Chapter

Introduction to
Business
1

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 What is Business?
• “Business is the exchange of goods,
services, or money for mutual benefit or
profit.”-Skinner and Ivancevich
• “Business is any activity that seeks to
provides goods and services to others
while operating at profit ”

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 What is Business?

• Business involves production and

distribution of goods and services to
satisfy the needs and wants of the
consumer at a profit.

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 Components of Business
Business includes all activities concerned with the
production, sale or exchange of goods and services with
the objectives of earning profit. There are three
components of business:
• Trade
• Commerce
• Industry
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 Components of Business
Trade: Trade involves sales and purchase of goods. There are
two types of trade-

• Home trade: When trade takes place within the national

boundaries.
• Foreign trade: When trade takes place across the national
boundaries
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 Components of Business
Commerce: It is the process of buying,
selling and other activities which facilitate
trade. The principal function of commerce is
to remove the hindrances of person, place,
time, exchange and knowledge.

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 Components of Business

• Industry: Producing, processing and

conversion of goods.

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Relationships between risk, profit and loss

• Businesspeople make profits by taking risks.

• Profit is the amount of money a business earns above

and beyond what it spends for salaries and other
expenses.
• Risk is the chance an entrepreneur takes of losing time
and money on a business that may not prove profitable.

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Relationships between risk, profit and loss

• A loss occurs when a business’s expenses are

more than its revenues.
• Revenue: Revenue is the total amount of
money a business takes in during a given
period by selling goods and services.

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Objectives of Business

Survival

Profit Social
Growth Responsibility

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 Objectives of Business
• Profit: Profit = Sales Revenues- Operating
cost. Business people sale their goods and
services, for making profit.

• Survival: Survival is the prime objective

of business.

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 Objectives of Business
• Growth: Increasing Market Share and
Productivity (Generating the amount of
output from given amount of input)
• Social Responsibility: Creation of
employment, Supply of goods and
services according to demand

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 A Business and Its Stakeholders

• Stakeholders: All the people who stand

to gain or lose by the policies and
activities of a business. Stakeholder is the
person who have interest in business.

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A Business and Its Stakeholders

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 A Business and Its Stakeholders
• Owner: People who own a business, as well as
those who invest money in business to earn
profit.
• Managers: The person responsible for
operating the business is called manager. He
may be the owner of the business or a
professional manager employed by the owner.

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 A Business and Its Stakeholders

• Employees: Employees supply the skills

and abilities needed to provide a product
or service and to earn a profit.
• Consumers: A consumer is a person who
purchases a good or service for personal
or organizational use.

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 Factors of Production

Factors of Production are the resources

used to create wealth:

Land , Labor, Capital, Entrepreneurship,

and Knowledge.

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 Creating Wealth:
Factors of Production

Entrepreneurship
Land

Labor

Capital Knowledge

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 Factors of Production
• Land : Land and other natural resources are used to
make homes, cars, and other products.
• Labor: People have always been an important resource
in producing goods and services, but many people are
now being replaced by technology.
• Capital: Capital includes machines, tools, buildings, and
other means of manufacturing.
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 Factors of Production
• Entrepreneurship: All the resources in the world have
little value unless entrepreneurs are willing to take the
risk of starting businesses to use those resources.

• Knowledge: Information technology has revolutionized

business, making it possible to quickly determine wants
and needs and to respond with desired goods and
services.
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 The Business Environment
• The business environment consists of the
surrounding factors that either help or hinder the
development of businesses.

• Business Environment may be defined as a set of

actors and forces that are uncontrollable in nature
and affects the functioning of organization.
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 Business Environment
Environment has two components:

1. Internal Environment
2. External Environment

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 Business Environment
Internal Environment: It External Environment:

includes 5 Ms i.e. man, Those factors which are

material, money, machinery beyond the control of

and management, usually business enterprise are

within the control of business. included in external

Business can make changes in environment.

these factors according to the These factors are:

change in the functioning of Demographic, Economic,

enterprise. Political, Socio-cultural,

Technological, and
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Natural factors. etc.
 DEMOGRAPHIC ENVIRONMENT

Demography is the study of human populations in term of size, density,

location, age, gender, race, occupation, and other statistics.
The demographic environment is a major interest to marketers because
it involves people, and people make up markets
 Economic Environment

The economic environment consists of factors that affect consumer purchasing

power and spending patterns both across and within their world markets. It is
very complex and dynamic in nature that keeps on changing with the change in
policies or political situations.

It has three elements:

(i) Economic Conditions of Public
(ii) Economic Policies of the country
(iii)Economic System
 Technological Environment

The technological environment is perhaps the most dramatic force

now shaping our destiny.

Forces that create new technologies, create new product and market
opportunities.
Everyday there has been vast changes in products, services,
lifestyles and living conditions, these changes must be analyzed by
every business unit and should adapt these changes.
 Socio-Cultural Environment

The socio-cultural environment is made up of institutions and other forces

that affect a society’s basic values, perceptions, preferences, and behaviors.

• These forces include: attitude of people to work, family system, caste

system, religion, education, marriage etc.
 Political Environment

The political environment consists of laws, government agencies

and pressure groups that influence or limit various organizations
and individuals in a country.
The components of political environment include:
Political Belief of Government, Political Strength of the
Country, Relation with other countries, Defense and Military
Policies, Thinking Opposition Parties towards Business Unit.
 Natural Resources

Natural resources that are needed as inputs by marketers or that are

affected by business activities.
weather, climatic conditions, crops, soil, sea, rivers,
rainfall etc.)
Every business unit must look for these factors before
choosing the type and location of their business.
 Competitive Environment

• Competitive Environment: - Every move of the competitors

affects the business. Business has to adjust itself according to
the strategies of the Competitors.
 International Environment

International Environment: - It is particularly important

for industries directly depending on import or exports.