Production

BRANCHES OF COMMERCE

[Link] includes all the activities which contribute to the transfer of surplus goods from the original
producer to the final consumer at the right time, at the right place, in the right quantity and at the right
price.

2. To effect this transfer efficiently, both trade and aids to trade are required.

3 Trade means the actual buying and selling of goods with a view to making a profit. It involves satisfying
directly or indirectly the wants of consumers by transporting the 'right' goods, both final and
intermediate, from the producers to the consumers.

4. There are two main types of trade:

(a) Home trade is carried out among the people of the country itself. It may be wholesale or retail. A
wholesaler buys from the producer and sells to the retailer who in turn resells to the final consumer.

(b) Foreign trade is trade between the people of one country and the rest of the world. It may be
import trade or export trade, both of which are normally wholesale in nature.

5. Trade cannot be carried on without aids to trade. So, aids to trade are the various activities carried on
helping carry out trade. The aids to trade include banking, transport, communications, warehousing,
advertising and insurance.
6. Everyone, whether in the capacity of a final consumer or a producer such as a farmer, a manufacturer,
a trader or even a doctor, requires the services of commerce, i.e. trade and aids to trade.

7. Commerce is needed in the production process, before and after the production of raw materials and
finished goods.

RODUCTION
Production is the process by which raw materials are transformed into finished goods to satisfy the
requirements of consumers or other organizations. In addition to being in the right form, the goods
must be in the right place at the right time before the process of production is complete.

Branches or stages of Production:

Primary Production

This is the first stage of production and is called the extractive stage. In this stage, raw materials are
extracted from the surface of the earth or from the sea. Workers are employed in mining, fishing,
quarrying, forestry and farming. In this stage, the raw materials are unusable and must be sent to the
manufacturing industries to be changed in to goods that can be used.
Secondary Production

In this stage, the raw materials are transformed into semi-finished or finished products. The goods are
made ready for sale to the final consumers in this stage. Textile industry, building and construction
industry, chemical industry, etc, are examples of the manufacturing work carried out in this stage.
Tertiary Production

The transfer of goods from the factories to the final consumers is the work that is carried out in the
tertiary stage. In this stage, there are many activities which are broadly divided in to two:

- Commercial Services: This includes workers in communications, finance, insurance, wholesaling

- Direct Services: People in this group work to provide a direct service rather than delivering goods
to the consumers. Teachers, doctors, nurses, lawyers, civil servants, policemen, etc, are examples of
people providing direct services.

Chain of Production:

Primary, secondary and tertiary industries are the stages in the chain of production, which is the
process by which raw materials reach the consumer as finished goods or services. Each stage of
production, value is increased. For example, consider a chain of production for a wooden table. In the
primary stage trees are cut down and sawn into planks. In this stage planks (raw materials) are very
cheap. In the secondary stage, the wood is shaped into a table. In the production process of wooden
table, manufacturer uses labour, machines, raw materials and other materials needed to finish the
product. Overhead costs such as rent, fuel and power, insurance, telephone charges etc. are also
incurred in the production process. Therefore, at the end of the secondary stage, the value of the table
will be much higher compared to the primary stage. When selling the tables to the wholesalers,
manufacturer also adds a profit margin. In the tertiary stage, the wholesalers and retailers will add profit
margin when selling the tables. Therefore, value increases at each stage of production until it reaches
the final consumers.

The chain of production for a wooden table would be as follows:

Primary- a tree is cut down and sawn into planks.

Secondary- the wood is shaped into a table.

Tertiary- the table is transported and sold by a retailer.

Another way of classifying production is as follows:

Direct Production: This is producing goods and services for the producer’s own use. For example, when a
man grows food crops for his own use or a man builds his own house or makes his own furniture, it is
called direct production.

Indirect Production: This involves specialization in a type of work. For example, a man specializes in
ensuring that the quality of a product is standardized. There is division of labour, which leads to
specialization.
DIVISION OF LABOUR

In an industry, there are many firms and each firm has many departments. In each department, there
are many workers. Each worker has his own specialized job. This is the principle of division of labour. For
example, in the finance industry there are many banks. Each bank has many departments like the
accounts department, the clearing department, the payments and receipt department, etc. Within each
department there are many workers and each worker has his own job. In the receipts and payments
department, some workers deal with cheques, while others deal with the computers and clerical work.

Division of labour at Individual Level

This is breaking down of a productive activity into tasks so that each person performs a task that he is
most skilled in. For example, a person may be solely responsible for only cutting the fish in a fish-canning
factory.

Division of Labour at Regional Level

This happens when a region in a country is involved in producing a product. This may be due to the
availability of natural resources in that region. For example, Feevah, an island in the Maldives is
specialized in farming because the soil is very favorable for cultivation.
Division of Labour at National Level

Sometimes a country may specialize in producing one line of goods. This is also due to the availability of
resources or favorable climatic conditions in that country. For example, Malaysia specializes in
producing rubber; Maldives specializes in fish, Cuba in sugar, and Brazil in coffee.

Advantages of Specialization

· Individual workers can concentrate on the work that they are most suited for.

Practice makes perfect. Workers doing the same work hundreds of times a day will become perfect in
their work.

Division of labour allows a great saving of tools and equipment.

When there is division of labour, there are chances of new techniques and ideas being developed.

Division of labour leads to an increase in the output per worker.

Increase in output results in lower costs for the consumers.

This also results in the need to exchange the surplus in one area with that of another area.

Specialization leads to less breakages and damages resulting in less wastage.

· Each department depends on the other departments. If there is a break down in one department,
then the whole industry may get affected.

There are chances of boredom as the workers are doing the same work hundreds of times a day.

As machinery becomes more elaborate it replaces labour causing unemployment.

Division of labour normally leads to a decline in craftsmanship.

As machinery takes over, the choice of goods available to consumers is reduced.

Explain the ways in which industry, commerce and direct services are inter-related and interdependent.

All human beings have unlimited wants. Human wants can be satisfied by production. Production takes
place in industries. Industries produce goods and services to satisfy human wants. All goods and services
produced should reach the final consumers. Here commerce assists a lot. Commerce includes trade and
aids to trade. Commerce does see that all those goods and services being produced should reach the
final consumers. In this regard, banking, insurance, communications, warehousing and transport assist
the industries to reach the goods and services to the final consumers.
Direct services are those services which are performed directly to the people who receive them. This is
concerned with the provision of personal services. Direct services are not concerned with the
distribution of goods. They enable the private individuals to make use of health facilities (e.g., using
doctors) and obtaining knowledge and skills (e.g., using teachers) as well as relying on the maintenance
of law and order and other personal services (e.g., hair dressing, journalist). Direct services help the
firms’ employees to be better educated and healthier and therefore they will be more productive.

Direct services like education, health services, professional services assist industries in such a way that
both skilled and unskilled workers are available for those industries. Clerical staff offer their services for
a smooth running of both trade and commercial activities. Thus, commerce, industries and direct
services are interdependent to each other.