NCERT Class 11 Business Studies Chapter 1 PDF

PART I Foundations of Business 2019-20  CHAPTER 1 B USINESS, TRADE AND COMMERCE LEARNING OBJECTIVES After studying this chapter, you should be able to: i. Appreciate the development of trade an...

PART I Foundations of Business 2019-20  CHAPTER 1 B USINESS, TRADE AND COMMERCE 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 vii. Discuss the basic factors to be considered while starting a business. 2019-20 BUSINESS, TRADE AND COMMERCE 3 Imran, Manpreet, Joseph and Priyanka have been classmates in Class X. After their exams are over, they happen to meet at a common friend Ruchika’s house. Just when they were sharing their experiences of examination days, Ruchika’s father Raghuraj Chaudhary intervenes and asks about their well- being. He also enquires about their career plans. But none of them had a definite reply. Raghuraj who himself is a successful businessman tells them about business as a career opportunity. Joseph gets excited by the idea and says “yes, business is really good for making lots of money”. Raghuraj tells them that ‘there is a lot more to business than merely money’. Business activities lead to growth and development of any country, he added. He further tells them that the roots of business activities can be traced back to ancient times and how trading helps in the prosperity of the Indian subcontinent. Priyanka said that they have read about the Silk Route in their history textbooks. Raghuraj then gets busy with his day-to-day tasks. However, the four classmates begin raising questions. The conversation of the four classmates focused on how trading activities were conducted during ancient times. How far can the roots of trading activities be traced? Why was the Indian subcontinent referred to as ‘Swaran Bharat and Swaran Dweep’ by the then travellers to India? What made Columbus and Vasco da Gama undertake journeys to locate India? They decided to meet the commerce teacher of their school to find out answers to many such questions about the development, nature and purpose of business. 1.1 INTRODUCTION All human beings, wherever they may lives. Although our lives are influenced be, require different types of goods and by many other institutions in modern services to satisfy their needs. The society, such as schools, colleges, necessity of supplying goods and hospitals, political parties and religious services has led to certain activities being bodies, business has a major influence undertaken by people to produce and on our daily lives. It, therefore, becomes sell what is needed by others. Business important that we understand the is a major economic activity in all concept, nature and purpose of modern societies concerned as it is business. concerned with the production and sale The chapter is divided into two of goods and services required by sections. Section I deals with the people. The purpose behind most history of trade and commerce in business activities is to earn money by ancient India. Section II deals with the meeting people’s demands for goods concept, nature and purpose of and services. Business is central to our business. 2019-20 4 BUSINESS STUDIES SECTION I The period was marked by substantial commercial activities and urban History of Trade and Commerce development. Political economy and military security during ancient times The economic and commercial united most of the Indian subcontinent evolution of any land depends upon its and trade regulations were carefully physical environment. This stands true planned. There were diverse types of for the Indian subcontinent as a whole coins and weighing practices which which has Himalayas in the North used to vary from place to place with bordered by water in the South. A the help of money changers and by network of roads merging into the resorting to certain commonly Silk Route helped in establishing accepted weights and measures. commercial and political contacts with adjoining foreign kingdoms and 1.1 Indigenous Banking System empires of Asia, in particular, and the world, in general. The maritime routes As economic life progressed, metals linked the east and the west by sea and began to supplement other were used for the trade of spices and commodities as money because of its known as ‘spice route’. Due to the flow durability and divisibility. As money of wealth through these routes, the served as a medium of exchange, the chief kingdoms, important trade introduction of metallic money and its centres and the industrial belt use accelerated economic activities. flourished, which in turn further Documents such as Hundi and facilitated the progress of domestic and Chitti were in use for carrying out international trade in ancient India. transactions in which money passed Trade and commerce have played from hand to hand. Hundi as an a vital role in making India to envolve instrument of exchange, which was as a major actor in the economic world prominent in the subcontinent. It in ancient times. Archaeological involved a contract which — (i) warrant evidences have shown that trade and the payment of money, the promise or commerce was the mainstay of the order which is unconditional (ii) economy of ancient India carried out capable of change through transfer by by water and land. Commercial cities valid negotiation. like Harappa and Mohenjodaro were Indigenous banking system played a founded in the third millennium B.C. prominent role in lending money and The civilisation had established financing domestic and foreign trade commercial connections with with currency and letter of credit. With Mesopotamia and traded in gold, silver, the development of banking, people copper, coloured gemstones, beads, began to deposit precious metals with pearls, sea shells, terracotta pots, etc. lending individuals functioning as 2019-20 BUSINESS, TRADE AND COMMERCE 5 Hundi as practised by Indian Merchaant Communities Name of Hundi Broader Functions of Hundi Classification Dhani-jog Darshani Payable to any person—no liability over who received payment. Sah-jog Darshani Payable to a specific person, someone ‘respectable’. Liability over who received payment. Firman-jog Darshani Hundi made payable to order. Dekhan-har Darshani Payable to the presenter or bearer. Dhani-jog Muddati Payable to any person—no liability over who received payment, but payment over a fixed term. Firman-jog Muddati Hundi made payable to order following a fixed term. Jokhmi Muddati Drawn against dispatched goods. If goods lost in transit, the drawer or holder bears the coasts, and the Drawee carries no liability. bankers or Seths, and money became Workshops (Karkhana) were an instrument for supplying the prominent where skilled artisans manufacturers with a means of worked and converted raw materials producing more goods. into finished goods which were high in Agriculture and the domestication of demand. Family-based apprenticeship animals were important components of system was in practice and duly the economic life of ancient people. Due followed in acquiring trade-specific to the favourable climatic conditions skills. The artisans, craftsmen and they were able to raise two or sometimes skilled labourers of different kinds three crops in a year. In addition to this, learnt and developed skills and by resorting to weaving cotton, dyeing knowledge, which were passed on from fabrics, making clay pots, utensils, and one generation to another. handicrafts, sculpting, cottage industries, masonry, manufacturing, 1.2.1 Rise of Intermediaries transports (i.e., carts, boats and ships), Intermediaries played a prominent role etc., they were able to generate surpluses in the promotion of trade. They and savings for further investment. provided considerable financial 2019-20 6 BUSINESS STUDIES security to the manufacturers by as a means of communication had assuming responsibility for the risks assumed key importance in the entire involved, especially in foreign trade. It process of growth, particularly of the comprised commission agents, brokers inland trade and for trade over land. and distributors both for wholesale and The northern roadway route is believed retail goods. An expanding trade to have stretched originally from Bengal brought in huge amounts of silver to Taxila. There were also trade routes bullion into Asia and a large share of in the south spreading east and west. that bullion gravitated towards India. Trade routes were structurally wide The institution of Jagat Seths also and suitable for speed and safety. developed and exercised great influence Maritime trade was another during the Mughal period and the days important branch of global trade of the East India Company. Bankers network. Malabar Coast, on which began to act as trustees and executors Muziris is situated, has a long history of endowments. Foreign trade was of international maritime trade going financed by loans. However, the rate of back to the era of the Roman Empire. interest for longer voyages was kept Pepper was particularly valued in the high in view of the huge risk involved. Roman Empire and was known as The emergence of credit ‘Black Gold’. For centuries, it remained transactions and availability of loans the reason for rivalry and conflict and advances enhanced commercial between various empires and trade operations.The Indian subcontinent powers to dominate the route for this enjoyed the fruits of favourable balance trade. It was in the search for an of trade, where exports exceeded alternate route to India for spices that imports with large margins and the led to the discovery of America by indigenous banking system benefitted Columbus in the closing years of the manufacturers, traders and 15th century and also brought Vasco merchants with additional capital da Gama to the shores of Malabar funds for expansion and development. in 1498. Commercial and Industrial banks later Calicut was such a bustling evolved to finance trade and commerce emporium that it was even visited by and agricultural banks to provide both Chinese ships to acquire items, like short-and long-term loans to finance frankincense (essential oil) and myrrh agriculturists. (fragrant resin used in perfumes, medicines) from the Middle East, as well 1.3 TRANSPORT as, pepper, diamonds, pearls and cotton from India. On the Coromandel Coast, Transport by land and water was Pulicat was a major port in the 17th popular in the ancient times. Trade was century. Textiles were the principal maintained by both land and sea. Roads export from Pulicat to Southeast Asia. 2019-20 BUSINESS, TRADE AND COMMERCE 7 1.4 Trading Communities It had to be paid for passengers, goods, Strengthened cattle and carts. The right to receive the In different parts of the country, labour tax was usually transferred to different communities dominated trade. the local bodies. Punjabi and Multani merchants The guild chief dealt directly with handled business in the northern the king or tax collectors and settled region, while the Bhats managed the the market toll on behalf of its fellow trade in the states of Gujarat and merchants at a fixed sum of money. Rajasthan. In western India, these The guild merchants also acted as groups were called Mahajan, Chatt is custodians of religious interests. They were important traders from the South. undertook the task of building temples and made donations by levying a In urban centres, such as Ahmedabad corporate tax on their members. The the Mahajan community collectively commercial activity, thus, enabled big represented by their chief called merchants to gain power in the society. nagarseth. Other urban groups included professional classes, such as 1.4.2 Major Trade Centres hakim and vaid (physician), wakil (Lawyer), pundit or mulla (teachers), There were all kinds of towns—port painters, musicians, calligraphers, etc. towns, manufacturing towns, mercantile towns, the sacred centres, 1.4.1 Merchant Corporations and pilgrimage towns. Their existence is an index of prosperity of merchant The merchant community also derived power and prestige from guilds, which communities and professional classes. were autonomous corporations formed The following were the leading to protect the interests of the traders. trade centres in ancient India: These corporations, organised on 1. Pataliputra: Known as Patna formal basis, framed their own rules of today. It was not only a commercial membership and professional code of town, but also a major centre for export conduct, which even kings were of stones. supposed to accept and respect. Trade 2. Peshawar: It was an important and industry taxes were also a major exporting centre for wool and for the source of revenue. Traders had to pay import of horses. It had a huge share octroi duties that were levied on most in commercial transactions between of the imported articles at varying rates. India, China and Rome in the first They were paid either in cash or in century A.D. kind. 3. Taxila: It served as a major centre Customs duties varied according to on the important land route between the commodities. Tariffs varied from India and Central Asia. It was also a province to province. The ferry tax was city of financial and commercial another source of income generation. banks. The city occupied an important 2019-20 8 BUSINESS STUDIES place as a Buddhist centre of learning. purchase pearls, glass and rare stones The famous Taxila University and in return they sold gold and silk. flourished here. 11. Madura: It was the capital of the 4. Indraprastha: It was the Pandayas who controlled the pearl commercial junction on the royal road fisheries of the Gulf of Mannar. It where most routes leading to the east, attracted foreign merchants, west, south and north converged. particularly Romans, for carrying out 5. Mathura: It was an emporium of overseas trade. trade and people here subsisted on 12. Broach: It was the greatest seat commerce. Many routes from South of commerce in Western India. It was India touched Mathura and Broach. situated on the banks of river Narmada 6. Varanasi: It was well placed as it and was linked with all important lay both on the Gangetic route and on marts by roadways. the highway that linked North with the 13. Kaveripatta: Also known as East. It grew as a major centre of textile Kaveripatnam, it was scientific in its industry and became famous for construction as a city and provided beautiful gold silk cloth and loading, unloading and strong facilities sandalwood workmanship. It had of merchandise. Foreign traders had links with Taxila and Bharuch. their headquarters in this city. It was a 7. Mithila: The traders of Mithila convenient place for trade with crossed the seas by boats, through the Malaysia, Indonesia, China and the Far Bay of Bengal to the South China Sea, East. It was the centre of trade for and traded at ports on the islands of perfumes, cosmetics, scents, silk, wool, Java, Sumatra and Borneo. Mithila cotton, corals, pearls, gold and established trading colonies in South precious stones; and also for ship China, especially in Yunnan. building. 8. Ujjain: Agate, carnelian, muslin 14. Tamralipti: It was one of the and mallow cloth were exported from greatest ports connected both by sea Ujjain to different centres. It also had and land with the West and the Far trade relations through the land route East. It was linked by road to Banaras with Taxila and Peshawar. and Taxila. 9. Surat: It was the emporium of western trade during the Mughal period. 1.4.3 Major Exports and Imports Textiles of Surat were famous for their Exports consisted of spices, wheat, gold borders (zari). It is noteworthy that sugar, indigo, opium, sesame oil, Surat hundi was honoured in far off cotton, parrot, live animals and animal markets of Egypt and Iran. products—hides, skin, furs, horns, 10. Kanchi: Today known as tortoise shells, pearls, sapphires, Kanchipuram, it was here that the quartz, crystal, lapis, lazuli, granites, Chinese used to come in foreign ships to turquoise and copper etc. 2019-20 BUSINESS, TRADE AND COMMERCE 9 Imports included horses, animal Indian economy and made the products, Chinese silk, flax and linen, Europeans embark great voyage of wine, gold, silver, tin, copper, lead, discovery. Initially, they came to rubies, coral, glass, amber, etc. plunder but soon realised the rewards of trade in exchange of gold and silver. 1.5 POSITION OF INDIAN SUBCONTINENT Despite the growing commercial sector, IN WORLD ECONOMY ( 1 AD UP it is evident that the 18th century India TO 1991) was far behind Western Europe in Between the 1st and the 7th centuries technology, innovation and ideas. With CE, India is estimated to have the the increasing control of the East India largest economy of the ancient and Company causing lack of freedom and medieval world, controlling about one- no occurrence of agricultural and third and one-fourth of the world’s scientific revolution, limited reach of wealth (timeline). The country was often education to the masses, population referred to as ‘Swaranbhumi’ and growth and preference to machines over ‘Swarndweep’ in the writings of many manual skills made India a country travellers, such as Megasthenes, which was prosperous but with people Faxian (Fa Hien), Xuanzang (Huen who were poor. Tsang), Al Beruni (11th century), Ibn The British empire began to take Batuta (11th century), Frenchman roots in India in the mid – 18th Francois (17th century) and others. century. The East India Company They repeatedly refer to the prosperity used revenues generated by the of the country. provinces under its rule for purchasing The pre-colonial period in Indian Indian raw materials, spices and history was an age of prosperity for goods. Hence, the continuous inflow Source: Angus Maddison (2001 and 2003), The World Economy: A Millennial Perspective, OECD, Paris; Angus Maddison, The World Economy, Historical Statistics 2019-20 10 BUSINESS STUDIES of bullion that used to come on infrastructure were the major reasons. account of foreign trade stopped. This As a result, India relied heavily on changed the condition of the Indian borrowings from foreign sources and economy from being an exporter of finally, agreed to economic processed goods to the exporter of raw liberalisation in 1991. materials and buyer of manufactured The Indian economy is one of the goods. fastest growing economies in the world today and a preferred FDI destination. 1.5.1 India begins to Reindustrialise Rising incomes, savings, investment After Independence, the process of opportunities, increased domestic rebuilding the economy started and consumption and younger population India went for centralised planning. The ensures growth for decades to come. First Five Year Plan was implemented The high growth sectors have been in 1952. Due importance was given to identified, which are likely to grow at a the establishment of modern rapid pace world over and the recent industries, modern technological and initiatives of the Government of India scientific institutes, space and nuclear such as ‘Make in India’, Skill India’, programmes. Despite these efforts, the ‘Digital India’ and roll out of the Foreign Indian economy could not develop at a T rade Policy (FTP 2015-20) is rapid pace. Lack of capital formation, expected to help the economy in terms rise in population, huge expenditure of exports and imports and trade on defence and inadequate balance. Indian entrepreneurs began to set up their own modern textile mills after 1850 and, gradually, began to recapture the domestic market. In 1896, Indian mills supplied 8% of the total cloth consumed in India, 20% in 1913, 62% in 1936 and 76% in 1945. Thus, during 1913-1938 India’s manufacturing output grew 5.6% during per year, which was above the world average of 3.3%. The British government, finally, provided tariff protection from 1920s, which helped industrialists to expand and diversify. By the time of Independence in 1947, Indian entrepreneurs were strong enough and in a position to buy the businesses of departing British. Industry’s share in India’s GDP had doubled from 3.18% in 1913 to 7.5% in 1947 and the share of manufacturers in exports rose from 22.4% to 30% for the years 1913 and 1947, respectively. Source: B.R. Tomlison, The Economy of Modern India 1870-1970, The New Cambridge History of India, Volume 3.3. Cambridge University Press, 1996. 2019-20 BUSINESS, TRADE AND COMMERCE 11 SECTION II are those by which we can earn our livelihood, whereas, non-economic activities are performed out of love, NATURE AND CONCEPT OF BUSINESS sympathy, sentiment, patriotism, etc. For example, a worker working in a 1.6 CONCEPT OF BUSINESS factory, a doctor operating in his clinic, a manager working in an office and a The term business is derived from the teacher teaching in a school are doing word ‘busy’. Thus, business means so to earn their livelihoods and are, being busy. However, in a specific therefore, engaged in an economic sense, business refers to an occupation activity. On the other hand, a in which people regularly engage in housewife cooking food for her family, activities related to purchase, or a boy helping an old man cross the production and/or sale of goods and road are performing non-economic services with a view to earning profits. activities since they are doing so out of The activity may consist of production love or sympathy. Economic activities or purchase of goods for sale, or may be further divided into three exchange of goods or supply of services categories, namely business, to satisfy the needs of other people. profession and employment. Business Try it yourself: State whether each of the following is an economic activity: 1. Farmer growing rice for her own consumption. 2. A factory owner producing school bags for sale in the market. 3. Person begging at a busy traffic intersection. 4. Services of a domestic help doing household chores at an employer’s house. 5. Services of a housewife doing household chores at home. In every society, people undertake may be defined as an economic activity various activities to satisfy their needs. involving the production and sale of These activities may be broadly goods and services undertaken with a classified into two groups — economic motive of earning profit by satisfying and non-economic. Economic activities human needs in society. 2019-20 12 BUSINESS STUDIES 1.6.1 Characteristics of Business (iii) Sale or exchange of goods and Activities services: Directly or indirectly, In order to appreciate how business business involves transfer or activity is different from other activities exchange of goods and services for in society, the nature of business or its value. If goods are produced not for fundamental character must be the purpose of sale but for personal explained in terms of its distinguishing consumption, it cannot be called a characteristics, which are as follows: business activity. Cooking food at (i) An economic activity: Business home for the family is not business, is considered to be an economic but cooking food and selling it to activity because it is undertaken others in a restaurant is business. with the objective of earning money Thus, one essential characteristic or livelihood and not out of love, of business is that there should be affection, sympathy or any other sale or exchange of goods or emotion. It may be mentioned here services between the seller and the that this activity can be undertaken buyer. either on small and individual level, (iv) Dealings in goods and services e.g. (purchase and sale by a on a regular basis: Business shopkeeper) or on large scale in a involves dealings in goods or more formal and organised level services on a regular basis. One (purchase and sale by a cooperative single transaction of sale or society or company). purchase, therefore, does not (ii) Production or procurement of constitute business. Thus, for goods and services: Before goods example, if a person sells his/her are offered to people for domestic radio set even at a profit, consumption, these must be either it will not be considered a business produced or procured by business activity. But if he/she sells radio enterprises. Thus, every business sets regularly either through a enterprise either manufactures the shop or from his/her residence, it goods it deals in or acquires them will be regarded as a business from producers, to be further sold activity. to consumers or users. Goods may consist of consumable items of (v) Profit earning: One of the main daily use, such as sugar, ghee, purpose of business is to earn pen, notebook, etc., or capital income by way of profit. No goods, like machinery, furniture, business can survive for long etc., Services may include facilities without profit. That is why, offered to consumers, business businessmen make all possible firms and organisations in the efforts to maximise profits, by form of transportation, banking, increasing the volume of sales or electricity, etc. reducing costs. 2019-20 BUSINESS, TRADE AND COMMERCE 13 (vi) Uncertainty of return: Uncertainty 1.6.2 Comparison of Business, of return refers to the lack of Profession and Employment knowledge relating to the amount of money that the business is going As has been mentioned earlier, to earn in a given period. Every economic activities may be business invests money (capital) to divided into three major categories run its activities with the objective viz., Business, Profession and of earning profit. But it is not certain Employment. The difference between these three terms is given in the as to what amount of profit will be following table. earned. Also, there is always a possibility of losses being incurred, 1.7 C LASSIFICATION OF B USINESS dispite the best efforts put into the ACTIVITIES business. (vii) Element of risk: Risk is the Various business activities may be uncertainty associated with an classified into two broad categories — exposure to loss. It is caused by industry and commerce. Industry is some unfavourable or undesirable concerned with the production or Business Functions at Enterprise Level Business includes a wide variety of functions performed by different kinds of organisations called business enterprises or firms. Financing, production, marketing and human resource management are the four major functions which are performed by business enterprises. Financing is concerned with mobilising and utilising funds for running a business enterprise. Production involves the conversion of raw materials into finished products or generation of services. Marketing refers to all those activities which facilitate exchange of goods and services from producers to the people who need them at a place they want, at a time they require and at a price they are prepared to pay. Human resource management aims at ensuring the availability of working people who have necessary skills to perform various tasks in enterprises. event. Risks are related with factors, processing of goods and materials. like changes in consumer taste and Commerce includes all those activities, which are necessary for facilitating the fashion, changes in method of exchange of goods and services. On the production, strike or lockout at basis of these two categories, we may workplace, increased competition classify business firms into industrial in market, fire, theft, accidents, and commercial enterprises. natural calamities, etc. No business Let us examine in detail the activities can altogether do away with risks. relating to business. 2019-20 14 BUSINESS STUDIES Basic Business Profession Employment 1. Mode of Entrepreneur’s Membership of a Appointment establishment decision and other professional body letter and service legal formalities, if and certificate of agreement necessary practice Provision of goods Rendering of Performing work 2. Nature of as per service and services to the personalised, work contract or rules public expert services of service Qualifications, Qualification and 3. Qualification No minimum expertise and training as qualification is training in specific prescribed by the necessary field as prescribed employer by the professional body is a must 4. Reward or Profit earned Professional fee Salary or wages return 5. Capital Capital investment Limited capital No capital investment required as per size needed for required and nature of establishment business Profits are uncertain Fee is generally Fixed and regular 6. Risk pay; no or little and irregular; risk is regular and present certain; some risk risk 7. Transfer of Transfer possible Not possible Not possible interest with some formalities 8. Code of No code of conduct is Professional code Norms of conduct prescribed behaviour laid of conduct is to be down by the followed employer are to be followed 9. Example Shop, factory Legal, medical Jobs in banks, profession, insurance chartered companies, accountancy government departments 2019-20 BUSINESS, TRADE AND COMMERCE 15 1.7.1 Industry industries are usually transformed into many other useful goods by Industry refers to economic activities, manufacturing industries. which are connected with conversion of Important extractive industries resources into useful goods. Generally, include farming, mining, the term industry is used for activities lumbering, hunting and fishing in which mechanical appliances and operations. technical skills are involved. These (b) Genetic industries: These include activities relating to producing industries are engaged in breeding or processing of goods, as well as, plants and animals for their use in breeding and raising of animals. The further reproduction. Seeds and term industry is also used to mean nursery companies are typical groups of firms producing similar or examples of genetic industries. In related goods. For example, cotton additional, activities of cattle textile industry refers to all breeding farms, poultry farms, and manufacturing units producing textile fish hatchery come under genetic goods from cotton. Similarly, electronic industries. industry would include all firms (ii) Secondary industries: These are producing electronic goods, and so on. concerned with using materials, Further, in common parlance, certain which have already been extracted services, like banking and insurance, at the primary state. These are also referred to as industry, say industries process such materials banking industry, insurance industry, to produce goods for final etc. Industries may be divided into three consumption or for further broad categories namely primary, processing by other industrial secondary and tertiary. units. For example, mining of iron (i) Primary industries: These include ore is a primary industry, but all those activities which are manufacturing of steel by way of concerned with the extraction and further processing of raw irons is a production of natural resources secondary industry. Secondary and reproduction and development industries may be further divided of living organisms, plants, etc. as follows: These are divided as follows. (a) Manufacturing industries: (a) Extractive industries: These These industries are engaged in industries extract or draw products producing goods through processing from natural sources. Extractive of raw materials and, thus, creating industries supply some basic raw form utilities. They bring out diverse materials that are mostly products finished products, that we consume, of geographical or natural or use through the conversion of raw environment. Products of these materials or partly finished materials 2019-20 16 BUSINESS STUDIES in their manufacturing operations. (b) Construction industries: These Manufacturing industries may be industries are involved in the further divided into four categories construction of buildings, dams, on the basis of method of operation bridges, roads as well as tunnels for production. and canals. Engineering and architectural skills are an Analytical industry which important part in construction analyses and separates different industries. elements from the same materials, (iii) Tertiary industries: These are as in the case of oil refinery. concerned with providing support Synthetical industry which services to primary and secondary combines various ingredients into a industries as well as activities new product, as in the case of cement. relating to trade. These industries Processing industry which provide service facilities. As involves successive stages for business activities, these may be manfucturing finished products, considered part of commerce as in the case of sugar and paper. because as auxiliaries to trade Assembling industry which these activities assist trade. assembles different component Included in this category are parts to make a new product, as transport, banking, insurance, in the case of television, car, warehousing, communication, computer, etc. packaging and advertising. Chart Showing Business Activities Business Industry Commerce Primary Secondary Tertiary Trade Auxiliaries to Trade Extractive Genetic Internal External Manufacturing Construction Wholesale Retail Import Export Entrepot Warehousing Insurance Advertising Analytical Synthetic Processing Assembling Transportation Banking and Finance 2019-20 BUSINESS, TRADE AND COMMERCE 17 1.7.2 Commerce is removed by trade, thereby, making Commerce includes two types of goods available to consumers from the activities, viz., (i) trade and (ii) possession or ownership producers. auxiliaries to trade. Buying and selling Transport removes the hindrances of of goods is termed as trade. But there place by moving goods from the place are a lot of activities that are required of production to the markets for sale. to facilitate the purchase and sale of Storage and warehousing activities goods. These are called services or remove the hindrance of time by auxiliaries to trade and include facilitating holding of stocks of goods transport, banking, insurance, to be sold as and when required. Goods communication, advertisement, held in stock, as well as, goods in packaging and warehousing. course of transport are subject to a risk Commerce, therefore, includes both, of loss or damage due to theft, fire, buying and selling of goods i.e., trade, accidents, etc. Protection against these as well as, auxiliaries, such as risks is provided by insurance of goods. transport, banking, etc. Capital required to undertake the Commerce provides the necessary above activities is provided by link between producers and banking and financing institutions. consumers. It embraces all those Advertising makes it possible for activities, which are necessary for producers and traders to inform maintaining a free flow of goods and consumers about the goods and services. Thus, all activities involving services available in the market. Hence, the removal of hindrances in the commerce is said to consist of activities process of exchange are included in of removing the hindrances of persons, commerce. The hindrances may be in place, time, risk, finance and respect of persons, place, time, risk, information in the process of exchange finance, etc. The hindrance of persons of goods and services. 2019-20 18 BUSINESS STUDIES ‘Make in India’ is an initiative Trade may be classified into two launched by the Government of India broad categories – internal and on 25 September 2014, to encourage external. Internal, domestic or home trade is concerned with the buying national, as well as multinational and selling of goods and services companies to manufacture their within the geographical boundaries products in India. The major of a country. This may further be objectives behind the ‘Make in India’ divided into wholesale and retail initiative are job creation and skill trade. When goods are purchased enhancement in 25 sectors of the and sold in comparatively smaller economy, which are as follows. quantities, for final consumption it is 1. Automobile 2. Automobile Components 3. Aviation 4. Biotechnology 5. Chemicals 6. Construction 7. Defence 8. Electrical Machinery 9. Electronic Systems Manufacturing 11. Information Technology 12. Leather 10. Food Processing 15. Oil and Gas and Business Process 13. Media and 18. Railways Management Entertainment 21. Space and 14. Mining Astronomy 16. Pharmaceuticals 19. Renewable Energy 17. Port and Shipping 24. Tourism and 22. Textiles and 20. Roads and Highways Hospitality Garments 23. Thermal power 25. Wellness 1.7.3 Trade referred to as retail trade. External or foreign trade consists of the exchange Trade is an essential part of commerce. of goods and services between persons It refers to sale, transfer or exchange of or organisations operating in two or goods. It helps in making the goods more countries. If goods are purchased produced available to the consumers from another country, it is called or users. These days goods are import trade. If they are sold to other produced on a large scale and it is countries, it is known as export trade. difficult for producers to themselves When goods are imported for export to reach out to individual buyers for other countries, it is known as entrepot selling their products. Businessmen are trade. engaged in trading activities to make the goods available to consumers in 1.7.4 Auxiliaries to Trade different markets. In the absence of trade, it would not be possible to Activities which are meant for assisting undertake production activities on a trade are known as auxiliaries to trade. large scale. These activities are generally referred 2019-20 BUSINESS, TRADE AND COMMERCE 19 to as services because these are in the material, to the place of production and nature of facilitating the activities the finished products from factories to relating to industry and trade. the place of consumption. Along with T ransport, banking, insurance, transport facility, there is also a need warehousing, and advertising are for communication facilities so that regarded as auxiliaries to trade, i.e., producers, traders and consumers may activities playing a supportive role. In exchange information with one another. fact, these activities support not only Thus, postal services and telephone trade, but also industry and, hence, the facilities may also be regarded as entire business activity. Auxiliaries are auxiliaries to business activities. an integral part of commerce in (ii) Banking and Finance: Business particular and business activity in activities cannot be undertaken unless general. These activities help in funds are available for acquiring assets, removing various hindrances which purchasing raw materials and meeting arise in connection with the production other expenses. Necessary funds can and distribution of goods. Transport be obtained by businessmen from a facilitates movement of goods from one bank. Thus, banking helps business place to another. Banking provides activities to overcome the problem of financial assistance to the finance. Commercial banks, generally manufacturer and trader. Insurance lend money by providing overdraft and covers various kinds of business risks. cash credit facilities, loans and Warehousing creates time utility by advances. Banks also undertake way of storage facilities. Advertising collection of cheques, remittance of provides information to the consumers. In other words, these activities facilitate funds to different places, and movement, storage, financing, risk discounting of bills on behalf of traders. coverage and sales promotion of goods. In foreign trade, commercial banks Auxiliaries to trade are briefly help exporters in collecting money from discussed below: importers. Commercial banks also (i) Transport and Communication: help promoters of companies to raise Production of goods generally takes capital from the public. place in particular locations. For (iii) Insurance: Business involves instance, tea is mainly produced in various types of risks. Factory Assam; cotton in Gujarat and building, machinery, furniture, etc., Maharashtra; jute in West Bengal and must be protected against fire, theft Odisha; sugar in U.P., Bihar and and other risks. Material and goods Maharashtra and so on. But these help in stock or in transit are subject goods are required for consumption in to the risk of loss or damage. different parts of the country. The Employees are also required to be obstacle of place is removed by transport protected against the risks of accident through road, rail or coastal shipping. and occupational hazards. Insurance Transport facilitates movement of raw provides protection in all such cases. 2019-20 20 BUSINESS STUDIES On payment of a nominal premium, the the achievement of certain objectives. amount of loss or damage and Objectives refer to all that the business compensation for injury, if any, can be people want to get in return for what recovered from the insurance company. they do. It is generally believed that (iv) Warehousing: Usually, goods are business activity is carried out only for not sold or consumed immediately after profit. Business persons themselves production. They are held in stock to proclaim that their primary objective is make them available as and when produce or distribute goods or services required. Special arrangement must be for profit. Every business is said to be made for the storage of goods to prevent an attempt on the part of business loss or damage. Warehousing helps people to get more than what has been business firms to overcome the problem spent or invested, or in other words, to of storage and facilitates the availability earn profit which is the excess of of goods when needed. Prices are, revenue over cost. However, it is being thereby, maintained at a reasonable increasingly realised nowadays that level through continuous supply of goods. business enterprises are part of (v) Advertising: Advertising is one of the society and need to fulfill the most important methods of several objectives, including social promoting the sale of products, responsibility, to survive and prosper particularly, consumer goods, like in the long run. Profit is found to be a electronic and automobile goods, soaps, leading objective but not the only one. detergents, etc. Most of these goods are Although earning profit cannot be manufactured and supplied in the the only objective of business, its market by numerous firms — big or importance cannot be ignored. Every small. It is practically impossible for business is an attempt to reap more producers and traders to contact each and every customer. Thus, for than what has been invested, and profit promoting sales, information about the is the excess of revenue over cost. Profit goods and services available, their may be regarded as an essential features, price, etc., must reach potential objective of business for various buyers. Also, there is a need to reasons: (i) it is a source of income for persuade potential buyers about the business persons, (ii) it can be a source uses, quality, prices, competitive of finance for meeting expansion information about the goods and requirements of business, (iii) it services etc. Advertising helps in indicates the efficient working of providing information about available business, (iv) it can be taken as the goods and services and inducing society’s approval of the utility of customers to buy particular items. business, and (v) it builds the reputation of a business enterprise. 1.8 OBJECTIVES OF BUSINESS However, too much emphasis on An objective is the starting point of profit to the exclusion of other objectives business. Every business is directed to can be dangerous for good business. 2019-20 BUSINESS, TRADE AND COMMERCE 21 Obsessed with profit, business (i) Market standing: Market managers may neglect all other standing refers to the position of responsibilities towards customers, an enterprise in relation to its employees, investors and society at competitors. A business enterprise large. They may even be inclined to must aim at standing on stronger exploit various sections of society to earn footing in terms of offering immediate profit. This may result in the competitive products to its non-cooperation or even opposition from customers and serving them to the affected people against the their satisfaction. malpractices of business enterprises. (ii) Innovation: Innovation is the The enterprises might lose business and introduction of new ideas or may be unable to earn profit. That is methods in the way something is the reason why there is hardly any done or made. There are two sizable business enterprise who only kinds of innovation in every objective is maximisation of profit. business i.e., (i) innovation in product or services; and (ii) 1.9 Multiple Objectives of Business innovation in various skills and Objectives are needed in every area that activities needed to supply influences the survival and prosperity products and services. No of business. Since a business has to business enterprise can flourish balance a number of needs and goals, in a competitive world without it requires multiple objectives. It cannot innovation. Therefore, innovation follow only one objective and expect to becomes an important objective. achieve excellence. Objectives have to (iii) Productivity: Productivity is be specific in every area and sphere of ascertained by comparing the business. For example, sales targets value of output with the value of have to be set, the amount of capital to inputs. It is used as a measure of be raised has to be estimated and the efficiency. In order to ensure target number of units to be produced continuous survival and progress, needs to be defined. The objectives every enterprise must aim at define in concrete terms what the greater productivity through the business is going to do. Objectives also best use of available resources. enable the business to analyse their (iv) Physical and financial own performance and take steps as resources: Any business requires necessary to improve their performance physical resources, like plants, in future. machines, offices, etc., and Objectives are needed in every area financial resources, i.e., funds to where performance and results affect be able to produce and supply the survival and prosperity of business. goods and services to its Some of these areas are described customers. The business as follows. enterprise must aim at acquiring 2019-20 22 BUSINESS STUDIES these resources according to their individuals and groups. This is requirements and use them essential for its own survival and efficiently. prosperity. (v) Earning profits: One of the objectives of business is to earn 1.10 Business Risks profits on the capital employed. The term ‘business risks’ refers to the Profitability refers to profit in possibility of inadequate profits or even relation to capital investment. losses due to uncertainties or Every business must earn a unexpected events. For example, reasonable profit which is so demand for a particular product may important for its survival and decline due to change in tastes and growth. preferences of consumers or due to (vi) Manager performance and increased competition from other development: Business enterprises producers. Lower demand results in need managers to conduct and long sales and profits. In another coordinate business activity. situation, the shortage of raw materials Various programmes for in the market may shoot up its price. motivating managers need to be The firm using these raw materials will implemented. Manager have to pay more for buying them. As a performance and development, result, cost of production may increase therefore, is an important which, in turn, may reduce profits. objective. The enterprises must Business enterprises constantly actively work for this purpose. (vii) Worker per for mance and face two types of risk : speculative and attitude: Workers’ performance pure. Speculative risks involve both the and attitudes determine their possibility of gain, as well as, the contribution towards productivity possibility of loss. Speculative risks and profitability of any enterprise. arise due to changes in market Therefore, every enterprise must conditions, including fluctuations in aim at improving its workers’ demand and supply, changes in prices performance. It should also try to or changes in fashion and tastes of ensure a positive attitude on the customers. Favourable market part of workers. conditions are likely to result in gains, (viii) Social responsibility: Social whereas, unfavourable ones may result responsibility refers to the in losses. Pure risks involve only the obligation of business firms to possibility of loss or no loss. The contribute resources for solving chance of fire, theft or strike are social problems and work in a examples of pure risks. Their socially desirable manner. occurrence may result in loss, whereas, Thus, a business enterprise must have non-occurrence may explain absence multiple objectives to satisfy different of loss, instead of gain. 2019-20 BUSINESS, TRADE AND COMMERCE 23 1.10.1 Nature of Business Risks involved in a business, higher is the chance of profit. An Nature of business risks can be entrepreneur undertakes risks understood in terms of their peculiar under the expectation of higher characteristics: profit. Profit is thus the reward for (i) Business risks arise due to risk taking. uncertainties: Uncertainty refers to the lack of knowledge about 1.10.2 Cause of Business Risks what is going to happen in future. Business risks arise due to a variety of Natural calamities, change in causes, which are classified as follows: demand and prices, changes in (i) Natural causes: Human beings government policies and prices, have little control over natural improvement in technology, etc., calamities, like flood, earthquake, are some of the examples of lightning, heavy rains, famine, etc. uncertainty which create risks for property and income in business. business because the outcomes of (ii) Human causes: Human causes these future events are not known. include such unexpected events, (ii) Risk is an essential part of like dishonesty, carelessness or every business: Every business negligence of employees, stoppage has some risk. No business can of work due to power failure, avoid risk, although the amount strikes, riots, management of risk may vary from business to inefficiency, etc. business. Risk can be minimised, but cannot be eliminated. (iii) Economic causes: These include (iii) Degree of risk depends mainly uncertainties relating to demand upon the nature and size of for goods, competition, price, business: Nature of business (i.e., collection of dues from customers, type of goods and services change of technology or method produced and sold) and size of of production, etc. Financial business (i.e., volume of problems, like rise in interest rate production and sale) are the main for borrowing, levy of higher taxes, factors which determine the etc., also come under these type amount of risk in a business. For of causes as they result in higher example, a business dealing in unexpected cost of operation or fashionable items has a high degree business. of risk. Similarly, a large-scale (iv) Other causes: These are business generally has a higher unforeseen events, like political risk than what a small scale has. disturbances, mechanical (iv) Profit is the reward for risk failures, such as the bursting of taking: ‘No risk, no gain’ is an age- boiler, fluctuations in exchange old principle which applies to all rates, etc., which lead to the types of business. Greater the risk possibility of business risks. 2019-20 24 BUSINESS STUDIES Methods of Dealing with Risks Although no business enterprise can escape the presence of risk, there are many methods a business enterprise can use to deal with risk situations. For instance, the enterprise may (a) decide not to enter into too risky transaction: (b) take preventive measures, like firefighting devices, to reduce risk; (c) take insurance policy to transfer risk to insurance company; (d) assume risk by making provisions in the current earnings as is the case of provision for bad and doubtful debts; or (e) share risks with other enterprises as manufacturers and wholesalers may do by agreeing to share losses which may be caused by falling prices. 1.11 Starting a Business — Basic be undertaken. He/she will obviously Factors like to enter that branch of industry and commerce, which has the possibility of Starting a business enterprise is greater amount of profits. The decision similar to any other human effort in will be influenced by the customer which resources are employed to requirements in the market and also achieve certain objectives. Successful the kind of technical knowledge and results in business depend largely interest the entrepreneur has for upon the ability of the entrepreneurs producing a particular product. or the starters of a new business to (ii) Size of the firm: Size of the firm or anticipate problems and solve them scale of its operation is another with minimum cost. This is especially important decision to be taken at the true of the modern business world start of the business. Some factors where competition is very tough and favour a large size, whereas, others tend risks are high. Some of the problems, to restrict the scale of operation. If the which business firms encounter, are entrepreneur is confident that the of basic nature. For example, to start demand for the proposed product is a factory, plans must be made about likely to be good over time and he/she the location of the business, the can arrange the necessary capital for possible number of customers, the business, he/she will start the operation kind of equipment required and the at a large scale. If the market conditions amount of money needed to procure are uncertain and risks are high, a small them, the shop layout, purchasing and size business would be better choice. financing needs, and hiring of workers (iii) Choice of form of ownership: for its effective implementation. These With respect to ownership, the problems become more complex in a business organisation may take the big business. However, some of the form of a sale proprietorship, basic factors, which must be partnership, or a joint stock company. considered by anybody who is to start Each form has its own merits and the business are as follows. demerits. The choice of the suitable (i) Selection of line business: The first form of ownership will depend on such thing to be decided by an entrepreneur factors as the line of business, capital is the nature and type of business to requirements, liability of owners, 2019-20 BUSINESS, TRADE AND COMMERCE 25 division of profit, legal formalities, (vii) Plant layout: Once the continuity of business, transferability requirement of physical facilities has of interest and so on. been determined, the entrepreneur (iv) Location of business enterprise: should draw a layout plan showing the An important factor to be considered arrangement of these facilities. Layout at the start of the business is the place means the physical arrangement of where the enterprise will be located. machines and equipment needed to Any mistake in this regard can result manufacture a product. in high cost of production, (viii) Competent and committed inconvenience in getting, right kind of worked force: Every enterprise needs production inputs or serving the competent and committed workforce to customers in the best possible perform various activities so that way. Availability of raw materials physical and financial resources are and labour; power supply and converted into desired outputs. Since services, like banking, transportation, no individual entrepreneur can do communication, warehousing, etc., are everything himself, he/she must important factors while making a identify the requirement of skilled and choice of location. unskilled workers and managerial (v) Financing the proposition: staff. Plans should also be made about Financing is concerned with providing how the employees will be trained and the necessary capital for starting, as well motivated to give their best as, for continuing the proposed performance. business. Capital is required for (ix) Tax planning: Tax planning has investment in fixed assets, like land, become necessary these days building, machinery and equipment and because there are a number of tax in current assets, like raw materials, laws in the country and they influence books, debts, stock of finished goods, almost every aspect of the functioning etc. Capital is also required for meeting of modern business. The founder of day-to-day expenses. Proper financial the business has to consider in planning must be done to determine (a) advance the tax liability under the requirement of capital, (b) source various tax laws and its impact on from where the capital will be raised and (c) the best ways of utilising the capital business decisions. in the firm. (x) Launching the enterprise: After (vi) Physical facilities: Availability of the decisions relating to the above physical facilities, including machines mentioned factors have been taken, the and equipment, building and entrepreneur can go ahead with actual supportive services is an important launching of the enterprise which factor to be considered at the start of would mean mobilising various the business. The decision relating to resources, fulfilling necessary legal this factor will depend on the nature formalities, starting the production and size of business, availability of process and initiating the sales funds and the process of production. promotion campaign. 2019-20 26 BUSINESS STUDIES EXERCISES Short Answer Questions 1. List any five major commercial cities of ancient India? 2. What is Hundi? 3. List the major exports and imports in ancient India. 4. What were the different types of Hundi in use by traders in ancient times? 5. What do you understand by maritime trade? 6. State the different types of economic activities. 7. Why is business considered as economic activity? 8. State the meaning of business. 9. How would you classify business activities? 10. What are the various types of industries? 11. Explain any two business activities which are auxiliaries to trade. 12. What is the role of profit in business? 13. What is business risk? What is its nature? Long Answer Questions 1. Discuss the development of indigenous banking system in Indian subcontinent. 2. Define business. Describe its important characteristics. 3. Compare business with profession and employment. 4. Define Industry. Explain various types of industries giving examples. 5. Describe the activities relating to commerce. 6. Explain any five objectives of business. 7. Explain the concept of business risk and its causes. 8. What factors are to be considered while starting a business? Explain. Projects/Assignments 1. Visit any business unit in your locality. Interact with the owner to find out the steps in starting the business. Prepare a project report of your visit. 2. Prepare a project report on the development of Trade and Commerce between 1st and 17th AD. 3. Collect information on any five sectors of the economy that Make in India focuses on. Find out the amount of investment in these sectors in the past two years. What were the possible reasons that led to an interest of investors in these sectors? Present your report in the following format: Sector Investment in Investment in Possible reasons Year I Year II for the change 2019-20