Evolution and

Fundamentals of
Business
Learning objectives

After studying this chapter, you should be able to:

 i. Appreciate the development of trade and commerce in historical past;

 ii. Understand the role of indigenous banking system in trade and commerce;
 iii. Explain the concept and objectives of business;
 iv. Discuss types of industries;
 v. Explain the activities relating to commerce;
 vi. Describe the nature of business risks and their causes; and
Business-Meaning and Characteristics

 CONCEPT OF BUSINESS

 Business is derived from the word “BUSY”

 Business refers to an occupation in which people

regularly engage in activities related to purchase,
production or sale of goods and services with a view to
earning profits
Activit • Production or Purchase of
goods for sale.
y may • Exchange of goods for
consist sale or supply of services
to satisfy the needs of
of other people.
 Human
activities

Non
Economic
Economic
activities
activities

Busines Professio Employment Religious Social Parental Patriotic

s n
Difference Between Economic and Non
Economic Activities
 ECONOMIC
ACTIVITIES

BUSINESS PROFESSION
Farming Medical EMPLOYMENT
Manufacturing goods Legal Workers
Construction Teaching Employees
Banking Accounting
DEFINITION

 Business may be defined as an economic

activity involving the production and sale of
goods and services undertaken with a motive of
earning profit by satisfying human needs in
society
Characteristics /Features of Business

An Economic activity
Production or procurement of goods and services
Sale or exchange of goods and services for the satisfaction
of human needs
Dealings in goods and services on a regular basis
Profit earning
Uncertainty of Return
Element of Risk
1 Economic Activity:

It is undertaken with the object of earning money

It involves sale, exchange, purchase of goods and services

for mutual profit through the satisfaction of human wants

It requires use of scarce resources like land, labour, capital

and machinery
Profession

 Includes those Economic activities which

require application of special knowledge and
skills in the occupation.
 In every profession, guidelines or codes of
conduct laid down by professional bodies have
to be followed
Characteristics Of Profession

Well defined body of

knowledge

Restricted Entry

Professional association

Code of Conduct

Service motive

Reward or Return

Nature of work
PROFESSIONS PROFESSIONALS PROFESSIONAL
BODIES
Medical Doctors Medical Council
of India
Legal Lawyers Bar Council of
India
Accounting Chartered Institute of
Accountants Chartered
Accountants of
India
Employment

 Employment refers to the occupation in which people

work for others and get remuneration in return.
 Examples:
 People who work in factory receives wages
 Bank employees get salaries
CHARACTERISTICS OF EMPLOYMENT

Contractual Relation

Reward or Return

Nature of work

Capital Investment

Code of conduct

Qualification
OBJECTIVES OF BUSINESS

Objectives
of Business

Economic Social
Economic Objectives

Profit earning

Survival

Growth
SOCIAL OBJECTIVES

Production and supply of quality goods and services

Avoidance of anti-social and unfair trade practices

Generation of Employment

Welfare of Employees

Community Service
ROLE OF PROFIT IN BUSINESS
Source of Income
for business
persons

Builds up Source of funds

for meeting
reputation of expansion
Business requirements

Indication of
Reward for efficient
risk taking working of
Business
ROLE OF PROFIT

Conclusion

 Profit is not the sole criterion of Business. The early

concept of business was based on the goal of profit
maximisation as reflected in the slogan ‘the business of
business is to business’
 However , the modern concept of business is founded
on the goal of ‘profits through service’
BUSINESS RISK

 Itrefers to the possibility of inadequate profits or

even losses due to uncertainities or unexpected
events
 Example:
 Demand for a firms product may decline due to
change in taste and fashion of customers or due to
increased competition
 Decrease in demand will result in low sales and hence
low profits or even losses.
TYPES OF BUSINESS RISKS

Business
risks

Speculative
Pure risks
Risks
SPECULATIVE RISK

 Such risk involves both the possibility of gain as well as the

possibility of loss.

They arise due to changes in market conditions. Like fluctuations

in demand and supply, changes in prices or fashion or tastes of
consumers.

Favourable market conditions lead to gains, whereas unfavourable

one leads to losses
PURE RISK

It involves only the possibility of loss or no loss.

Fire, theft, strikes etc.
Occurrence of such risk may lead to loss
Non occurrence may lead to absence of loss.
Nature of Business risks

Business risks arise due to uncertainities

Risk is an essential part of every business

Degree of risk depends mainly upon the

nature and size of Business

Profit is the reward for risk taking

CAUSES OF BUSINESS RISKS

Economic
causes
Natural Human causes Other causes
causes Competition
Dishonesty
Change of Political
Flood Carelessness disturbances
technology
earthquake strikes
Mechanical
Price
fluctuation failure
CLASSIFICATION OF BUSINESS
ACTIVITIES

Industry
Classification
of Business
Activities
Commerce
 Industry

Primary Secondary Tertiary

 Primary Secondary
Industry Industry Tertiary
Industry
Construction
Extractive Genetic Manufacturing

Transport Warehousing
Banking Insurance Advertising
Extractive Industry Genetic Industry
Farming Poultry farming
Mining Cattle Breeding

Manufacturing Construction
Industry Industry
Cotton
Textile Building
Cement Road
INDUSTRY

 It refers to economic activities which are connected

with conversion of resources into useful goods.
 It is concerned with the production or processing of
goods and materials

 Example: Cotton textile Industry produces textile goods

from cotton
 Electronic Industry produces electronic goods like TV ,
Video Camera
Primary Industry

 Itincludes all those activities which are

connected with extraction and production of
natural resources and reproduction and
development of living organisms, plants etc.
 Extractive Industries:
 These industries extract or draw out various products from natural
resources such as earth, soil, water
 The products of such industries are either directly consumed(fish) or used
as raw materials for manufacturing and construction industries (iron ore in
steel industry)
 Genetic Industry
 It includes all those industries which are engaged in breeding
plants and animals for their use in further reproduction.
 Poultry farming, cattle breeding, fish hatchery etc.
SECONDARY INDUSTRY

 It includes those activities, which are connected with

using the materials, which have already been extracted
at the primary stage
 These industries process such materials to produce
goods for final consumption or for further processing by
other industrial units.
 Sugarcane is produced in Primary Industry
 Sugar is produced in the secondary Industry
 Manufacturing
Industry
Analytical
industry Synthetical Processing Assembling
Industry Industry Industry
Manufacturing industry:
It includes all those industries which are engaged in
processing of raw materials to produce finished goods.
Example: Cotton Textile Industry
 Analytical industry:
Basic raw material are analysed and separated into different finished
products.
Example:
Crude oil is processed into many finished products, such as kerosene, petrol,
diesel etc

Synthetical Industry:
Example:
Two or more raw materials are combined together in manufacturing process
to make the final product.
Various chemicals are mixed together to manufacture cement
Processing Industry:

A product passes through various stages to become a final product.

Example: Sugar industry, Paper industry

Assembling Industry:

Different components are assembled to make a new product.

Example: Automobile Industry, TV industry
 Construction industry:

It includes all those industries which are engaged

in the construction activities.

Example: industries involved in construction of

Buildings, dams, bridges , roads etc
TERTIARY INDUSTRY

 These are concerned with providing support

services to primary and secondary industries as
well as activities relating to trade.

 It is also known as Service Industry

Commerce

 Commerce is a wide term consisting of all those

activities which are necessary for sale, transfer
or exchange of goods and services.
Role or Functions of Commerce

Hindrance
s of Hindrances
Hindrances Hindrances Hindrances Hindrance
persons of
of Place of time of Risk of Finance
Information
Hindrance of Hindrance of Hindrance of Hindrance of Hindrance of Hindrance of
Persons Place Time Risk Finance Information

Removed by Removed by Removed by Removed by Removed by Removed by

Trade Transport Warehousing Insurance Banking Advertising
Branches of Commerce

Commerce

Auxiliaries
Trade
to Trade
TRADE
 Trade refers to buying and selling of goods and services with the aim of earning profits.
 Trade removes hindrance of person by creating a link between producers and
consumers.
INTERNAL TRADE(HOMETRADE)
It is concerned with the buying and selling of goods and services within the geographical
boundaries of a country.
Whole sale Trade:
It involves buying and selling of goods in large quantities
Retail Trade:
It involves buying and selling of goods in small quantities
EXTERNAL TRADE

 It is concerned with the buying and selling of goods and services

between persons or organisations operating in two or more countries.

IMPORT TRADE:
It refers to purchase of goods from a foreign country.
EXPORT TRADE:
It refers to sale of goods to a foreign country.
ENTREPOT TRADE:
It refers to import of goods for the purpose of export to other countries
 Trade

Internal External
Trade Trade
 Internal External
Trade Trade

Wholesale Retail Import Export Entrepot

Trade Trade Trade Trade Trade
Auxiliaries to Trade

Auxiliaries
to Trade

Transportatio Banking and

n Finance Insurance Warehousing Communication Advertising
Transportation
 It involves all those activities which are undertaken for the movement of
goods from one place to another.

Banking and Finance

 It involves all those activities which are concerned with providing finance for
various business activities

Insurance
 It involves all those activities which are concerned with providing protection
from various kinds of risk
Warehousing
It is concerned with storing goods in order to facilitate their supply to the market
at the right time.

Advertising:
It involves all those activities which are concerned with providing information
about the product to the consumers.