Industries PDF

## 1.2. INDUSTRY ### 1.2.1. Introduction An industry can be defined as the integration of all the business processes and economic activities which are associated with the development, manufacturing and processing of products and services, It utilises mechanical as well as human power for transf...

## 1.2. INDUSTRY ### 1.2.1. Introduction An industry can be defined as the integration of all the business processes and economic activities which are associated with the development, manufacturing and processing of products and services, It utilises mechanical as well as human power for transforming raw materials into useful and valuable products. Often, Industry is denoted as a group of business enterprises involved in the production of similar products and services. An industry is also referred to as “any large-scale business activity.” It is a classification that refers to a group of companies that are related in terms of their primary business activities. According to Webster's New World Dictionary, industry refers to “manufacturing productive enterprises collectively, especially as distinguished from agriculture". All the production activities of a business enterprise come under the industrial undertaking. It mainly involves raising, manufacturing and processing of useful products. It is, therefore, considered as a fundamental category of a business activity. Many times, industry is represented as a broad business activity like consumer durables or a specific business activity like air conditioners. In simple terms, an industry represents a cluster of similar businesses. For example, various business units involved in manufacturing of vehicles, whether two-wheeler, commercial, or heavy trucks will be together known as an automobile industry. Likewise, many other industries exist in different sectors such as banking industry, telecom industry, film industry, etc. ### 1.2.2. Nature of Industry Following points reflect the nature of industry: 1. **Market Size and Growth Rate:** The total number of businesses operating within a single industry is known as market size. The identification of market size and growth rate is important to determine the nature of the industry. For this purpose, an entrepreneur must know whether the industry is static, growing or declining. It can also be analyzed by spotting the position of the industry in the business lifecycle, i.e., introduction, growth, maturity, stagnation and decline. 2. **Number of Competitors:** For assessing the nature of an industry, organizations should know the number and size of industry's competitors. Along with this, they should also have the knowledge of other activities such as mergers and acquisitions, takeovers, etc. 3. **Degree of Product Differentiation:** One of the important factors in determining the overall industrial situation is to know the degree of product differentiation. If, in an industry, all products are of similar kind then it will increase the level of competition. Therefore, it is essential for all units in an industry to produce diverse products. This will help to resist internal competition among different units of the same industry. 4. **Pace of Technological Change:** Industries that are bound to make technological changes at continuous intervals should follow and implement the developments required in the product. For example, mobile phones manufacturing industries should have a rapid pace of technological change else they will become out-dated in the market. 5. **Vertical Integration:** An industry applying vertical integration can lead to significant cost of production differences. Thus, organisations should know the pros and cons of full and partial integration. Similarly, one should also know about the type of integration implemented by the competitors. A fully integrated industrial unit will have different competitive characteristics, when compared to partial or non-integrated industrial units. 6. **Economies of Scale:** It is also very crucial for the organisation to know the economies of scale. It is related with the activities like buying, producing, marketing, etc. A proper analysis of cost advantage should be done before implementing high-scale operations. All industrial units must understand that higher profits can only be attained by reducing production costs, which leads to high competitiveness. ### 1.2.3. Types of Industry The four main types of Industries are explained below: | Types of Industries | |---|---| | Primary Industry | Secondary Industry | Tertiary Industry | Quaternary Industry | | Extractive Industry | Genetic Industry | Service Industry | | | Manufacturing Industry | Constructive Industry | | | 1. **Primary Industries:** Primary industries are those industries which are directly involved in the business activities of extracting, producing processing and handling natural resources such as oils, minerals, agricultural products, etc. They utilise natural resources as raw materials, and transform them into finished and refined products for consumers’ use. These Industries are further categorised into the following: * **Extractive Industries:** These industries are involved in the extraction process of natural resources. They are usually responsible for extracting oils, minerals and natural gas from the land, timber from the forest, fishes from the sea, etc. The natural resources, which are extracted and utilised by these industries, cannot be replaced after being extracted or used. These industries provide their products to manufacturing industries, which are responsible for manufacturing finished products. Usually, extractive industries include fishing industries, mining industries, forest industries, etc. * **Genetic Industries:** These industries are involved in the process of breeding or rearing of animals and birds, and nurturing plants for the purpose of sale. The common examples of genetic related industries include dairy farming, poultry farming, horticulture, fish breeding, orchard farming, floriculture, cattle-breeding farms, etc. 2. **Secondary Industries:** The industries which are involved in manufacturing and processing of items which are produced by primary industries are known as secondary industries. These industries use the products of primary industries as their raw material to convert them into consumer goods. They are further categorized into the following: * **Manufacturing Industries:** These industries are responsible for manufacturing and converting raw materials into consumer finished goods. For example, cotton is transformed into textile (which is a product of primary industry). Similarly, iron ore used to produce steel, and timber is used to make furniture, etc. These industries can follow any one of the several forms discussed below: * **Analytical:** In analytical manufacturing industries, a basic product is further processed, refined or filtered into different products. For example, refining of oil is a filtering operation in which crude oil is filtered and separated to form kerosene, diesel, petrol, lubricating oil, etc. * **Synthetic:** Here, two or more semi-finished goods are combined together to form a single consumable product. For example, cement, paints, soaps, detergents, cosmetics, fertilizers, etc., are produced by synthetic manufacturing industries. * **Processing:** In these industries, both analytical and synthetic techniques are utilised for manufacturing a single product through a series of operations, e.g., steel, sugar, textile, etc. * **Assembly Line:** In these manufacturing industries, a final product is manufactured by assembling various finished and semi-finished products. For example, assembling of vehicles, televisions, railway wagons, watches, etc. * **Construction Industries:** These industries are involved in the formation of bridges, buildings, roadways, dams, and other major constructions. They utilise products of primary industries as their raw materials, and transform them into particular products that specifically fulfils the need of the consumers. Construction industries utilise final products of both manufacturing and extractive industries. For example, they use manufacturing industry products like cement, iron and steel, mortar, etc., and also use extractive industry products like marble, stone, etc., for construction purpose. 3. **Tertiary Industries:** Tertiary industries are those industries which offer services directly to consumers. These services include commercial services such as banking, transportation, insurance, etc., and personal services such as teaching, nursing, medical treatment, etc. 4. **Quaternary Industries:** These industries are knowledge industries which concentrate on the technological research, design, and development. It fundamentally offers intellectual and knowledge-based services such as consultations, education, information sharing, data processing, research and development, etc. ### 1.2.4. Functions of Industry The important role and functions of industry are: | Role and Functions of Industry | |---|---| | Stimulates Progress in Other Sectors | Promotes Division of Labour | | Economic Stability | Improvement in Balance of Payments | | Technological Progress | Development of Markets | | Provision for Defence| 1. **Stimulates Progress in Other Sectors:** The development of one industry results in the establishment and expansion of other industries. Not only this, industrial development also stimulates progress in other economic sectors. 2. **Promotes Division of Labour:** The existence of industries also promotes the division of labour. This specialisation of industrial operations increases the marginal value of workers. A worker in agricultural sector will earn less than a worker in the industrial sector, as industries encourage work specialisation. 3. **Economic Stability:** A country can gain economic stability if it has well-developed industries. Industries help to maintain an accurate level of production and export of goods or services. This restricts the situation of uncertainties and handles the fluctuations in demands of raw materials and finished goods. 4. **Improvement in Balance of Payments:** Industrial development significantly improves the pattern of a country's foreign trade and also increases the foreign exchange earnings. Moreover, it reduces import of products and services and helps the domestic industries to grow and expand. As a consequence, balance of payment of a country is improved. 5. **Technological Progress:** The involvement of new and latest technology in industries provides a great scope of technological development to the country. This also helps to maximise the scale of production, improves quality of products, expands the marketplace and reduces the production-related costs. 6.**Development of Markets:** Industries play a major role in the development of markets by adopting new methods, techniques and technologies. They also widen the market for raw materials and finished goods in the country. 7. **Provision for Defence:** An industrialised country has the potential to establish and strengthen its defence sectors by manufacturing various arms and ammunitions. In this way, a country will no longer be dependent on other nations and will not suffer any setback or defeat. ### 1.2.5. Importance of Industry The importance of Industry is as follows: 1. **Uplifts the Standard of Living:** The existence of various industrial sectors have improved the living standards of the society as a whole, by offering several quality products and services like automobiles, furniture, clothes, television, air conditioners, etc. These products simplify life and introduce people with latest technologies and trends. 2. **Aids in Nation's Income:** Industrial development is beneficial for both the government and the society. Government receives tax from industries, which increases in the nation's income. This tax is further utilised for the welfare of the society as a whole. 3. **Liberates the Nation:** If an economy has a weaker industrial sector, then it has to export raw materials at low prices to other countries and import finished goods at high prices from the neighbouring countries, which makes the country dependent on others. With the rise of industrialisation, raw materials are processed and finished goods are produced in the same nation, which makes the country independent and saves money by minimising import expenses. 4. **Rapid Growth of Income:** Industries have the potential of providing rapid increase in the per capita income of the country. They provide job opportunities to people because of which the productivity level increases. This leads to increase in the income level of workers and the society, thus, contributing to the national income of the country. 5. **Generates Employment:** Industries provide numerous jobs to various persons according to their capabilities. Thus, with the development of industries, employment increases. Setting up industries in different regions of the country can eliminate unemployment. 6. **Utilisation of Resources:** Industries are able to provide valuable finished goods to the country by efficiently utilising resources. They can even utilise waste materials and scraps to develop resources. 7. **Earns Foreign Exchange:** By producing and exporting valuable and innovative products, which have huge demands in other countries, a nation can earn significant foreign exchange. Therefore, industrial products must be added to the primary products. ### 1.2.6. Commerce Commerce is one of the important segments of business. It mainly relates with the exchange of services and goods. Commerce incorporates all the direct and indirect activities that facilitate such exchange. The distribution facet of the business is tackled by the commerce. As business requires produced goods and services to be consumed by the end customers, distribution function becomes essential for it. In order to deal with distribution of produced goods and services, business relies on commerce, which facilitates the smooth transactions between buyers and sellers. According to James Stephenson, “Commerce is an organised system for the exchange of goods between the members of the industrial world”. Commerce = Trade + Aids to Trade (or Auxiliary Services) Commerce is a broad term incorporating all the operations and tasks so as to make the produced goods and services available to the end customers. Both the producer and end customer are connected with each other through such operations. Commerce can be understood as a concept which removes all the obstacles in the exchange processes. Commerce activities mainly include trade as well as warehousing, transport or logistics, banking, insurance, etc. Therefore, concept of commerce can be segmented into two parts, i.e., trade and auxiliaries to trade (warehousing, transport or logistics, banking, insurance, etc.). Commerce can be seen in almost every transaction of the business. For example, buying shares from a share market, drilling for oil, selling different products in a shop, buying food from a restaurant are some of the commercial activities. There are various categories of commerce which are derived by financial industry like, Interstate commerce (commerce between different states), International commerce (commerce between different nations) or E-commerce (commerce over internet). Every transaction based on money and/or trade represents commerce. It is a vital component of business and financial industry. ### 1.2.6.1. Characteristics of Commerce The characteristics of commerce are stated below: 1. **Economic Activity:** As goods and services are bought and sold by different traders so as to earn capital and profit, it reflects the economic nature of the commerce. Monetary scale can be used to measure this process. 2. **Profit:** Earning profit is the main characteristic of commerce. Gifting something to friends does not mean commerce. Profit is the main driving force behind commerce. 3. **Marketing:** Marketing is also a characteristic of commerce. Exchange, distribution and promotions of goods and services are included in it. It is a continuous process. Attracting and retaining customers (through satisfying them) is the main motto of marketing. 4. **Vital Part of Business:** Commerce is an integral part of the business, as different goods and services offered by it are disposed to the target customers through activities of commerce. 5. **Utility:** For the satisfaction of customers' needs, time and place utilities are created by commerce. Time utility is created by storing the goods for future consumption. For creating the place utility, the goods are shifted from the point of production to point of utilisation. ### 1.2.6.2. Components of Commerce All the activities which are focused towards transferring the goods and services from one individual to another or from one location to another are included in commerce. It includes the shifting of goods and services from the individual who actually produces it to the individual who is supposed to consume it. Trade and auxiliaries to trade are the two main components of commerce. #### Trade Regular purchase and sale of different goods and services by an individual is termed as 'trade'. Goods and services are sold either in exchange of cash or on credit. The individuals involved in such activities are called 'traders'. For example, shopkeepers as well as agents purchase products from producers or other sellers and sell it in their locality. Different individuals participate in the trading processes in a varied manner. Some of the traders buy and sell the products in bulk. Trade, being the process of buying and selling of goods, is the most vital component of the commerce. These are the traders who help business to direct its products to the most suitable market (in terms of wealth and profit). They also help to distribute different organisational products at both national and international level. As it is problematic to distribute goods and services to different individuals in a large organisation, different traders are used to eliminate such problems. Trade helps goods to create place utility. #### Characteristics of Trade The important characteristics of trade are explained below: 1. **Trade is considered as the main activity in commerce.** 2. **Transaction of goods and services for cash is referred as trade.** 3. **The goods and services are moved to the most favourable market through trade.** 4. **It maintains equilibrium between supply and demand of different goods in both national and international markets.** #### Classification of Trade Different categories of trade are as follows: 1. **Home Trade:** When the goods and services are bought and sold within the peripheries of a nation, it is regarded as 'home trade'. Domestic trade or internal trades are the other names of this. The currency used in home country is the mode of payment for goods and services in case of home trade. For example, trade in which goods are purchased by an individual residing in Banaras from the seller of Lucknow or from other seller of the same locality, is called home trade. There are further two types of home trades: * **Wholesale Trade:** When the huge quantities of goods and products are bought from a producer and smaller quantities are sold to other traders or buyers, it is called 'wholesale trade'. Commonly, there is a limited variety of goods and services which are sold under wholesale trade. Wholesaler is an individual who perform the wholesaling activities. * **Retail Trade:** The buying of goods and services from the producers and wholesalers for reselling to the ultimate consumer in limited quantities is known as 'retail trade'. There is a lot of variety of goods and products demanded by the customers in the retail trade. Retailer is an individual, who performs the retail trading activities. 2.**Foreign Trade:** When the goods and services are bought and sold outside the peripheries of a nation, it is regarded as 'foreign trade'. External trade or international trades are the other names of this. The currency of seller's country or the currency which is accepted by the seller is the mode of payment for goods and services. There are three main classification of international trade which are given below: * **Import Trade:** Import trade is the activity in which goods and services are bought from the seller of other country and are sold in one's own country. * **Export Trade:** Export trade includes all the activities which involve the selling of goods and services to any other country. * **Entrepot Trade:** The process of importing certain products from a foreign market so as to export it further to a different foreign market (with or without any modification) is called 'entrepot trade or re-export trade'. ### Aids or Auxiliaries to Trade In commerce, alongwith buying and selling, there are large varieties of supporting activities, which are performed to ensure the proper distribution of goods and services to the ultimate customer. Such supporting activities are called 'aids to trade' or 'auxiliaries to trade'. Services like warehousing, transportation and logistics, insurance, banking, advertisement, etc., come under the category of auxiliaries to trades, as these assist the trade activities. The different types of aids to trade in commerce are given below: 1. **Transport:** In the current business scenario, the producers and consumers of different goods and service are situated far away from each other. Transportation being an important aid to trade activities supports the business in such scenario. Place utility is created by transport. A large variety of mode of transportation such as road, rail, air and water can be used for transportation. Thus transport overcomes the problem of distance between consumers and producers of the products. 2. **Communication:** Exchange or transferring of information from one individual to the other is known as communication. For determining and settling the various terms of trade such are prices of goods, facility of credit, discounts and so on, information is required to be shared from one person to other. A fast and efficient communication link can be established between the producers, businessmen and customers with the help of modern communication tools such as telex, e-mail, teleconference, telephone and so on. Both the written or oral communication can be used here. 3. **Warehousing:** A time gap exists between the production and actual consumption of goods. In simple terms, the goods are not consumed as soon as they are produced. Thus, the requirement of warehousing or storage arises. For example, production of rice, wheat, etc., takes place in a particular season, while these are demanded in the market throughout the year. Similarly, few seasonal products like woollens, umbrellas, etc., are produced continuously throughout the year, while these are demanded only in respective seasons. To deal with such issues, businesses rely on warehousing so as to store their products unless they are demanded in the market. In this way, time utility is created by warehousing. 4. **Insurance:** The issues related to risks are addressed by insurance. Risk and uncertainties are the integral part of business. They cannot be avoided in business. Fire, theft or any other natural calamity may result in risks. These risks are covered by the insurance companies which act as the risk bearer. Risks are reduced by distributing it to large number of individuals with the help of insurance. The time-period of risk coverage and the nature of risks are the main determinants of rate of premium. 5. **Banking:** The difficulties related to finance are tackled by banking. Generally, large amount of money is exchanged in trade. Exchanging large amount of money between two individuals or transferring it from one place to another is a risky process. This problem is overcome by banking. The issues related to exchange and payment between buyers and sellers are addressed by the financial and banking institutions. Short-term or long-term funds can also be received from the banks. Discounting of bills of exchange, overdraft, cash credits are some of the facilities which are offered by the bank to provide advance loans for trade. 6. **Advertising:** The problems of information and knowledge gap are removed by advertising. Without bringing the goods and services in the knowledge of the target customers, it is not possible for the businesses to initiate the trade. Mass media like advertising and sales promotions are used by businesses so as to make customers aware of its goods and services. The information about the various brands produced by the manufacturers can be provided to customers through advertising. Internet, radio, television, newspapers, magazines are some of the popular modes of advertisement of products. 7. **Salesmanship:** Personal selling or trade is also supported by salesmanship. The direct sales orders from the dealers or customers are booked with the help of salespersons. Different services and industrial goods are sold with the help of salesmanship. Direct marketing is the other field in which salesman plays a significant role, particularly in the case of insurance. 8. **Mercantile Agents:** Personal problems are eliminated by mercantile agents. A link is created between the sellers and buyers with the help of mercantile agents. They do not perform business activities on their own names. As the customers are distributed over large geographical areas, it is not possible to establish a direct link between the producers and customers. This problem of personal contact is eliminated by mercantile agents. Brokers, auctioneers, underwriters, insurers, commission agents, etc., are some of the popular examples of mercantile agents. 9. **Trade Promotion Organisations in a Country:** In order to promote and develop trades at national level, trade promotion organisations are used. These organisations are mainly responsible for protecting and promoting the interest of business community. The promotional and developmental activities are carried out by them. The various activities performed by them include highlighting trade grievances before the government, helping business community, acting as a clearing house of information, conducting market research work, making representations, etc. Chambers of Commerce, Export Promotion Councils, Indian Institute of Packaging, etc., are the examples of trade promotion organisations. 10. **Global Organisations for International Trade:** The activities related to promotion and development of trade at international level, are carried out by global organisations for international trade. Promotion of international trade is the main objective of such organisation. The information related to trends in international trade, is provided by such organisations to importers and exporters. World Bank, IMF, WTO are the examples of these types of organisations. ### 1.2.6.3. Comparison of Industry with Commerce | Basis of Difference | Industry | Commerce | |---|---|---| | Activity | Mainly involves the production of goods and services. | The distribution of goods is the main activity performed. | | Capital Requirement | Requires large amount of working and fixed capital. | Requires small amount of fixed capital and large amount of working capital. | | Scope | Primary, secondary and service industries are there. | Trade and auxiliaries to trade are the main components. | | Creation of Utility | Form utility is created. | Place and time utility are created alongwith possession utility (through trade). | | Risk Element | Maximum risk. | Less risk than industry. | | Mutual Dependence | Industry is the main source of both commerce and trade. | Trade and commerce are mutually related. | ## 1.3. BUSINESS ORGANISATION ### 1.3.1. Introduction For representing any business enterprise or a business firm, the term 'business organisation' is used. The term 'organisation' denotes the process of arranging and coordinating different essentials of a business in an effective manner so as to facilitate the business processes. It also describes the manner in which different factors of production of a business are inter-related to each other. Thus, business organisation can be understood as an efficient coordination between various elements of business enterprise, including planning and controlling of production activities, procurement of material, managing human resource, distributing products and other managerial activities. According to G.R. Terry, "Business organisation is an economic arrangement of persons where all efforts are directed to achieve a common economic goal”. According to L.H. Haney, “Business organisation is an economic organisation. It is a harmonious adjustment of specialised parts for accomplishment of some common purpose”. An internal structure directing the nature of communication, relationships and command within the organisation is established through business organisation. Persons with top level of authorities are responsible for determining the most significant objectives of the business. For example, an objective may be set by the directors of a leading business organisation to establish their organisation as a market leader by providing high quality of services in the market. Alongwith the journey of economic development of the country (from the self-sufficiency to international business), different forms of business organisations have evolved. Business organisations have grown from being a sole-trader organisation to international or multinational corporations and accordingly, the size of these organisations have also expanded. ### 1.3.2. Characteristics of Business Organisation The characteristics of good business organisations are discussed below: | Characteristics of Business Organisation | |---|---| | Adequacy of Capital | Limit of Liability | | Flexibility of Operations | Ease in Formation | | Business Secrecy | Continuity and Stability | | Management, Control and Ownership | Tax Considerations | 1. **Adequacy of Capital:** Adequacy of capital is the main characteristic of good business organisations. Here, the required capital is generated at minimum cost. Following measures may be utilised by good business organisations so as to attract large capital from the public: * Security of investments, * Good return on investments and * Transferability of the holding. 2. **Limit of Liability:** Two types of liabilities are available to the owners of any business organisation, i.e., limited and unlimited liability. Generally, limited liability is preferred to avoid risks. In this, the debts of the business are balanced, only by the use of capital invested (or to be invested) by the owner. On the other hand, in case of unlimited liabilities, personal assets of the owners can also be utilised for the payment of business debts. 3. **Flexibility of Operations:** Flexibility of operations is another important characteristic of business organisations. There may be a lot of alterations in the policy of Government towards a specific business organisation as it can be seen as a healthy collaboration of various factors of production with the objective of wealth creation. It also describes how industrial as well as commercial processes are performed through production and distribution of goods and services so as to achieve a particular objective. There are numerous factors like capital requirements, nature of business, scale of operations, motives, incentives, etc., which determine the suitability of a particular organisation to a business.