Business Organizations

Definition of Business

• Business is an economic activity that involves producing and selling goods and services to earn a profit by satisfying human needs.
• It is primarily organized to manufacture or produce goods and services for a profit.

Aspects of Business

• Business means different things to different people, including an occupation, trade, profession, operations of trade or industry, or a commercial enterprise or establishment.

Commerce and Trade

• Commerce refers to the activities of removing hindrances of person, place, time, risk, finance, and information in the process of exchanging goods and services.
• Trade is essential to commerce, referring to the sale, transfer, or exchange of goods, making them available to ultimate consumers or users.

Objectives of Business

• Profit is a primary objective of business, which:
  • Provides income for business owners
  • Enables financing for business expansion
  • Indicates efficient business operations
  • Builds business reputation
• Multiple objectives of business include market standing, innovation, productivity, physical and financial resources, profit, manager and worker performance, and social responsibility.

Characteristics of Business Activities

• Economic activity
• Production or procurement of goods and services
• Sale or exchange of goods and services to satisfy human needs
• Dealings in goods and services on a regular basis
• Profit earning
• Uncertainty of return
• Element of risks

Industry Classification

• Primary industries: extraction and production of natural resources, reproduction, and development of living organisms
• Secondary industries: using materials extracted at the primary stage
• Tertiary industries: providing support services to primary and secondary industries and relating to trade

Rationale for the Existence of Business

• Profit maximization is the primary rationale for the existence of business
• Business must make revenue exceeding costs through production and marketing of goods and services that satisfy human needs and wants

Business Risks

• Risk refers to the responsibility of inadequate profits or even losses due to uncertainties or unexpected events
• Characteristics of business risks:
  • Arise due to uncertainties
  • Essential part of every business
  • Degree of risk depends on nature and size of business
• Causes of business risks include natural, human, and economic causes

Business Environment

• Components of business environment:
  • Micro environment (internal and external)
  • Macro environment
• Micro environment includes internal environment (marketing programs, financial resources, R&D, manufacturing, purchasing policies) and external environment
• Scanning the environment helps identify opportunities, threats, strengths, and weaknesses