PART I

Foundations of Business

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 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.

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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

All human beings, wherever they may needs and wants of customers are
be, require different types of goods satisfied. Business is a major
and services to satisfy their needs. economic activity which is concerned
If we look around, we observe people with the production and sale of
require different types of products goods and services required by
and services to satisfy their needs. people. Business is central to our
How do they buy them? They go to the lives. Although our lives are also
market, either physical or electronic influenced by many other institutions
over internet, where they find variety in modern society, such as schools,
of shops and sellers offering the colleges, hospitals, political parties
required commodities and choose the and religious bodies; business has a
best which they require. major influence on our daily lives. It,
Have you ever wondered how do therefore, becomes important that we
these products and services are understand the concept, nature
made available in the market. The and purpose of business.
necessity of supplying goods and Business starts with production
services is done by different set of and end with consumption. Making the
people engaged in various economic finished products reach the consumer
activities such as production, involves a series of steps. The work of
manufacturing and production of goods is covered under

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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 a result, the people were engaged
and commerce. in various economic activities such
as agriculture and domestication
TRANSFER OF GOODS AND SERVICES
(Monetary versus Barter) of animals, weaving cotton, dyeing
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
Distribution Consumption activities.
An example of it is the use of
age old Hundi and Chitties (used
DIVISION OF INCOME SATISFACTION in southern region). These were
AMONG FACTORS OF OF NEEDS used as documents to facilitate
PRODUCTION AND WANTS
transfer of money from one hand to
another for trading activities. As an
1.1.1 Role of Business in the instrument of exchange it involved
Development of Economy a contract which — (i) warrant the
Business which includes trade and payment of money, the promise or
commerce have played a vital role order which is unconditional (ii)
since times memorial. You have capable of change through transfer
studied in your earlier classes that our by valid negotiation. Why there was a
country, India, had a golden past and need to create an intangible form of
the trading activities had a significant exchange of money. It was so
contribution to its prosperity and because travelling long distances
gains. The archaeological evidences either by land or sea involved risk of
have shown that trading activities theft and robbery. Hundi which
were the mainstay of the economy in literally means ‘to collect’ was
ancient times which were carried out written in vernacular language and
by both water and land routes. Silk facilitated the safe transfer of
route and maritime trade were quite money between parties and
prominent in transporting goods and helped promotion of
commodities for trading purposes. trading activities.
The emergence of credit
transactions and availability of loans
and advances enhanced commercial
operations. The
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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 cotton, parrot, live animals and

fruits of favourable balance of trade, animal products, etc. Major imports
where exports exceeded imports were Horses, animal products,
with large margins and the Chinese silks, linen, wine, gold, silver,
indigenous banking system copper, etc. There were all kinds of
benefitted the manufacturers, traders towns— port towns, manufacturing
and merchants with additional capital towns, mercantile towns, the sacred
funds for expansion and centres, and pilgrimage towns. Their
d e v e l o p m e n t . Commercial and existence is an index of prosperity of
Industrial banks later evolved to merchant communities and
finance trade and commerce and professional classes. Business
agricultural banks to provide both activities led to the growth of
short and long-term loans to finance different aids to trade such as
agriculturists. transportation, banking, finance and
Many leading trade centres were communication which grew the
developed in ancient times for the import prospects of trading activities. With
and export of goods, some of them the active contribution of Indian
being Patliputra, Peshawar, Taxila, traders and other merchant
Indraprastha, Mithila, Maduram, communities, the Indian sub-
Surat, Ujjain, Kanchi, Mithila. Major continent was popularly called
exports items were Spices, wheat, ‘Swaran Bhoomi and Swaran Deep’
sugar, indigo, opium, sesame oil, in the writings of many travellers, such
as Megasthenes, Faxian (FaHien),

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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
century) and others. They repeatedly ancient and medieval world,
controlling about one-third and one-
refer to the prosperity of the country.
fourth of the world’s 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.

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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

Empire roots 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 basic and key industries.
from being an exporter of processed Due importance was given to
goods to the exporter of raw the e s t a b l i s h m e n t of m o d e r n
materials and buyer of manufactured industries, modern technological
goods. and scientific institutes, space and
After independence the process nuclear programmes. But lack of
of rebuilding the economy started capital formation, rise in population,
and India embarked on planned

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8 BUSINESS STUDIES

weak financial system, inadequate The Indian economy is emerging

i n f r a s t r u c t u r e 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 population ensures growth for
economy was severely affected. The decades to come. The high growth
balance of payment situation was sectors have been identified, which
precarious. As a result, India agreed are likely to grow at a rapid pace and
to economic liberalisation in 1991. the recent initiatives of the
A three pronged approach of Government of India such as ‘Make in
stabilisation, restructuring and India’, Skill India’, ‘Digital India’ is
globalisation of Indian economy was expected to help the economy in
adopted to address the changes in terms of exports and imports with
economic and business scenario and steady and sustainable trade balance.
its integration with global economy.
Government of India announced
Activity
major economic reform packages
aimed at restoring the growth Did you notice how business plays
momentum in the economy. Major a major role in the growth and
development of any nation and why
policy changes were effected since
business is regarded as a backbone of
1991 w.r.t., fiscal, monetary, trade,
the Economy? Discuss in class.
industry, agriculture, 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

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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
in a factory, a doctor operating in his as an economic activity involving the
clinic, a manager working in an office production and sale of goods and
and a teacher teaching in a school services undertaken with a motive of
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, or a boy helping an old man Activity
cross the road are performing non- Barter system is an old method of
economic activities since they are exchange of goods and/or services for
doing so out of love or sympathy. another set of goods and/or services.
Economic activities may be Is barter system an economic activity?
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 with the objective of earning
activities in society, the nature of money or livelihood and not
business or its fundamental out of love, affection, sympathy
character must be explained in terms or any other emotion. It may
of its distinguishing characteristics, be mentioned here that this
which are as follows:

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10 BUSINESS STUDIES

activity can be undertaken characteristic of business is that

either on small and individual there should be sale or
level, exchange of goods or services
e.g. (purchase and sale by a between the seller and the
shopkeeper) or on large scale buyer.
in a more formal and organised
level (purchase and sale by a (iv) Dealings in goods and
cooperative society or company). services on a regular basis:
Business involves dealings in
(ii) Production or procurement goods or services on a regular
of goods and services: Before basis. One single transaction
goods are offered to people for of sale or purchase, therefore,
consumption, these must be does not constitute business.
either produced or procured Thus, for example, if a person
by business enterprises. Thus, sells his/ her domestic radio set
every business enterprise either even at a profit, it will not be
manufactures the goods it deals considered a business activity.
in or acquires them from But if he/she sells radio sets
producers, to be further sold to regularly either through a shop
consumers or users. Goods or from his/her residence, it
may consist of consumable will be regarded as a business
items of daily use, such as sugar, activity.
ghee, pen, notebook, etc., or
capital goods, like machinery, (v) Profit earning: One of the main
furniture, etc. Services may purpose of business is to earn
include facilities offered to income by way of profit. No
consumers, business firms and business can survive for long
organisations in the form of without profit. That is why,
transportation, banking, businessmen make all possible
electricity, etc. efforts to maximise profits, by
increasing the volume of sales
(iii) Sale or exchange of goods and or reducing costs.
services: Directly or indirectly,
business involves transfer or (vi) Uncertainty of return: Uncertainty
exchange of goods and services of return refers to the lack of
for value. If goods are produced knowledge relating to the
not for the purpose of sale but amount of money that the
for personal consumption, it business is going to earn in a
cannot be called a business given period. Every business
activity. Cooking food at home invests money (capital) to run its
for the family is not business, activities with the objective of
but cooking food and selling earning profit. But it is not
it to others in a restaurant is certain as to what amount of
business. Thus, one essential profit will be earned. Also, there
is always a possibility of losses
being incurred, despite

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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
exposure to loss. It is caused by 1.2.3 Comparison of Business,
some unfavourable or Profession and Employment
undesirable event. Risks are
As has been mentioned earlier,
related with factors, like
economic activities may be divided
changes in consumer taste and
into three major categories viz.,
fashion, changes in method of
Business, Profession and
production, strike or lockout at
Employment. The difference
workplace, increased
between these three terms is given in
competition in market, fire, theft,
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 expert services or rules of service
the 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

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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
Various business activities may be mean groups of firms producing
classified into two broad categories similar or related goods. For
—industry and commerce. Industry example, cotton textile industry
is concerned with the production or refers to all manufacturing units
processing of goods and materials. producing textile goods from cotton.
Commerce includes all those Similarly, electronic industry would
activities, which are necessary for include all firms producing
electronic goods, and so on. Further,
facilitating the exchange of goods and
in common parlance, certain
services. On the basis of these two
services, like banking and insurance,
categories, we may classify business
are also referred to as industry, say
firms into industrial and commercial
banking industry, insurance industry,
enterprises. Let us examine in detail
etc. Industries may be divided into
the activities relating to business.
three broad categories namely primary,
secondary and tertiary.
1.3.1 Industry
(i) Primary industries: These
Industry refers to economic activities, include all those activities which
which are connected with conversion are concerned with the extraction
of resources into useful goods. and production of natural
Generally, the term industry is used resources and reproduction and
for activities in which mechanical development of living organisms,
appliances and technical skills are plants, etc. These are divided as
involved. These include activities follows.
relating to producing or processing
of goods, as well as, (a) Extractive industries:
These industries extract

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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.
I m p o r t a n t e x t r a c t i ve of raw materials or partly
industries include farming, finished materials in their
mining, lumbering, hunting manufacturing operations.
and fishing operations. Manufacturing industries
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
activities of cattle breeding
refinery.
farms, poultry farms, and
• Synthetical industry
fish hatchery come under
which combines various
genetic industries.
ingredients into a new
(ii) Secondary industries: These are product, as in the case of
concerned with using materials, cement.
w h i c h have a l r e a d y been • Processing industry
extracted at the primary sector. which involves successive
These industries process such stages for manufacturing
materials to produce goods for finished products, as in
final consumption or for further the case of sugar and
processing by other industrial paper.
units. For example, mining of • Assembling industry
iron ore is a primary industry, which assembles
but manufacturing of steel by different component
way of further processing of raw parts to make a new
irons is a secondary industry. product, as in the case of
Secondary industries may be television, car,
further divided as follows:
computer, etc.
(b) Construction industries:
These industries are involved

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14 BUSINESS STUDIES

in the c o n s t r u c t i o n of 1.3.2 Commerce

buildings, dams, bridges,
roads as well as tunnels Commerce includes two types of
and canals. Engineering activities, viz., (i) trade and (ii)
and architectural skills auxiliaries to trade. Buying and
are an important part in selling of goods is termed as trade.
construction industries. But there are a lot of activities that
are required to facilitate the
(iii) Tertiary industries: These are
concerned with providing support purchase and sale of goods. These are
services to primary and called services or auxiliaries to trade
secondary industries as well as and include transport, banking,
activities relating to trade. These insurance, communication,
industries provide service advertisement, p a c k a g i n g and
facilities. As business warehousing. Commerce,
activities, these may be therefore, includes both, buying and
considered part of commerce selling of goods, i.e., trade, as well
because as auxiliaries to trade as, auxiliaries, such as transport,
these activities assist trade. banking, etc.
Included in this category are Commerce provides the
transport, banking, insurance, necessary l i nk bet w ee n pr o d u c
warehousing, communication, e r s and consumers. It embraces all
packaging and advertising. those activities, which are necessary
for maintaining a free flow of goods
and
Chart Showing Business Activities

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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
finance, etc. The hindrance of persons
goods available to consumers in
is removed by trade, thereby, making
different markets. In the absence of
goods available to consumers from the
trade, it would not be possible to
possession or ownership producers.
undertake production activities on a
Transport removes the hindrances of
large scale. Activities which are
place by moving goods from the place
of production to the markets for sale. meant for assisting trade are known as
Storage and warehousing activities auxiliaries to trade. These activities
remove the hindrance of time by are generally referred to as services
facilitating holding of stocks of goods because these are in the nature of
to be sold as and when required. facilitating the activities relating to
Goods held in stock, as well as, goods industry and trade. Transport,
in course of transport are subject banking, insurance, warehousing,
to a risk of loss or damage due to and advertising are regarded as
theft, fire, accidents, etc. Protection auxiliaries to trade, i.e., activities
against these risks is provided by playing a supportive role. In fact,
insurance of goods. Capital required these activities support not only
to undertake the above activities is trade, but also industry and, hence,
provided by banking and financing the entire business activity.
institutions. Advertising makes it Auxiliaries are an integral part of
possible for producers and traders to commerce in particular and business
inform consumers about the goods activity in general. These activities
and services available in the market. help in removing various hindrances
Hence, commerce is said to consist of which arise in connection with the
activities of removing the hindrances production and distribution of goods.
of persons, place, time, risk, finance Transport facilitates movement of
and information in the process of goods from one place to another.
exchange of goods and services. Banking provides financial assistance
to the manufacturer and trader.
1.3.3 Trade and Auxiliaries to Insurance covers various kinds of
Trade business risks. Warehousing creates
time utility by way of storage facilities.
Trade is an essential part of
Advertising provides information to
commerce. It refers to sale, transfer or
the consumers. In other words, these
exchange of goods either physical or
virtual. It helps in making the goods activities facilitate movement, storage,
produced available to the consumers financing, risk coverage and sales
or users. These days’ goods are promotion of goods. Auxiliaries to
produced on trade are briefly discussed below:

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16 BUSINESS STUDIES

(i) Transport and Communication: undertake collection of cheques,

Production of goods generally remittance of funds to different
takes place in particular
places, and discounting of bills
locations. For instance, tea is
on behalf of traders. In foreign
mainly produced in Assam;
trade, commercial banks help
cotton in Gujarat and
exporters in collecting money
Maharashtra; jute in West
from importers. Commercial
Bengal and Odisha; sugar in U.P.,
banks also help promoters of
Bihar and Maharashtra and so
companies to raise capital from
on. But these goods are
required for consumption in the public.
different parts of the country. (iii) Insurance: Business involves
The obstacle of place is removed various types of risks. Factory
by transport through road, rail building, machinery, furniture,
or coastal shipping. Transport etc., must be protected against
facilitates movement of raw fire, theft and other risks.
material, to the place of Material and goods help in stock
production and the finished or in transit are subject to the
products from factories to the risk of loss or damage. Employees
place of consumption. Along are also required to be
with transport facility, there is protected against the risks of
also a need for communication accident and occupational
facilities so that producers, hazards. Insurance provides
traders and consumers may protection in all such cases. On
exchange information with one payment of a nominal premium,
another. Thus, postal services the amount of loss or damage
and telephone facilities may and compensation for injury, if
also be regarded as auxiliaries any, can be recovered from the
to business activities. insurance company.
(ii) Banking and Finance: (iv) Warehousing: Usually, goods are
Business activities cannot be not sold or consumed
undertaken unless funds are immediately after production.
available for acquiring assets, They are held in stock to make
purchasing raw materials and them available as and when
meeting other expenses. required. Special arrangement
Necessary funds can be must be made for the storage of
obtained by businessmen goods to prevent loss or damage.
from a bank. Thus, banking Warehousing helps business
helps business activities to firms to overcome the problem
overcome the problem of finance. of storage and facilitates the
Commercial banks, generally availability of goods when
lend money by providing needed. Prices are, thereby,
overdraft and cash credit maintained at a reasonable level
facilities, loans and advances.
Banks also
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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 and P u b l ic particular items. Advertisements
Relations: There is an old are always a paid activity where
saying “Advertising is what you business occupies space in print
pay for and PR is what you or non-print media to promote its
pray for”. Both advertisement product or a service. PR
and PR activities are the tools activities, on the other hand, are
to commerce, influence and normally unpaid where
promote your product, services business enters into a strategic
or an idea to you potential communication to build a
customers and motivate you mutually beneficial relationship.
target customers to recognise
your accomplishments. 1.4 OBJECTIVES OF BUSINESS
Advertising and public An objective is the starting point of
relation activities are one of business. Every business is directed to
the most important methods of the achievement of certain objectives.
promoting the sale of products Objectives refer to all that the business
and services in a market place. people want to get in return for what
It is practically impossible for they do. It is generally believed that
producers and traders to contact business activity is carried out only for
each and every customer. Thus, profit. Business persons themselves
for promoting sales, information proclaim that their primary objective
in made available through is produce or distribute goods or
advertisements and publicity services for profit. Every business
tools about their features, price, is said to be an attempt on the part
etc., to the potential customers. of business people to get more than
Also, there is a need to persuade what has been spent or invested, or
potential customer’s and buyers in other words, to earn profit which
about the utility featuress, is the excess of revenue over cost.
quality, price, competitive However, it is being increasingly
information about the goods and realised nowadays that business
services, etc. The publicity of such enterprises are part of the society
attributes of products and and need to fulfil several objectives,
services are done using various including social responsibility, to
techniques of maintaining public survive and prosper in the long run.
relation tools. The popular PR Profit is found to be a leading objective
tool is the use of press release in but not the only one.
print and social media platforms. Although earning profit cannot
Advertising and Public Relations be the only objective of business, its
activities helps in providing
information about

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18 BUSINESS STUDIES

importance cannot be ignored. Every

1.5 OBJECTIVES OF BUSINESS
business is an attempt to reap more
than what has been invested, and Objectives are needed in every area
profit is the excess of revenue over that influences the survival and
cost. Profit may be regarded as an prosperity of business. Since a
essential objective of business for business has to balance a number of
various reasons: (i) it is a source of needs and goals, it requires multiple
income for business persons, (ii) it objectives. It cannot follow only one
can be a source of finance for meeting objective and expect to achieve
expansion requirements of business, excellence. Objectives have to be
(iii) it indicates the efficient working specific in every area and sphere of
of business, (iv) it can be taken as business. Objectives also enable the
the society’s approval of the utility business to analyse their own
of business, and (v) it builds the performance and take steps as
reputation of a business enterprise. necessary to improve their
However, too much emphasis performance in future. Some of these
on profit to the exclusion of other areas are described as follows.
objectives can be dangerous for (i) Market standing: Marinating
good business. Obsessed with profit, goodwill and reputation of ones’
business managers may neglect business is paramount to succeed
all other responsibilities towards and prosper. It helps in forming a
customers, employees, investors and distinct identity in the market
society at large. They may even be and is referred to as market
inclined to exploit various sections of standing in relation to its
society to earn immediate profit. This competitors. A business
may result in the non-cooperation enterprise must aim at standing
or even opposition from the affected on stronger footing in terms of
people against the malpractices of offering competitive products at
business enterprises. The enterprises reasonable prices to its
might lose business and may be customers and serving them to
unable to earn profit. This is essential their satisfaction.
for its own survival and prosperity.
(ii) Innovation: Innovation is central
to the growth of any business
Activity enterprise. It helps business to
When a business person conceptualises scale up and give competitive
and starts a business; runs it, scales edge to the enterprise in the
it up then why ‘maximising business market. Innovation is defined as
profit is not a sole objective of an introduction of new ideas or
business? Discuss in your class. Give methods in the way something is
reasons.
done or made. However, it does
not imply that a new product
is to be manufactured. Any

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BUSINESS, TRADE AND COMMERCE 19

modification in the existing important for its survival and

product to enhance its
growth.
operation also denotes
innovativeness. There are two (vi) Social responsibility: Social
kinds of innovation in every responsibility refers to the
business, i . e., ( i ) innovation obligation of business firms to
in product or services; and (ii) contribute resources for solving
innovation in various skills and social problems and work in a
activities needed to supply socially desirable manner.
products and services. No
business enterprise can flourish 1.6 BUSINESS RISK
in a competitive world without
innovation. Therefore, innovation The term ‘business risk’ refers to
becomes an important objective. the possibility of inadequate profits
or even losses due to uncertainties
(iii) Productivity: Productivity is or unexpected events. For example,
ascertained by comparing the
demand for a particular product may
value of output with the value of
decline due to change in tastes and
inputs. It is used as a measure
preferences of consumers or due to
of efficiency. In order to ensure
increased competition from other
continuous survival and
producers. Lower demand results
progress, every enterprise must
aim at greater productivity in long sales and profits. In another
through the best use of situation, the shortage of raw
available resources. materials in the market may shoot up
its price. The firm using these raw
(iv) P h y s i c a l and f i n a n c i a l materials will have to pay more for
r e s o u r c e s : Any b u s i n e s s buying them. As a result, cost of
requires physical resources, production may increase which, in
like plants, machines, offices,
turn, may reduce profits.
etc., and financial resources,
Business enterprises constantly
i.e., funds to be able to produce
face two types of risk: speculative
and supply goods and services
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
in demand and supply, changes in
(v) Earning profits: One of the prices or changes in fashion and
objectives of business is to earn tastes of customers. Favourable
profits on the capital employed. market conditions are likely to result
Profitability refers to profit in in gains, whereas, unfavourable
relation to capital investment. ones may result in losses. Pure risks
Every business must earn a involve only the possibility of loss or
reasonable profit which is so

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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
(i) Risk is an essential part of the risk involved in a business,
every business: Every business higher is the chance of profit. An
has some risk. No business can entrepreneur undertakes risks
avoid risk, although the amount under the expectation of higher
of risk may vary from business profit. Profit is thus the reward
to business. Risk can be for risk taking.
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
uncertainties: Uncertainty of causes, which are classified as
refers to the lack of knowledge follows:
about what is going to happen in (i) Natural causes: Human beings
future. Natural calamities, have little control over natural
change in demand and prices, calamities, like flood, earthquake,
changes in government policies lightning, heavy rains, famine,
and prices, improvement in etc., property and income in
technology, etc., are some of business.
the examples of uncertainty
which create risks for business (ii) Human causes: Human causes
because the outcomes of these include such unexpected events,
future events are not known. like dishonesty, carelessness or
negligence of employees,
(iii) Degree of risk depends mainly stoppage of work due to power
upon the nature and size of failure, strikes, riots,
business: Nature of business management inefficiency, etc.
(i.e., type of goods and services
produced and sold) and size (iii) E c o n o m i c c a u s e s : These
of business (i.e., volume of include uncertainties relating to
production and sale) are the demand for goods, competition,
main factors which determine price, collection of dues from
the amount of risk in a business. customers, change of technology
or method of production, etc.

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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
and creative activity of identifying
unexpected cost of operation or
a need, mobilising resources and
business.
organising production with a view
(iv) O t h e r c a u s e s : These are to delivering value to the customers,
unforeseen events, like political returns for the investors and profits
disturbances, mechanical for the self in accordance with the
failures, such as the bursting of risks and uncertainties associated
boiler, fluctuations in exchange with business’. This definition points
rates, etc., which lead to the to factors need to be considered for
possibility of business risks. starting the business. Starting and
managing one’s business does not
1.7 STARTING A BUSINESS — BASIC emerge spontaneously. Rather, it is
FACTORS 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 it becomes imperative to look at both
process of setting up one’s own — factors in the environment, as well
business is called entrepreneurship. as, factors in the individual’s
The person who set-up his business perception of desirability and
is called an entrepreneur. The 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
enterprise. It is interesting to note an entrepreneur is the nature and
that entrepreneurship besides type of business to be
providing self-employment to the undertaken. He/she will
entrepreneur is responsible to a great obviously like to enter that
extent for creation and expansion of branch of industry and
opportunities for the other two
commerce, which has the
economic activities too that is,
possibility of greater amount
employment and profession. And, in
of profits. The decision will be
the process, business
influenced by the customer
entrepreneurship becomes crucial for
requirements in the market
overall economic development of a
and also the kind of technical
nation.
knowledge and interest the
When you make this choice, you
entrepreneur has for producing
become a job-provider rather than a
a particular product.
job- seeker, besides enjoying a host of
other financial and psychological
rewards.
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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
favour a large size, whereas, (v) Physical facilities: Availability
others tend to restrict the scale of physical facilities, including
of operation. If the entrepreneur machines and e q u i p m e n t ,
is confident that the demand for building and supportive services
the proposed product is likely to is an important factor to be
be good over time and he/she can considered at the start of the
arrange the necessary capital for business. The decision relating
business, he/she can start the to this factor will depend on the
operation at a large scale. nature and size of business,
availability of funds and the
(iii) Location of business enterprise:
process of production.
An important factor to be
considered at the start of the (vi) Competent and committed
business is the place where worked force: Every enterprise
the enterprise will be located. needs competent and committed
Any mistake in this regard can workforce to perform various
result in high cost of production, activities so that physical and
inconvenience in getting, right financial resources are converted
kind of production inputs or into desired outputs. Since no
serving the customers in the individual entrepreneur can
best possible way. Availability do everything himself, he/she
of raw materials and labour; must identify the requirement
power supply and services, like of skilled and unskilled workers
banking, transportation, and managerial staff. Plans
communication, warehousing, should also be made about how
etc., are important factors while the employees will be trained
making a choice of location. and motivated to give their best
performance.
(iv) Financing the proposition:
Financing is concerned with (vii) Tax planning: Tax planning has
p r o v i di ng t h e n e c e s s a r y become necessary these days
capital for starting, as well as, because there are a number of
for continuing the proposed tax laws in the country and they
influence almost every aspect

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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.

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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

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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.
[Link])

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?

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