What are the two categories of Business?

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Business activities may broadly be classified into two categories: (1) Industry, and (2) Commerce. Industry involves the production of goods and materials, while Commerce is concerned with the distribution of goods and services.

Industry

Industry means the production of goods for sale by the application of human or mechanical power. It is concerned with changing the form of goods from any stage from raw material to the finished product.

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Thus, industry creates utilities for the satisfaction of human wants and to earn profits. According to Evelyn Thomas, “industrial activities are concerned with the growing, extending and manufacturing of material goods”.

Procuring coal from coalmines, converting cotton into cloth, breeding catties, constructing houses are examples of industry.

Industry involves the production of both consumer goods and producer goods. Consumer goods are produced for direct use by people. Bread, butter, cloth, spices, drugs, etc., are examples of such goods.

Producer goods or capital goods are required for the production of consumer goods. Raw materials, machinery, equipment, plastic, rubber, aluminum, etc., are examples of producer goods.

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The main characteristics of industry are as follows:

(i) Economic activity:

Industrial activities are economic activities because their purpose is to earn money.

(ii) Production:

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Industry involves production of various types of goods and services to satisfy human wants.

(iii) Wide scope:

The scope of industrial activities is very wide. Advancements in science and technology have created many new industries such as information technology in­dustry.

(iv) Creation of utility:

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Industry creates utility by converting raw materials into useful prod­ucts which can be used to satisfy human wants.

(v) Economic development:

Industries accelerate the pace of economic growth by making productive use of natural and man-made resources. It is the engine of growth. It generates employment, increases national income and earns foreign exchange.

(vi) Part of business:

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Industry is a major part of business. Industrial activities give rise to other business activities such as trade and aids to trade.

Types of Industry:

Industry may be classified into four broad categories.

1. Genetic industries:

These industries are concerned with breeding (reproducing and mul­tiplying) of certain species of plants and animals with the object of earning profits from their sale. Plant nurseries, poultry farms, cattle breeding farms, dairy farming, fish hatcheries and forestry are examples of genetic industries.

2. Extractive industries:

These industries are engaged in extracting useful materials from soil, air, Water and from beneath earth’s surface. In these industries the products gifted by nature are obtained for the benefit of mankind.

Agriculture, mining, quarrying, oil exploration, afforestation, fishing and hunting are some of the examples of extractive industries. Produce of extractive industries may be used either as finished products or as raw materials for further pro­duction. These industries depend largely on nature.

The role of human beings is comparatively less significant. The wealth is already made available by nature. People discover and collect it.

Extractive industries provide raw materials to manufacturing and construction industries. For example, iron ore obtained from mines is used as a raw material in iron and steel manufacturing. Genetic and extractive industries are oldest occupations.

There is one difference between genetic and extractive industries. In the case of extractive industry man cannot add to the wealth he withdraws from earth, sea and air. But in the case of genetic industry man not only adds to wealth but reproduces the nature made goods.

3. Manufacturing industries:

These industries are concerned with the processing or trans­formation of raw materials and semi-finished products into finished products. Such industries change the shape and form of materials produced by genetic and extractive industries.

They create form utility. For instance, the iron ore extracted through mining is converted into steel. Engineering, cement, sugar, textiles, jute, etc. are the main examples of manufacturing industries. Manufacturing industries are of the following types:

(a) Analytical:

In an analytical manufacturing industry, a basic raw material is broken into several useful materials. For example, in an oil refinery, crude oil is refined and several petroleum products are obtained.

(b) Synthetically:

In this type of manufacturing industry two or more materials are mixed to form a new product, e.g., cosmetics, soap, cement, fertilizer, paint, etc.

(c) Processing:

In the processing industry, a material is processed through various stages. For example, in the cotton textile industry, cotton passes through the spinning, weaving, dyeing, bleaching and printing processes.

(d) Assembling:

In this type of industry, manufactured components or parts are combined together mechanically or chemically to produce a new product. For example, manufac­ture of radios, TV sets, watches and automobiles are assembling industries.

4. Construction industries:

These industries are engaged in the construction, erection and fabrication of buildings, bridges, roads, dams’ canals, etc. They utilise the products of manufactur­ing industries such as bricks, steel, cement, etc. These industries create the basic infrastructure through the process of fabrication.

The distinctive feature of these industries is that their products remain fixed at one place and cannot be taken physically to the market for sale. Products of construction industries are very durable.

Sometimes, genetic and extractive industries are called primary industries while manufac­turing and construction industries are known as secondary industries.

This is because genetic and extractive industries provide raw materials to manufacturing and construction industries. On the basis of size and scale of operations, industries may be classified into large-scale and small-scale industries.

Large-scale industries employ more capital-intensive techniques of production than small scale industries. On the basis of the volume of capital investment, industries may be heavy or light.

Heavy industries involve huge investment and they are engaged in the production of capital goods such as steel, machinery, ships, aircrafts, etc. On the other hand, light industries require little capital investment and produce consumer products such as stationery, cosmetics, jewellery, food products, etc.

Commerce and Its Nature

Commerce refers to all those activities which are necessary for bringing goods from the place of production to the place of their consumption. According to Evelyn Thomas, “Commer­cial operations deal with the buying and selling of goods, the exchange of commodities and the contribution of finished products”.

Commerce includes not only trade but also services such as transport, warehousing, packaging, insurance, banking and sales promotion which are incidental or auxiliaries to trade. The main characteristics of commerce are as follows:

(i) Economic activity:

Commerce is an economic activity because it consists of activities which are undertaken for earning profits. A trader buys goods with the aim of selling them at a profit.

(ii) Exchange of goods and services:

Commerce involves exchange and distribution of goods and services. Goods may be purchased or produced for sale. Commerce comprises both trade and aids to trade.

(iii) Profit motive:

The motive of commercial activities is to earn profits. Any activity which does not have the aim of profit will not be a part of commerce. For example, if a trader offers some goods as a gift to his friend it is not commerce.

(iv) Regularity of transaction:

An isolated transaction does not imply commerce. For ex­ample, if a person sells his typewriter it is not commerce.

(v) Creation of utilities:

Commerce creates several types of utilities. It creates place utility by carrying goods to the place where they are needed. It makes goods available as and when demanded thereby creating time utility. By creating these utilities commerce helps to increase the volume of trade.

(vi) Part of business:

Commerce is a part of business. It is also a branch of economics. Economics is the study of human beings as consumers and producers.

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