Krupanidhi School of Management - Bangalore

Module 1 Introduction: Concept, Nature and Scope of Business; forms of business enterprise Concept of business as a system; Business and Environment Interface; Business objectives; Business Ethics and Values; Code of Conduct and Corporate Governance. Introduction: Human beings are generally engaged in some activity or the other. Some of the activities are pursued with economic motives and they are called as Economic activities. Eg: Business, Profession and employment. Many people are engaged in certain Social, Cultural and religious activities these activities are called as Non economic activities. These activities are undertaken to satisfy sentimental requirement of human beings. Concept of Business: Business is an economic activity, which involves regular production and or exchange of goods and services, with the main purpose of earning profits through the satisfaction of human wants. Business involves production and or exchange of goods and services to earn profit or in a broader sense to earn a living. Profit is not the sole objective of the business. It may have other objective like promotion of welfare of the workers and the general public. Thus, business pervades all human activities directed toward earning profit or economic gains.. it includes all activities from production to distribution of goods and services. In other words, industry, trade and other activities like banking, transport, insurance, warehousing, advertising, etc. are integral parts of the modern business system. Nature Of Business Whatever may be the nature and scale of operations, a business enterprise possesses the following characteristics: Dealings in Goods and Services: The first basic characteristics of a business is that it deals in goods and services Goods produced or exchanged may be consumer goods like bread, rice, soap, cloth, etc. or producers goods such as machines, tools, etc. The consumer goods are meant for direct consumption, either immediately or after Prof.Arvinthan Business Perspective Page 1

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undergoing some process, whereas the producers goods are meant for being used for the purpose of further production. Producers goods are also called as capital goods. Services include supply of electricity, gas, water, finance and insurance, transportation, etc. Production and or exchange: Every business is concerned with production and exchange of goods and services for value (price). The goods produced or purchased for personal consumption or presenting to others as gifts do not constitute as business, because there is no sale or transfer for value. Eg: if a person cooks at home for personal consumption, it is not a business activity. But if he cooks for others in his dhaba or restaurant and receive payment from them, it becomes his business. Creation of Utility All business activities create utilities for the society. Firm utility is created when raw materials are converted into finished goods and services. Place utility is created when goods are transported from the place of production to the place of consumption. Storage of goods creates time utility. This helps in preserving the goods when not required and making them available, when demanded by the consumers. Regularity and Consistency in Dealings Regularity of economic transactions is the essence of business. There should be continuity, or regularity of exchange of goods and services for money. An isolated business cannot be called as business. Eg: if a person sells his flat and earns some profits, it cannot be called as business. But, if he purchase and sells flats regularly to earn his livelihood, it will be called his business. Profit motive Another important feature of a business activity is its objective. The chief objective of a business is to earn reasonable profit or surplus as it is called in case of public enterprise. The survival of the business depends upon its ability to earn profits. Profit is also essential for growth. Recreation clubs and religious institution cannot be called business enterprises, as they have nothing to do with profit motive. Risk and Uncertainty All business activities involve some element of risk and uncertainty. There may be uncertainty in regard to success of business, taste of people, availability of raw materials, power and other factors. When Prof.Arvinthan Business Perspective Page 2

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a businessman invests his capital in some business activity, there is no guarantee that he will be earning sufficient profit to reward himself and keep his capital intact. Every business activity is exposed to some risks, such as: Changing technology, resulting into obsolescence of plant and machinery, and technique of production. Changing consumers tastes and fashion, resulting into fall in consumers demand. Increased competition in the market. Shortage of raw materials, power, fuel, etc.. Faulty managerial decisions. Change in government policies. There are some of the factors, which make business risky and may cause losses. Such risks are generally not insurable. Besides them may be risks of losses, due to factors like theft, fire and natural calamities, which can be insured against. Scope of Business The scope of business is very wide. The business activities may be grouped under two broad headings, Industry Trade and commerce. A business undertaking which deals with growing, extracting, manufacturing or construction is called an industrial enterprise. A business undertaking which deals with exchange ( buying or selling) of goods and services, or with activities that are incidental to trade, like transport, warehousing, banking, insurance and advertising, is called a commercial enterprise.

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Krupanidhi School of Management - Bangalore

Industry The activities of extraction, production, conversion, processing or fabrication of products are described as industry. The products o industry may fall in any one of the following three categories Consumers Goods Goods used by final consumers are called consumers goods. Eg: Edible oils, cloth, jam, TV, Radio, Scooter, etc. under this category. Producers Goods Goods used for the production of other goods are described as producers goods. Eg: Machine tools and machinery used for manufacturing other products come under this category. These are also called capital goods. Intermediate Goods There are certain materials, which are the finished products of one industry and become the intermediate products of other industries. Eg: copper industry, aluminium industry, plastic industry, the finished products of which are used in manufacturing electrical appliances, electricity wires, toys, baskets, containers, and buckets. Broadly speaking, industrial activities may be classified into Primary and Secondary industries. Primary industry may be either Extractive, or Genetic, and Secondary industry may be either Manufacturing, or Construction. Extractive Industries They extract, or draw out products from natural sources, such as earth, sea, air. The products of such industries are generally used by manufacturing and construction industries, for producing finished goods. Farming, Mining, Lumbering Hunting, Fishing etc. are some of the examples of extractive industries. Genetic industries

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Genetic means parentage, or heredity. Genetic industries are engaged in breeding plants and animals, for their use in further reproduction. For breeding plants, the nurseries are typical examples of genetic industries. In addition, the activities of cattle-breeding farms and fish hatchery come under the category of genetic industries. Manufacturing industries These are engaged in producing goods through the creation of form utility. Such industries are engaged in the conversion, or transformation of raw materials, or semi-finished products. The products of extractive industries generally become the raw materials of manufacturing industries. Factory production is the outcome of manufacturing industry. Manufacturing industries may assume the following forms Analytical: The basic material is analyzed and separated into a number of products. Petroleum refining is an example of analytical industry. The crude oil is extracted from beneath the earth and is processed and separated into petrol. Kerosene, Lubricating oil, etc. Synthetic: Two are materials are mixed together in the manufacturing operations to obtain some new products. Products like soap, paints, fertilizers and cosmetics are produced by synthetic industries. Processing: In this case, raw materials are processed through a series of manufacturing operations making use of analytical and synthetic methods textiles; sugar and steel are examples of this category. Assembly line: I assembly industry, the finished products can be produced only after various components have been made and then brought together, for final assembly. Production of automobiles, watches, televisions, bicycles, railway, wagons etc.. are the typical examples of this industry. Construction Industries They are concerned with the making or construction of buildings, bridges, dams, roads, canals, etc. These industries use the products of manufacturing industries such as iron, steel, cement, etc. and also from the extractive industry products like stone, marble, etc. The remarkable feature of these industries is that their products are not sold i the sense of being taken to the markets.

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Krupanidhi School of Management - Bangalore

Trade and commerce. Trade Trade is the voluntary, often asymmetric, exchange of goods, services, or money. Trade is also called commerce or transaction. A mechanism that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and services. Later one side of the barter were the metals, precious metals (poles, coins), bill, paper money. Modern traders instead generally negotiate through a medium of exchange, such as money. As a result, buying can be separated from selling, or earning. The invention of money (and later credit, paper money and non-physical money) greatly simplified and promoted trade. Trade between two traders is called bilateral trade, while trade between more than two traders is called multilateral trade. Kinds of Trade: 1. Home Trade: Trade done within the limited of the Country is called Home Trade or National Trade 2. Foreign Trade: Trade done between the two countries is called Foreign Trade or International Trade. The transactions in this type of trade are called Import Trade (if goods purchased from other country) and Export Trade (if goods sold to other country) International trade International trade is exchange of capital, goods, and services across international borders or territories. In most countries, it represents a significant share of gross domestic product (GDP). While international trade has been present. Industrialization, advanced transportation, globalization, multinational corporations, and outsourcing are all having a major impact on the international trade system. Increasing international trade is crucial to the continuance of globalization. Without international trade, nations would be limited to the goods and services produced within their own borders. International trade is in principle not different from domestic trade as the motivation and the behavior of parties involved in a trade do not change fundamentally regardless of whether trade is across a border or not. The main difference is that international trade is typically more costly than domestic

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trade. The reason is that a border typically imposes additional costs such as tariffs, time costs due to border delays and costs associated with country differences such as language, the legal system or culture. Commerce Commerce is a division of trade or production which deals with the exchange of goods and services from producer to final consumer OR commerce is the exchange of goods and services from the point of production to the point of consumption to satisfy human wants. It comprises the trading of something of economic value such as goods, services, information, or money between two or more entities. Commerce functions as the central mechanism which drives capitalism and certain other economic systems (but compare command economy, for example). Commercialization or commercialization consists of the process of transforming something into a product, service or activity which one may then use in commerce. Commerce involves trade and aids to trade which help in the exchange of goods and services.

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