Business Components: Industry and Commerce (1766 Words)

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The two most important components under which the business is classified are as follows:

The scope of business in olden days was simple and limited. It was a two-way process between the producer and the consumer with intermediaries called merchants or traders who earned a margin of profit. But modern business is not a simple process.

It comprises of so many activities with various interactions among numerous participants. We have owners of business, investors in business, creditors, customers, employees and government, besides various interested groups in society.

Business is an activity concerned with production and distribution of goods and services with an objective of earning profit. The perception of business has changed. It has shifted from product-oriented concept to consumer and social oriented concept.

The business is classified into following two components:

A. Industry

B. Commerce

The chart explains the scope of business in detail:

A. Industry:

Industry is the main component of business. The production aspect of business is known as industry. Industry is a place where production takes place. Industry creates form utility.

It is a place where raw material is converted into finished goods, which is suitable for further consumption. There are different types of industries classified on the basis of their activities performed.

1) Manufacturing Industry:

Any industry that makes products from raw materials by the use of manual labour or machines and that is usually carried out systematically with a division of labour is known as manufacturing industry.

Among the most important manufacturing industries are those that produce aircraft, automobiles, chemicals, clothing (c6tton, textile), computers, consumer electronics, electrical equipment, furniture, heavy machinery cement, iron & steel etc. Manufacturing Industry is concerned with manufacturing goods and services. This industry creates form utility.

2) Construction Industry:

Construction is a process that consists of building or assembling of infrastructure. Construction Industry is one of the most booming industries.

The industry can be categorised into three basic categories namely:

1. Construction involving heavy and civil engineering such as construction of large projects such as bridge, road, etc

2. General construction involves building of real estate such as residential or commercial real estate assets, etc.

3. Construction projects involving specialty trades involve building up of specialized items namely, electric related works, works on woods, etc.

3) Extractive Industry:

Extractive industry deals with extraction of mineral oil from the crust of the earth. Example: fishing, mining etc. The industries which are involved in taking out the wealth from nature e.g. mining, fishing, hunting, agriculture etc. occupation involved on extractive industry are Fisherman, hunter, oil driller, lumberer, miner, farmer etc.

4) Genetic Industry:

Genetic industry is concerned with re-production or multiplication of species and aims at producing genetically modified organisms. For example: poultry, planting nurseries, sericulture, cattle breeding, dairy farming, horticulture etc.

B. Commerce:

Another component of business is known as commerce. It is concerned with the distributional aspect. Commerce deals with transfer of ownership of goods and services. It facilitates movement of goods from the place of production to the place of consumption.

Commerce is all about:

i. It is the study of business activities.

ii. It includes all those activities in the collection and distribution of goods from the producers to the final consumers at the right place, in the right quantity and at the right time.

Commerce is further classified into two types:

a. Trade

b. Aids to Trade

Buying and Selling of goods and services is called trade. Trade occurs when one thing occurs for another. Trade means exchange of goods, services, or both. A mechanism that allows trade is called a market.

The original form of trade was barter trade. Trade between two traders is called bilateral trade, while trade between more than two traders is called multilateral trade.

Trade exists between regions because different regions have a comparative advantage.

Trade is again sub-divided into two:

I. Internal Trade

II. External Trade

I. Internal Trade:

The trade conducted within the national boundaries of a country is known as internal trade. Internal trade can also be termed as Home trade or Domestic trade.

Example: Trade between Maharashtra and Gujarat. Internal trade can be further classified on the basis of their operation:

a. Wholesale trade

b. Retail trade

a. Wholesale trade:

The trade, which is carried out in bulk quantity, is known as wholesale trade. The person who conducts the wholesale trade is called wholesaler. He is a link between the manufacturer and the retailer.

Wholesale trade is a form of trade in which goods are purchased and stored in large quantities and sold to resellers, professional users or groups, but not to final consumers

b. Retail trade:

The trade, which is carried out in small quantity, is called retail trade. The person who conducts retail trade is known as a retailer. Retailer is a link between the wholesaler and the final consumer.

Retail trade is concerned with providing the right product at the right price and at the right place to satisfy the needs of the consumers.

II. External trade:

The trade, which is carried out beyond the national boundaries is called external trade. External trade is also known as international trade or foreign trade. External trade is exchange of capital, goods, and services across international borders.

Globalisation is responsible for increasing external trade. No country in the world is self-sufficient. They have to depend on one another for the fulfillment of their requirement. This has given rise to international trade.

External trade is sub-divided into three:

a) Import trade

b) Export trade

c) Entrepot trade

a) Import trade:

The term import means bringing goods and services into the port of a country. It means buying goods and services from foreign countries. The buyer of such goods and services is referred to an "importer".

Import of goods and services normally requires involvement of custom authorities. For example: India purchases goods from China.

b) Export trade:

The term export means to ship the goods and services out of the port of a country. Selling goods and services to foreign countries is called export trade. In International Trade, "exports" refers to selling goods and services produced in home country to other markets. The seller of such goods and services is referred as an "exporter". For example: India sells goods to US.

c) Entrepot trade:

Trade in which imported goods are re-exported to other country is known as entrepot trade. It means buying goods from one country reprocessing in a home country and re-exporting to another country is called entrepot trade.

For example: India bought goods from US reprocessed in a home country and exported to Japan.

b. Aids to Trade:

There are various obstacles that can hinder the smooth running of trade. Aids to trade facilitates smooth conduct of trade. The activities that are involved in removing these obstacles are known as aids to trade. These obstacles are:

The obstacles of time

The obstacles of place

The obstacles of money

The obstacles of risk

The obstacles of people etc.

An aid to trade is concerned with removal of difficulties and hindrances from the way of trade. It helps in smooth conduct of trade.

An aid to trade involves the following functions:

i. Warehousing:

A warehouse is a commercial building for storage of goods. Warehousing is a function of storing and protecting goods from getting damaged. It helps preserving the quantity and quality of goods. Warehousing creates time utility.

This function enables to make the goods available to the consumers at a convenient time whenever they are demanded. Goods are generally produced in the anticipation of demand.

All the goods produced are not consumed at the same time, warehousing provides suitable arrangement for storing the goods.

There are some products that are produced during a particular season, but are in demand throughout the year. These products are needed to be stored and released at the time of requirement. Warehousing eliminates this obstacle.

ii. Transportation:

The Transportation is the act of moving something from one location to another. It relates to physical movement of raw material, goods and men from one place to another. Transportation deals with movement of goods and services from the place of production to the place of consumption.

It is an important aid to trade. Transportation creates place utility. Goods are made available to the customers as and when they demand, through transportation. The transport sector is an important component impacting on business and economic development and the welfare of populations.

When transport systems are efficient, they provide economic and social opportunities. In short transportation facilitates commercial activities and results into industrial development of a nation

iii. Insurance:

Insurance is a device to protect life and property against financial loss. It is the best means of reducing risks of the business. It is a contract between an insured and an insurer.

It gives protection and security to the insured against certain loss or damage for a consideration called premium, as the business is associated with two types of risk, Insurable and non-insurable.

In today's dynamic business, insurance plays an important role in taking care of some risks related to the business. Business involves a lot of risks. There is personal and financial risk in starting a business.

However, businesses identify some predictable and unpredictable factors that are particularly risky. Insurance provides protection to the business.

iv. Banking:

Bank is an institution that deals with money and credit. It accepts deposits from the public and makes the funds available to those who need it. It is derived from the Italian wore "banco", which means a bench, which in those period used to exchange coins and money.

Banking is a financial institution performing several functions like accepting deposits and lending loans to the general consumers, emerging entrepreneurs for conducting business, agricultural and rural development etc.

RBI holds the apex position in the banking structure in India. Banks helps in overcoming the financial problems of the business enterprise. It provides finance for holding stock between the times of purchase to the time of sale.

v. Advertising and sales promotion:

Advertising is a form of communication intended to persuade an audience (viewers, readers or listeners) to take some action. Advertising is bringing a product (or service) to the attention of potential and current customers; it is a promotional technique and a silent sales man.

Advertising is typically done with signs, Bu: brochures, commercials, direct mailings or e-mail messages, personal contact, etc. Advertising is a paid form of promotion of goods and services. It helps in promoting the goods to the customers, which ultimately results in increase in sales. It helps in maximizing the sales of the firm.


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