Business organization and

environment

 Business is an important institution in society. Be it for the supply of goods or

services, creation of employment opportunities, offer of better quality life,
or contribution to the economic growth of a country,
 the role of business is crucial. So the first question arises in anyone’s mind is
what really a business is ? The following definition is an attempt to provide
appropriate answer.
cont

 “A Business is nothing more than a person or group of persons properly

organized to produce or distribute goods or services for a value/ monetary
gain.
 The study of business is the study of activities involved in the production or
distribution of goods and services-buying, selling, financing, personnel etc
 K. Ashwathapa defined business “ as a Complex field of commerce and
industry in which goods and services are created and distributed in the
hope of profit within a framework of laws and regulations
cont

 Understanding the Business :

 To understand any business the critical step is to explore all the factors
related to business and properly judging its impact on the business.
 There are many factors and forces which have considerable impact on
any business.
 All these forces come under one word called environment. Hence
understanding the business means understanding its environment.
Environment refers to all external forces which have a bearing on the
functioning of business.
cont

 From the micro point of view, a business is an economic institution, as it is

concerned with production and/or distribution of goods and services, in
order to earn profits and acquire wealth.
 Different kinds of organizations
 (i.e., sole tradership, partnership, joint stock company and co-operative
organization) :
cont

 Whatever may be the nature and scale of operations, a business enterprise

possesses the following characteristics
❑ Deals in Goods and Services : The first basic characteristic of a business is that it
deals in goods and services. Goods produced or exchanged, may be
consumers' goods, such as bread, rice, cloth, etc. or producers' goods such as
machines, tools, etc.
The consumer goods are meant for direct consumption, either immediately, or
after undergoing some processes, whereas the producers' goods are meant for
being used for the purposes of further production.
Producers’ goods are also known as capital goods.
Services include supply of electricity, gas, water finance, insurance, transportation,
warehousing, etc.
cont

❑ Production and/or Exchange : Every business is concerned with production

and exchange of goods and services for value. Thus, goods produced or
purchased for personal consumption or for presenting to others as gifts do
not constitute business, because there is no sale or transfer for value.
For example, if a person cooks at home for personal consumption, it is not
business activity. But, if he cooks for others in', or restaurant and receives
payment from them, it becomes his business.
cont

❑ Creation of form, time and place utility : All business activities create utilities
for the society.
i. Form utility is created, when raw materials are converted into finished
goods and services.
ii. Place utility is created, when goods are transported from the place of
production to the place of consumption.
iii. Storage of goods creates time utility. This helps in preserving the goods,
when not required and making them available, when demanded by the
consumers.
cont

 Regularity and Continuity in Dealings : Regularity of economic transactions

is the essence of business.
 There should be continuity, or regularity of exchange of goods and
services for money. An isolated transaction cannot be called a business.
For example, if a person sells his flat and earns some profits, it cannot be
called a business. But, if he purchases and sells flats regularly to earn his
livelihood, it will be called his business.
cont

 Profit Motive : Another important feature of a business activity is its

objective. The chief objective of a business is to earn reasonable profits or
'surplus' as it is called in case of public enterprises.
 The survival of a business depends upon its ability to earn profits.
 Every businessman wants to earn profits, to get return on his capital and to
reward himself for his services. Actually, profit is the spur that helps in the
continuation of the business. Profit is also essential for growth.
 Recreation clubs and religious institutions cannot be called business
enterprises, as they have nothing to do with the profit motive.
cont

 The scope of business is very wide. It should not be confused with trade. ‘
 Trade' simply denotes purchase and sale of goods, whereas 'business'
includes all activities from production to distribution of goods and services.
 It embraces industry, trade and other activities like banking, transport,
insurance, and warehousing which facilitate production and distribution of
goods and services.
 According to F.C. Hooper, "The whole complex field of commerce and
industry, the basic industries, processing and manufacturing industries, the
network of ancillary services : distribution, banking, insurance, transport
and so on, which serve and inter-penetrate the world of business as a
whole, are business activities
cont

 The business activities may be grouped under two broad headings,

 (1) Industry and
 (2) Commerce.
 A business undertaking, which deals with growing, extracting,
manufacturing, or construction is called an industrial enterprise.
 On the other hand, a business undertaking, which is concerned with
exchange (buying and selling) of goods and services, or with activities that
are incidental to trade, like transport, warehousing, banking, insurance
and advertising, is called a commercial enterprise.
cont

 Industry : The activities of extraction, production, conversion, processing of

products are described as industry.
 The products of industry may fall in any one of the following three
categories
❑ Consumers' Goods : Goods used by final consumers are called consumers'
goods. Edible Oils, Cloth, Jam, Television, Radio, Scooter, Refrigerator, etc.
come under this category
❑ Producers' Goods : Goods used for the production of other goods are
described as producers' goods. Machine tools and machinery used for
manufacturing other products come under this heading. These are also
called capital goods.
cont

❑ Intermediate Goods : There are certain materials, which are the finished
products of one industry and become the intermediate products of other
industries.
A few examples of this kind are the copper industry, aluminum industry, and
plastic industry, the finished products of which are used in manufacturing
electrical appliances, electricity wires, toys, baskets, containers, and buckets
cont

 industrial activities may be classified into

i. Primary industry may be either extractive, or genetic, and
ii. secondary industry may be either manufacturing, or construction
iii. Service industry
cont

PRIMARY INDUSTRIES
i. Extractive Industries : They extract, or draw out products from natural
sources, such as earth, sea, air. The products of such industries are
generally used by manufacturing and construction industries, for
producing finished goods. Farming, mining, lumbering, hunting, fishing,
etc, are some of the examples of extractive industries.
ii. (ii) Genetic Industries : Genetic means parentage, or heredity. Genetic
industries are engaged in breeding plants and animals, for their use in
further reproduction. For breeding plants, the nurseries are typical
examples of genetic industries.
cont

 the activities of cattle-breeding farms poultry farms and fish hatchery

come under the category of genetic industries.
 SECONDARY INDUSTRIES
 (i) Manufacturing Industries : These are engaged in producing goods
through the creation of form utility. Such industries are engaged in the
conversion, or transformation of raw materials, or semi-finished products
into finished products. The products of extractive industries generally
become the raw materials of manufacturing industries. Factory production
is the outcome of manufacturing industry.
cont

 (iI) Construction Industries : They are concerned with the making or

construction of buildings, bridges, dams, roads, canals, etc. These
industries use the products of manufacturing industries, such as iron and
steel, cement lime, mortar, etc. and also the products of extractive
industries, such as stone, marble etc.
 The remarkable feature of these industries is that their products are not
sold in the sense of being taken to the markets. They are constructed and
fabricated at fixed sites.
cont

 (v) Service Industry : There are several services such as transport, banking,
insurance and warehousing, which are very important for satisfying human
needs. They facilitate the production and distribution of business activity. A
large number of business firms are engaged in transport, insurance and
storage of goods and provision of banking and financial facilities to
business units. Such firms are said to be engaged in service industries.
 Commercial occupations deal with the buying and selling of goods, the
exchange of commodities and distribution of finished products.
 James Stephenson has defined commerce as an organized system for the
exchange of commodities and the distribution of finished products.
cont

 Commerce links producers and consumers.

 The main object of commerce, is to ensure smooth distribution of goods
and services to satisfy the wants to consumers.
 It is the sum total of all those activities, which are concerned with the
transfer of goods and services from the producers to the consumers.
 Thus, it includes exchange of goods and the services, which facilitate
exchange of goods.
 These services are transport, banking, warehousing, insurance and
advertising. Both trade, as well as aids to trade (i.e., services which
facilitate trade) bridge the gap between producers and consumers.
cont

 Commerce is classified into two different categories namely:

 Trade
 Auxiliary to trade
cont

 Trade is an essential part of commerce. It involves selling and buying

goods and services.
 There are two types of trades namely - Internal and External Trade.
 Internal Trade: It refers to the selling and buying of goods or services within
the geographical contours of a country.
 Internal trade is also known as domestic trade or home trade.
 Internal trade is divided into two types:
 Retail trade and Wholesale trade.
cont

 External Trade: External trade is referred to the selling and buying of goods
or services beyond the geographical contours of the country. In external
trade, the market is vast.
 External trade is of 3 types:
 1. export trade,
 2.import trade, and
 3. entrepot trade.

cont

 Auxiliary To Trade
 In terms of business, the term “Auxiliary to Trade '' refers to all those
activities which provide support to performing activities related to trade
and industry. In fact, the auxiliary to trade provides a facilitating base to
industry and trade. Such activities include insurance, banking,
warehousing, advertising, and communication.
cont

 Interrelationship Between Industry, Trade, and Commerce

 The three branches namely Industry, Trade, and Commerce are associated
with each other.
 Each branch is dependent upon the other for the achievement of the aims
and objectives of the business.
 For example, industry refers to the production of goods and services, trade
refers to the sale and purchase of products, and commerce refers to the
arrangement for their distribution.
 Industry can only succeed if goods are marketed, and without the production
of goods, trades and commerce are not possible. Hence, trade provides
necessary support to both industry and commerce. Therefore, industry, trade,
and commerce are interrelated to each other and cannot be operated
individually. Service facilities also provide necessary enhancement to trade
cont

 AIDS TO TRADE: Trade or the exchange of products includes

several obstacles, which are alleviated by auxiliaries or extra supports
called Aids to Trade.
 Aids to trade are all actions that assist the exchange of goods and
services, whether directly or indirectly—they help alleviate the problems
associated with trade.
CONT

 Some examples of aid to trade include

i. transportation,
ii. communication,
iii. banking,
iv. warehousing, insurance,
v. salesmanship, advertising, mercantile agents, trade promotion groups
inside a country, and global organizations promoting international
commerce.
vi. These vital auxiliary services guarantee that commodities are delivered
from producers to consumers in a timely and orderly manner
cont

 1. Transport
 Transport is the transfer of products and persons from one location to
another. It makes trading more accessible by assembling and distributing
items—products are produced in one area and used in another.
 Through transport, consumers can obtain a wide range of items at cheap
costs, encourage the specialization of business operations, break down
distance barriers, and generate location usefulness
 Additionally, it broadens the market and helps to neutralize prices in
various locations. As a consequence, products are distributed more
equitably across far-flung places.
cont

 RESEARCH ON DIFFERENT MODES OF TRANSPORT , THEIR ADVANTAGES AND

DISADVANTAGES
cont

 furthermore, rapid and cost-effective modes of transportation, such as

trains, highways, airplanes, and shipping, have expanded the scope of
trade to encompass worldwide transactions.
 Transport also contributes to the expansion of the size and scope of a firm.
Well-developed transport infrastructure enables industrial units to locate in
the most cost-effective locations and grow to their maximum size.
 Moreover, people and nations benefit from transportation because it
promotes mutual collaboration and solidarity. As a result, transportation
has become the lifeblood of modern industry and trade.

cont

 2. Warehousing
 Goods are currently manufactured in advance of anticipated demand.
As a result, the goods must be kept in storage until you can sell them.
Many products, such as wheat, sugar, rice, and so on, are produced
during a specific season but are required all year.
 Appropriate storage provisions must be established to ensure that the
goods are available across the year
cont

 Furthermore, to meet seasonal demand, you must store commodities such

as woolen garments and umbrellas. Warehousing eliminates the
impediment of time, resulting in time utility.
 It contributes to price stability by distributing surpluses evenly throughout
different periods.
cont

 3. Insurance
 Risks in business include pricing fluctuations, employee dishonesty, bad
debts, exchange rate changes, loss of products in transit, fire, floods,
etcetera. Insurance eliminates the impediment of risk.
 Entrepreneurs can protect themselves from various dangers by using
insurance—the “risk pooling principle” underpins insurance
cont

 Many individuals exposed to certain risks contribute to a mutual fund, from

which compensation is provided to the few who experience the loss.
 By spreading the financial strain of loss across a significant number of
people, the level of risk incurred by an individual entrepreneur is whittled
down.
 Examples of insurance are life insurance, fire insurance, marine insurance,
workers’ compensation insurance, and many more. Insurance supports
trade development by offering protection against high risks.
 It aids in the development of a sense of security and independence from
concern in entrepreneurs. People in business may conduct their operations
with assurance and psychological comfort.
cont

 4. Banking and Finance

 Typically, there is often a time lag between the manufacture or acquisition of products
and their sale. It usually takes time to receive money following a credit sale of items.
During this time, company owners require capital to go on with their operations.
 Banks and other financial organizations offer capital and credit to company owners. On
the other hand, large-scale production and distribution of goods and services require a
significant monetary base at nominal interest rates.
 Banks make large-scale, productive commercial activities possible through the provision
of cash and security. Banks also provide a secure, fast, and cost-effective method of
transferring money from one location to another.
 They gather money from individuals who don’t need it at a particular time and avail it to
business people. Banks offer finances in various forms, such as loans, overdrafts, cash
credit, bill discounting, and so on.
cont

 ADVERTISING
Advertisements draw products and services to the attention of potential
buyers.
It aids in emphasizing the distinguishing features and utility of various products.
Besides, customers can also get more bang for their buck with the help of
such information. To understand the needs of your customers, you need to
perform detailed marketing research.
CONT

 6. Communication
 Fast and dependable methods of communication are required for
efficient commercial operations; Posts and Telegraph, Telephone Nigams,
Fax, E-mail, Internet, and so forth provide crucial means of communication
for business operations.
CONT

 The Advantages Of Trade

 A country gains from international commerce in a variety of ways, including:
 It exploits a country’s comparative advantage, implying that trade promotes a
nation specializing in producing goods and services that it can have more
successfully and at the minimum opportunity cost.
 Producing a limited variety of goods and services for the local and overseas
markets allows a country to manufacture in larger quantities, which gives
further cost savings through scale economies.
 Trade stimulates competition and reduces global prices, benefiting customers
by increasing the spending power of their income and resulting in an increase
in surplus.
CONT

 Trade also dismantles domestic monopolies, which are challenged by

more effective foreign businesses.
 As competition stimulates creativity, design, and the use of new
technology, the quality of goods and services is expected to rise. Trade will
also promote the exchange of technology across countries.
 Because employment is directly connected to the output, trade also
boosts employment. Trade implies that you can employ more people in
the export industry and generate additional employment across the
economy due to the multiplier effect.
cont

 The Disadvantages Of Trade

 Despite the potential benefits, trading can have certain drawbacks, such
as:
 Trade can result in over-specialization, putting people at risk of losing their
employment if global demand falls or items for local consumption can be
produced more affordably elsewhere.
 Job losses as a result of such changes result in severe mass unemployment.
The current credit crunch has highlighted the inherent hazards of over-
specialization for the United Kingdom, which is overly reliant on its financial
services industry.
cont

 Some businesses, such as newborn enterprises that may struggle to

establish themselves, do not have an opportunity to expand since they
face competition from several developed overseas firms.
 Local manufacturers, who may provide a one-of-a-kind product designed
to fit the demands of the native market, may suffer as a result of cheaper
imports destroying their market. As local manufacturers exit the market, an
economy’s production variety may dwindle over time.