Business Organization

Module 1: Meaning, scope and evolution of commerce & industry, -Industrial

Revolution- its effects. -Emergence of Indian MNCs & transnational corporations -Recent
trends in business world. Globalization & challenges for Indian Business in new
millennium.

Meaning, scope and evolution of commerce & industry.

Meaning of commerce: "Commerce is the activity of buying and selling of goods and
services, especially on a large scale or quantity”. Commerce is a branch of business. It is
concerned with the exchange of goods and services. It includes all those activities, which
directly or indirectly facilitate that exchange.
Commerce is the study of exchange and distribution of goods and services from the point of
production to the point of consumption to satisfy human wants.

Dictionary meaning of commerce is “The activity of buying and selling, especially on a large
scale. According to James Stephenson " Commerce is an organized system for the exchange
of goods between the members of the industrial world".

What is commerce ? Commerce is the accumulation of several transactions for a given

industry. A transaction is a one-time event where an entity exchanges anything of value with
a different entity. While transactions refer to the small scale of one single unit or customer,
commerce is the large-scale activity between economic agents like countries and businesses.

Commerce is both a local and macro phenomenon. Cities try to increase commerce within
their municipality to increase tax revenue and property value. Countries manage trade to
grow their economy, lower unemployment rates, and import or export goods and services.
More often than not, though, commerce relates to activity across nations.
Commerce encompasses the entire distribution system of a business or the whole economy. A
product or good must have an adequate distribution channel to efficiently get into the hands
of the end consumer. Someone must also regulate these distribution channels ; otherwise, a
business will be incentivized to continue to grow profit, potentially leading to the downfall of
other involved parties.

Types of Commerce

1 – B2C (Business to Consumer)

2 – C2C (Consumer to Consumer)

3 – B2B (Business to Business)

4 – C2B (Consumer to Business)

SCOPE of commerce:

TRADE

-Trade refers to buying and selling of goods and services with the aim of generating profit.
-Trade is the basic commercial activity which deals with the exchange of goods with goods or
goods with money.

A person who engages in trading activities is known as a Trader. Trade is subdivided into two
main branches; Home trade and international trade (foreign trade). Home Trade is the buying
and selling of goods or services within a country, it is divided into two main branches;retail
trade and wholesale trade.

I.)RETAIL TRADE:-Is the buying of goods from producers or wholesalers and selling them
in small quantities to the final consumer.

II.) WHOLESALE TRADE:-Is the buying of goods in large quantities from producers or
manufacturers and selling in small quantities to the retailers.

INTERNATIONAL TRADE (FOREIGN TRADE)-Is the trade between one nation and other
nations. International trade is divided into two types; i.)Export trade ii.)Import trade

I.) EXPORT TRADE:-It is the selling of goods and services to other countries.

II.) IMPORT TRADE:--It is the buying of goods from other countries.

AIDS TO TRADE– Are those services which help trade to take place smoothly.

-Aids to trade make trade less difficult to carry out. Examples of aids to trade including the
following;-

a.) Transportation: This refers to the movement of physical goods and people from one place
to another or is the movement of goods from areas of production to the area of Consumption.

b.) Communication is the transmission of information from one point or person to another
point or person.

c.) Warehousing: This refers to the storing of goods so that they are made available when and
where they are required.

d.) Banking/Finance-This includes the provision and management of money and credit
necessary to transfer goods to the final consumer.

e.) Insurance: This refers to the protection against risks like fire and theft.

f.) Advertising: This is the art of making goods and services to be known to the public.

Meaning of industry: Industry means the economic activity which creates the economic
value by transforming the raw material into finished products.

An industry is a group of companies that are related based on their primary business
activities. Similar businesses are grouped into industries based on the primary product
produced or sold. In modern economies, there are dozens of industry classifications. Industry
classifications are typically grouped into larger categories called sectors.

Companies within a similar industry will often perform similarly due to macroeconomic
conditions helping or hurting all companies the same across the industry.

Individual companies are generally classified into an industry based on their largest sources
of revenue. For example, while an automobile manufacturer might have a financing division
that contributes 10% to the firm's overall revenues, the company would be classified in the
automaker industry by most classification systems.
Scope of Industry

Scope of industry by nature of business

Extractive industry: industries that extract, raise or fabricate raw materials from above or
beneath the earth surface.
Manufacturing industry: industries concerned with converting raw materials or semi-
finished products into finished goods and products.

Genetic industry: industries that are engaged in reproducing and multiplying certain species
of plants and animals and selling them in the market for profit. Example- cattle breeding
farms, poultry farms, plant nurseries.

Constructive: industries in building roads, dams, bridges, canals etc.

Services Industry: Industries dealing with the intangible goods which can not be seen or
touched by naked eye, experiential. Doctors service, travel and tourism, education, music,
lawyer's service.

Assembly Industry: in this industry various finished products are combined to produce a
new finished product. It means that the industry assembles different component parts to make
a new product. For example:- Manufacturing of computer, television, watches, automobiles,
cars etc.

Evolution of commerce
Read from this link- https://shopney.co/blog/evolution-of-commerce-from-antient-times-
to-ecommerce/

Evolution of industry
Industry is concerned with the production of goods and services. There was a time in the
history of mankind when there were no industrial activities. Our primitive ancestors
consumed what they produced. Hunting was the first stage in the evolution of man. The needs
of man were limited only to food, clothing, and shelter. This was an economy of self-reliance.

Gradually man entered in pastoral stage under which he started domesticating animals for
milk, meat, and skin. He lived near the banks of lakes and rivers because of availability of
grass and water. Soon after this, a man entered the agriculture stage. He began cultivating
land to grow food grains. The economy of the household remained self-sufficient.

The evolution of industry can be traced from handicraft stage where goods were
manufactured for local people.

(a) Handicraft Stage:

Human wants to increase with the advance of civilization. They could not produce everything
they needed. People came to know that man is skilful in producing a few commodities. They
can make quite rapidly in large numbers and in beautiful forms. Hence, under handicraft
stage artisans living in a village, produced products for the local people got in exchange what
they needed. At this stage, artisan used simple hand tools and manual skill for producing the
goods.

The organization of work was quite simple and there was no division of labor. The family
was the unit of industrial organization. The money as a medium of exchange helped the
expansion in industry and trade.

(b) Guild System:

A guild may be defined as an organized group of artisans or traders. In the middle age (up to
15th century) working people organized themselves into Guilds. These Guilds were –
Merchant Guilds and Artisan Guilds. The merchant were associations of traders.

Artisans engaged in the same line formed artisan or craft guilds. The membership of these
guilds was compulsory. The guilds were able to help the growth of industries development.
The interests of members were protected. The members were protected. The members were
expected to produce quality goods. Reasonable profitability was ensured to the craftsman.

(c) The Domestic System:

With the fall guild system, a new system developed which was known as Domestic System.
With the increase in population, the demand for goods increased considerably. The artisans
were not able to procure huge quantities of raw materials. They were also unable to purchase
latest tools because of their limited resources. A new class of entrepreneurs came into
existence. The entrepreneurs gave work to the artisans who worked in their homes.

(d) The Industrial Revolution:

The term ‘Industrial Revolution’ is used to describe a series of changes in the British industry
during the later part of the 18th century and the earlier part of 19th century. A number of
inventions took place in England, which changed the entire technique of production.
The word ‘revolution’ means a fundamental change. In this sense, the industrial revolution
was a change in (a) industrial method, from handwork to work done by machines driven by
power, and (b) industrial organization, from work at home to work at factories. The
consequences of the industrial revolution were mass production, mechanization,
standardization, the growth of capitalism, specialization and improvement in the standard of
living.

(e) Present Stage:

The present age has been termed as an era of large-scale production. The 20th century saw
evolution in technology. The latest technology improvements are automation,
computerization and use of atomic energy for peaceful purposes. With automation, industrial
work can be done faster and better. The machine needs only to be started and everything goes
on automatically. All complicated jobs are done with the help of machines.
The computer system helps to analyze various results. The feedback system in automation
helps to make an adjustment if necessary. With the developments indicated above the world
of industry is passing through a crucial period of change.

2. Industrial revolution its effects:

How Is the Industrial Revolution Best Defined?

The Industrial Revolution shifted from an agrarian economy to a manufacturing economy

where products were no longer made solely by hand but by machines. This led to increased
production and efficiency, lower prices, more goods, improved wages, and migration from
rural areas to urban areas.

When Was the Industrial Revolution?

The first Industrial Revolution began in Great Britain in the mid-to-late 1700s when
innovation led to goods being produced in large quantities due to machine manufacturing.
This spread around the globe. The Industrial Revolution was a period of major mechanization
and innovation that began in Great Britain and later spread throughout much of the world.
The British Industrial Revolution was dominated by the exploitation of coal and iron. The
American Industrial Revolution, sometimes referred to as the Second Industrial Revolution,
began in the 1870s and continued through World War II. The era saw the mechanization of
agriculture and manufacturing and the introduction of new modes of transportation including
steamships, the automobile, and airplanes.

What 3 Things Played a Role in the Industrial Revolution?

Technological changes, such as the use of iron and steel, new energy sources such as coal and
steam, and the factory system, led to a division of labor and specialization, which increased
efficiency.

What Were the Most Important Inventions of the Industrial Revolution?

Among the most important inventions of the first Industrial Revolution include the steam
engine, the spinning jenny, cotton gin, and the telegraph. This was followed by the second
Industrial Revolution, which saw the advent of the internal combustion engine, controlled
electricity, and the lightbulb.

(Source: Investopedia).

KEY TAKEAWAYS

 The first Industrial Revolution began in Great Britain in the 1700s and 1800s and was
a time of significant innovation.

 The American Industrial Revolution followed in the late 19th century and was an
engine of economic growth in the U.S.
  The Industrial Revolution led to inventions that included the assembly line, telegraph,
steam engine, sewing machine, and internal combustion engine.

 Working for businesses during the Industrial Revolution paid better wages than
agricultural work.

 The increase in the number of factories and migration to the cities led to pollution,
deplorable working and living conditions, and child labor.

Understanding the Industrial Revolution

Although the Industrial Revolution occurred approximately 200 years ago, it is a period that
left a profound impact on how people lived and the way businesses operated. Arguably, the
factory systems developed during the Industrial Revolution are responsible for
creating capitalism and the modern cities of today.

Before this period, most households made their living farming and lived primarily in small,
rural communities. With the advent of factories during the 18th century, people began
working for companies located in urban areas for the first time. Often the wages were low,
and conditions were harsh. However, working for such businesses still paid a better living
than farming.1

Production efficiency improved during the Industrial Revolution with inventions such as the
steam engine. The steam engine dramatically reduced the time it took to manufacture
products. More efficient production subsequently reduced prices for products, primarily due
to lower labor costs, opening the marketing doors to a new level of customers.

(Source: Investopedia)

The industrial revolution developed in conjunction with the capitalist economies.

Under capitalism, business owners (capitalists) began to organize labor centrally into
factories and introduced a division of labor to increase output and profitability. Compared to
the craft and guild systems the preceded it, capitalist production incentivized technological
change and innovation at an unprecedented rate.

The Industrial Revolution was driven, in part, by the adoption of coal as an energy source.
Before the use of coal, wood was the primary energy source; coal provided three times more
energy than wood, and Britain had large coal deposits.1

Special Considerations

The industrial revolution was not always organic or directed alone by free market forces. The
United States government, for instance, helped domestic industry at the time by
instituting tariffs—taxes on foreign imported goods—so that products like steel made by U.S.
companies were cheaper than foreign imports. Cheaper steel prices encouraged the
development of infrastructure such as railroads and bridges during the American Industrial
Revolution.

Advantages of Industrialization
The Industrial Revolution created an increase in employment opportunities. Wages at
factories were higher than what individuals were making as farmers. As factories became
widespread, additional managers and employees were required to operate them, increasing
the supply of jobs and overall wages.

Since most of the factories and large companies were located near the cities, populations
migrated to urban areas searching for jobs, often overwhelming the available housing supply.
This led to significant improvements in city planning.

Increased innovation also led to higher levels of motivation and education, resulting in
several groundbreaking inventions still used today. These inventions include the sewing
machine, X-ray, lightbulb, calculator, and anesthesia.

Due to the Industrial Revolution's advancements, the nation saw the first combustible engine,
incandescent light bulb, and modern assembly line used in manufacturing. The Industrial
Revolution changed how people worked, the technologies available to them, and often where
they lived. It made life comfortable for many though living conditions for workers remained
abhorrent, which eventually fueled the rise of labor unions that led to improved working
conditions and fair wages.

Disadvantages of Industrialization
Although there were numerous advancements during the Industrial Revolution, rapid
progress caused many issues. As workers left their farms to work in factories for higher
wages, it led to a shortage of food being produced.

The sharp increase in the number of factories led to an increase in urban pollution. Pollution
wasn't contained only in the factories; as people flocked to the cities, the living conditions
became deplorable as the urban resources were overwhelmed.

Sewage flowed in the streets in some cities while manufacturers dumped waste from factories
into rivers. Water supplies were not tested and protected as they are today. As a result,
regulations, and laws were enacted to protect the population.

The Industrial Revolution provided an incentive to increase profits, and as a result, working
conditions in factories deteriorated. Long hours, inadequate remuneration, and minimal
breaks became the norm. Child labor was a significant issue. Health issues arose for many of
the factory workers giving rise to the labor movement throughout the U.S.
Advantages

 Advancements in production

 Growth in innovations and inventions

 Workers earned higher wages

 Improvements in transportation networks

Disadvantages

 Deplorable working conditions and child labor

 Unsanitary living conditions and pollution

 Food shortages

Examples

The first cotton mill was built after Samuel Slater brought Britain's manufacturing technology
to the United States. The mill was powered by water bringing jobs and commerce to the
Northeast. In the following years, many factories and mills were built using the same
technologies.2

In 1869, the first transcontinental railroad was completed and was a major accomplishment
for the U.S. since it allowed the transportation of goods, people, and raw materials
nationwide.3

Also, during the American Industrial Revolution, Samuel Morse created the telegraph, which
sent electric signals over a wire allowing the nation to communicate.4 Andrew Carnegie built
the first steel mills in the U.S. while Alexander Graham Bell invented the telephone.

Emergence of Indian MNCs & transnational corporations

Multinational corporation

A company that operates in its home country, as well as in other countries around the world.

What is a Multinational Corporation (MNC)?

A multinational corporation (MNC) is a company that operates in its home country, as well as
in other countries around the world. It maintains a central office located in one country,
which coordinates the management of all its other offices, such as administrative branches or
factories. It isn’t enough to call a company that exports its products to more than one country
a multinational company. They need to maintain actual business operations in other countries
and must make a foreign direct investment there.
Characteristics of a Multinational Corporation

In the multinational model, a parent company operates in the home country and puts up
subsidiaries in different countries. The difference is that the subsidiaries and affiliates are
more independent in their operations.

The following are the common characteristics of multinational corporations:

1. Very high assets and turnover

To become a multinational corporation, the business must be large and must own a huge
amount of assets, both physical and financial. The company’s targets are high, and they are
able to generate substantial profits.

2. Network of branches

Multinational companies maintain production and marketing operations in different countries.

In each country, the business may oversee multiple offices that function through several
branches and subsidiaries.

3. Control

In relation to the previous point, the management of offices in other countries is controlled by
one head office located in the home country. Therefore, the source of command is found in
the home country.

4. Continued growth

Multinational corporations keep growing. Even as they operate in other countries, they strive
to grow their economic size by constantly upgrading and by conducting mergers and
acquisitions.

5. Sophisticated technology

When a company goes global, they need to make sure that their investment will grow
substantially. In order to achieve substantial growth, they need to make use of capital-
intensive technology, especially in their production and marketing activities.

6. Right skills

Multinational companies aim to employ only the best managers, those who are capable of
handling large amounts of funds, using advanced technology, managing workers, and running
a huge business entity.

7. Forceful marketing and advertising

One of the most effective survival strategies of multinational corporations is spending a great
deal of money on marketing and advertising. This is how they are able to sell every product
or brand they make.
8. Good quality products

Because they use capital-intensive technology, they are able to produce top-of-the-line
products.

Reasons for Being a Multinational Corporation

There are various reasons why companies want to become multinational corporations. Here
are some of the most common motivations:

1. Access to lower production costs

Setting up production in other countries, especially in developing economies, usually

translates to spending significantly less on production costs. Though outsourcing is a way of
achieving the objective, setting up manufacturing plants in other countries may be even more
cost-efficient.

Due to their large size, MNCs can take advantage of economies of scale and grow their
global brand. The growth is done through strategic manufacturing/service placement, which
allows the corporation to take advantage of undervalued services across the globe, more
efficient and inexpensive supply chains, and advanced technological/R&D capacity.

2. Proximity to target international markets

It is beneficial to set up business in countries where the target consumer market of a company
is located. Doing so helps reduce transport costs and gives multinational corporations easier
access to consumer feedback and information, as well as to consumer intelligence.

International brand recognition makes the transition from different countries and their
respective markets easier and decreases per capita marketing costs as the same brand vision
can be applied worldwide.

3. Access to a larger talent pool

Multinational corporations are also known to hire only the best talent from around the world,
which allows management to provide the best technical knowledge and innovative thinking to
their product or service.

4. Avoidance of tariffs

When a company produces or manufactures its products in another country where they also
sell their products, they are exempt from import quotas and tariffs.

Models of MNCs

The following are the different models of multinational corporations:

1. Centralized
In the centralized model, companies put up an executive headquarters in their home country
and then build various manufacturing plants and production facilities in other countries. Its
most important advantage is being able to avoid tariffs and import quotas and take advantage
of lower production costs.

2. Regional

The regionalized model states that a company keeps its headquarters in one country that
supervises a collection of offices that are located in other countries. Unlike the centralized
model, the regionalized model includes subsidiaries and affiliates that all report to the
headquarters.

Advantages of Being a Multinational Corporation

There are many benefits of being a multinational corporation including:

1. Efficiency

In terms of efficiency, multinational companies are able to reach their target markets more
easily because they manufacture in the countries where the target markets are. Also, they can
easily access raw materials and cheaper labor costs.

2. Development

In terms of development, multinational corporations pay better than domestic companies,

making them more attractive to the local labor force. They are usually favored by the local
government because of the substantial amount of local taxes they pay, which helps boost the
country’s economy.

3. Employment

In terms of employment, multinational corporations hire local workers who know the culture
of their place and are thus able to give helpful insider feedback on what the locals want.

4. Innovation

As multinational corporations employ both locals and foreign workers, they are able to come
up with products that are more creative and innovative.

5. Foreign Direct Investment

Foreign direct investments are prevalent within multinational corporations. The investments
occur when an investor or company from one country makes an investment outside the
country of operation.

Foreign investments most often occur when a foreign business is established or bought
outright. It can be distinguished from the purchase of an international portfolio that only
contains equities of the company, rather than purchasing more direct control.
(Source: CFI https://corporatefinanceinstitute.com/resources/management/multinational-
corporation/)

Emergence of Indian MNCs

Globalization has become an Imperative for Indian Companies. When the Indian economy
liberalized in the early 1990s, with the licensing system for setting up industries getting
dismantled and foreign direct investment being encouraged, it was greatly feared that Indian
companies would not be able to match up to the marketing and financial prowess of MNCs.
More than a decade later, Corporate India has shown that it not only has the capabilities to

face up to the might of the MNCs who have entered India, but also challenge their position in
international markets. Indian companies have been spurred to cross domestic boundaries and
consider entry into new products for maintaining their market position. This is most evident
in the case of Aurobindo Pharma, which started its transition from a single product, domestic
player in mid-1990s to become a multiproduct global player today. Severe margin pressures
on its primary product semi-synthetic penicillin forced it to look out for higher margin
products and penetrate into new geographies. The company added newer products like
cephalosporins, life style drugs and anti-HIV drugs to its portfolio and got its manufacturing
facilities approved by several regulatory authorities to give a thrust to exports. Today high
growth markets (like Brazil and China) and regulated markets (like US, Canada and Europe)
contribute more than 50 per cent to total revenues of the company. It is not only the private
sector, but also the public sector, which has been aggressively looking at globalization
opportunities. An interesting example is that of Indian Oil, which was protected historically
by regulations preventing entry of private players to become a dominant player in the
downstream refining and marketing sector in India. Post liberalization, competition from
private players in the domestic market has forced the company to look for revenues from
international markets. To this effect, the company has begun to pursue global diversification
by targeting exploration opportunities and providing technical services to companies in the
Middle East as well as marketing its products across Asia.

Indian Companies have followed a mix of Strategies to Establish a Global Footprint:

The attitudinal change to turn global has led to the emergence of many Indian MNCs who
have overcome geographic boundaries by adopting a mix of business strategies. Most
commonly, companies have used the route of Greenfield investments or acquisitions overseas
or a combination of both. Others have made their exports more cost competitive vis-a-vis
global peers. A few have entered into technical tie-ups with global partners to build
capabilities and then leverage them in the international markets. Several companies have
ramped up their scale of operations to a level essential for a global foray.
Making Investments in Greenfield Venture or Acquisitions

For those companies concentrating on making investments outside India, a mix of organic
and inorganic growth has been the most common route towards globalization. The industry
leading on this front is the IT industry, which has put India on the global map.TCS, with 169
offices in 35 countries world-wide, is not only dominant in English speaking countries, but
also has a strong presence in the Spanish and Portuguese speaking regions of the world. Its
strategic acquisitions of a banking and BPO business in Chile, and a banking solutions
company in Australia, have helped it to gain complementary skills and geographic presence.
Wipro, which commenced operations in the vegetable oils business.

Here is a list of crucial acquisitions made by Indian MNCs

(Source: Technology Exports (2006), EMERGENCE OF INDIAN MULTINATIONALS,

Ashwani Gupta, vol 8, no. 3)

Characteristics of Indian MNCs

- Making Exports Cost Competitive in Relation to Global Peers

- Forming Alliances with International Companies
- Ramp-up in Scale of Operations
- Leveraging International Capital Markets
Recent trends in business world

Read from the links:

1. https://www.the-future-of-commerce.com/2022/11/25/2023-business-trends-roundup/

2. https://www.forbes.com/sites/bernardmarr/2022/10/03/the-5-biggest-business-trends-
for-2023/?sh=25abc18b4217

3. https://www.accenture.com/hu-en/i

/cloud-computing/global-business-trends-outlook-2023

Globalization & challenges for Indian Business in new millennium.

Read from this link:

1. - https://www.legalservicesindia.com/article/1018/Globalization-&-its-impact-on-
Indian-Economy:-Developments-and-Challenges.html

Read Pdf given in class group: Globalization and challenges for India 2023-2024

Case studies done in class

1. Nike Corporation: link given in group separately

2. Walmart Corporation: link given in group separately

(Compiled by Dr. Madhu Bala Roy)

(Kindly read class notes also)