Foundations of Business 2024-25 PDF

Part I Foundations of Business 2024-25 Chapter 1.indd 1 13-01-2021 09:40:02  Chapter 1 Business, Trade...

Part I Foundations of Business 2024-25 Chapter 1.indd 1 13-01-2021 09:40:02  Chapter 1 Business, Trade and Commerce LEARNING OBJECTIVES After studying this chapter, the learner: i. Appreciates the contribution of business activities in the growth and development of an economy; ii. Discusses the concept and objectives of business; iii. Categorises business activities into occupation, profession, and employment iv. Classifies industry in different types; v. Explains Risk and Profit as a reward of Risk; and vi. Enumerates factors for starting a business. 2024-25 Chapter 1.indd 2 13-01-2021 09:40:02  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 Ruchita’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 distribution and exchange so that the needs and wants of customers are All human beings, wherever they may satisfied. Business is a major economic be, require different types of goods activity which is concerned with the and services to satisfy their needs. production and sale of goods and If we look around, we observe people require different types of products services required by people. Business and services to satisfy their needs. is central to our lives. Although our How do they buy them? They go to the lives are also influenced by many other market, either physical or electronic institutions in modern society, such as over internet, where they find variety of schools, colleges, hospitals, political shops and sellers offering the required parties and religious bodies; business commodities and choose the best has a major influence on our daily which they require. lives. It, therefore, becomes important Have you ever wondered how do that we understand the concept, these products and services are made nature and purpose of business. available in the market. The necessity Business starts with production of supplying goods and services is and end with consumption. Making the done by different set of people engaged finished products reach the consumer in various economic activities such involves a series of steps. The work of as production, manufacturing and production of goods is covered under 2024-25 Chapter 1.indd 3 13-01-2021 09:40:02  4 BUSINESS  STUDIES Industry and the remaining activities The goods were traded both belong to commerce. In a nutshell we internally and to the foreign lands, call them ‘Business’ which is a wider which generated surplus income. As term and includes Industry, trade and a result, the people were engaged commerce. in various economic activities such as agriculture and domestication TRANSFER OF GOODS AND SERVICES of animals, weaving cotton, dyeing (Monetary versus Barter) fabrics, making clay pots, utensils and handicrafts, sculpting, cottage Production industries, masonry, etc. Family Exchange or Purchase based workshops [karkhanas], for manufacturing, were important components of economic life. This ECONOMIC money was channelised into further ACTIVITIES investment, and led to the dominant growth of indigenous banking system to finance the trading activities. Distribution Consumption An example of it is the use of age old Hundi and Chitties (used in southern region). These were used DIVISION OF INCOME SATISFACTION as documents to facilitate transfer of AMONG FACTORS OF OF NEEDS money from one hand to another for PRODUCTION AND WANTS trading activities. As an instrument of exchange it involved a contract 1.1.1 Role of Business in the which — (i) warrant the payment of Development of Economy money, the promise or order which is Business which includes trade and unconditional (ii) capable of change commerce have played a vital role through transfer by valid negotiation. since times memorial. You have Why there was a need to create an studied in your earlier classes that our intangible form of exchange of money. country, India, had a golden past and It was so because travelling long the trading activities had a significant distances either by land or sea involved contribution to its prosperity and risk of theft and robbery. Hundi which gains. The archaeological evidences literally means ‘to collect’ was written have shown that trading activities were in vernacular language and facilitated the mainstay of the economy in ancient the safe transfer of money between times which were carried out by both parties and helped promotion of water and land routes. Silk route and trading activities. maritime trade were quite prominent The emergence of credit transactions in transporting goods and commodities and availability of loans and advances for trading purposes. enhanced commercial operations. The 2024-25 Chapter 1.indd 4 13-01-2021 09:40:02  BUSINESS, TRADE AND COMMERCE 5 Hundi as practised by Indian Merchant Communities 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. Indian subcontinent enjoyed the fruits cotton, parrot, live animals and of favourable balance of trade, where animal products, etc. Major imports exports exceeded imports with large were Horses, animal products, Chinese margins and the indigenous banking silks, linen, wine, gold, silver, copper, system benefitted the manufacturers, etc. There were all kinds of towns— traders and merchants with additional port towns, manufacturing towns, capital funds for expansion and mercantile towns, the sacred centres, development. Commercial and and pilgrimage towns. Their existence Industrial banks later evolved to is an index of prosperity of merchant finance trade and commerce and communities and professional classes. agricultural banks to provide both Business activities led to the short and long-term loans to finance growth of different aids to trade such agriculturists. as transportation, banking, finance Many leading trade centres were and communication which grew the developed in ancient times for the import prospects of trading activities. With the and export of goods, some of them active contribution of Indian traders being Patliputra, Peshawar, Taxila, and other merchant communities, the Indraprastha, Mithila, Maduram, Indian sub-continent was popularly Surat, Ujjain, Kanchi, Mithila. Major called ‘Swaran Bhoomi and Swaran exports items were Spices, wheat, Deep’ in the writings of many travellers, sugar, indigo, opium, sesame oil, such as Megasthenes, Faxian (FaHien), 2024-25 Chapter 1.indd 5 13-01-2021 09:40:02  6 BUSINESS  STUDIES Xuanzang (Huen Tsang), Al Beruni Between the 1st and the 7th (11th century), IbnBatuta (11th centuries CE, India is estimated to century), Frenchman Francois (17th have the largest economy of the ancient and medieval world, controlling about century) and others. They repeatedly one-third and one-fourth of the world’s refer to the prosperity of the country. wealth (timeline). 1 AD: 32% (the largest 1000 AD: 32% (the largest 1500 AD: 24.36% (second in regional contribution) regional contribution) regional share) 1700–1750 AD: 25% of world’s 1700 AD: 1600 AD: 1850 AD: 5–10% industrial output 24.46% 24.41% 1870 AD: 9.2% (world income 1900 AD: 2% (global 1913 AD: 5.4% British Empire) industrial output) (British Empire) 1991 AD: Economic 1973 AD: 1952 AD: 3.8% of the liberalisation 3.1% world income Source: Angus Maddison (2001 and 2003), The World Economy: A Millennial Perspective, OECD, Paris; Angus Maddison, The World Economy, Historical Statistics Major Trade Centres in ancient times 1. Pataliputra: Known as Patna today. It was not only a commercial town, but also a major centre for export of stones. 2. Peshawar: It was an important exporting centre for wool and for the import of horses. It had a huge share in commercial transactions between India, China and Rome in the first century A.D. 3. Taxila: It served as a major centre on the important land route between India and Central Asia. It was also a city of financial and commercial banks. The city occupied an important place as a Buddhist centre of learning. The famous Taxila University flourished here. 4. Indraprastha: It was the commercial junction on the royal road where most routes leading to the east, west, south and north converged. 5. Mathura: It was an emporium of trade and people here subsisted on commerce. Many routes from South India touched Mathura and Broach. 6. Varanasi: It was well placed as it lay both on the Gangetic route and on the highway that linked North with the East. It grew as a major centre of textile industry and became famous for beautiful gold silk cloth and sandalwood workmanship. It had links with Taxila and Bharuch. 2024-25 Chapter 1.indd 6 13-01-2021 09:40:02  BUSINESS, TRADE AND COMMERCE 7 7. Mithila: The traders of Mithila crossed the seas by boats, through the Bay of Bengal to the South China Sea, and traded at ports on the islands of Java, Sumatra and Borneo. Mithila established trading colonies in South China, especially in Yunnan. 8. Ujjain: Agate, carnelian, muslin and mallow cloth were exported from Ujjain to different centres. It also had trade relations through the land route with Taxila and Peshawar. 9. Surat: It was the emporium of western trade during the Mughal period. Textiles of Surat were famous for their gold borders (zari). It is noteworthy that Surat hundi was honoured in far off markets of Egypt and Iran. 10. Kanchi: Today known as Kanchipuram, it was here that the Chinese used to come in foreign ships to purchase pearls, glass and rare stones and in return they sold gold and silk. 11. Madura: It was the capital of the Pandayas who controlled the pearl fisheries of the Gulf of Mannar. It attracted foreign merchants, particularly Romans, for carrying out overseas trade. 12. Broach: It was the greatest seat of commerce in Western India. It was situated on the banks of river Narmada and was linked with all important marts by roadways. 13. Kaveripatta: Also known as Kaveripatnam, it was scientific in its construction as a city and provided loading, unloading and strong facilities of merchandise. Foreign traders had their headquarters in this city. It was a convenient place for trade with Malaysia, Indonesia, China and the Far East. It was the centre of trade for perfumes, cosmetics, scents, silk, wool, cotton, corals, pearls, gold and precious stones; and also for ship building. 14. Tamralipti: It was one of the greatest ports connected both by sea and land with the West and the Far East. It was linked by road to Banaras and Taxila. With the emergence of the British development with the objective of Empireroots in India the east india achieving a self-reliant socialistic company used revenues generated pattern of society. The measures taken by the provinces under its rule for towards the same was characterised purchasing Indian raw materials, by centralised economic planning and spices and goods. This changed the emphasis on public investment in condition of the Indian economy from basic and key industries. being an exporter of processed goods Due importance was given to to the exporter of raw materials and the establishment of modern buyer of manufactured goods. industries, modern technological After independence the process and scientific institutes, space and of rebuilding the economy started nuclear programmes. But lack of and India embarked on planned capital formation, rise in population, 2024-25 Chapter 1.indd 7 13-01-2021 09:40:02  8 BUSINESS  STUDIES weak financial system, inadequate The Indian economy is emerging infrastructure and high huge as one of the faster growing economies expenditure on defence, high fiscal in the world today and a preferred FDI deficits and continuous deficits in destination. Rising incomes, savings, balance of payments were evident and investment opportunities, increased international community’s confidence domestic consumption and younger in India’s ability to manage its economy population ensures growth for decades was severely affected. The balance of to come. The high growth sectors have payment situation was precarious. been identified, which are likely to As a result, India agreed to economic grow at a rapid pace and the recent liberalisation in 1991. initiatives of the Government of India A three pronged approach of such as ‘Make in India’, Skill India’, stabilisation, restructuring and ‘Digital India’ is expected to help the globalisation of Indian economy was economy in terms of exports and adopted to address the changes in imports with steady and sustainable economic and business scenario and trade balance. its integration with global economy. Government of India announced major Activity economic reform packages aimed at Did you notice how business plays restoring the growth momentum in the a major role in the growth and economy. Major policy changes were development of any nation and why effected since 1991 w.r.t., fiscal, business is regarded as a backbone of monetary, trade, industry, agriculture, the Economy? Discuss in class. infrastructure, foreign exchange and foreign investment since 1991. 1.2 Concept of Business The term business is derived from the word ‘busy’. Thus, business means being busy. However, in a specific sense, business refers to an occupation in which people regularly engage in activities related to purchase, production and/or sale of goods and services with a view to earning profits. If you look around you will observe that people undertake various activities to satisfy their needs. These activities may be broadly classified into two groups — economic and non-economic activities. Economic activities are those by which we can earn our livelihood, whereas, non-economic 2024-25 Chapter 1.indd 8 13-01-2021 09:40:07  BUSINESS, TRADE AND COMMERCE 9 activities are performed out of love, namely business, profession and sympathy, sentiment, patriotism, employment. Business may be defined etc. For example, a worker working as an economic activity involving the in a factory, a doctor operating in his production and sale of goods and clinic, a manager working in an office services undertaken with a motive of and a teacher teaching in a school are doing so to earn their livelihoods earning profit by satisfying human and are, therefore, engaged in an needs in society. economic activity. On the other hand, a housewife cooking food for her family, Activity or a boy helping an old man cross the Barter system is an old method of road are performing non-economic exchange of goods and/or services for activities since they are doing so out another set of goods and/or services. of love or sympathy. Is barter system an economic activity? Economic activities may be Give reasons for your answer. further divided into three categories, Try it yourself: State whether each of the following is an economic activity or not. Give reasons for your answer. 1. Health worker treating her patient. 2. Store owner sympathies with a needy elderly person and gives medicines for his ailment. 3. Football coach giving training in football to his daughter for forthcoming match. 4. Services of a housewife doing household chores at home. 5. Donation made by a business house towards community kitchen run by an NGO for providing food, medicines to underprivileged people and migrant workers of the society during Covid 19 pandemic. 1.2.1 Characteristics of Business (i) An economic activity: Business Activities is considered to be an economic In order to appreciate how business activity because it is undertaken activity is different from other activities with the objective of earning in society, the nature of business or money or livelihood and not its fundamental character must be out of love, affection, sympathy explained in terms of its distinguishing or any other emotion. It may characteristics, which are as follows: be mentioned here that this 2024-25 Chapter 1.indd 9 13-01-2021 09:40:07  10 BUSINESS  STUDIES activity can be undertaken either characteristic of business is that on small and individual level, there should be sale or exchange e.g. (purchase and sale by a of goods or services between the shopkeeper) or on large scale seller and the buyer. in a more formal and organised (iv) Dealings in goods and services level (purchase and sale by a on a regular basis: Business cooperative society or company). involves dealings in goods or (ii) Production or procurement services on a regular basis. One of goods and services: Before single transaction of sale or goods are offered to people for purchase, therefore, does not consumption, these must be constitute business. Thus, for either produced or procured example, if a person sells his/ by business enterprises. Thus, her domestic radio set even at a every business enterprise either profit, it will not be considered a manufactures the goods it deals in business activity. But if he/she or acquires them from producers, sells radio sets regularly either to be further sold to consumers through a shop or from his/her or users. Goods may consist residence, it will be regarded as of consumable items of daily a business activity. use, such as sugar, ghee, pen, (v) Profit earning: One of the main notebook, etc., or capital goods, purpose of business is to earn like machinery, furniture, etc. income by way of profit. No Services may include facilities business can survive for long offered to consumers, business without profit. That is why, firms and organisations in the businessmen make all possible form of transportation, banking, efforts to maximise profits, by electricity, etc. increasing the volume of sales or (iii) Sale or exchange of goods and reducing costs. services: Directly or indirectly, (vi) Uncertainty of return: Uncertainty business involves transfer or of return refers to the lack of exchange of goods and services knowledge relating to the amount for value. If goods are produced of money that the business is not for the purpose of sale but going to earn in a given period. for personal consumption, it Every business invests money cannot be called a business (capital) to run its activities with activity. Cooking food at home the objective of earning profit. for the family is not business, But it is not certain as to what but cooking food and selling amount of profit will be earned. it to others in a restaurant is Also, there is always a possibility business. Thus, one essential of losses being incurred, despite 2024-25 Chapter 1.indd 10 13-01-2021 09:40:07  BUSINESS, TRADE AND COMMERCE 11 the best efforts put into the accidents, natural calamities, etc. business. No business can altogether do (vii) Element of risk: Risk is the away with risks. uncertainty associated with an 1.2.3 Comparison of Business, exposure to loss. It is caused by Profession and Employment some unfavourable or undesirable event. Risks are related with As has been mentioned earlier, factors, like changes in consumer economic activities may be divided into taste and fashion, changes in three major categories viz., Business, method of production, strike or Profession and Employment. The lockout at workplace, increased difference between these three terms competition in market, fire, theft, is given in figure 1.2. 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 2. Nature of work Provision of Rendering of Performing work as goods and personalised, per service contract services to the expert services or rules of service public 3. Qualification No minimum Qualifications, Qualification qualification is expertise and and training as necessary training in specific prescribed by the 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 Limited capital No capital required investment investment needed for required as per establishment size and nature of business 6. Risk Profits are uncertain Fee is generally Fixed and regular and irregular; risk is regular and pay; no or little risk present certain; some risk 2024-25 Chapter 1.indd 11 13-01-2021 09:40:07  12 BUSINESS  STUDIES 7. Transfer of Transfer Not possible Not possible interest possible with some formalities 8. Code of No code of Professional code Norms of behaviour conduct conduct is of conduct is to be laid down by the prescribed followed employer are to be followed 9. Example Shop, factory Legal, medical Jobs in banks, profession, insurance chartered companies, accountancy government departments 1.3 Classification of Business breeding and raising of animals. Activities The term industry is also used to mean groups of firms producing Various business activities may be similar or related goods. For example, classified into two broad categories cotton textile industry refers to all —industry and commerce. Industry manufacturing units producing textile is concerned with the production or goods from cotton. Similarly, electronic processing of goods and materials. industry would include all firms Commerce includes all those activities, producing electronic goods, and so on. which are necessary for facilitating the Further, in common parlance, certain exchange of goods and services. On the services, like banking and insurance, basis of these two categories, we may are also referred to as industry, say classify business firms into industrial banking industry, insurance industry, and commercial enterprises. Let us etc. Industries may be divided into examine in detail the activities relating three broad categories namely primary, to business. secondary and tertiary. (i) Primary industries: These 1.3.1 Industry include all those activities which Industry refers to economic activities, are concerned with the extraction which are connected with conversion of and production of natural resources into useful goods. Generally, resources and reproduction and the term industry is used for activities development of living organisms, in which mechanical appliances and plants, etc. These are divided as technical skills are involved. These follows. include activities relating to producing (a) E x t r a c t i v e i n d u s t r i e s : or processing of goods, as well as, These industries extract 2024-25 Chapter 1.indd 12 13-01-2021 09:40:07  BUSINESS, TRADE AND COMMERCE 13 or draw products from (a) Manufacturing industries: natural sources. Extractive These industries are engaged industries supply some basic in producing goods through raw materials that are mostly processing of raw materials products of geographical and, thus, creating form or natural environment. utilities. They bring out Products of these industries diverse finished products, are usually transformed into that we consume, or use many other useful goods by through the conversion manufacturing industries. of raw materials or partly Important extractive finished materials in their industries include farming, manufacturing operations. mining, lumbering, hunting Manufacturing industries and fishing operations. may be further divided into (b) Genetic industries: These four categories on the basis industries are engaged of method of operation for in breeding plants and production. animals for their use in Analytical industry which further reproduction. Seeds analyses and separates and nursery companies are different elements from typical examples of genetic the same materials, as industries. In additional, in the case of oil refinery. activities of cattle breeding Synthetical industry farms, poultry farms, and which combines various fish hatchery come under ingredients into a new genetic industries. product, as in the case of cement. (ii) Secondary industries: These are Processing industry concerned with using materials, which involves successive which have already been stages for manufacturing extracted at the primary sector. finished products, as in These industries process such the case of sugar and materials to produce goods for paper. final consumption or for further Assembling industry processing by other industrial which assembles different units. For example, mining of iron component parts to make ore is a primary industry, but a new product, as in the manufacturing of steel by way of case of television, car, further processing of raw irons is a secondary industry. Secondary computer, etc. industries may be further divided (b) Construction industries: as follows: These industries are involved 2024-25 Chapter 1.indd 13 13-01-2021 09:40:07  14 BUSINESS  STUDIES in the construction of 1.3.2 Commerce buildings, dams, bridges, Commerce includes two types of roads as well as tunnels activities, viz., (i) trade and (ii) and canals. Engineering auxiliaries to trade. Buying and and architectural skills selling of goods is termed as trade. are an important part in But there are a lot of activities that construction industries. are required to facilitate the purchase (iii) Tertiary industries: These are and sale of goods. These are called concerned with providing support services or auxiliaries to trade and services to primary and secondary include transport, banking, insurance, industries as well as activities communication, advertisement, relating to trade. These industries packaging and warehousing. provide service facilities. As Commerce, therefore, includes both, business activities, these may buying and selling of goods, i.e., be considered part of commerce trade, as well as, auxiliaries, such as because as auxiliaries to trade transport, banking, etc. these activities assist trade. Commerce provides the necessary Included in this category are link between producers and transport, banking, insurance, consumers. It embraces all those warehousing, communication, activities, which are necessary for packaging and advertising. maintaining a free flow of goods and Chart Showing Business Activities 2024-25 Chapter 1.indd 14 13-01-2021 09:40:07  BUSINESS, TRADE AND COMMERCE 15 services. Thus, all activities involving a large scale and it is difficult for the removal of hindrances in the producers to themselves reach out process of exchange are included in to individual buyers for selling their commerce. The hindrances may be in products. Businessmen are engaged respect of persons, place, time, risk, in trading activities to make the goods finance, etc. The hindrance of persons available to consumers in different is removed by trade, thereby, making markets. In the absence of trade, it goods available to consumers from the would not be possible to undertake possession or ownership producers. production activities on a large scale. Transport removes the hindrances of Activities which are meant for place by moving goods from the place assisting trade are known as auxiliaries of production to the markets for sale. to trade. These activities are generally Storage and warehousing activities referred to as services because these remove the hindrance of time by are in the nature of facilitating the facilitating holding of stocks of goods activities relating to industry and to be sold as and when required. trade. Transport, banking, insurance, Goods held in stock, as well as, goods warehousing, and advertising are in course of transport are subject regarded as auxiliaries to trade, i.e., to a risk of loss or damage due to activities playing a supportive role. theft, fire, accidents, etc. Protection In fact, these activities support not against these risks is provided by only trade, but also industry and, insurance of goods. Capital required hence, the entire business activity. to undertake the above activities is Auxiliaries are an integral part of provided by banking and financing commerce in particular and business institutions. Advertising makes it activity in general. These activities possible for producers and traders to help in removing various hindrances inform consumers about the goods which arise in connection with the and services available in the market. production and distribution of goods. Hence, commerce is said to consist of Transport facilitates movement of activities of removing the hindrances of goods from one place to another. persons, place, time, risk, finance and Banking provides financial assistance information in the process of exchange to the manufacturer and trader. of goods and services. Insurance covers various kinds of business risks. Warehousing creates 1.3.3 Trade and Auxiliaries to Trade time utility by way of storage facilities. Trade is an essential part of commerce. Advertising provides information to It refers to sale, transfer or exchange the consumers. In other words, these of goods either physical or virtual. It activities facilitate movement, storage, helps in making the goods produced financing, risk coverage and sales available to the consumers or users. promotion of goods. Auxiliaries to These days’ goods are produced on trade are briefly discussed below: 2024-25 Chapter 1.indd 15 13-01-2021 09:40:07  16 BUSINESS  STUDIES (i) Transport and Communication: undertake collection of cheques, Production of goods generally takes remittance of funds to different place in particular locations. For places, and discounting of bills instance, tea is mainly produced on behalf of traders. In foreign in Assam; cotton in Gujarat and trade, commercial banks help Maharashtra; jute in West Bengal exporters in collecting money and Odisha; sugar in U.P., Bihar from importers. Commercial and Maharashtra and so on. banks also help promoters of But these goods are required for companies to raise capital from consumption in different parts of the public. the country. The obstacle of place (iii) Insurance: Business involves is removed by transport through various types of risks. Factory road, rail or coastal shipping. building, machinery, furniture, Transport facilitates movement etc., must be protected against of raw material, to the place fire, theft and other risks. of production and the finished Material and goods help in stock products from factories to the place of consumption. Along or in transit are subject to the with transport facility, there is risk of loss or damage. Employees also a need for communication are also required to be protected facilities so that producers, against the risks of accident and traders and consumers may occupational hazards. Insurance exchange information with one provides protection in all such another. Thus, postal services cases. On payment of a nominal and telephone facilities may also premium, the amount of loss or be regarded as auxiliaries to damage and compensation for business activities. injury, if any, can be recovered from the insurance company. (ii) Banking and Finance: Business activities cannot be undertaken (iv) Warehousing: Usually, goods are unless funds are available for not sold or consumed immediately acquiring assets, purchasing after production. They are held raw materials and meeting other in stock to make them available expenses. Necessary funds can as and when required. Special be obtained by businessmen arrangement must be made for from a bank. Thus, banking the storage of goods to prevent helps business activities to loss or damage. Warehousing overcome the problem of finance. helps business firms to overcome Commercial banks, generally the problem of storage and lend money by providing overdraft facilitates the availability of goods and cash credit facilities, loans when needed. Prices are, thereby, and advances. Banks also maintained at a reasonable level 2024-25 Chapter 1.indd 16 13-01-2021 09:40:07  BUSINESS, TRADE AND COMMERCE 17 through continuous supply of available goods and services goods. and inducing customers to buy (v) A d v e r t i s i n g a n d P u b l i c particular items. Advertisements Relations: There is an old saying are always a paid activity where “Advertising is what you pay business occupies space in print for and PR is what you pray or non-print media to promote its for”. Both advertisement and product or a service. PR activities, PR activities are the tools to on the other hand, are normally commerce, influence and promote unpaid where business enters your product, services or an idea into a strategic communication to build a mutually beneficial to you potential customers and relationship. motivate you target customers to recognise your accomplishments. A d v e r t i s i n g a n d p u b l i c 1.4 Objectives of Business relation activities are one of An objective is the starting point of the most important methods of business. Every business is directed to promoting the sale of products the achievement of certain objectives. and services in a market place. Objectives refer to all that the business It is practically impossible for people want to get in return for what producers and traders to contact they do. It is generally believed that each and every customer. Thus, business activity is carried out only for for promoting sales, information profit. Business persons themselves in made available through proclaim that their primary objective advertisements and publicity is produce or distribute goods or tools about their features, price, services for profit. Every business etc., to the potential customers. is said to be an attempt on the part Also, there is a need to persuade of business people to get more than potential customer’s and buyers what has been spent or invested, or about the utility featuress, quality, in other words, to earn profit which price, competitive information is the excess of revenue over cost. about the goods and services, etc. However, it is being increasingly The publicity of such attributes realised nowadays that business of products and services are enterprises are part of the society done using various techniques of and need to fulfil several objectives, maintaining public relation tools. including social responsibility, to The popular PR tool is the use of survive and prosper in the long run. press release in print and social Profit is found to be a leading objective media platforms. Advertising and but not the only one. Public Relations activities helps Although earning profit cannot in providing information about be the only objective of business, its 2024-25 Chapter 1.indd 17 13-01-2021 09:40:08  18 BUSINESS  STUDIES importance cannot be ignored. Every 1.5 Objectives of Business business is an attempt to reap more Objectives are needed in every area that than what has been invested, and influences the survival and prosperity profit is the excess of revenue over of business. Since a business has cost. Profit may be regarded as an to balance a number of needs and essential objective of business for goals, it requires multiple objectives. various reasons: (i) it is a source of It cannot follow only one objective income for business persons, (ii) it and expect to achieve excellence. can be a source of finance for meeting Objectives have to be specific in expansion requirements of business, every area and sphere of business. (iii) it indicates the efficient working Objectives also enable the business of business, (iv) it can be taken as to analyse their own performance and the society’s approval of the utility take steps as necessary to improve of business, and (v) it builds the their performance in future. Some of reputation of a business enterprise. these areas are described as follows. However, too much emphasis on profit to the exclusion of other (i) Market standing: Marinating objectives can be dangerous for goodwill and reputation of ones’ good business. Obsessed with profit, business is paramount to succeed business managers may neglect and prosper. It helps in forming a all other responsibilities towards distinct identity in the market and customers, employees, investors and is referred to as market standing society at large. They may even be in relation to its competitors. A inclined to exploit various sections of business enterprise must aim society to earn immediate profit. This at standing on stronger footing may result in the non-cooperation in terms of offering competitive or even opposition from the affected products at reasonable prices to people against the malpractices of its customers and serving them business enterprises. The enterprises to their satisfaction. might lose business and may be (ii) Innovation: Innovation is central unable to earn profit. This is essential to the growth of any business for its own survival and prosperity. enterprise. It helps business to scale up and give competitive edge to the enterprise in the Activity market. Innovation is defined as When a business person conceptualises an introduction of new ideas or and starts a business; runs it, scales methods in the way something is it up then why ‘maximising business profit is not a sole objective of business? done or made. However, it does Discuss in your class. Give reasons. not imply that a new product is to be manufactured. Any 2024-25 Chapter 1.indd 18 13-01-2021 09:40:08  BUSINESS, TRADE AND COMMERCE 19 modification in the existing important for its survival and product to enhance its operation growth. also denotes innovativeness. (vi) Social responsibility: Social There are two kinds of innovation responsibility refers to the in every business, i.e., (i) obligation of business firms to innovation in product or services; and (ii) innovation in various contribute resources for solving skills and activities needed to social problems and work in a supply products and services. No socially desirable manner. business enterprise can flourish in a competitive world without 1.6 Business Risk innovation. Therefore, innovation The term ‘business risk’ refers to becomes an important objective. the possibility of inadequate profits (iii) Productivity: Productivity is or even losses due to uncertainties ascertained by comparing the or unexpected events. For example, value of output with the value of demand for a particular product may inputs. It is used as a measure decline due to change in tastes and of efficiency. In order to ensure preferences of consumers or due to continuous survival and progress, increased competition from other every enterprise must aim at producers. Lower demand results greater productivity through the in long sales and profits. In another best use of available resources. situation, the shortage of raw materials (iv) P h y s i c a l a n d f i n a n c i a l in the market may shoot up its price. resources: Any business The firm using these raw materials will requires physical resources, have to pay more for buying them. As a like plants, machines, offices, result, cost of production may increase etc., and financial resources, which, in turn, may reduce profits. i.e., funds to be able to produce Business enterprises constantly and supply goods and services face two types of risk: speculative to its customers. The business and pure. Speculative risks involve enterprise must aim at acquiring both the possibility of gain, as well these resources according to as, the possibility of loss. Speculative their requirements and use them risks arise due to changes in market efficiently. conditions, including fluctuations (v) Earning profits: One of the in demand and supply, changes in objectives of business is to earn prices or changes in fashion and profits on the capital employed. tastes of customers. Favourable Profitability refers to profit in market conditions are likely to result relation to capital investment. in gains, whereas, unfavourable Every business must earn a ones may result in losses. Pure risks reasonable profit which is so involve only the possibility of loss or 2024-25 Chapter 1.indd 19 13-01-2021 09:40:08  20 BUSINESS  STUDIES no loss. The chance of fire, theft or For example, a business dealing strike are examples of pure risks. in fashionable items has a high Their occurrence may result in loss, degree of risk. Similarly, a large- whereas, non-occurrence may explain scale business generally has a absence of loss, instead of gain. higher risk than what a small scale has. 1.6.1 Nature of Business Risks (iv) Profit is the reward for risk Nature of business risks can be taking: ‘No risk, no gain’ is an understood in terms of their peculiar age-old principle which applies characteristics: to all types of business. Greater the risk involved in a business, (i) Risk is an essential part of higher is the chance of profit. An every business: Every business entrepreneur undertakes risks has some risk. No business can under the expectation of higher avoid risk, although the amount profit. Profit is thus the reward of risk may vary from business to for risk taking. business. Risk can be minimised, but cannot be eliminated. 1.6.2 Cause of Business Risks (ii) Business risks arise due to Business risks arise due to a variety of uncertainties: Uncertainty refers causes, which are classified as follows: to the lack of knowledge about what is going to happen in future. (i) Natural causes: Human beings Natural calamities, change in have little control over natural demand and prices, changes in calamities, like flood, earthquake, government policies and prices, lightning, heavy rains, famine, improvement in technology, etc., property and income in etc., are some of the examples of business. uncertainty which create risks for (ii) Human causes: Human causes business because the outcomes include such unexpected events, of these future events are not like dishonesty, carelessness or known. negligence of employees, stoppage (iii) Degree of risk depends mainly of work due to power failure, upon the nature and size of strikes, riots, management business: Nature of business inefficiency, etc. (i.e., type of goods and services (iii) E c o n o m i c c a u s e s : T h e s e produced and sold) and size include uncertainties relating to of business (i.e., volume of demand for goods, competition, production and sale) are the price, collection of dues from main factors which determine customers, change of technology the amount of risk in a business. or method of production, etc. 2024-25 Chapter 1.indd 20 13-01-2021 09:40:08  BUSINESS, TRADE AND COMMERCE 21 Financial problems, like rise in Taking to entrepreneurship by starting interest rate for borrowing, levy one’s own business is a matter of of higher taxes, etc., also come aspiring to become an entrepreneur. It under these type of causes as is defined as ‘a systematic, purposeful they result in higher unexpected and creative activity of identifying cost of operation or business. a need, mobilising resources and (iv) O t h e r c a u s e s : T h e s e a r e organising production with a view unforeseen events, like political to delivering value to the customers, disturbances, mechanical returns for the investors and profits failures, such as the bursting of for the self in accordance with the boiler, fluctuations in exchange risks and uncertainties associated rates, etc., which lead to the with business’. This definition points possibility of business risks. to factors need to be considered for starting the business. Starting and 1.7 Starting a Business — Basic managing one’s business does not Factors emerge spontaneously. Rather, it is the outcome of interaction between Starting a business enterprise is a person and business environment. similar to any other human effort The choice of being an entrepreneur in which resources are employed lies with an individual. In this regard, to achieve certain objectives. The process of setting up one’s own it becomes imperative to look at both— business is called entrepreneurship. factors in the environment, as well as, The person who set-up his business factors in the individual’s perception is called an entrepreneur. The of desirability and feasibility. output of the process, that is, the (i) Selection of type of business: business unit is called a business The first thing to be decided by an enterprise. It is interesting to note that entrepreneur is the nature and entrepreneurship besides providing type of business to be undertaken. self-employment to the entrepreneur is He/she will obviously like to responsible to a great extent for creation enter that branch of industry and expansion of opportunities for the and commerce, which has the other two economic activities too that possibility of greater amount is, employment and profession. And, in of profits. The decision will be the process, business entrepreneurship influenced by the customer becomes crucial for overall economic requirements in the market development of a nation. and also the kind of technical When you make this choice, you knowledge and interest the become a job-provider rather than a job- entrepreneur has for producing seeker, besides enjoying a host of other a particular product. financial and psychological rewards. 2024-25 Chapter 1.indd 21 13-01-2021 09:40:08  22 BUSINESS  STUDIES (ii) Size of business: Size of the business. Capital is required firm or scale of its operation for investment in fixed assets, is another important decision like land, building, machinery to be taken at the start of the and equipment and in current business. Whether the business assets, like raw materials, books, is for MSME sector or a large debts, stock of finished goods, scale enterprise. Whether it etc. Capital is also required for will operate for manufacturing meeting day-to-day expenses. or tertiary sector. Some factors (v) Physical facilities: Availability favour a large size, whereas, of physical facilities, including others tend to restrict the scale machines and equipment, of operation. If the entrepreneur building and supportive services is confident that the demand for is an important factor to be the proposed product is likely to considered at the start of the be good over time and he/she can business. The decision relating arrange the necessary capital for to this factor will depend on the business, he/she can start the nature and size of business, operation at a large scale. availability of funds and the (iii) Location of business enterprise: process of production. An important factor to be (vi) Competent and committed considered at the start of the worked force: Every enterprise business is the place where needs competent and committed the enterprise will be located. workforce to perform various Any mistake in this regard can activities so that physical and result in high cost of production, financial resources are converted inconvenience in getting, right into desired outputs. Since no kind of production inputs or individual entrepreneur can serving the customers in the do everything himself, he/she best possible way. Availability of must identify the requirement raw materials and labour; power of skilled and unskilled workers supply and services, like banking, and managerial staff. Plans transportation, communication, should also be made about how warehousing, etc., are important the employees will be trained factors while making a choice of and motivated to give their best location. performance. (iv) Financing the proposition: (vii) Tax planning: Tax planning has Financing is concerned with become necessary these days providing the necessary because there are a number of capital for starting, as well as, tax laws in the country and they for continuing the proposed influence almost every aspect 2024-25 Chapter 1.indd 22 13-01-2021 09:40:08  BUSINESS, TRADE AND COMMERCE 23 of the functioning of modern resources, fulfilling necessary business. The entrepreneur has legal formalities, starting the to consider in advance the tax production process and initiating liability under various tax laws the sales promotion campaign. A and its impact on business business enterprise can be a sole decisions. proprietor firm, a partnership (viii) Launching the enterprise: After firm or a company for which the decisions relating to the proper financial planning must above mentioned factors have be done to determine (a) the been taken, the entrepreneur requirement of capital, (b) source can go ahead with actual from where the capital will be launching of the enterprise which raised and (c) the best ways of would mean mobilising various utilising the capital in the firm. EXERCISES Short Answer Questions 1. Why is business considered as economic activity? 2. How does business contribute to the economic development of a country? 3. State the different types of economic activities. 4. State the meaning of business. 5. How would you classify business activities? 6. What are the various types of industries? 7. Explain any two business activities which are auxiliaries to trade. 8. What is the role of profit in business? 9. What is meant by business risk? 10. State the causes of risks involved in business? 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. 2024-25 Chapter 1.indd 23 13-01-2021 09:40:08  24 BUSINESS  STUDIES 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. Activities 1. Have you ever witnessed any shop or a business getting closed in your locality? Interact with the owner to find out the reasons for its closure or losses incurred. Prepare a project report on the factors to be considered for starting any business. 2. ‘Make in India’ is an initiative launched by the Government of India on 25 September 2014, to encourage national, as well as multinational companies to manufacture their products in India. The major objectives behind the ‘Make in India’ initiative are job creation and skill enhancement in 25 sectors of the economy. Collect information on any five such 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 Investment in Year I Year II Year III 3. Nestled in the beautiful district of Assam is the district of Kamrup. In Kamrup, lies a small, tight knit community village called Sualkuchi. Sualkuchi is known for its silk weavers and the intricate art of silk weaving. There is a part of silk weaving called weft insertion or buta weaving. This requires complete attention, dedication and precision. The slow process is mentally and physically exhausting. It slows down productivity and leads to the workers being unable to take extra work. In this community of the quiet workers lived Dipak Bharali. Born in a simple family, he knew the weaving occupation was going to be his livelihood. The resourceful young man wanted to be a success and achieve something substantial. He purchased a silk weaving loom and started a business with it. The venture was growing and income was quite good. Yet, something bothered Dipak. To expand the business of silk weaving, there was no other option but to keep purchasing more looms. He tried to find other means of investment and progress. The simple minded villagers told him just to increase the number of looms. Dipak 2024-25 Chapter 1.indd 24 13-01-2021 09:40:08  BUSINESS, TRADE AND COMMERCE 25 was frustrated with their answers and pushed himself to think outside the box. He thought he could make a machine that will automate the process of weft insertion or buta weaving. 4. One fine day, Dipak and his brother were reminiscing about their childhood. A good part of their childhood had revolved around creating fun games out of simple objects and ideas. He remembered his brother trying to make an electro-magnet by using some wires and nails. Another game involved placing a safety pin or nail on paper and moved using a magnet below the paper. Like the proverbial light bulb going on in somebody’s mind, Dipak’s brain was triggered by this memory. 5. He knew this was the push he needed to create a solution for his dilemma. Now that he had the idea, he had to create the device. An entrepreneur is one who succeeds despite failing numerous times. After a mind boggling 80 tries, he developed the ideal device ‘Chaneki’. ‘Chaneki’ is made of recyclable materials, making not only a useful but an eco-friendly invention. The device made machine to run 40 times faster than manual weft insertion of motifs! Several weavers have now mastered Chaneki and increased output majorly. This difference has allowed productivity and quality to increase, pleasing both the owners and weavers. 6. It is always easy to walk the path taken by everybody. The ones who carve their own route and plant flags on unknown territories are the real risk takers and entrepreneurs. Dipak Bharali well deserve of all he has achieved. Small things come in big packages. And sometimes the biggest questions of life are answered in the most simplest of ways. (Based on data at www. nif.org.in) Answer the Following Questions 1. Which objective of business is discussed in the above case? 2. How has the identified objective of business contributed to the growth of business unit? Give reasons. 3. Why does business require multiple objectives for its sustainable growth? 2024-25 Chapter 1.indd 25 13-01-2021 09:40:08