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CHAPTER - I

BUSINESS, TRADE AND COMMERCE Business is not merely an activity to earn income or profit. Value of business is more than just a profit making activity. Business activities led to growth and development of any country. Is it possible to think a week without business firms? It is closely connected with our life. They satisfy our needs and wants by providing various types of goods and services. Business is the major economic activity in all modern societies concerned. The purpose of business is to earn profit through customer satisfaction. This chapter is divided into two sections. Section I deals with the history of trade and commerce in ancient India. Section II deals with the concept, nature and purpose of business SECTION I History of Trade and Commerce Trade and commerce have played a vital role in making India to evolve as a major player in the economic world in ancient times. Archaeological evidences have shown that trade and commerce was the basis of the economy of ancient India. Commercial cities like Harappa and Mohenjodaro were founded in 3300 B.C. The civilisation had established commercial connections with Mesopotamia and traded in gold, silver, copper, coloured gemstones, pearls, sea shells, terracotta pots, etc. There were diverse types of coins and weighing practices. Indigenous Banking System In ancient India indigenous banking system played a prominent role in lending money and financing domestic and foreign trade with currency and Hundi. As economic life progressed, money served as a medium of exchange, the introduction of metallic money and its use accelerated economic activities. With the development of banking, people began to deposit precious metals with lending individuals functioning as bankers or Seths, and collect money from them. Documents such as Hundi and Chitti were in use for carrying out transactions in which money passed from hand to hand

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Hundi The term’Hundi’ is derived from Sanskrit which mean ‘to collect’ Hundi refer to financial instruments (as bill of exchange) evolved on the Indian sub-continent used in trade and credit transactions. They generally have written in local languages. They were used • • •

as remittance instruments (to transfer funds from one place to another), as credit instruments (to borrow money ), for trade transactions (as bills of exchange). Technically, a Hundi is an unconditional order in writing made by a person directing another to pay a certain sum of money to a person named in the order. Hundis, being a part of the informal system have no legal status and are not covered under the Negotiable Instruments Act, 1881. Though normally regarded as bills of exchange, they were more often used as equivalents of cheques issued by indigenous bankers. Hundi: Specimens

Category of Hundis

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Category of Hundis On the basis of payment time ,Hundis can be ‘Dharshani’ or Muddati 1. Dharshani Hundi- a Hundi payable at sight is called darshani hundi.It is like a ‘Demand Bill’ 2.Muddati (Miadi) –Muddati hundi is one which is payable after a specified period of time. It is like a ‘Time Bill’.

Tupes of Hundis Name of Hundi 1.Dhani-jog

Category

Functions of Hundi

Darshani/ Muddati

Sah-jog

Darshani/ Muddati

Firman-jog

Darshani/ Muddati

Dekhan-har Jokhmi

Darshani Muddati

A Dhani-jog hundi(‘Dhani’ means owner) is one which is made payble to the owner, or holder or bearer owner.It is just like a bearer cheque. Sha-jog hundi is payable only to a Sha (‘respectable’person of financial worth). In some respect it is similar to a crossed cheque The term ‘Firman’ refers to order This Hundi made payable to the order of payee. It is just opposite of Dhani-jog hundi Payable to the presenter or bearer. The term ‘Jokhm’ mens ‘risk’. Such hundi is usually drawn against goods shipped on vessel and a certain risk involved. If goods lost in transit, the drawer or holder bears the coasts, and the Drawee carries no liability.

Economic Life of People Agriculture and the domestication of animals were important components of the economic life of ancient people. In addition to this, by resorting to weaving cotton, dyeing fabrics, making clay pots, utensils, and handicrafts, cottage industries, manufacturing, transports (i.e., carts, boats and ships), etc., they were able to generate surpluses and savings for further investment. Workshops ( Karkhana) were prominent where skilled artisans 2019.1 (27-06-2019)

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worked and converted raw materials into finished goods which were high in demand. Family-based apprenticeship system was in practice and duly followed in acquiring trade-specific skills. The artisans, craftsmen and skilled labourers of different kinds learnt and developed skills and knowledge, which were passed on from one generation to another. Rise of Intermediaries Intermediaries played a prominent role in the promotion of trade. They helped manufacturers especially in foreign trade. Intermediaries consist of commission agents, brokers and distributors both for wholesale and retail goods. Bankers began to act as trustees and executors of endowments. Foreign trade was financed by loans. The emergence of credit transactions and availability of loans and advances enhanced commercial operations. The Indian subcontinent enjoyed the fruits of favorable balance of trade, where exports exceeded imports with large margins and the indigenous banking system benefitted the manufacturers, traders and merchants with additional capital funds for expansion and development. Commercial and Industrial banks later evolved to finance trade and commerce and agricultural banks to provide both short-and long-term loans to finance agriculturists. TRANSPORT Transport by land and Sea (maritime) was popular in the ancient times. Roads as a means of communication had assumed key importance in the entire process of growth. The northern roadway route is believed to have lengthened originally from Bengal to Taxila. There were also trade routes in the south spreading east and west. Pepper was particularly valued in the Roman Empire and was known as ‘Black Gold’. Various empires conflict each others to dominate the route for this trade. It was in the search for an alternate route to India for spices that led to the discovery of America by Columbus in the closing years of 15th century and also brought Vasco da Gama to the shores of Malabar in 1498. Calicut was such a busy market, it was even visited by Chinese ships to acquire items, like essential oils and myrrh (used in perfumes, medicines) from the Middle East, as well as, pepper, diamonds, pearls and cotton from India. On the Coromandel Coast, Pulicat was a major port in

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the 17th century. Textiles were the principal export from Pulicat to Southeast Asia Merchant Corporations The merchant community also derived power and prestige and they formed autonomous corporations to protect their interests. Trade and industry taxes were also a major source of revenue of the kingdom. Traders had to pay octroi duties that were levied on most of the imported articles at varying rates. Tariffs varied from province to province. The ferry tax was another source of income generation. It had to be paid for passengers, goods, cattle and carts. The right to receive the labour tax was usually transferred to the local bodies. The federation chief dealt directly with the king or tax collectors and settled the market toll on behalf of its fellow merchants at a fixed sum of money. The guild merchants also acted as custodians of religious interests. They undertook the task of building temples and made donations by levying a corporate tax on their members. The commercial activity, thus, enabled big merchants to gain power in the society. Major Trade Centres There were all kinds of towns—port towns, manufacturing towns, mercantile towns, the holy centres , and pilgrim mage towns. Their existence is an index of prosperity of merchant communities and professional classes.

The following were the leading trade centres in ancient India: Pataliputra: Known as Patna today. It was not only a commercial town, but also a major centre for export of stones. 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. 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. Indraprastha: It was the commercial junction on the royal road 2019.1 (27-06-2019)

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where most routes leading to the east, west, south and north come together. Mathura: It was a centre of trade and people here live depends on commerce. Many routes from South India touched Mathura and Broach. Varanasi: 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. 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. Ujjain: Cloths were exported from Ujjain to different centres. It also had trade relations through the land route with Taxila and Peshawar. Surat: It was the centre 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. 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. 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. 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. Kaveripatta: Also known as Kaveripatnam, it was scientific in its construction as a city and provided loading, unloading and storage 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, 2019.1 (27-06-2019)

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scents, silk, wool, cotton, corals, pearls, gold and precious stones; and also for ship building. 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. Major Exports and Imports Exports consisted of spices, wheat, sugar, indigo, opium, sesame oil, cotton, parrot, live animals and animal products—hides, skin, furs, horns, tortoise shells, pearls, sapphires, quartz, crystal, lapis, lazuli, granites, turquoise and copper etc. Imports included horses, animal products, Chinese silk, flax and linen, wine, gold, silver, tin, copper, lead, rubies, coral, glass, amber, etc. POSITION OF INDIAN SUBCONTINENT IN WORLD ECONOMY ( 1 AD UP TO 1991) Between the 1st and the 7th centuries CE, India is estimated to have the largest economy of the ancient and medieval world, controlling about onethird and one-fourth of the world’s wealth (timeline). The country was often referred to as ‘Swaranbhumi’ and ‘Swarndweep’ in the writings of many travelers, such as Megasthenes, Faxian (Fa Hien), Xuanzang (Huen Tsang) and others. They repeatedly refer to the prosperity of the country. The pre-colonial period in Indian history was an age of prosperity for Indian economy and made the Europeans embark great voyage of discovery. Initially, they came to plunder but soon realised the rewards of trade in exchange of gold and silver. Despite the growing commercial sector, it is evident that the 18th century India was far behind Western Europe in technology, innovation and ideas. With the increasing control of the East India Company causing lack of freedom and no occurrence of agricultural and scientific revolution, limited reach of education to the masses, population growth and preference to machines over manual skills made India a country which was prosperous but with people who were poor. 2019.1 (27-06-2019)

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The British empire began to take roots in India in the mid – 18th century. Condition of Indian Economy slowly changed.This changed the condition of the Indian economy from being an exporter of processed goods to the exporter of raw materials and buyer of manufactured goods. India begins to Reindustrialise After Independence, the process of rebuilding the economy started and India went for centralised planning. The First Five Year Plan was implemented in 1952. Due importance was given to the establishment of modern industries, modern technological and scientific institutes, space and nuclear programmes. Despite these efforts, the Indian economy could not develop at a rapid pace. Lack of capital formation, rise in population, huge expenditure on defence and inadequate infrastructure were the major reasons. As a result, India relied heavily on borrowings from foreign sources and finally, agreed to economic liberalisation in 1991. The Indian economy is one of the fastest growing economies in the world today and a preferred FDI destination. Rising incomes, savings, investment opportunities, increased domestic consumption and younger population ensures growth for decades to come. The high growth sectors have been identified, which are likely to grow at a rapid pace world over and the recent initiatives of the Government of India such as ‘Make in India’, Skill India’, ‘Digital India’ and roll out of the Foreign T rade Policy (FTP 2015-20) is expected to help the economy in terms of exports and imports and trade balance. The History of India is Divided into 7 Periods

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SECTION II

NATURE AND CONCEPT OF BUSINESS Human wants are unlimited. In every society people undertake various activities to satisfy their needs. Human activities can be classified into two:(a) Economic Activities (b) Non Economic Activities

a) Economic Activities Economic activities are those activities which are undertaken by people to earn money. The primary objective behind every economic activity is to earn money. Economic activities help to earn our livelihood or to fulfill various needs. Economic activities may be business, profession or employment. Eg : A worker works in a factory. A manager works in an office. A doctor runs his clinic A teacher works in a School

b) Non Economic Activities Non economic activities are those activities which are undertaken by people without the intention of earning money. They are done for getting psychological satisfaction or as a hobby. Non economic activities are performed out of sympathy, love, humanity, patriotism etc. Eg : House wife cooks food for her family. Boy helps an old man to cross the road. Gardening as a hobby. A mother looks after her children Playing football. A patriot sacrifices his life for his motherland.

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Human Activities

Economic Activities

Business

Profession

Non Economic Activities

Employment

Religious

Patriotic Social

Differences Between Economic Activities and Non-economic Activities Economic Activities

Non-economic Activities

Undertaken by people to earn

Undertaken by people to get mental

money

satisfaction

Its benefit can be measured in terms

Its benefit can’t be measured in terms of

of money

money

Money is the reward

Mental satisfaction is the reward

I Business The term business is derived from the word ‘busy’. Business is an economic activity carried out regularly with the objective of earning profit. It may consist of production, purchase of goods for sale, exchange of goods or supply of service to satisfy the needs of other people .Earning profit through customer satisfaction is the slogan of modern business. Example. Lunar Rubbers (Manufacturing business), Pulimoottil Silks (Trading business), Union Bank of India (Banking service),KSRTC (Transportation service). In all the above cases business enterprises earn profit and at the same time they satisfy their customers by providing various goods and services they needed. Definition Business may be defined as “an economic activity on a continuous basis which involves production or purchase of good for sale, or exchange of goods or providing services, at profits”. 10 2019.2 (27-06-2019)

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Characteristics of Business All business concerns irrespective of their size, nature or ownership have the following essential characteristics.

1. An Economic Activity Business is as an economic activity because it is undertaken with the objective of earning money (profit) and not because of love, affection or sympathy.

2. Production or Purchase of Goods and Services Before goods are offered to people for consumption they must be either produced or purchased by business enterprises. Goods may consists of consumer goods like sugar, pen, notebook etc or capital goods like machinery, furniture etc.

3. Sale or Exchange of Goods and Services In business there should be sale or exchange of goods or services between the seller and the buyer. If goods are produced not for the purpose of sale but for internal consumption, it can’t be called as a business activity. Services may include facilities offered to consumers in the form of transportation, banking, communication etc.

4. Regularity in dealing Business involves dealing in goods and services on a regular basis. One single transaction never constitutes a business. Thus, if a person sells his old bike even at a profit never treat as a business activity.

5. Profit Motive Profit Motive is an important distinguishing feature of business. No business can survive for long without earning profit. It must earn profit for its survival, growth and expansion. 11 2019.2 (27-06-2019)

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6. Element of risk Every business involves a larger element of risk. Risk means the possibility of loss. He may suffer loss due to unfavorable changes in business environment like changes in consumer tastes, increased competition in market, fire, theft, accidents, natural calamities etc.

7. Uncertainty of return There is no surety that a business man will always earn profit. Though every business is commenced and conducted with profit motive but there is always danger of loss. Profit of a firm depends up on various internal matters; most of them are beyond the control of a business man.

8. Creation of Utility

The word utility means capacity to satisfy wants. Business is an economic activity which creates utility by changing the form of the commodity such as manufacturing furniture from wood, by changing the place of commodity such as bringing sands from the banks of rivers and by purchase and sales of goods like books by the book sellers to students etc.

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II Profession Profession is an occupation, in which application of special knowledge and skill of a person is necessary. It involves rendering of personal services of a special and expert nature. Professionals should follow the guidelines or code of conduct laid down by the professional body. Those engaged in professions are known as professionals. They get fee as return for their service. Eg (1) Doctors are engaged in the medical profession (governed by medical council of India) to practice as a doctor one should posses MBS degree and also fulfill one year house surgery. 2) Lawyers are engaged in the legal profession (Governed by Bar Council of India). 3) Chartered Accountants are engaged in the accounting Profession (Governed by Institute of Chartered Accountants of India).

III Employment Employment refers to an occupation in which people work for others regularly and get salary or wage in return. The person or organization providing employment is called the employer and the person employed is called the employee. There must be contract between employer and employee, which explains the terms and conditions of employment. Employees get salary or wage as return for their service.

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Difference between Business, Profession and Employment Basis of Difference Business

Profession

Commencement

A business can start at any time on owner’s decision after fulfilling legal formalities

A person can engage in his profession only after getting membership of a professional body.

An employee can work in an office after getting appointment letter from his employer.

Nature of work

Production or purchase and sale of goods and services No. minimum qualification is required in business

Rendering of personalized expert service In profession specialized knowledge and training is required

Performing the works assigned by the employer In employment qualification is decided by the employer.

Fees Fees is generally regular, so there is very little risk It is not possible in profession

Wage or salary Salary is fixed and regular, so there is no risk It is not possible in employment.

In profession limited capital investment is needed for establishment of office In business there is In profession no code of conduct professional code of to be followed conduct to be followed.

In employment no Capital investment is needed

Qualification

Reward Risk

Profit Profit is uncertain, so risk is high in business Transfer of Interest We can sell the (ownership) ownership of a business to another person Capital Investment In business capital investment is needed

Code of Conduct

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Employment

Norms of behavior laid down by the employer are to be followed.

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Classification of Business Activities On the basis of function we can classify business activities into two:I.

Industry

II.

Commerce

I. Industry Industry refers to that part of business activities which is concerned with the production of goods and materials. It includes business activities like raising, producing, processing or manufacturing of products. Industry may be divided into three broad categories namely primary, secondary and tertiary.

A. Primary Industries

It includes all those business activities, which are concerned with extraction of natural resources, reproduction and development of living organisms, plants etc. Primary industries can be classified into two namely extractive industries and genetic industries.

(a)Extractive Industries Extractive industries extract or draw out products from natural sources like earth, water, air etc. It extract timber from forest, fish from sea, coal and iron are from soil etc. Primary industries supply basic raw materials to manufacturing industries and manufacturing industries convert these raw materials into finished goods. Eg. Mining, hunting, fishing from natural sources, fruit gathering,etc. 15 2019.2 (27-06-2019)

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(b) Genetic Industries These industries engaged in reproduction or multiplication of animals and plants with the aim of earning profit.

Eg: Agriculture, poultry farming, Agriculture nursery, cattle breeding, pisciculture (fish farming).

Fig:Genetic industries

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B. Secondary Industries These industries engaged in the process of manufacturing goods or constructing building roads etc. Secondary Industries use the raw materials supplied by the primary industry. For Example, the mining of iron ore is related to primary industry, but manufacturing of steel is related to secondary industry. Secondary industries may be further subdivided into two namely.

a) Manufacturing Industry (b) Construction Industry (a) Manufacturing Industry Manufacturing Industries are engaged in the process of converting raw materials into finished good and create form utilities. They convert cotton into textile, iron ore into steel, timber into furniture and so on. On the basis of methods of operation used for production, we can classify manufacturing industries into four categories. 1) Analytical industries – Business engaged in this sector analyze and separate different elements from the same materials. Eg .Oil refinery – they separate diesel, petrol etc from crude oil

2) Synthetical Industry – Business engaged in this sector combines various ingredients to produce a new product Eg. Cement industry, fertilizer industry etc. 17 2019.2 (27-06-2019)

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Fig: cement factory 3) Processing Industry – Process of these industries involves successive stages for manufacturing finished products Eg. Sugar industry, paper Industry.

4) Assembling Industry This industry assembles different components to make a new product Eg. Computer industry, Car industry etc.

Fig:Assembling industry b) Construction Industry These industries are involved in the construction of buildings, dams, bridges, roads, canals etc. The raw materials required for these industries are supplied by the manufacturing industries (out put like cement, steel etc) and extractive industries. Their outputs are always immovable.

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C. Tertiary Industries Tertiary industries are providing support service to primary and secondary industries. Tertiary Industries consists of banking, Insurance, advertising, communication etc. They provide support service to primary and secondary industries as well as trade related activities. For example, if a transporting company helps to move iron ore from mining place to manufacturing plant, it come under industry and on the other hand if the same transporting company helps to move finished product (here steel) to different parts of the country, it is not an industry and it is a part of commerce. Industry

Primary Industry

Extractive Industry Eg. Fishing, Mining

Genetic Industry eg.Poultry farming, Pisci Culture,

Secondary Industry

Manufacturing Industry eg. Cement, textile, Auto mobile Industry

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Tertiary Industry

Construction Industry eg. Constriction Companies

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Make in India ‘Make in India’ is an initiative launched by the Government of India on 25 September 2014,to encourage national as well as international companies to manufacture their products in India. The major objective behind this project is to create employment opportunities and enhance skill development in 25 sectors of the economy. The selected 25sectors are as follows: 1. Automobile 4. Biotechnology 7. Defence Manufacturing 10. Food Processing 13. Media and Entertainment 16. Pharmaceuticals 19. Renewable Energy 22. Textiles and Garments 25. Wellness

2.Automobile Components 5.Chemicals 8.Electrical Machinery 11. Information Technology and Business Process Management 14. Mining 17. Port and Shipping 20. Roads and Highways 23. Thermal power

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3. Aviation 6. Construction 9. Electronic Systems 12. Leather 15. Oil and Gas 18. Railways 21. Space and Astronomy 24. Tourism and Hospitality

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II. Commerce Commerce includes trade and auxiliaries to trade (aids to trade). Buying and selling of goods is termed as trade. But there are a lot of activities that facilitates the process of trade. These are called auxiliaries or aids to trade and includes banking, insurance, communication, advertisement and warehousing. Industry looks after the production aspect of business whereas commerce looks after the distribution aspect of the business. Whatever is produced, it must be consumed. To facilitate this consumption there must be a proper distribution channel. Commerce facilitates the transfer of goods from producers to consumers. Commerce is the connecting link between producers and consumers. Commerce includes all those activity which are necessary for maintaining a free flow of goods from producers to consumers.

Definition ‘Commerce means the sum total of those processes which are engaged in the removal of the hindrances of person, place and time in the exchange of commodities’. Commerce = Trade + Aids to trade Commerce is the combination of trade and aids to trade. Trade means purchase and sale of goods with profit motive. It is the connecting link between producer and consumer. In the process of trade there exist various hindrances like hindrances of place, hindrances of time, hindrances of knowledge, hindrances of finance, hindrances of risk etc. Aids to trade or auxiliaries to trade remove these hindrances. Hindrance of place can be removed with the help of transportation, hindrance of time can be removed with the help of warehousing, hindrance of knowledge can be removed with the help of advertising, hindrance of finance can be removed with the help of banking and hindrance of risk can be removed with the help of insurance and proper packaging.

Trade Trade is the central activity (nucleus) of commerce. It refers to purchase and sale of goods. It helps the movement of goods from the producer to the ultimate consumers. They purchase goods from the producer in bulk quantities and sell them 21 2019.2 (27-06-2019)

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to consumers according to their requirements. In the absence of trade, it would not be possible to undertake production activities on a large scale. Trade may be internal trade or external trade.

I. Internal trade Internal trade means purchase and sale of goods with in the country. Internal trade may be whole sale trade or retail trade. (a)

Whole sale trader Wholesaler is the connecting link between producer and retailer. He purchases huge quantity of goods from producer, stores it in big godowns and sells in small quantities to retailers. (b)

Retail trade Retail trade is the Connecting link between wholesaler and ultimate consumer. Retailer purchases goods from wholesaler and sells them to ultimate consumer. A retailer is the last link in the chain of distribution.

II.External trade External trade or foreign trade means buying and selling of goods and services between two countries. External trade may be import trade, export trade or Entrecote trade. a. Import trade – 1f goods are purchased from another country, it is called import trade. b. Export trade – If goods are sold to another country, it is called export trade. c. Entrepot trade- When goods are imported from foreign countries with the object of re exporting them to some other countries, it is called entrepot trade. Eg. Indian firms importing goods from Germany and Japan and exporting it to Nepal is entrepot trade.

I.

Auxiliaries to trade (Aids to Trade) The term Commerce includes trade and aids to trade. These are services which help in removing various hindrances which arise in the process of buying and 22 2019.2 (27-06-2019)

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selling of goods. Transportation, banking, insurance, warehousing, communication and advertising are regarded as aids to trade. Transport facilitates movement of goods from one place to another. Banking provides financial assistance to the trader. Insurance covers various kinds of business risk. Warehousing creates time utility with storage facility. Advertising helps to remove the hindrance of knowledge and information in the process of trade. Aids to trade are briefly discussed below

1. Transportation Production of goods generally takes place in particular locations. But these goods are required for consumption in different parts of the country. For instance tea is mainly produced in Assam but it is consumed all over India. The hindrance of place is removed with the help of various transportation facilities like road transport, rail transport, air transport etc.

2. Banking and Finance Business activities can’t be undertaken unless funds are available for acquiring assets and meeting day to day expenses. Banking helps business firms to overcome the problem of finance by giving necessary funds. Banks also undertake collection of cheque, remittance of funds to different places, discounting bills of exchange etc. 3. Insurance Business involves various types of risks. Factory building, machinery, goods in stock or transit are subject to the risk of loss or damages. Risk may arise due to fire natural calamities, accidents etc. Employees are to be protected from risks of accidents. Insurance provides protection in all such cases. On payment of a nominal premium the amount of loss can be recovered from the insurance company.

4. Warehousing Ware house is a building where large quantities of goods are stored, before they are sent to shop. There is time gap between the production and consumption of goods. They are to be kept in good condition and make them available as and when required. Warehousing helps business firms to overcome the problem of storage and facilitates the availability of goods when needed. Warehousing provides safety to goods. Warehousing stabilities prices by 23 2019.2 (27-06-2019)

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equalizing the supply of goods to the market. Thus hindrance of time can be removed with the help of warehousing.

5. Advertising Today production is carried out on a large scale in anticipation of demand. But there can be no mass production without mass marketing. Advertisement plays on important role in the process marketing. Through advertisement consumers get information about a particular product and its use. It is one of the most important devices designed to capture the attention of prospective customers and to create interest in the products which would ultimately turn into sales. Thus advertisement removes hindrance of knowledge in the process of trade. Various means of advertisement are news paper, TV, magazine, radio, internet etc.

6. Communication Communication means exchange of ideas, facts, opinions, emotions, information etc. between two or more persons. The successful operation of the business requires that there must be proper communication between buyer and seller. Communication between them is required for placing order, making complaints, making payments, deciding the terms of transactions etc. The various means of communication are telephone, email, mobile phone, fax etc.

Objectives of Business. Objectives of Business mean the purpose for which a business is established and carried on. Objective setting is the starting point of any business. Objective serves as the guidelines for future direction and management of business. Business activities are under taken primarily to earn profit because profit is the life blood of business. Profit is essential for business survival, growth, expansion etc. However, business activities can’t be undertaken in isolation from the rest of the society. In fact, business is an economic activity carried on by the people (owners and managers) though the people (employees), and for the people (consumers and society at large). Thus business enterprises are part of the society and it should be conducted according to expectations of the society. So objectives of business can be broadly classified into two. 24 2019.2 (27-06-2019)

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1. Economic Objectives 2. Social Objectives

I Economic Objectives These are objectives which gives financial benefits to a business. The following are the important economic objectives of a business.

1) Earring profits Main aim of any business is to earn part No business can survive for long without adequate profit. Business needs profit not only for its existence but also for growth and expansion. Profit is the ultimate test of business performance.

2) Innovation Innovation means introduction of something new to the market. It includes discovery of a new product, introduction of new and improved methods of production, adoption of better distribution system etc. Making of colour television in the place of black and white television is an example of product innovation. Using the power looms instead of handlooms in weaving is an example of process innovation. Today business world is highly competitive. No business enterprise can flourish in a competitive world without innovation. So innovation became an important objective.

3) Market standing (creation of customers) Creation of customers is an important objective of a business. It refers to the position of an enterprise in relation to its competitors. To ascertain the market standing, the business must analyze the market and find out where it stands. The business must state in quantifiable terms the present and prospective customers and the share of market it can capture. For this purpose, an objective has to be clearly laid down for sales figures, the size of the market and share in the market. Also business must look upon things in the light of competition.

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4) Productivity Productivity means the efficiency of a business firm to produce its output. It is ascertained by comparing the value of output with the value of inputs. Every business must aim at greater productivity by making the best possible use of scarce resources like men, money, machinery, materials etc. It can be achieved by employing competent personnel, making fuller utilization of machine capacities, reducing wastage of materials etc.

5) Secure good performance of managers Good managers are needed by business enterprise to conduct and co-ordinate various business activities. Managers must be motivated well to get best out of them.

6) Worker performance and attitude Workers performance and attitude are very much determined the productivity and profitability of any business enterprise. Therefore every business enterprise must provide the workers with incentives to improve their performance.

II Social objectives Business is a social institution. The inseparable and intimate relationship between the business and society makes obligatory on the business to conduct its affaires according to the interest and expectations of the society. The business must honour social commitment. Important social objectives of business are.

1. Supply quality goods at reasonable price The importance of the customers in the business has been recognized and accepted by every businessman. Every business has an obligation to supply sufficient quantity of standard commodities at reasonable rates and regularly. The goods provided by the business should be pure and unadulterated. Otherwise customers will avoid our business. In the world of competition customer is the king

2. Welfare of employees It is an important responsibility of business to promote the welfare of its employees. Besides providing fair wages, the business should also provided good working conditions like canteen facilities, housing facilities, transport and medical facilities, create promotional avenues to the employees etc. This will help the business to win the confidence of employees and ensure their complete dedication to work. This definitely raises the profitability of the business. 26 2019.2 (27-06-2019)

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3. Community Services Business establishments sometimes undertake community services as part of their social obligations. These include setting up training centers for the unemployed, starting charitable hospitals and educational institutions, giving donations for social functions, promote arts and sports etc. All these activities add the reputation and public image of the business. We can conclude that, in a business there are number of objective. Economic objective is the primary objective without which a business can’t survive. At the same time it should also remember its commitment to society. This is because business which does not act in the best of the society can neither be tolerated nor allowed to continue. Thus economic objectives of business can be better achieved by serving the society in a committed manner.

Role of profit in business Securing profit is the basic requirement of a business. The profit is the driving force which initiates, activates, and sustains the efforts of the business man. It is the reward for risk bearing. Profit is necessary for the survival, growth, prosperity and prestige of the business. Profit is the sun, which enlighten every corner of the business. Profit making is essential in business due to the following reasons.

1) Profit is a source of Income Profit is a source of income and it provides the means for livelihood for the businessman. Nobody can undertake business activities without earning income to satisfy his needs

2) Profit is essential for growth and expansion Profit provide necessary fund for growth and expansion of business activities. Retention of profit as an internal source of funds is more dependable than external sources like banks and financial institutions.

3) Profit is the index of business performance Profit earning ability is considered to be the index of business success. It measures the performance of the business. It is accepted as the yardstick for the evaluation of the efficiency of those who manage the business.

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4) Profit is the reward for risk taking Profit is the reward for the entrepreneur who takes business risk. He invests money in the business it involves a lot of uncertainties which may lead to losses. He runs the business with the hope of earning sufficient profit by overcoming all such possible risks. Thus profit represents a reward for risk bearing.

5) Profit enhances prestige Profit provides economic power and prestige to a business. It improves the credit worthiness as well as the bargaining strength of the business. A profit making firm can raise funds on easy terms. It is in a better position to offer attractive pay to attract qualified and trained personnel. They can also serve the society and consumer in a better way by applies new technologies, by apply proper pollution control measures etc.

6) Profit Increases the efficiency of business Good profit earning concerns are in better position to pay good salaries and perk to employees. This will motivate the workers and they work hard for the business. This will improve overall efficiency of the business.

Business risks Risk means the possibility of loss. In business risk is unavoidable. It can be defined as the chances of loss due to certain uncertain events in the future. For example there are chances of decline in demand for product due to change in tastes of consumers or due to cut-throat competition in market etc. Low demand results decrease in turnover and profit. There may be chances of fire, theft, flood, adverse government decision etc. Business enterprises usually face two types of risks – speculative risk and pure risk.

a. Speculative risk Speculative risk involves both the possibility of gain as well as loss. It may arise due to change in demand. In this, demand may increase or decrease. Another example, change in the price of raw material it may increase or 28 2019.2 (27-06-2019)

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decrease. Favorable market conditions are likely to result in gains whereas unfavorable ones may result in losses.

b. Pure risks Pure risk involves only the possibility of loss or no loss. The chance of fire, theft, etc is examples of pure risk. Their occurrence may result in loss whereas non- occurrence may explain absence of loss, instead of gain.

Nature of Business risk Nature or characteristics of business risks are as follows.

1) Business risks arises due to uncertainties Uncertainty refers to the lack of knowledge about what is going to happen in the future. Natural calamities, change in demand and prices, changes in technologies, government decisions etc are examples of uncertainty. The outcome of this future event is not known in advance.

2) Risk is an essential part of every business In business risk is unavoidable. Risk may vary from business to business. Risk can be minimized or shared with the help of insurance but can’t be eliminated.

3) Profit is the reward for risk taking Actually profit is the reward for risk bearing. No risk, no gain is an age old principle and is applicable to all kinds of business. Greater the risk more is the reward. A businessman shoulders risks in anticipation of better returns.

4) Risk depends mainly upon the nature and size of business Nature and size of business very much determine the degree of risk involved in a business. Nature of business means the type of goods produced or sold. A large scale business involves more risks than small scale unit. Similarly, a firm dealing in fashionable items does have high degree of risk than a firm dealing in essential commodities.

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Methods of dealing with risks No business enterprise can escape from the presence of risk. There are many ways for a businessman to deal a risk situation. 1) 2) 3) 4)

Take Precautionary measures like firefighting equipments. Take an Insurance policy to cover various types of risks. Decide not to enter high risk business transaction. Take measures like create provisions in the current earning as the case of provisions for bad debts.

Causes of business Risk Business risks arise due to variety of causes, which are discussed as follows:-

1. Natural causes Natural calamities are unpredictable and are beyond the control of a businessman. Flood, earthquake, heavy rains, lightning famine, storm etc. are examples of natural risk. They result in heavy loss of life, property and income in a business.

2. Economic Causes Economic causes include uncertainties relating to demand for goods, competition, price, collection of dues from customers, change of technology, etc. Financial problems like rise in interest rate for borrowings, high tax rates etc also come under economic causes as they result in higher unexpected cost of operation of business.

3.

Human Causes

Human causes include unexpected events like dishonesty, carelessness, or negligence of employees, strikes, riots, stoppage of work due to power failure, management inefficiency etc.

4. Government policy Government policy regulations, changes in import export policy, licensing policy, tax structure etc. may cause heavy losses to a business man.

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5.

Physical Cusses

Physical Cusses include loss due to mechanical defects, accidents from defective machinery etc.

6.

Miscellaneous causes This includes destruction of goods due to sunshine, evaporation of liquid good etc.

7. Internal business environment Personal failure from death, ill health etc. comes under this category. Dishonest behavior like embezzlement and theft etc caused heavy losses to the business.

Procedure for Starting up new business The procedure of starting up of new business enterprises is very lengthy and time consuming. It includes many steps and formalities.

1. Discover a business opportunity The promoter first finds out a business opportunity. He can get this information from news papers, market surveys, research etc. A business opportunity may be to start a business, expand or diversify the existing business, purchase another company etc.

2.

Size of business

After select a particular business the promoter has to decide about the size of the business unit. He has to decide whether the business unit will be a small medium or large size. The size of the business depends on many factors such as capital, future demand, economies of scale etc.

3.

Location of business

The promoter should also decide about the location of the business. He must consider factors like cost of land, availability of land, transportation facilities, electricity, water, nearness to market, scope for expansion and so on. Unscientific location affects the efficiency of business. It increases the cost of production and decreases the profitability.

4.

Financing (Capital acquisition)

Financing is concerned with providing the necessary capital for starting as well as for acquiring the proposed business. Capital is required for acquiring fixed 31 2019.2 (27-06-2019)

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assets as well as for meeting day to day expenses. Proper financial planning is necessary to determine (1) the requirement of capital (2) source from which capital will be raised and (3) the best ways of utilizing the capital in the firm.

5.

Organization of physical facilities

The promoter has to arrange physical facilities like machines, building, and workmen etc. Physical facilities are necessary to convert raw materials into finished goods. The promoter has to decide the type of machinery required for production, the number of skilled and unskilled workers, the quality and quantity of raw materials etc.

6.

Plant Layout

Once the requirement of physical facilities has been determined, the entrepreneur should draw a lay out plan showing the arrangement of these facilities. Plant layout is a scientific and systematic arrangement of machines and equipment within the factory .A good layout ensure minimum wastage, better use of available space, safety and security of workers etc. It also increases the profit of the business.

7. Organizational Structure A business is divided into various departments according to their functions they performed. After making departments; the employees are assigned their duties to fix responsibility on employees.

8.

Tax Planning

Tax Planning has become necessary these days because there are a number of tax laws in the country and they influence almost every aspect of the functioning of modern business. Tax planning does not mean nonpayment of tax. It means to minimize the taxes and the effect of the taxes on the business. Tax planning influences the promoter’s decision about location, size and form of the business.

9.

Starting the business

After the decisions relating to the above mentioned factors have been taken, the entrepreneur can go ahead with actual launching of the enterprise. Launching means brings together various factors of production fulfilling necessary legal formalities, starting the production process and initiating the sales promotion campaign. Prepared by, BINOY GEORGE, HSST, MKNM HSS, Kumaramangalam, Thodupuzha

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