RIDAY, DECEMBER 5, 2008

1.1 Introduction
Human beings require different types of goods and services to satisfy their needs. To earn these goods and services they engage in different activities. These activities bring in their income. Their income determines their standard of living. Large amount of goods and services are required to maintain a higher standard of living. Thus people continuously engage in activities to raise their income levels to achieve higher standard of living. Thus some engage in farming, some in trading and some others in providing services. The purpose all these activities is to earn income for meeting their needs. Posted by Devil in the makingat 1:00 AMNo comments:

1.2 Economic Activities

Economic activities are those activities engaged with the object of generating income. Income is used for meeting the needs. When the income is more than the needs it becomes wealth. The basic character of economic activity is expectation of income. An activity without the aim of making money is non economic activity. Thus activities such as sports and games are non economic activities. It is done out of interest that give them satisfaction. There are some activities undertaken as part of moral duty or social obligation. All such activities are called non-economic activities. Economic activities may be pursued by a single person on small scale or a group of persons on large scale. When a person is regularly engaged in an economic activity, it is said to be his occupation. Posted by Devil in the makingat 12:59 AMNo comments:

1.3 Types of Economic Activities

Economic activities or the types of occupation of people can be divided into three categories: i) Business ii) Profession iii) Employment Business refers to those economic activities in the production and purchase or sale of goods or services, with the aim of making profit. The income from business is profit.

Profession is an occupation requiring special knowledge and skill in doing the job. Such activities are generally subject to codes of conduct laid down by professional bodies. Those engaged in profession are known as professionals. Doctors, Lawyers and Chartered Accountants are professionals.

Employment refers to the occupation in which people work for others and get paid for it. Those who employ people are known as employers. People who work in factories and offices for salary are employees. Posted by Devil in the makingat 12:58 AMNo comments:

1.4 Concept and Characteristics of Business

1.4.1 Concept of Business Business may be defined as any economic activity on a continuous basis which involves production or purchase of goods for sale, transfer or exchange goods, or supply of services for the purpose of earning profit.

Business has a wider meaning beyond goods, services and profit. A business does not become a business without a customer. Therefore any definition of business is complete only when it includes the customer in it. The customer determines what a business is. The revenue of business comes from the customer, when he pays for the goods or services of the business. No business can exist without customer.

The existence of a business depends on its customers. Therefore it can be said that the purpose of business is to create and retain customers. To fulfill this purpose a business enterprise should concentrate on two basic functions marketing and innovation.

Marketing is a specialized activity which covers the entire business. All activities in a business balanced according to the needs of market. Therefore marketing include identifying the needs of the customers, planning the product or service and selling the goods at price which satisfies the customer.

The second function of business in customer creation is innovation. Products available to customers are continuously improving due to technology. Therefore a business must strive for improving the quality of product and reducing the price continuously to stay ahead of competition.

Technology helps the business to innovate design, production and marketing techniques. Investment in technology will ultimately reduce cost and bring in more profit. Innovation is possible in every aspect of business. There can be innovation in distribution methods, advertising, selling and every other area of business. Thus business is not restricted to only dealing with goods and services. Creating customer, marketing and innovation are more important aspects of business 1.4.2 Characteristics of Business Business activities are different from all other economic activities in several respects. Following are the main characteristics of business activities:

i) Sale or Exchange of Goods and Services Business activities mainly revolve round the sale or exchange of goods and services one way or other. It

includes producing goods and selling it to the consumer. If the goods are produced for the producers personal use it cannot be called business. Food cooked at the businessmans house is not business as long as he does not sell it. When goods are given free to somebody it is not business for the simple reason that it is not a sale. Thus the most essential feature of business is sale or exchange of goods or services.

ii) Regularity of Dealings An economic activity is recognized as business only when it is done on regular basis. One single transaction of sale or purchase is not considered business. A person selling his old car and buying a new one is not doing car business. But if he does it regularly for purpose of making profit he is doing car business. The term business includes dealings in goods and services. Goods include consumer goods of daily use and capital goods like machinery and equipment. Services include facilities offered to business such as transportation of goods, banking, warehousing, electricity etc.

iii) Profit Earning The main purpose of business is earning profit. No business can survive long without adequate profit. Profit is the reward for the taking the risk of doing business. It is the driving force for continuing the business. The businessman will always attempt to maximize his profit by selling more goods and reducing his cost.

iv) Uncertainty or Risk Risk is part of business. A businessman always faces the possibility of lack of adequate return or even no return for his hard work. He may even lose his investment or more than his investment in the business. Business conditions cannot be predicted accurately. There can be change in trend, fall in demand, change in technology, better products from competitors and hundreds of other reasons that can turn unfavorable to a business. Profit is actually the reward for taking risk. Posted by Devil in the makingat 12:57 AMNo comments:

1.5 Objectives of Business

1.5.1 Economic Objectives of Business Economic objectives are the most important objectives of business. They are i) Earning profit ii) Market Standing

iii) Innovation and iv) Best use of resources.

i) Earning profit Profit is the aim of every business. It keeps the business engine running. Without profit a business cannot survive for long. Profit is the income of the owner for taking business risk. It expands the capital base, improves the working conditions and generates more capital. If the business does not make enough profit the owners will lose interest in business which will ultimately lead to its closing down. Loss-making businesses drain out capital investment. Profit is the yardstick of managerial efficiency. A profitable business gains reputation and goodwill, promote sense of security among workers and generate more profit.

ii) Market standing Customer is the king of business in a free economy. Every business activity is fine tuned to satisfy the requirement of customers. Efficient marketing is essential to continuously spin the cycle of goods to market and money in to business. A business should establish its name in market through systematic efforts. It is important to achieve a position in market and to maintain it. Intense competition is a reality in almost every field of business. To survive in business, there should be constant monitoring of trends and changes in customers tastes and preferences and the efforts of the competitors to grab more market share. Careful strategies are essential to safeguard the position in market.

iii) Innovation To innovate means to implement better techniques. Business is constantly on the look out for better ways of production, marketing and management. Innovation is essential in products, process and distribution. Innovation helps to improve the quality of the product and reduce price of product. It increases efficiency in distribution. Fresh thinking is essential on every area of business. A business which does not improve actually goes down. A business cannot remain steady. If the quality of product does not change, the competitors will introduce better products at lower price and gradually push a stagnant business out of market. Therefore innovation is an essential economic objective for the very survival of a business.

iv) Best use of resources The resources available to a business are men, materials and money. These resources should be put to the best use. Idle resources indicate inefficiency of management. Profit can be maximized only when the

resources work hard to generate income. Natural resources which are not renewable should be carefully utilized to minimize wastage. 1.5.2 Social Objectives of Business Social objectives of business are based on the commitment of the business towards the society in which it exists. A business cannot survive without any consideration of the requirement of the society. There are a lot of adjustments and sacrifices made by the society to help the business function. Pursuing social objectives is in a way giving back part of what is taken out. Therefore social objectives are considered part of business objectives in the long term interest of the business. Following are the important social objectives: i) Supply of desired quality of goods ii) Avoidance of unfair trade practices iii) Generation of employment iv) Welfare of employees v) Community service i) Supply of desired quality of goods

People expect good quality of goods for the money they pay. Customers are increasingly getting quality conscious. Durability, safety and performance at a competitive price are the basic concerns of a customer. Therefore, production and supply of goods according to the expectations of the customer is an important social objective.

ii) Avoidance of unfair trade practices Businesses are often caught making quick money by mal practice. Hoarding of goods, black marketing and over charging buyers are some o the objectionable trade practices. False claims made in advertisements are also considered mal-practice in business. Cosmetic products are known to make exaggerated claims in television commercials, such as 27 ingredients in soap and magic oil that can change black skin to white in 14 days. Such practices cause bad name for the business and they are punishable under law. It must be part of the social commitment of the business to avoid unfair means of earning profit.

iii) Generation of employment Money in the hands of a common man remains stagnant money or unproductive wealth. But money in the hands of a businessman becomes capital. This is the money that builds up prosperity in the country.

It generates further wealth, employment both direct and indirect. The policies of business should be tailored to provide livelihood to people who are less privileged. Special provision should be made to employ people who are handicapped or people who deserve special consideration of the society. This helps such people to be useful part of the society. Business units which pursue these objectives improve their public image.

iv) Welfare of employees Employees are considered valuable human resources of a business. It should be carefully developed and retained in the business for the long term benefit of the business. Providing good salaries and service conditions is considered part of the social obligations of a business. A company should provide adequate salary and benefits such as housing, medical facilities etc. to the employees. Large companies provide various facilities to their employees and family members. This will help them improve the efficiency of worker and raise the profitability of the business.

v) Community service Community service is increasingly recognized as part of social obligations of a business. In India there are reputed management institutes, colleges, hospitals and other institutions financed by large business houses. They also sponsor sports and cultural events. Community services help the business to build up reputation and respect. Posted by Devil in the makingat 12:55 AMNo comments:

1.6 Business Risks

Risk means uncertainty of the future and possibility of unfavourable conditions in business. It is the possibility of inadequate profits or even loses due to uncertain future. Many of the expectations of a businessman can go wrong in real business. When his expectations fail a businessman can lose his investment or even lose his personal wealth. Profit is in fact the reward for taking risk in a business.

Causes of business risks

Business risks arise from various reasons. There are diverse factors collectively forming the business environment. An unfavourable change in any of the environmental factors can adversely affect the business results. Following are the important causes of business risks:

i) Natural causes

This is one of the important factors of business risk. Natural factors include possibility of losses due to earthquake, flood, lightning etc. These factors are mostly unpredictable. They are beyond human control. (There are unconfirmed reports about success in controlling natural forces as a war technology) A business can do very little to reduce the risk of natural calamity.

ii) Economic causes Economic causes include unexpected fluctuations in demand for goods and services resulting in fluctuations in price. Activities of competitors also cause economic risk. When competitors suddenly reduce price of goods, improve quality or packaging it will affect all other businesses in the market.

iv) Human causes Human causes include carelessness of employees, casual behavior, dishonesty and mistakes. While these factors cannot be prevented completely, it can be reduced to a great extent by taking adequate precautions.

v) Physical Causes Physical causes include losses arising from mechanical defects, technical changes etc.

vi) Miscellaneous causes Changes in Government policies can adversely affect a business. Sometimes business will have to find out solutions when the government suddenly increase in tax or duties on products. Reducing of customs duties can bring in competition from foreign goods. Inefficiency of management is another factor of risk in business.

Business risks cannot be avoided completely. Without risk there is no business. Reasonable care and precautions can reduce risk. Insurance can reduce the effect of loss. By paying a small premium for insurance, the business can protect itself against a heavy risk. Insurance is actually a method of sharing a risk by a large number of people. Posted by Devil in the makingat 12:55 AMNo comments:

1.7 Role of Profit in Business

Profit is the main aim of every business. It is the driving force of business. The following factors highlight the importance of profit in business.

1. It is the means of livelihood for the businessman It is the source of income for the businessman. Without profit a business cannot survive. No one can work without any kind of reward for long. Thus if there is no profit, there will be no business in the long run.

2. Source of funds for the growth Part of profit can become source of funds for the future growth. When the business earns good profits reasonable part of this profit can be invested back into the business. Additional investment is required in business from time to time for expansion and growth, diversification of production or to introduce latest technology. Profit as a source of finance is more dependable than external sources.

3. Index of performance Profit is an indicator of the efficiency of management. The success of a business is judged by the amount of profit it generates from the capital investment.

4. Reward for risk bearing Profit is considered the reward for risk bearing. A businessman invests his money in the hope of earning profit. In spite of all the risks involved in business, opportunity for earning good profit induces a businessman to take that risk.

5. Better remuneration to workers A business earning good profits can afford to give better salaries and offer better service conditions to employees. This will make the workers more loyal and efficient, which in turn will contribute to more profit.

6. Reputation, prestige Profitable business earns reputation and prestige. It can raise credit facilities easily. Adequate finance will enable the business to tap the full potential of existing market or product line or explore more attractive opportunities. Posted by Devil in the makingat 12:53 AMNo comments:

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