Everything you need to know about the classification of business activities. Business activities in an economy have a wide scope.
It includes a host of activities and these large number of activities may be categorized under two broad sectors, i.e., industry and commerce. While production of goods falls in purview of ‘industry’, its distribution is a subject matter of ‘commerce’.
Business activities can be classified as:- 1. Industry 2. Commerce.
Classification of Business Activities: Industry and Commerce
Classification of Business Activities – Industry and Commerce
Various business activities are classified into two broad categories:
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I. Industry and
II. Commerce.
Industry is concerned with the production or processing of goods and materials. Commerce includes all those activities which are necessary for facilitating the exchange of goods and services.
I. Industry:
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Industry is concerned with production or processing of goods and materials (using mechanical appliances and technical skills). For example, cotton textile industry produces textile goods from cotton, breeding and raising of animals.
Thus, industry refers to economic activities which are concerned with conversion of resources into useful goods.
Types of Industries:
Industries may be divided into three broad categories namely:
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1. Primary,
2. Secondary and
3. Tertiary.
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These industries are connected with:
(a) The extraction and production of natural resources
(b) Reproduction and development of living organisms, plants etc.
Primary industries may be of following types:
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(a) Extractive Industries – These industries extract or draw out various products from natural resources such as earth, soil, and water. Farming, mining, fishing hunting etc., are examples of extractive industries. The products of such industries are either directly consumed or used as raw materials for manufacturing and construction Industries.
(b) Genetic Industries – Genetic means heredity or parentage. These industries involve breeding or reproduction of plants and animals, example, cattle breeding farms, poultry farms, nursery, etc.
2. Secondary Industries:
These industries are concerned with using the materials, which have already been extracted at the primary stage to produce goods for final consumption or for further processing by other industrial units.
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For example, the mining of an iron ore is a primary industry, but manufacturing of steel is a secondary industry.
Secondary industries may be further divided as follows:
These industries convert raw materials or semi-finished products into finished products, for example, timber into furniture.
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Manufacturing industries may be subdivided into four categories:
a. Analytical industry which analyses and separates different elements from the same materials, as in the case of oil refinery.
b. Synthetical industry which combines various ingredients into a new product, as in the case of cement.
c. Processing industry which involves successive stages for manufacturing finished products, as in the case of sugar and paper.
d. Assembling industry which assembles different component parts to make a new product, as in the case of television, car, computer, etc.
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These industries are engaged in the construction of buildings, dams, bridges, roads as well as tunnels and canals. Engineering and architectural skills are an important part in construction industries.
3. Tertiary Industries:
These industries provide service facilities. These are concerned with providing support services to primary and secondary industries as well as activities relating to trade. For example, banking, insurance, warehousing, communication, packaging and advertising, etc.
Commerce includes all those activities which are necessary for facilitating the exchange of goods and services.
It includes two types of activities:
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(i) Trade – It refers to buying and selling of goods and services with the objective of earning profit.
(ii) Auxiliaries to trade – Activities which are meant for assisting trade are known as auxiliaries to trade (or services), e.g., transport, communication, banking, insurance warehousing, advertising, etc.
Trade refers to sale, transfer or exchange of goods. It helps in making the goods produced available to ultimate consumers or users. In the absence of trade, it would not be possible to undertake production activities on a large scale.
Trade may be classified into two broad categories:
1. Internal and
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2. External.
Internal or home trade is concerned with the buying and selling of goods and services within the geographical boundaries of a country.
This may further be divided into wholesale and retail trade:
(i) Wholesale Trade – When goods are purchased and sold in bulk, it is known as wholesale trade.
(ii) Retail Trade – When goods are purchased and sold in comparatively smaller quantities, it is referred to as retail trade.
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External or foreign trade consists of the exchange of goods and services between persons or organisations operating in two or more countries.
This may further be divided into:
(i) Import,
(ii) Export and
(iii) Entrepot trade.
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(i) Import Trade – If goods are purchased from another country, it is called import trade.
(ii) Export Trade – If goods and services are sold to other countries, it is known as export trade.
(iii) Entrepot Trade – When goods are imported for export to other countries, it is known as entrepot trade.
Activities which are meant for assisting trade are known as auxiliaries to trade. These activities are generally, referred to as services because these are in the nature of facilitating the activities relating to industry and trade.
For example, transport, banking, insurance, warehousing, and advertising are regarded as auxiliaries to trade, i.e., activities playing a supportive role. These activities help in removing various hindrances which arise in connection with the production and distribution of goods.
i. Transport facilitates movement of goods from one place to another.
ii. Banking provides financial assistance to the trader.
iii. Insurance covers various kinds of business risks.
iv. Warehousing creates time utility with storage facility.
v. Advertising provides information.
In other words, these activities facilitate movement, storage, financing, risk coverage and sales promotion of goods.
The various auxiliaries to trade are:
(i) Transportation:
Transport (road, rail or coastal shipping) facilitates movement of –
(a) Raw materials to the place of production.
(b) The finished goods from factories to the place of consumption.
Transportation makes for speedy and efficiency in exchange. It is because of transportation that a producer can sell goods in different parts of the world. Transportation creates place utility.
(ii) Banking:
Business needs funds for acquiring assets, purchasing raw materials and day- to-day expenses. Necessary funds (in the form of overdraft and cash facilities, loans and advances) can be obtained by businessmen from commercial banks. Thus, banking helps business activities to overcome the problem of finance.
(iii) Insurance:
Business involves various types of risks, e.g., theft, fire, accidents, etc. Materials and goods held in stock or in transit are subject to the risk of loss or damage. Employees are also required to be protected against the risks of accident and occupational hazards. Insurance makes provision against such risks. By getting their goods insured, producers can avoid the risk of loss of goods.
(iv) Warehousing:
Warehousing refers to the holding and preservation of goods until they are finally consumed. It helps business firms to overcome the problem of storage of goods and facilitates the availability of goods when needed. Warehousing creates time utility.
(v) Advertising:
Advertising brings good and services to the knowledge of prospective buyers. With the help of such knowledge, consumers can obtain better value for their money. Thus, advertising helps to promote the sale of products like electronic goods, automobiles, soaps and detergents, etc., by providing information about them.
(vi) Communication:
Communication services like postal services and telephone facilities are helpful to the business for –
(a) Establishing links with the outside world, viz., suppliers, customers, competitors, etc.
(b) For quick exchange of information.
The electronic media is mainly responsible for this information.
Role of Commerce—Trade and Auxiliaries to Trade:
The principle function of commerce is to remove all types of hindrance in the process of exchange of goods and services. The hindrances may be in respect of persons, places, time, risks, finance, information, etc.
1. Trade removes hindrances of persons by making the goods available to the consumers from the producers.
2. Transportation removes hindrance of place by moving the goods from the places of production to the markets for sale.
3. Storage and warehousing activities remove the hindrance of time by facilitating holding of stock of goods to be sold as and when required.
4. Insurance removes hindrance of risk of loss or damage of goods due to theft, fire, accidents, etc.
5. Banking removes hindrance of finance by providing funds to businessman for acquiring assets, purchasing raw materials and meeting other expenses.
6. Advertising removes hindrance of information by informing consumers about the goods and services available in the market.
Conclusion – Commerce is the backbone of the industry and other business activities.
Classification of Business Activities – With Role of Commerce
Business activities in an economy have a wide scope. It includes a host of activities and these large number of activities may be categorized under two broad sectors, i.e., industry and commerce. While production of goods falls in purview of ‘industry’, its distribution is a subject matter of ‘commerce’.
A brief description of these two broad categories may be summarized as:
1. Industry:
The activities of extraction, production, conversion, processing or fabrication of products are described as industry.
These products of industry may fall in any one of the following three categories:
(i) Consumer Goods:
The goods produced for direct consumer’s consumption are called consumer goods. Goods under this category include edible oils, cloth, jam, television, radio, scooter, motor car, refrigerators and others.
(ii) Producer Goods:
Goods that are used in production of other goods are called producer goods. For instance, steel produced by steel plant is used for fabrication into a variety of products such as motors, scooters, rail locomotive engines, ships, surgical instruments, blades, etc. Similarly, machine tools and machinery used for manufacturing other products also come under this heading. These goods are also known as capital goods.
(iii) Intermediate Goods:
There are some goods which are final products of one industry but act as a raw material in production of some other goods in a different industry. Such kind of goods is called intermediate goods. A few examples of this kind are copper industry, the finished products of which are used in manufacturing electrical appliances, electricity wires, toys, baskets, containers and buckets.
Broadly speaking, industrial activities may be classified into primary and secondary. While primary industry includes extractive and genetic industries, secondary industry engulfs manufacturing or construction.
(a) Extractive Industries:
These industries extract or draw out their products from natural resources such as earth, sea, air, forest and others. These industries act as suppliers of raw material to the secondary industries for production of finished products from the sector. Some of the examples of manufacturing industries are farming, mining, hunting, fishing, etc.
(b) Genetic Industries:
‘Genetic’ means ‘parentage or heredity’. As the name suggests, genetic industries are the ones related to plant and animal breeding for their further reproduction. For breeding plants, the seeds and nursery are typical examples of genetic industries. Genetic industries also include activities like cattle-breeding farms, poultry farms and the fish hatchery.
(c) Manufacturing Industries:
These are engaged in producing goods through the creation of what is known as ‘form utility’. These industries basically transform the raw materials or semi-finished goods into finished products. These industries process the outputs from extractive industries. The outcome of manufacturing industry is factory production. There are various forms which manufacturing industries may take.
They are:
(i) Analytical – In these kind of industries, the main task is to identify and analyze the basic material and then separate it to obtain multiple products. An important example of such kind of industries is petroleum refining. Here, the crude oil is extracted beneath the earth by extractive industries and is then processed and separated to obtain petrol, diesel, kerosene, gasoline, lubricating oil, natural gas, etc., from it.
(ii) Synthetic – Such kind of industries focus on bringing together two or more materials in some proportion to manufacture some new variety of products. Some of the outputs from these industries include soap, cement, paints, fertilizer, cosmetic, fibre, etc.
(iii) Processing – These industries work to process the raw materials through a series of manufacturing operations making use of analytical and synthetic methods. Some examples of the category are textiles, sugar, steel, etc.
(iv) Assembly Line – This hybrid of manufacturing industries primarily brings together a number of finished products and assembles them to form a new finished product. Production of automobiles, watches, television, bicycles, railway wagons, etc. are typical examples of the industry.
(d) Construction Industries:
These industries mainly relate to construction or fortification of buildings, bridges, roads, dams, canals, etc. The raw material suppliers to this industry are manufacturing industries (like that of iron and steel, cement, lime, mortar, etc.) and extractive industries (such as stone, marble, etc.). The unique feature of this industry is that their output is not carried and sold in the markets but are rather constructed and fabricated at fixed sites.
2. Commerce:
Commerce envelops the host of activities facilitating the exchange of goods and services. It bridges the gap between producers and consumers. The main function performed by commerce in any country is to ensure smooth distribution of goods and services in order to satisfy human wants. These services include transport, banking, storage, insurance, etc. and are also known as ‘aids to trade’. Thus, both trade and aids to trade (also known as auxiliaries) are included in the term ‘commerce’.
The process of buying and selling including the activities that assists buying and selling process such as storing, grading, packaging, financing, transporting, insuring, communicating, warehousing, etc., is called commerce.
The main function of commerce is to remove the hindrance of persons (through trade), place (through transportation, insurance and packaging), time (through warehousing and storage) and knowledge (through salesmanship, advertising, etc.) arising in connection with the distribution of goods and services until they reach the consumers. Commerce ensures a free and smooth flow of goods from producers to customers by removing all these hindrances that obstructs this flow.
These hindrances are explained in brief below:
(i) Hindrance of Person:
Both the producers and ultimate consumers of the good reside in two different geographic areas. The distance between areas may be large in some of the cases. It is commerce which plays a crucial role here by removing these hindrances of distance and persons by the means of trade.
Hence, trade as a part of commerce, plays a major role in establishing contact between the producers and consumers to satisfy their wants. The hindrance of person is removed by the operation of various traders, namely, wholesaler, retailer and mercantile agents.
(ii) Hindrance of Exchange:
There exists an obstruction in the exchange process of goods produced by producers in large quantities and demanded by ultimate consumers in small numbers. Producers produce in order to sell in exchange for money. Workers supply then services lo derive monetary benefits in order to survive.
Hence, the financial system or the banks, in specific facilitate the exchange of goods and money between producer and consumer. Banks also render credit facilities thereby supporting the production process in any economy.
(iii) Hindrance of Place:
Goods are generally produced where the factors of production are easily and cheaply available. These areas may not find the markets for their produce. Hence, they are required to be transported to the areas where they are demanded.
This hindrance is easily resolved by the ready availability of the means of transportation. Not only transportation, other services like that of warehousing, risk insurance, packaging, etc., also facilitate this transit of goods from their place of production to targeted markets.
(iv) Hindrance of Time:
Modern business units produce in line with anticipated demand of their goods. Hence, there is no assured sale of the produced goods. Also there is a time gap between production and actual sale. As a result warehousing facility plays an important role by providing for storage of produced goods.
Alongside, it is the insurance facility which protects the producer from loss on account of fire, damage, etc., in the storage period. The availability of appropriate warehousing and insurance facilities provides the producer a sense of confidence to carry out a continuous production process and smoothen out the flow of these goods to the markets.
(v) Hindrance of Knowledge:
The business does not end with production of a good or service. The process is completed only when it is reached to the customers who value this produce. This requires complete knowledge about the market, consumers, product and its utility.
This hindrance of interaction between consumers and producers is matched by services like advertising, salesmanship, etc. Each business unit has to essentially recognize its customers and their needs and desires. Hence, consumers can be regarded as the king of business world.
We may sum up the discussion on commerce by quoting the words of James Stephenson, “Commerce is the sum total of those processes which are engaged in the removal of the hindrances of persons (trade), place (transport, insurance and packaging) and time (warehousing and storage) in the exchange of commodities.”
In this section we explored different areas of any economy where a businessman may venture. The described sectors do not limit the access of businessman to venture a new unit. There lies endless potential in various small sectors which may be identified or channelized anytime by a businessman using his innovation and capabilities.
Classification of Business Activities – With Inter-Relationship and Comparison between Industry, Trade and Commerce
Business can be divided into two broad categories, namely:
1. Industry and
2. Commerce.
1. Industry:
The term industry is used to refer to the processes by which useful things are extracted from the environment, and transformed, processed, fabricated and multiplied into other products.
Industry is of the following types:
These industries extract or draw out various products from natural sources such as earth, soil, water, air, etc. The products raised by these industries are provided by nature and collected by human beings. Agriculture, mining, hunting, fishing, lumbering, oil exploration, quarrying, etc. are examples of extractive industries. The products or such industries are used by manufacturing and construction industries.
ii. Genetic Industries:
Genetic implies heredity or parentage. Genetic industries involve breeding or reproduction of plants and animals. Plant breeding nurseries, cattle breeding farms, poultry farms, fish hatcheries and commercial kernels are examples of genetic industries.
iii. Manufacturing Industries:
These industries are concerned with the conversion or transformation of raw materials and semi-finished products into finished products. Such industries, therefore, create ‘form utility’. Manufacturing industries supply most of the products for daily use. Goods supplied by these industries are known as factory production.
Manufacturing industries are of the following types:
(a) Analytical – In an analytical manufacturing industry, a basic raw material is analysed or separated into a number of products. For instance, an oil refinery separates crude oil into kerosene, gasoline, diesel oil, lubricating oil and petrol.
(b) Synthetical – In these industries, two or more materials are combined or mixed together to manufacture a new product. Soap, plastics, cement, paints, cosmetics, fertiliser, etc. are the products of synthetical industries.
(c) Processing – These industries are engaged in the processing of raw materials through different stages of production. Examples of processing industry include textiles, sugar, steel, etc.
(d) Assembling – In this case, various components or parts are brought together to produce a finished product. Manufacture of bicycles, radios, televisions, watches, automobiles, are the typical examples of assembly industry.
iv. Construction Industries:
These industries are engaged in the erection or construction of buildings, bridges, roads, dams, canals, etc. Construction industries use the products of extractive industries e.g. stone, marble, bricks, etc. and also the products of manufacturing industries such as cement, iron and steel, wires, etc. These industries create the basic infrastructure for development. The distinguishing feature of these industries is that their products are made or fabricated at fixed sites. Their products are not carried to the market for sale.
Sometimes industries are classified into primary industry and secondary industry. Primary industry consists of extractive and genetic industries which supply basic raw materials for further production. Manufacturing and constructive industries constitute secondary industry. According to scale of operations, industries may be classified as large scale industry and small scale industry.
2. Commerce:
Commerce embraces all those activities which ensure a free and smooth flow of goods and services from producers to consumers. It consists of trade and the activities which facilitate trade. According to Stephenson, “Commerce is concerned with the exchange of goods; with all that is involved in the buying and selling of goods at any stage in their progress from raw materials to finished goods in the consumer’s hand.”
It covers not only the function of buying and selling and handling goods but also the many services which must be provided to finance, insure, store, and transport goods in the course of these exchanges. Commerce is thus an organised system for the exchange of goods and services between the members of the business world. It bridges the gap between producers and consumers.
The process of exchange is beset with several hindrances. The principal function of commerce is to remove these hindrances so as to ensure a free and uninterrupted flow of goods and services from producers to consumers.
These hindrances have been described below:
i. Hindrance of Person:
The manufacturers and ultimate consumers of goods are often unknown to each other. They are not always situated at the same place. Therefore, certain persons called traders are required to bridge the gap between them. Various types of traders such as wholesalers, retailers and mercantile agents help to remove the hindrance of person. Trade plays an important role in the field of commerce by establishing a contract between sellers and buyers.
ii. Hindrance of Place:
Very often goods are produced at places far away from the points of consumption. Various means of transport remove this barrier of distance and help to establish a link between the two. Packaging of goods to protect them from damage and pilferage in the course of transit also helps to remove the hindrance of place and thereby creates ‘place utility’.
iii. Hindrance of Time:
These days goods are generally produced in anticipation of demand. Therefore, it becomes necessary to store them and make them available as and when the consumers demand them. Warehouses perform this function of storage thereby balancing the time lag between production and consumption. They help to create “time utility”.
iv. Hindrance of Risk:
During transportation and storage, goods are subject to several types of risk. Goods may be stolen or damaged. Fire, flood, earthquake, storm, riot, etc., and other calamities may result in the destruction of goods. Insurance removes this hindrance by covering the risk of loss or damage to goods.
v. Hindrance of Exchange:
Exchange or sale of goods requires safe and economical arrangement for the payment of price. Dealings in goods involve the problems of time and place of payment. Money serves as the medium of exchange and thereby removes the hindrance of exchange. Banks facilitate exchange by providing credit in various forms. Banking is, therefore, an important part of commerce and banks are useful commercial institutions. Payments for goods and services can be made easily and safely through the banks.
vi. Hindrance of Knowledge:
Exchange of goods can take place only when the seller brings his products to the notice of prospective buyers. Advertising and publicity provide the necessary information to prospective buyers about the utility and features of various products. In this way, they help to remove the hindrance of knowledge.
To sum up, commerce is the sum total of those activities or processes which are engaged in the removal of hindrances of person (through trade), place (through transportation), time (through storage), risk (through insurance), exchange (through banking), and knowledge (through advertising and publicity).
Trade is that branch of commerce which is concerned with the sale, transfer or exchange of goods and services. It involves the buying and selling of goods and services. Trade is the nucleus of commerce because all commercial services like transportation, storage, insurance, banking, packaging, advertising, etc., revolve around trade. The super-structure of commerce is built upon the foundation of trade.
Trade is of the following types:
1. Internal or Home Trade:
It implies the buying and selling of goods within the boundaries of a country. Payment for the goods sold is made in national currency either in cash or through the banking system. Such trade is also known as domestic trade or inland trade.
Internal trade may be further classified into two categories as follows:
(i) Wholesale Trade:
It refers to the purchase and sale of goods of a specific variety in bulk. A wholesaler buys goods in large quantities directly form manufacturer(s) and sells them in comparatively small quantities to the retailers. Wholesale trade constitutes a link between the producers and the retailers.
(ii) Retail Trade:
It involves the sale of goods to the ultimate consumers. A retailer buys goods from wholesaler or manufacturers and sells them to the final consumers. He serves as the last link in the chain of distribution. Retail trade is carried on in several forms e.g. departmental stores, multiple shops, mail-order houses, super bazars, etc. Small scale traders like hawkers, pedlars, street stall holders, pavement dealers and neighbourhood stores also carry on retail trade.
2. International or Foreign Trade:
It consists of the exchange of goods and services between persons or organisations operating in two or more countries. International trade involves the use of foreign currency (known as foreign exchange) and international means of transport. A system of international banking has been developed to facilitate payment in the foreign exchange transactions. International means of transport consist generally of shipping and airways. International trade is also carried on between the governments of different countries.
International trade may be further classified into the following categories:
(i) Import Trade – It involves purchase of goods from foreign countries for use in the domestic market.
(ii) Export Trade – It is concerned with the sale of domestic goods to foreign buyers or in foreign markets.
(iii) Entrepot Trade – Entrepot or re-export trade involves the import of foreign goods with a view to re-export them.
In addition to trade, commerce includes several ancillary services which facilitate exchange of goods and services.
These auxiliary services or aids to trade are described below:
(i) Transportation:
Transportation carries goods from producers to traders and finally to consumers. It bridges the geographical distances and thereby performs a useful function in commerce. It makes for speed and efficiency in exchange. Transportation provides the wheels of commerce. It is because of transportation that a producer can sell his goods in different parts of the world. It creates ‘place utility’.
(ii) Warehousing or Storage:
It refers to the holding and preservation of goods until they are finally consumed. Goods have to be stored at every stage in the process of exchange. Warehousing performs a useful function by matching supply with the demand. It helps to make available the seasonally produced goods throughout the year. In the absence of warehousing, a producer will have to dispose of the goods as soon as they are produced. Warehousing creates ‘time utility’.
(iii) Insurance:
It facilitates trade by providing a cover against the loss or damage of goods in the process of transit and storage. By getting their goods ensured, producers and traders can avoid the risk of loss due to fire, theft, pilferage, etc. Packaging also helps to protect the goods during transit and storage.
(iv) Banking:
Banks are traders of money and credit. They help in the buying and selling of goods by providing a convenient and safe mode of payment. Banks also grant credit to businessmen with which they can carry on larger volume of trade.
(v) Advertising:
Advertising brings goods and services to the knowledge of prospective buyers. It helps to highlight the distinctive features and utility of different products. With the help of such knowledge, consumers can obtain better value for their money. Marketing research helps to know and understand the requirements of consumers.
There is a close interrelationship between the different branches of business described above. One cannot function without the support of others. Commerce helps industry before and after production through the purchase of materials and the sale of finished products. Production of goods and services is meaningless unless they are distributed among the consumers.
Trade, involving buying and selling of goods, maintains a smooth flow of commerce and thereby supports industry. At the same time, industry provides the goods and services for distribution and thereby gives rise to commerce. As industry develops, trade and commerce also grow.
Interrelationship between Industry, Commerce and Trade:
Industry, commerce and trade are closely related to each other. For example, industry provides goods and services which are distributed through commerce. No commercial activity is possible in the absence of industry and production. At the same time industry and production cannot survive unless the goods and services are distributed among consumers through commerce. Therefore, industry and commerce are interdependent. Industry provides the base for commerce and commerce serves as the backbone of industry.
Trade involves buying and selling of goods. It is the nucleus of commerce because all business activities revolve around transfer or exchange. Trade provides the solid foundation upon which the superstructure of commerce has been raised. It provides necessary support to industry and maintains a smooth flow of commerce.
Comparison between Industry, Commerce and Trade:
Industry:
1. Meaning – Extraction, reproduction, conversion, processing and construction of useful products.
2. Scope – Consists of all activities involving conversion of materials and semi-finished products into finished goods.
3. Capital – Generally large amount of capital is required.
4. Risk – Risk involved is usually high.
Commerce:
1. Meaning – Activities involving distribution of goods and services.
2. Scope – Comprises trade and auxiliaries to trade.
3. Capital – Need for capital is comparatively less.
4. Risk – Relatively less risk is involved.
Trade:
1. Meaning – Purchase and sale of goods and services.
2. Scope – Comprises exchange of goods and services.
3. Capital – Capital needed to maintain stock and to grant credit.
4. Risk – Relatively less risk is involved.
Classification of Business Activities – Industry and Commerce
Business activities are broadly classified into two categories:
1. Industry – It is concerned with the production or processing of goods and materials.
2. Commerce – It includes all those activities which are necessary for facilitating the exchange of goods and services.
In other words, Business – Industry + Commerce
On the basis of these two categories, we may classify business firms into industrial and commercial enterprises.
1. Industry:
Industry refers to economic activities, which are connected with conversion of resources into useful goods.
It includes all those processes by which goods are produced by the application of human or mechanical power. The term industry is also used to mean group of firms producing similar or related goods.
For example, cotton textile industry refers to all manufacturing units producing textile goods from cotton. Similarly, electronic industry would include all firms producing electronic goods.
Goods produced by industry may be Consumer’s Goods or Producer’s Goods.
(i) Consumer’s Goods – These goods are meant for direct consumption by the consumer. For example, shoes, clothes, TV, etc.
(ii) Producer’s Goods – These goods are used in the production of other goods. For example, steel, machinery, factory buildings, etc.
Industrial activities lead to production of variety of goods for various purposes.
These are divided into three broad categories:
(1) Primary Industry
(2) Secondary Industry, and
(3) Tertiary Industry.
(1) Primary Industry:
Primary industry includes all those activities, which are connected with extraction and production of natural resources and reproduction and development of living organisms, plants, etc.
These industries can be further classified into 2 categories:
(i) Extractive Industries:
It includes all those industries, which are engaged in raising products from natural sources (like soil, air, water or from beneath the surface of the earth). For example, extracting minerals from earth, fish from rivers, etc.
They supply some basic raw materials that are usually transformed into many other useful goods by manufacturing industries. Important extractive industries include farming, mining, lumbering, hunting and fishing operations.
(ii) Genetic Industries:
It includes all those industries, which are engaged in breeding plants and animals for their use in further reproduction. For example, rearing of cattle for milk. Important genetic industries include poultry farming, cattle breeding, fish hatchery, etc.
(2) Secondary Industry:
Secondary industry includes all those activities, which are connected with using the materials, which have already been extracted at the primary stage. These industries process such materials to produce goods for final consumption or for further processing by other industrial units. For example, sugarcane is produced in primary industry, but sugar is produced (by using sugarcane as raw material) in the secondary industry.
Secondary Industry can be further classified into two categories:
(i) Manufacturing Industry:
It includes all those industries, which are engaged in processing of raw materials to produce finished goods. They create form utility by changing the form of raw materials (obtained from extractive and genetic industries) into finished products. For example, cotton textile industry makes use of cotton that is produced by the extractive industry.
Manufacturing industries may be further divided into four categories on the basis of method of operation for production:
(a) Analytical Industry – In this industry, the basic raw materials are analysed and separated into different finished products. For example, crude oil is processed into many finished products, such as kerosene, petrol, diesel, etc.
(b) Synthetically Industry – In this industry, two or more raw materials are combined together in manufacturing process to make the final product. For example, various chemicals are mixed together to manufacture cement.
(c) Processing Industry – In this industry, a product passes through various stages to become a final product. For example, sugar industry, paper industry, etc.
(d) Assembling Industry – In this industry, different components are assembled to make a new product. For example, Automobile industry, TV industry, etc.
(ii) Construction Industry:
It includes all those industries, which are engaged in the construction activities. For example, industries involved in construction of buildings, dams, bridges, roads, etc. Engineering and architectural skills are an important part in construction industries.
(3) Tertiary Industry:
Tertiary industry includes all those activities, which are concerned with providing support services to primary and secondary industries as well as activities relating to trade. It is also known as Service Industry.
It provides service facilities like transport, banking, insurance, warehousing, communication, etc. Tertiary Industry tries to remove various hindrances or obstacles which arise during production and distribution of goods and services.
2. Commerce:
Commerce is a wide term consisting of all those activities, which are necessary for sale, transfer or exchange of goods and services.
It provides the necessary link between producers and consumers to ensure proper distribution of goods. Commerce basically aims to ensure supply of goods at the right place, in the right quantity and at the right time. In this way, commerce ensures free and smooth exchange by removing various hindrances or obstacles in the way of exchange. The hindrances may be in respect of persons, place, time, risk, finance and information.
Role or Functions of Commerce:
Commerce plays a vital role by removing the following hindrances in the exchange of goods and services:
1. Hindrances of Persons – This hindrance occur due to lack of contact and communication between producers and consumers. Commerce removes this hindrance through ‘Trade’. Trade provides an organised market where the buyers and sellers can contact each other.
2. Hindrances of Place – This hindrance occur due to geographical separation between producers and consumers. The producer needs to make his goods available to consumers who are scattered in different corners of the country. Commerce removes this problem by means of ‘Transport’. Transport moves goods from the places of production to the markets for sale.
3. Hindrances of Time – This hindrance occurs due to time gap between production and consumption of goods. ‘Storage and Warehousing’ activities remove the hindrance of time by facilitating holding of stocks of goods to be sold as and when required.
4. Hindrances of Risk – This hindrance occurs due to risk of loss or damage due to theft, fire, accidents, etc. Protection against this risk is provided by ‘Insurance’ of goods.
5. Hindrances of Finance – This hindrance occur due to requirement of capital to undertake the above activities. Commerce removes this hindrance through ‘Banking and Financing Institutions’. They provide the requisite capital to carry on various activities.
6. Hindrances of Information – This hindrance occurs due to lack of product awareness on the part of consumers. Advertising makes it possible for producers and traders to inform consumers about the goods and services available in the market.
Hence, Commerce is said to consist of activities of removing the hindrances of persons, place, time, risk, finance and information in the process of exchange of goods and services.
Classification of Business Activities
The business system is a sub-system of the socio-economic environment and it must justify its existence in that environment. A large number of activities are involved in business. Business is a comprehensive term and includes all sorts of production and commercial activities. The scope of business is extremely wide. Business is a wider concept and includes both industry and commerce.
In fact human occupation is of three types namely, Profession, Business and Employment. Business has two branches namely, Industry, and Commerce.
1. Industry – The production of goods and services is called industry.
2. Commerce – Exchange or distribution of goods and services to the customer is called commerce.
1. Industry:
The activities like extraction, production, conversion processing or fabrication of products are designed as industry. Industrial products are of three types namely, consumer goods, which are finally used or consumed by customer like bread , butter, jam, edible oil, motor car, TV, radio, two wheeler, refrigerator, washing machine, mixer, grinder, food processor, tractor etc.
”Producer’s goods” are the goods which are used in the production of other goods like machines, tools, equipment etc. come under this category. Producer’s goods are also known as capital goods.
“Intermediate goods” are the finished goods of one industry and become the intermediate products or goods of other industries.
Industrial activity is broadly classified into two categories:
i. Primary industry,
ii. Secondary industry
Primary industry may be either Extractive or Genetic.
Secondary industries may be manufacturing or construction.
a. Extractive Industries:
These industries are engaged in extracting or drawing their products from natural resources available in environment like earth, sea, air, mining, oil, and natural gas, hunting, farming, lumbering, fishing, etc. are the examples of extractive industries.
b. Genetic Industries:
These industries are engaged in agriculture, forestry fishery, poultry, cattle breeding, breeding plants, sapling, the seeds and nursery etc. Genetic means, parentage or heredity.
a. Manufacturing Industries:
This type of industries is engaged in conversion of raw material into finished products for consumption. Manufacturing industries may be producing consumer goods or capital goods. Cotton textile industry, pharmaceutical industry, cement industry, machinery and appliances industry are the examples of it.
Manufacturing industries may adopt any one of the following forms:
(1) Analytical:
It is engaged in analysing and separating various ingredients from basic material that are extracted or collective from nature, e.g. Petroleum refining, crude oil industries.
(2) Synthetic:
These industries are engaged in mixing two or more materials in the manufacturing operation to obtain some new products. Soap, cement, paint, fertilisers, cosmetics etc. are some examples of this type of industries.
(3) Processing:
In this type of industries raw material is processed through a series of manufacturing operations, makings use of analytical and synthetic methods Jute, Steel, textile, sugar, paper, etc. are the example of this type of industries.
(4) Assembly Line:
These industries are engaged in assembling various components or parts to obtain a new product. The finished product can be had only after various component parts have been made and then brought together for assembling and then converted into finished product. Computer. Television set, Scooter, Bicycle, Automobiles, Watches, Railway wagons, Electronic goods etc. are the examples of this type of industries.
b. Construction Industries:
Construction industries are concerned with the construction of roads, channels, bridges, buildings, ports etc. These are more or less permanent fixtures. This type of industry uses the products of manufacturing industry such as iron and steel, cement, lime, mortar fabricated material etc.
2. Commerce:
“Commerce” like, all other human activities is not static, but dynamic. It is ever moving, ever changing and ever developing. Commerce deals with the goods produced and supplied by industry. It is organised system for the exchange of goods between the members of the industrial world. It aims at delivery of right goods, to the right person, at the right place, at the right time, at the right price.
It acts like a link between the primary producers and the ultimate user or consumers, the commercial activities are concerned with buying and selling and all those activities which help in trading of goods and services. James Stephenson said, “Commerce is the sum total of those processes which are engaged in the removal of the hindrances of persons (Trade) place (transport insurance and packaging) and time (warehousing and storage) in the exchange of commodities”.
Trade:
Trade means the sale, transfer or exchange of goods and services for price or for money value.
Trade may be classified into two broad categories as follows:
1. Home or Internal Trade (Domestic Trade):
This type of trading consists of buying and selling of goods and services within the boundaries of the nation or country and payment is made in home i.e. national currency either directly or through the bankers.
Internal trade is of two types:
i. Wholesale Trade
ii. Retail Trade.
i. Wholesale Trade:
A wholesaler purchases large quantity of goods directly from the manufacturer at a very reasonable price and sells them to the retailer according to his needs and demands by adding some profit to the cost which he has incurred in getting these goods. Wholesaler is the link between the manufacturer and retailer. He does not have any contact with consumers. Sometimes he gives credit facilities to the retailers based on what type of business relationship he is having with them.
ii. Retail Trade:
A retailer purchases the goods in small quantity from wholesaler and sells them directly to the consumer. He is a link between wholesaler and consumer. He does not have any contact with the manufacturer. We can see a number of retail shopkeepers in the market. He knows his customers personally and is aware of their needs, demands, tastes, fashion, liking, disliking, interest, attitudes etc. He gives credit facility to the trustworthy customer.
2. Foreign or International Trade or Global Trade (Overseas Trade):
It denotes the selling and purchasing of goods and services between two or more countries. Payment is made in foreign currency involving foreign exchange.
Auxiliaries to Trade or Aids to Trade:
Banking, transport, insurance, advertising, warehousing, packing, stock exchange, produce exchange etc. are the activities, which helps in internal and international trade. These activities increases the speed and efficiency of both the trades.
i. Banking:
Bankers and financial institutions provide finance to the people in industries, business or trade. Both of them play a vital role in financial assistance to the business trade and industrial world. Bank is an agency through which payments for goods brought and sold can be made, facilitating the purchases or sales of goods on credit.
One of the important contribution of the banks is the credit facilities provided to the trade and industry. Banks and financial institutions play key and important role in raising capital. Banks collected the saving of the community and make it available to those who are in need and use it productively.
ii. Transportation:
Transportation serves as a link between all parts of the world and facilitates the national and international trade. There are basically three ways of transportation i.e., Roadways, Railways, Airways and waterways, with a number of means and devices of transportation. Transport performs the connection, of carrying the goods from producers to wholesalers to retailers and finally to customers.
It may be called as wheel of commerce. If there is a wide spread effective, efficient, convenient and cheaper network of transportation and communication, it definitely helps in the growth of trade and industries.
iii. Insurance:
Insurance companies are playing very important role in covering various risks and losses in the process of transit and storage and from unforeseen eventualities. The insurance companies take some amount as premium for covering the risk. They in return protect the trader or industrialist by compensating them for the loss caused to goods through fire, pilferage, theft, hazards of sea transportation etc. The insurance provides a cover to such losses and ensures compensation.
iv. Warehousing:
Warehousing means providing facilities for storing the goods for the period from its manufacture to the time it is sold. Generally there is a gap between the manufacture of the goods and its sale. It must be stored at a safe place during this gap. The storage problem is solved by warehousing. Private and public warehouses are available providing the facility of storage of goods.
It performs the function of holding the goods for the period till it is sold to the final consumer. This facility is available to manufacturers and traders for such time till they decide to move the goods from one point to another.
v. Advertising:
Today’s world is a world of advertisement. Advertisement gives the detailed information of the product or goods of the manufacturer. Product awareness is created by the advertisement. Publicity of the product is done through this media. It bridges the gap between the trader/producer or manufacturer and the final users or consumers.
There are so many advertising agencies which provides their special advertising services and help in larger sale of products in many markets. Advertising bridges the information gap between the availability of goods and use of it, between traders and customer.
vi. Packing:
Packing helps in protection of goods in transit and other ways and keep the goods intact.
vii. Stock Exchange:
Stock exchange is playing a vital role in issuing or selling the securities of the companies and raising capital for them. Generally for the newly established company it is not easy to sell its securities to the public in general, such company takes the help of stock exchange, which takes the responsibility of selling shares and raise capital for it. Already established companies also sell their securities through stock exchanges.
Apart from the above mentioned auxiliary services, branding, grading, standardisation, communication and like activities also play very important role in providing the specialised services and thereby, accelerate the speed of trade and industries functioning and assist in economic growth and prosperity of the nation.