Classification of Business Activities

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Everything you need to know about the classification of business activities. The business activities are broadly classified as – Industry and Commerce. Industry deals with production and processing of materials into finished products.

Commerce generally includes all activities which facilitate the exchange of goods and services. All commercial and business units come under commerce and all enterprises engaged in production come under industry.

The business activities are broadly classified as Industry and Commerce.


Classification of Business Activities: Industry and Commerce

Classification of Business Activities (With Types)

After gaining a background knowledge and making an insightful analysis of the nature and objec­tives of business firms we now pass on to the structure of business. The term ‘structure of business’ simply means the way in which business activities are organised or collated. In other words, it refers to certain basic and broad categories of interdependent and interrelated business activities. Two broad business activities are (1) industry, and (2) commerce. And commerce may be sub­divided into (i) trade, and (ii) auxiliaries or aids to trade.

(1) Industry:

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Industry refers to an organised activity in which land, labour, capital, entrepreneurship and know­ledge are utilised to produce saleable goods. The term ‘industry’ refers to all components of manufacturing process — all factories, companies, or processes involved in the manufacturing of prod­ucts. In another sense, industry refers to a group of sectors, mainly in manufacturing and construction, typically producing physical goods rather than services. In another sense, industry refers to a group of firms which offer a product or class of products which are close substitutes of each other (one another) such as steel industry or car industry.

It refers to a group of companies making the same type of product or offering the same type of service. In a broad sense, the term ‘industry’ refers to all those activities concerned with extraction of raw materials, conversion of these into finished products as also processing or fabrication of a well-defined product.

Industrial products are of the following three types:

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(a) Consumer goods – Goods used by final consumers such as different varieties of food, cloth, televisions, radios, cars, refrigerators, washing machines, etc. fall in this category.

(b) Producer goods – Goods used for manufacturing other goods such as textile producing machines and earth moving equipment fall in this category. These are also called capital goods, which are the creators of other (mainly consumers) goods.

(c) Intermediate goods – There are certain materials which are the final products of one indus­tries but used as inputs in other industries. For example, steel is used to produce utensils, motor cars, refrigerators or even to build house and flats. In a broad sense, intermediate goods include raw materials, components, machinery, equipment, etc. which are used by firms as ‘factor inputs’ in the production of other goods.

Types of Industries:

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Industrial activities are of two main types:

1. Primary and

2. Secondary.

Each type of industry has several components.

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1. Primary Industries:

Primary industries remain engaged in natural resource(s)-based activities. These include all those activities which are concerned largely with the extraction, and processing of natural resources and conversion of these into saleable goods.

These industries may be sub-divided into the following two categories:

a. Extractive industries – These industries extract both inputs and products from the nature, i.e., from land, air, river and sea. The products of such industries are generally used by manufacturing and construction activities for producing finished goods. Some examples of such industries are mining and quarrying, lumbering, hunting, and fishing.

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b. Generic industries – Generic industries are those which remain engaged in breeding plants and animals for expanded reproduction. For example, nurseries serve the purpose of plant breeding. Other examples of such industries are animal husbandry (livestock farming/grow­ing), dairy farming, poultry farming and fish hatchery.

2. Secondary Industries:

Secondary industries remain engaged in further processing of materials which have already been produced by primary industries. The mining of crude oil is primary activity, but petrol is a secondary activity.

Secondary industries are of two main types:

a. Manufacturing, and

b. Construction.

a. Manufacturing Industries:

Such industries are engaged in the conversion or transforma­tion of raw materials or semi-finished items into finished goods. By changing the character or the shape of things they create form utility. Examples of such industries are motor cars, textiles, finished steel, furniture, cement, sugar, edible oils, fruit juice, jam and jelly, etc. The products of extractive industries are used as raw materials of manufacturing indus­tries. Manufacturing activities of different kinds find expression in the system of factory production.

Manufacturing industries are of the following four types:

i. Analytical industry – Petroleum refining is an example of such an industry in which the basic material (crude oil) analysed is processed and transformed into a number of products such as petrol, kerosene, gasoline, lubricating oil, etc. Similarly, from sugar­cane, three items are produced. The main product is sugar. Two subsidiary items are gur and khandsari.

ii. Synthetic industry – In such an industry two or more materials are properly mixed through severe manufacturing processes to turn out finished goods such as soaps and detergents, toothpaste, perfumes and cosmetics.

iii. Processing industry – In processing industries raw materials are processed through a few stages of operations by using both analytical and synthetic methods as is found in case of textiles, sugar and steel.

iv. Assembly line industry – In such an industry, the finished goods are produced only after making various parts and components first and then by bringing them together for final assembly as are found in case of automobiles, watches, televisions, two-wheelers, computers, etc.

b. Construction Industries:

Such industries remain engaged in construction of houses, multi-storied buildings, flyovers, irrigation dams, roads, highways, canals, etc. These industries use the products of manufacturing industries such as iron and steel, cement, lime, paints, glass, electrical goods, etc. as also the products of extractive industries such as brick, coal, stone chip, marble, etc. The products of such industries are not physically transferable. They are made or constructed at fixed locations. Although houses, flats and buildings, like roads and bridges, are immovable, their ownership can be changed or transferred.

Tertiary (Service) Industry:

The tertiary (service) sector embraces all types of service activities which facilitate the flow of goods of primary and secondary sectors from producing to distant consuming centres. In fact, tertiary industries provide the much needed support services to primary and secondary industries as also trading (distribution) activities such as wholesaling and retailing. The industrial system of a country rides on the wheels of the tertiary sector.

In turn, the railways or the road transport system get its business from the first two sectors. The tertiary sectors include transport and communica­tion, banking and finance, insurance, storage and warehousing and advertising and sales promo­tion. Most of these services provide the much needed infrastructure for industry and trade and thus lend necessary support to business.

These industries make the following positive contribution to business enterprises:

(i) Transportation facilitates the smooth flow of goods from a few producing areas to several (numerous) consuming centres and create place utility.

(ii) Banks provide short-term credit to industrial and trading firms to meet their working capi­tal needs. This is in addition to providing normal banking facilities.

(iii) Insurance firms protect businesses from various kinds of measurable risks.

(iv) Warehouses provide storage facilities to producers and traders and thus create time utility.

(v) Advertising firms provide information to consumers and help to promote sale of goods.

(2) Commerce:

The term ‘Commerce’ is used to refer three main types of business activities viz., (i) the buying and selling of goods, (ii) the exchange of commodities and (iii) distribution of finished products. The main object of commerce is to ensure a smooth flow of goods and services from producers and traders to consumers with a view to satisfying their wants. The traders of goods and services estab­lish links between the consumers (buyers) and producers (sellers).

Commerce is a broad term and includes all those activities which help to transfer goods and services from producers to consumers. Therefore, it includes (i) trading in goods and services, and (ii) aids (services) to trade such as transport, banking, warehousing, insurance and advertising which together facilitate the smooth movement and exchange of goods and service. Both trade as well as aids to trade helps to establish indirect link between producers and consumers.

Functions and Role of Commerce:

There are various hindrances in the way of smooth flow (transfer) of goods from producers to consumers. The basic function of commerce is to remove such hindrances as that of person (through traders), that of place (through transportation), that of risk (through insurance), that of time (through storage and warehousing), that of financing (through banking), and that of knowledge (through advertising and sales promotion measures). Such hindrances arise at various stage of distribution of goods and services and the role of commerce does not end until goods and services reach the final consumers.

These functions of commerce may now be discussed one by one:

a. Removing the Hindrance of Person:

Since producers and the consumers of goods often have different localities, they are unable to establish direct contact with one another. Trad­ers such as wholesalers, retailers, and mercantile agents operate to remove the hindrance of person by establishing an indirect link between producers and consumers.

b. Removing the Hindrance of Place:

Goods may be produced near places of raw materials and other inputs but not near markets for saleable goods. The geographical proximity be­tween producing and consuming centres is established by different means (modes) of trans­port. And place utility is created in the process.

c. Removing the Hindrance of Storage:

The main function of a business firm or an entrepreneur is to produce goods in ‘anticipation of demand’. Since production and sales do normally coincide goods are to be stored until demand for them arises. The warehouses remove this hindrance by performing the storage function. Time utility is created in the process.

d. Removing the Hindrance of Risk:

There are various types of risks to which a business firm is exposed. Most of these can be covered and eliminated through insurance. By paying a small insurance premium a business firm can largely succeed in eliminating the various risks which it faces from time to time. And in case of an eventuality such as fire, theft and natural calamity it will get a reasonable (if not fully adequate) compensation. So it will feel safe and secured.

e. Removing the Hindrance of Finance:

Both business persons and consumers need finance. Business needs short-term funds to meet their working capital needs. Consumers (house­holds) need funds for purchasing houses, flats, cars, refrigerators and other costly items. The financial needs of business and households are met by banks and other (non-bank) financial institutions which make loans for both production and consumption. And an in­crease in consumption expenditure boosts production.

f. Removing the Hindrance of Information:

Often consumers are not able to take decision regarding purchase of a good unless and until they get necessary information about its quality, price, attributes (physical properties) and availability. Through advertising and various sales promotion measures business firms make necessary and detailed information available to prospective buyers. This makes it possible for buyers to take purchase decisions.

Types of Commercial Activities:

Commercial activities can be classified into two broad categories, namely, (i) trade and (ii) auxilia­ries (aids) to trade.

Meaning of Trade and its Types:

Definition of Trade:

Trade is the main segment of commerce. It essentially deals with buying and selling of goods and services among different persons by using money as a medium of exchange. Trade is the activity of selling goods or services in a market in order to make profit. It is the nerve centre of commerce as all other commercial activities gravitate around trade.

Trade is a part of commerce and means buying and selling only. It may even mean a single activity of buying or selling that is carried out. It does not include any other activity which facili­tates exchange or transaction. Commerce is a broad term which includes trade as well as all those activities which facilitate trade, i.e., smooth flow of goods and services from buyers to sellers.

Types of Trade:

Trade may be classified on the basis of- (i) area covered as also (ii) volume of transactions. On area basis, trade may be classified into – (a) internal (home) trade, and (b) external (foreign) trade. On the basis of volume, trade may be classified into – (a) wholesale trade, and (b) retail trade.

a. Internal (Home) Trade:

Internal (home) trade refers to purchase and sale of goods within the domestic territory of a country and the payments for such transactions is made in domestic (home) currency either directly or through the banks. For instance, a trader in Kolkata may purchase T-shirts from a textile (manufac­ture) dealer in New Delhi or a trader in Shimla may sell apples to a dealer in Ranchi.

On the basis of the volume of business (or geographical area of business covered), internal trade may be further sub-classified into the following two categories:

i. Wholesale Trade (Business):

Wholesale trade or wholesaling refers to business of selling goods to retailers. It relates to the business of buying goods from manufacturers and selling them in large quantities to retailers who sell in small quantities to the general public. A wholesaler is an intermediary between pro­ducer and a retailer. As a business person he purchases goods from a manufacturer or a producer in large quantities and sells them to a retailer or a distributor in small quantities. The wholesaler serves as a link between the producers and the retailers.

ii. Retail Trade:

Retailing refers to sale of products in small quantities by the retailer directly to the general public. It therefore, serves as a link between the wholesaler and the ultimate buyer. Retail trade can be put into three broad groups – independent traders, multiple (de­partmental) stores, or retail cooperatives. Retail trade is also conducted through super bazars, self-service stores, mail order businesses, shops, vendors and peddlers.

b. External or Foreign Trade:

External (foreign/international) trade involves the use of foreign currency (called foreign exchange) in making payments to foreigners and receiving payments from them. It refers to the sale (export­ing) and purchase (importing) of goods and services which takes place between trading partners in different countries.

External trade is subdivided into following three categories:

i. Export Trade:

Exporting refers to the sale in overseas market of a product when is produced in the firm’s home market. It provides an opportunity for a firm to increase its sale potential by marketing its product in a number of foreign countries rather than relying solely on sales in its own domestic market. For example, if an Indian firm sells carpets to a firm in Dubai, it is an example of export trade. Exports may be regarded as an important profit-seeking business activity. It provides a firm an opportunity for worldwide sales expansion and long-term profit growth.

ii. Import Trade:

Importing is the sale in the home market of a product which is produced in a foreign country. Domestic firms and traders may import particular materials, components and final products. For example, if an Indian business person purchases a machine or a motor car from a business person in Germany, it is a case of import trade.

iii. Entrepot or Re-Export Trade:

Entrepot refers to a place where goods are imported and exported without processing. Entrepot trade or re-export refers to goods that have been imported and are then exported without having undergone any material change while in the exporting country. For example, an Indian firm may import some goods from a British firm and export the same to a firm in Bangladesh.

A Comparison of Industry, Commerce and Trade:

Industry:

a) Meaning – Industry means production of goods and services by converting raw materials and inputs into output.

b) Nature – It represents the supply side of the market

c) Scope – It has four segments generic, extractive, manufacturing and construction.

d) Need for initial (seed) capital – It requires a large amount of both fixed and working capital in the process of production (as also for holding of inventories of raw materials).

e) Type of utility created – It creates form utility by changing the form or shape of things such as conversion of a piece of wood into a writing table or an almira.

Commerce:

a) Meaning – Commerce means distribution of goods and services produced and offered for sales by industry.

b) Nature – It represents the demand side of the market-

c) Scope – It includes trade and various support services (called auxiliaries or aids to trade).

d) Need for initial (seed) capital – It requires less initial fixed capital, but large amount of working capital (for holding inventories of finished goods).

e) Type of utility created – It creates both place utility and time utility through movement of goods from one place to another as also their preservation over a period of time.

Trade:

a) Meaning – Trade means the process of purchase and sale of goods by using money for making profit.

b) Nature – It represents monetary exchange of goods and services.

c) Scope – It includes both internal (domestic) and external (foreign/international) trade.

d) Need for initial (seed) capital – It requires little initial capital, and little working capital also if the rate of sales turnover is high, which implies, ipso facto, a high rate of capital turnover.

e) Type of utility created – It creates possession utility by transferring the title to a good from the seller to the buyer.

Auxiliaries (Aids) to Trade (Business and Industry):

The term ‘auxiliaries to business’ is used to refer to the activities which provide necessary support services to business in general or industry and trade in particular. In fact, such services provide the much needed infrastructure such as transport and communication, storage and warehousing, insurance, finance and banking and so on. These are absolutely essential for the smooth conduct of business. These support services help to remove the various hindrances to trade (i.e., smooth and timely flow of goods) from producers to consumers.

We may now make a broad overview of these activities:

(i) Banking and Finance:

Banks provide a payment mechanism which facilitates the purchase and sale of goods. These also make it possible to carry on transaction on credit. They collect the savings of the community for making them available mainly to firms in the form of loans and advances. So they help businesses to overcome the problem of finance.

(ii) Insurance:

It acts as a hedge or safety valve against the risk of loss of goods while they are in transit or storage.

(iii) Transportation:

Transport helps in removing geographical barrier to trade by transferring goods from producing to different and often distant consuming centres. For example, wheat produced in Punjab and Haryana and apple produced in Kashmir are consumed in all parts of India. Transportation helps in making goods available at places where they are in de­mand. Modern systems of transport have virtually linked all parts of the world and thus connected different markets in an orderly fashion.

(iv) Warehousing:

There is generally a time lag between the production of a good and its consumption. So there is need to store the good in warehouse. Storage, creates time utility. It performs the useful function of holding a good for some time since production and sales do not coincide. Suppose, for example, the Maruti Udyog produces 5,000 cars in the current month. But it is able to sell only 4,500 cars. This means that it is left with an unsold stock of 500 cars, which are to be stored in its warehouse for future sales. And if there is a sudden increase in demand for such cars, sales may be made from existing stock even if production lags behind demand.

(v) Communication:

Communication facilities are very important in transmitting necessary information to producers, traders and ultimately to consumers. Information is made avail­able through postal and courier services, landline, telephone services, mobile phone ser­vices, e-mail, etc. Such services have removed the hindrance of information in the smooth conduct of business.

(vi) Advertising:

Advertising informs traders and potential buyers about a product and its feature(s) or quality. It aims at persuading or informing and the general public through TV, radio, newspapers, etc. It is used mainly for product announcements. Thus it is essentially a communication device.

(vii) Packaging:

Packaging is the means of physically protecting and selling a product. It pro­tects product while they are in transit or are being stored, enables products to be sold in convenient retail packs in standard weights and measures, and identifies the contents of the package by means of labelling.

The attractiveness of the colour and design of the package is important in catching the eye of the buyer. In addition, the use of brand names on packaging reinforces the perceptions of the brand at the point of sale. Good packaging improves the delivery of quality products to some extent and in case of some products it even increases product life also.


Classification of Business Activities – Industry and Commerce

The business activities are broadly classified as:

1. Industry, and

2. Commerce.

Industry deals with production and processing of materials into finished products. Commerce generally includes all activities which facilitate the exchange of goods and services. All commercial and business units come under commerce and all enterprises engaged in production come under industry.

It will be interesting to study these activities in detail:

1. Industry:

Industry includes such economic activities which are involved in conversion of raw material into useful finished products. The industry involves the application of technical knowledge and skill in a particular production unit. These also include breeding of animals. Generally, the term industry means a group of firms producing same product like sugar industry includes all firms producing sugar, similarly, there are cement and cotton-textile industries.

Banking industry includes those firms which provide banking services. Capital goods industries involves those firms which produce heavy machinery which are further used in producing goods and services. Similarly, consumer goods industry includes those firms which produce consumer goods.

Industries may be further classified into three categories:

i. Primary Industries,

ii. Secondary Industries, and

iii. Tertiary Industries.

i. Primary Industries:

These are concerned with extraction of natural resources and reproduction of living organisms and species.

These may be further classified as:

a. Extractive Industries and

b. Genetic Industries

a. Extractive Industries:

These are involved in extraction of minerals and oil from the earth, fish from the rivers and wood from the forests. These products can be used either directly or as raw materials to produce finished products by manufacturing industries.

b. Genetic Industries:

Rearing and breeding of birds, plants and animals is the main function of these industries. These industrial units are involved in rearing and breeding of cattle for milk. Poultry farming, growing fish in ponds and rearing plants in nurseries are examples of genetic industries.

ii. Secondary Industries:

These use raw materials to produce various types of finished goods for final consumption of the consumers. For instance, extracting crude oil is a primary industry, whereas converting crude oil into petrol, kerosene and lubricants is secondary industry.

The secondary industries are further divided into two types:

a. Manufacturing Industries and

b. Construction Industries.

a. Manufacturing Industries:

These industries process the raw materials. They create form utility. Different finished products are produced by converting the raw materials. They also convert semi-finished goods into finished goods. Wood is converted into furniture, sugarcane is converted into sugar and iron ore is converted into steel.

These industries produce two types of products:

(1) Consumer Goods – These goods are directly consumed by the consumers. They are for daily consumption of the consumers like toiletries, cloth and bread and butter etc.

(2) Capital Goods – These products are produced by manufacturing industries and are further used by the manufacturing units to produce consumer goods. For example heavy plant, machinery and equipment.

Types of Manufacturing Industries:

Manufacturing industries are of four types:

(i) Analytical Industries:

In these industries the basic raw materials are broken into different parts which are further individually used as raw materials for finished products as in the case of a refineries engaged in the production of petrol, kerosene and lubricants by using the basic material crude oil for different purposes.

(ii) Synthetical Industries:

These industries use two or more types of raw material to manufacture one finished product as in the case of production of paints and cement.

(iii) Processing Industries:

In these industries the raw material passes through various processes before a finished product comes out. The finished product of first process becomes the raw material for the next process and this continues till the finished product is produced. For instance, in sugar industry there are three processes- (a) crushing process (b) refining process and (c) crystallising process. Sugarcane becomes cane juice in the first process which becomes the raw material for the next refining process which crystallises and converts it into sugar. Similarly, cotton is first processed into thread which then goes into weaving process which converts it into cloth which further moves to bleaching and finishing process which converts it into the final finished product.

(iv) (a) Assembling Industries:

These industries manufacture their products by using readymade spare parts, such as manufacturing of car, television and watches.

(b) Construction Industries:

These are involved in construction of buildings, roads and other infrastructures like bridges, dams, tunnels etc. These industries depend upon excellent engineering and architectural skills. These are also called infrastructure industries. These industries use the products of other manufacturing industries to construct buildings and dams like cement and steel etc. Their products are not of movable nature. These are fixed at one place and cannot be shifted from one place to another.

iii. Tertiary Industries:

These are service sector industries which include the firms engaged in the provisions of- transport, communication, banking, insurance, warehousing and advertising etc. These provide support services to primary and secondary industries. These also help in trade, i.e., exchange of goods and services. These are the auxiliaries to trade i.e., these facilitate trade.

2. Commerce:

Commerce is a wider term.

It involves two types of activities such as:

i. Trade and

ii. Aids or Auxiliaries to Trade

i. Trade:

Buying and selling of goods and services is called trade. But buying and selling is not that simple when the business becomes large in size.

Trade is of two types:

a. Internal or Domestic Trade and

b. External or Foreign Trade.

a. Internal Trade:

It involves the exchange of goods and services within the country. The goods and services are bought and sold in the currency of the country only.

It is of two types, i.e.:

(1) Wholesale Trade and

(2) Retail Trade.

(1) Wholesale Trade:

It is the purchase and sale of goods and services in large quantities. Wholesalers buy goods from producers or manufacturers in large quantities. They deal only in one line of product, as the quantity involved is very big and a heavy investment is needed.

(2) Retail Trade:

Retailers buy goods and services from the wholesalers in small quantities. They sell their goods and services to the final consumers. They need less capital as compared to the wholesalers.

b. External Trade:

It is a process of buying or selling of goods and services by buyers and sellers belonging to two or different countries. If goods are bought from other countries, it is called import trade. If goods are sold to other countries it is called export trade. If goods are imported for export, it is known as entrepot trade.

ii. Aids or Auxiliaries to Trade:

It is also called Service Sector. In order to facilitate trade we need the services like transport, communication, banking, warehousing, insurance, packaging and advertising. All these are aids to trade which facilitate it. As a wider term, commerce includes both trade and auxiliaries to trade.

Through these services ensures free flow of goods. These aids help in removing hindrance of place, and finance. Banks provide finance and transport facilitates help in the movement of goods from one place to another.

All these are discussed in detail below:

a. Transport and Communication:

Goods are produced at a particular place due to natural reasons, but they are needed and demanded by the consumers all over the country. For instance, cotton is produced in Gujarat, tea in Assam, jute in West Bengal, sugar in U.P., Bihar and Maharashtra, but these are demanded all over India, either by consumers or by manufacturers.

There is the obstacle of distance and place. This obstacle is removed by the road transport, rail transport and coastal shipping. Goods are moved from one place to another by these transport media in order to create place utility. Labour also has to be moved from one place to another place where employment opportunities are available. Finished products are also moved from the place of production to the place of consumption.

Communication also plays an important part in business. Producers, traders and consumers exchange information with one another through communication facilities like Post, Telephone and Internet etc. These facilities render a very useful help to all the parties in business.

b. Banking and Finance:

Business needs long-term loans in addition to capital. Banks and financial institutions provide financial support to the business. In addition to financial support banks also provide other facilities like transfer of funds through discounting of bills, issue of bank drafts etc. Cash credit and overdraft facilities are also provided by the banks for lending money.

Banks also collect charges for these services. In export trade banks help the exporters by collecting money from the importers. In case of initial public offers (IPOs), banks help companies in raising capital from the public.

c. Insurance:

There are many types of risk in business. The plant and machinery, building, stock of goods and furniture have to be protected against fire and theft. The employees also have to be protected against any accidents while at work and also against occupational health hazards. By paying a nominal premium all these risks for damages and compensation can be protected. The insurance companies come forward and pay the compensation for any damages.

d. Warehousing:

Production and consumption is not simultaneous. There is a time gap between production and consumption. Production is generally on a large scale, but consumption is slow. Thus, a large stock has to be held back till it is required for consumption. These have to be stored properly in order to prevent any damage to the quality of the product. In the production process some raw materials are seasonal in nature.

These have to be procured in the season in bulk and these need to be stored in order to be used throughout the year. For instance, wheat is harvested in summer, but is consumed throughout the year, and it has to be stored properly. The warehousing provides storage facilities and helps the business in maintaining continuity in supply of goods and stabilising the price level.

e. Advertising:

Advertising helps the producers, traders and the ultimate consumers to contact each other. This is a very effective way of promoting the product and increasing the sale. There are a large number of consumers, it is practically not possible for the producers and traders to personally contact each other. Information about the products pertaining to their price, quality and availability is made available through advertising. In this age of hard competition, advertising helps the consumers in making a right choice.


Classification of Business Activities – (Primary and Secondary)

The business activities may be classified into:

1. Industry

2. Commerce

Thus, activities carried out by a business enterprise can be broadly classified into two categories namely; industrial activities and commercial activities.

1. Industry:

In a layman’s language, Industry refers to the production of goods or services within an economy. Literally speaking, industry is an economic activity concerned with the processing of raw materials and manufacture of goods in factories.

The term ‘industry’ refers to economic activities, which involve conversion of resources into useful goods. These include activities relating to producing or processing of goods as well as breeding and raising of animals.

Many a times, the term industry is also used to refer to groups of firms producing similar or related goods or services. For example, film industry refers to all the units engaged in producing films. Similarly, footwear industry would include all firms producing footwear, and so on. Likewise, the banking industry consists of various banks operating within an economy.

Types of Industries:

The industries can be broadly classified into three types, namely:

i. Primary Industries

ii. Secondary Industries

iii. Tertiary Industries

The various types of industries are explained below:

i. Primary Industries:

It is concerned with all those activities, which are connected with the extraction and production of natural resources and reproduction and development of living organisms, plants etc.

Primary industries can be further classified into two types:

a. Genetic industries – There industries relate to breeding plants and animals for their use in future reproduction, like a poultry farm, fish hatchery etc.

b. Extractive industries – There industries relate to extraction of products from natural resources like farming, mining, hunting etc.

ii. Secondary Industries:

Secondary industries are concerned with using the materials which have already been extracted at the primary stage to produce goods for final consumption or for further processing by other industrial units like building houses, making handicrafts etc.

The two types of secondary industries are described below:

a. Construction industries – These industries relate to the construction of monuments, buildings, flyovers, dams, bridges, roads etc.

b. Manufacturing industries – There industries are engaged is production of products for final consumption and creating form utilities.

Manufacturing industries may be further divided into four types on the basis of method of operation for production as explained below:

(a) Analytical Industry – This types of industry relates to analyses and separation of different elements from the same materials. Like, through fractional distillation many products are obtained from crude petroleum, which includes petrol, naptha, kerosene, diesel oil, and so on

(b) Synthetical Industry – These industries involve manufacturing of new products by combining various ingredients into a new product like fragrance, cement, etc.

(c) Processing Industry – These industries deal in products which involves successive stages for manufacturing finished products, like cheese, jams etc.

(d) Assembling Industry – These industries create a new product by assembling different component parts, like in case of computers, car etc.

iii. Tertiary Industry:

The organisations which provide support services to primary and secondary industries in addition to activities relating to trade are referred to as tertiary industries. These industries are service oriented and may be considered as an element of commerce. They are also known as auxiliaries to trade primarily because they assist in trade through a wide spectrum of activities like transportation, banking, insurance, warehousing, communication and advertising.

2. Commerce:

Commerce includes all those activities that facilitates the movement of the goods from the producers to the ultimate consumer.

It has two segments namely:

i. Trade, and

ii. Auxiliaries to trade.

i. Trade:

The term trade is commonly understood as sale, transfer or exchange of goods.

Trade includes all those activities that relate to transfer of goods or services from one person or entity to another, often in exchange for money. A system or network that facilitates trade is called a market.

Trade can be classified into two broad categories:

a. Internal Trade:

The sale transfer or exchange of goods/services that takes place within the boundaries of a nation is known as internal trade.

Internal trade is further divided into two types namely:

(a) Wholesale trade, and

(b) Retail trade

When the goods are bought and sold in bulk quantities, it is known as wholesale trade. A wholesaler serves as a link between a manufacturer and a retailer. The buying and selling of goods in smaller quantities is known as retail trade. A retailer serves as a link between a wholesaler and a buyer.

b. External Trade:

The exchange of goods or services between persons or business operating in two or more countries is known as external trade.

External trade is further classified into three types:

(a) Export trade,

(b) Import trade, and

(c) Entrepot trade

(a) Export trade means selling of goods or services produced in one country to another country. The seller of such goods and services is known as an exporter and the foreign buyer is known as an importer

(b) Import trade means purchasing of goods or services by one country from another country.

(c) Entrepot trade refers to a port, city, or trading post where merchandise may be imported, stored or traded, usually to be exported again. Although, in modern times the term is still used to refer to duty-free ports with a high volume of re-export trade.

For example, Cape of Good Hope- South Africa, Singapore, Tokyo-Japan to name a few.

ii. Auxiliaries to Trade:

The activities which facilitate the activities related to industry and trade are known as auxiliaries to trade.

The various auxiliaries to trade are outlined below:

a. Transport and Communication:

Transport facilitates the movement of goods and people from one place to another. It helps to create place utility. The goods manufactured at a place is available for sale at distant places. The various modes of transport used includes roadways, railways and airways.

For example, most of our purchases includes many products or services which are not produced locally Like, as student you may buy a register manufactured in Mumbai, a pen made in Japan, a book published in USA and so on.

b. Banking and Finance:

Finance is said to be the life blood of business. Banking is an indispensable auxiliary to trade. Banking helps to create finance utility and acts as a backbone of business. Banking services are vital for smooth running of business as it offers many services like collection of cheque, granting loan etc.

c. Insurance:

Considering fact that risk is inherent is every business, insurance is considered to be an indispensable auxiliary to trade. Insurance helps to secure industries against various kinds of risk or undesirable events leading to inadequate profits or even losses like death, fire, accidents etc. It creates risk utility. However, all types of business risks are not insurable.

d. Warehousing:

Warehousing helps to create time utility as it seeks to provide for the storage of goods from the time they are produced till the time they are consumed. This helps to balance the demand and supply of goods thereby leading to price stabilisation.

e. Advertising:

Advertising is a very important promotion tool that aims at informing and persuading prospective consumers to buy the firm’s products. It helps to create utility of knowledge.


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