions of the country
v. Develop self-sufficiency: The development of business activities is helpful to fulfill the needs of the people. The development of business activities minimizes dependence on others for the supply of goods and services. It also helps to save foreign currency by minimizing imports.
Importance of Business:
Business is one of the important economic activities of human beings. It plays an important role for the economic development of the country and for maintaining the living standard of the people. All the developed European countries, USA, Japan are developed today due to the development of their business. Business is the main source of revenue and means to fulfill the needs of people. The common importance of business is as follows:
A. Economic development: Business is playing an important role for the economic development of the nation. The development of industrial activities facilitates the utilization of resources such as human, mineral, agriculture, water, forest and other natural resources of the country.
B. Creation of utilities: One of the benefits of business is that it creates utilities of goods and services to fulfill needs and expectations of customers. Business involves many components and each component creates certain utility such as form, place, time, risk, finance, etc.
C. Utilization of resources: Business plays an important role for proper utilization of resources. Some countries are rich in natural resources, some in mineral resources, others in human and science and technology. The proper utilization of resources is necessary for the economic development of the country.
D. Generation of employment: Generating employment opportunities is one of the importance of business. Business is taken as an important source of employment. Business organizations need skilled, semi-skilled and unskilled employees both in management and technical jobs.
E. Self-sufficiency: The development of business activities is helpful to fulfill the needs of the people. The development of business activities minimizes dependence on others for the supply of goods and services. It also helps to save foreign currency by minimizing import.
F. Earning foreign currency: Business the main source of earning foreign currency. The development of industry and commerce is helpful for the production of goods and services. Foreign currency can be earned by exporting surplus products and services to foreign countries. The development of export trade brings favourable balance in payment.
G. Sources of government revenue: Business is an important source of government revenue. The development of business activities contributes more to maximize government revenue. Government imposes various taxes to business organizations such as income tax, custom duty, value added tax, clearing charge, royalty etc. Government invests such revenue for betterment of social work.
H. Provide investment opportunities: Business provides investment opportunities to the investors in manufacturing commercial and service sectors. The development of business activities provides more scope to get return on investment and also for maximization of business value and wealth.
I. Supply quality goods: All business organizations need to maintain quality of their products in order to satisfy customers and to survive in a competitive market. Emphasis should be given on supply of proper quality of product at a reasonable price.
J. Development of international relationship: Business is the most important medium for the development of international relation. For the promotion of business activities, many people visit different countries. They share and exchange culture, tradition, knowledge and technology among the peoples of friendly nations.
Social Responsibility of Business:
A) Towards Investors: Investors are the owner of the business, They invest capital and bear risk of loss. They invest fixed capital for establishment of business and working capital for day to day business activities. They also take active part in the management or through representatives as directors. The main responsibilities of business towards the investors are as follows:
a. Safety of investment: The main responsibility of business toward investors is to ensure safety of capital investment. Investors invest capital and take risk of loss in business. They invest capital for establishment of business organizations and also for day to day business activities.
b. Fair and regular return: Investors invest capital for establishment and day to day operation of business activities. They expect proper return on investment to investors in terms of share of profit or dividend. For this purpose, management needs to accomplish economic objectives effectively,
c. Correct and regular information: As the owner of a business, investors have direct interest in each and every activity of business organization They are expecting regular and fair information of all the activities of business. Therefore, it is the responsibility of business to provide correct and regular information of all the business activities to investors.
d. Participate in decision making: In Joint Stock Company form of business, there is the provision of more number of shareholders. They are scattered in different parts of the country. The company is managed by representatives of shareholders known as the board of directors.
B) Towards Consumers: Consumers are the main source of revenue of a business organization. In a competitive market environment, consumer’s satisfaction is the main obligation of business. Consumers are the key figures in the market for the growth and development of business. A business organization can perform business activities.
a. Supply quality goods: It is the responsibility of business to supply quality goods to consumers. Quality is directly concerned with health and hygiene of consumers. Business organizations need to take necessary measures to maintain level quality of products as specified by the recognized national and international institutions.
b. Supply goods in time: Supply of goods and services in proper time is essential to fulfill the needs of consumers. Business organization has responsibility to develop a network of distribution of goods and services. The practice of making frequent shortages of goods must be avoided. It helps to satisfy potential consumers.
c. Supply goods in proper price: Price is the basis of measuring value of goods and services. Management needs to take necessary measures for proper utilization of organizational resources. The proper use of resources helps to minimize wastage and cost of products. Price of products should be determined by including cost of products and reasonable margin of profit.
d. Provide after sale service: Some durable products can be used for a long period of time. They need repair and maintenance on the basis of time and requirement. For such products there must be the provision of after sale service.
e. Provide scope of research: Research and development helps for innovation of new concept, model, size, design, structure, knowledge and technology. It contributes to the generation of new products and services. It helps to draw the attention of consumers and ultimately for expansion of business activities.
C) Towards Employer: Employers can be managers and workers. Their co-operation is essential to achieve business objectives. Special attention should be given to them to make them happy. Social responsibility towards employers are:
a. Fair salary and wages: The workers lend their heart and soul to business to produce goods and services. Therefore, they must be paid fair wages and salary according to the ability, skills, status, nature of job, rick factor, place and cost of living.
b. Provide security to employment: A business must guarantee the security of their employment so as to ensure their loyalty towards business.
c. Ensure safe and healthy working environment: A business should provide safe and healthy working conditions to its employees. Safe and healthy working environment boost their moral and productivity.
d. Welfare activities: Management is expected to provide welfare facilities and social securities such as housing, medical care, recreation, insurance and pension schemes.
e. Participation in management: Employees should be allowed to participate in decision making process at all level of management.
D) Towards Community: Since a business is a social institution. It most be responsible towards its society. Where it exists, grows and survives. The Social responsibility of business towards community are as follows:
a. Utilize resources optimally: A business must optimally utilize the indigenous (local) resources and provide the benefits to the concerned member of the society.
b. Protect environment: A business must protect the environment where it operates. Therefore, it must handle problems of pollution and solid wastes. At the same time it must also launch programmes for creating awareness for healthy environment.
c. Provide employment opportunity: Since a business operates in a local community. It must provide employment opportunity to local people.
d. Social and cultural value: Business should preserve social and cultural values, norms and practice.
E) Towards government: Business is regulated by government. Its activities are promoted by government regulations. Social responsibility of business towards government are:
a. Comply with government rule and law: The first and foremost responsibility of business towards government is to comply with the public policies, regulation and law.
b. Tax payment: Business should pay all taxes to the government as per law. It should be honest in paying tax. It should pay taxes in time.
c. Help to solve national problems: The government of a nation may face many problem such as civil conflict, poverty, illiteracy, natural disasters and so on. In such situation, a business must sincerely help the government by lending its hands.
d. Provide essential business information and advice: The government may often acquire important informations advice from business. A business must provide such information and advice to government to frame favorable policies, plan and law for business.