Chapter 1

Activity: An activity is the state or quality of being active

Human Activity:

It is a vigorous action or operation by performing which a person wants to fulfil his wants
and tries to get full satisfaction from it in terms of money, energy, feeling etc. For
example: A man works in a company so that he can earn money so that he can buy
food, cloth and shelter for his family. A girl goes for aerobic so that she can satisfy her
dream of becoming physically and mentally fit. Mom cooks food for us. A group of boys
and girls go for a movie in a theatre so that they can enjoy the spare time. All these are
the example of activity (working, going for exercise, cooking, watching movie) and so on.
People undertake various activities to satisfy their needs. Those activities can be broadly
classified into two

1. Economic: Activities by which we can earn our livelihood.

a. Business: Business refers to an economic activity in which people

regularly engages in production or purchase of goods for sale, or exchange
of goods or supply of services to satisfy the needs of other people with an
ultimate motive to earn profits. The word business is derived from the
word 'busy'. Thus, "business" relates to the state of being busy. Business
may be in the form of Sole proprietorship, where the owner of the business
has the sole authority over the establishment. Partnership, where two or
more individuals come together to form a joint business. Corporation, can
be organized for profit or service, but is owned by multiple shareholders
and is carried by a board of directors and in addition to this we find state
owned corporate also. Cooperative, for profit or non profit, is a limited
liability entity where shareholders do have decision making authority; they
may be consumer cooperatives or worker cooperatives.
b. Profession: Profession is an economic activity in which people are
engaged to earn means for their livelihood by using their Skills and special
knowledge that is acquired from many studies and practice in a particular
field. It is obviously an economic activity since the ultimate goal for taking
up this is to earn some money. Those who are engaged in a profession
which is an economic activity are called as professionals. Their activities
are subject to the guidelines or codes of conduct laid down by concerned
professional bodies. Examples, Doctors, Engineers, Lawyers, Chartered
Accountants, Consultants, Bankers, Teachers.

c. Employment: Employment refers to an economic activity where an

individual work for a company or and organisation and get remunerated
(salary). Those who gets employed by others (companies or organisations)
are employees and those who employs individuals are employers (may be
person, company or an organisation). Every employee needs certain
qualification and training as prescribed by the employer. Policemen,
Government Worker.

2. Non Economic: Activities those are performed out of love, sympathy, sentiments,
etc.

a. Religious

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b. Social

c. Parental

d. Patriotic

Business: Definition…..

Characteristics of Business:

1. Entrepreneurship and Employment: It involves the innovation (creation of

utility), involvement, utilization of capital and people.
2. Economic activity: It is an economic activity because the object around doing it
is always to earn money or livelihood and not out of love, affection, sympathy,
etc.
3. Production of goods and services
4. Continuous dealing

5. Customer creation and satisfaction: Business creates customer for selling

their product and services by means of marketing, advertising or creating
awareness and tries to satisfy the customer’s desire by their product and
services.
6. Earning Profit: The purpose of business is to earn profit. No business can
survive for long without profits. In business possible efforts to maximize profits, by
increasing the volume of sales or reducing costs is always seen.
7. Risk and Uncertainty of return: Returns in business is always uncertain. The
capital invested may return in the way of profit or may be completed vanished in
the way of losses; this is where the future of the business was decided whether it
continues or shutdowns. Risk is always involved in here in the form of losses. It is
caused by some unfavourable or undesirable events.
8. System and organization

Objectives of Business:

It is generally believed that a business has a single objective, that is, to make profit. But it
cannot be the only objective of business. While pursuing the objective of earning profit,
business units do keep the interest of their owners in view. However, any business unit
cannot ignore the interests of its employees, customers, the community, as well as the
interests of society as a whole.

For instance, no business can prosper in the long run unless fair wages are paid to the
employees and customer satisfaction is given due importance. Again a business unit can
prosper only if it enjoys the support and goodwill of people in general. Business objectives
also need to be aimed at contributing to national goals and aspirations as well as towards

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international well-being. Thus, the objectives of business may be classified as -

1. Economic Objectives
2. Social Objectives
3. Human Objectives
4. National Objectives
5. Global Objectives
1. Economic Objectives: Economic objectives of business refer to the
objective of earning profit and also other objectives that are necessary to be
pursued to achieve the profit objective, which include, creation of customers,
regular innovations and best possible use of available resources. Let us learn about
these.

i. Profit
earning:
Profit is the lifeblood of business, without which no business can
survive in a competitive market. Infact profit making is the primary objective
for which a business unit is brought into existence. Profits must be earned to
ensure the survival of business, its growth and expansion over time. Profits
help businessmen not only to earn their living but also to expand their
business activities by reinvesting a part of the profits. In order to achieve
this primary objective, certain other objectives are also necessary to be
pursued by business, which are as follows:
a) Creation of
customers:
A business unit cannot survive unless there are
customers to buy the products and services. Again a
businessman can earn profits only when he/she provides
quality goods and services at a reasonable price. For this it
needs to attract more customers for its existing as well as
new products. This is achieved with the help of various
marketing activities.

b) Regular
innovations:
Innovation means changes, which bring about
improvement in products, process of production and
distribution of goods. Business units, through innovation, are
able to reduce cost by adopting better methods of
production and also increase their sales by attracting more
customers because of improved products. Reduction in cost
and increase in sales gives more profit to the Businesman.
Use of power-looms in place of handlooms, use of tractors in
place of hand implements in farms etc. are all the results of
innovation.

c) Best possible use of resources:

As you know, to run any business you must have
sufficient capital or funds. The amount of capital may be
used to buy machinery, raw materials, employ men and
have cash to meet day-to-day expenses. Thus, business
activities require various resources like men, materials, money
and machines. The availability of these resources is usually

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limited. Thus, every business should try to make the best

possible use of these resources. This objective can be
achieved by employing efficient workers, making full use of
machines and minimizing wastage of raw materials.

2. Social Objectives: Social objectives are those objectives of business,

which are desired to be achieved for the benefit of the society. Since business
operates in a society by utilizing its scarce resources, the society expects
something in return for its welfare. No activity of the business should be aimed at
giving any kind of trouble to the society. If business activities lead to socially
harmful effects, there is bound to be public reaction against the business sooner or
later. Social objectives of business includes,

i. Production and supply of quality goods and

services:

Since the business utilizes the various resources of the society, the
society expects to get quality goods and services from the business. The
objective of business should be to produce better quality goods and supply
them at the right time and at a right price. It is not desirable on the part of
the businessman to supply adulterated or inferior goods which cause injuries
to the customers. They should charge the price according to the quality of the
goods and services provided to the society. Again, the customers also expect
timely supply of all their requirements. So it is important for every business to
supply those goods and services on a regular basis.

ii. Adoption of fair trade

practices

In every society, activities such as hoarding, black-marketing and

over-charging are considered undesirable. Besides, misleading
advertisements often give a false impression about the quality of
products. Such advertisements deceive the customers and the
businessmen use them for the sake of making large profits. This is an unfair
trade practice. The business unit must not create artificial scarcity of
essential goods or raise prices for the sake of earning more profits. All these
activities earn a bad name and sometimes make the businessmen liable for
penalty and even imprisonment under the law. Therefore, the objective of
business should be to adopt fair trade practices for the welfare of the
consumers as well as the society.

iii. Contribution to the general welfare of the

society

Business units should work for the general welfare and upliftment
of the society. This is possible through running of schools and colleges for
better education, opening of vocational training centres to train the people
to earn their livelihood, establishing hospitals for medical facilities and
providing recreational facilities for the general public like parks, sports
complexes etc.

3. Human Objectives: Human objectives refer to the objectives aimed at the

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well-being as well as fulfillment of expectations of employees as also of people

who are disabled, handicapped and deprived of proper education and training. The
human objectives of business may thus include economic well-being of the
employees, social and psychological satisfaction of employees and development
of human resources.
i. Economic well being of the
employees
In business employees must be provided with fair remuneration and
incentives for performance, benefits of provident fund, pension and other
amenities like medical facilities, housing facilities etc. By this they feel
more satisfied at work and contribute more for the business.

ii. Social and psychological satisfaction of

employees
It is the duty of business units to provide social and psychological
satisfaction to their employees. This is possible by making the job interesting
and challenging, putting the right person in the right job and reducing the
monotony of work. Opportunities for promotion and advancement in career
should also be provided to the employees. Further, grievances of employees
should be given prompt attention and their suggestions should be considered
seriously when decisions are made. If employees are happy and satisfied
they can put their best efforts in work.
iii. Development of human
resources

Employees as human beings always want to grow. Their growth

requires proper training as well as development. Business can prosper if the
people employed can improve their skills and develop their abilities and
competencies in course of time. Thus, it is important that business should
arrange training and development programmes for its employees.
iv. Well being of socially and economically backward
people

Business units being inseparable parts of society should help

backward classes and also people those are physically and mentally
challenged. This can be done in many ways. For instance, vocational training
programme may be arranged to improve the earning capacity of backward
people in the community. While recruiting it staff, business should give
preference to physically and mentally challenged persons. Business units can
also help and encourage meritorious students by awarding scholarships for
higher studies.

4. National Objectives: Being an important part of the country, every

business must have the objective of fulfilling national goals and aspirations. The
goal of the country may be to provide employment opportunity to its citizen, earn
revenue for its exchequer, become self-sufficient in production of goods and services,
promote social justice, etc. Business activities should be conducted keeping these
goals of the country in mind, which may be called national objectives of business.
The following are the national objectives of business.

i. Creation of employment

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One of the important national objectives of business is to create

opportunities for gainful employment of people. This can be achieved by
establishing new business units, expanding markets, widening distribution
channels, etc.

ii. Promotion of social

justice

As a responsible citizen, a businessman is expected to provide

equal opportunities to all persons with whom he/she deals. He/She is also
expected to provide equal opportunities to all the employees to work and
progress. Towards this objective special attention must be paid to weaker
and backward sections of the society.
iii. Production according to national
priority
Business units should produce and supply goods in accordance with
the priorities laid down in the plans and policies of the Government. One of
the national objectives of business in our country should be to increase the
production and supply of essential goods at reasonable prices.
iv. Contribute to the revenue of the
country
The business owners should pay their taxes and dues honestly and
regularly. This will increase the revenue of the government, which can be
used for the development of the nation.
v. Self-sufficiency and Export
Promotion

To help the country to become self-reliant, business units have the

added responsibility of restricting import of goods. Besides, every business
units should aim at increasing exports and adding to the foreign exchange
reserves of the country.

5. Global Objectives: Earlier India had a very restricted business relationship

with other nations. There was a very rigid policy for import and export of goods and
services. But, now-a-days due to liberal economic and export–import policy,
restrictions on foreign investments have been largely abolished and duties on
imported goods have been substantially reduced. This change has brought about
increased competition in the market. Today because of globalisation the entire
world has become a big market. Goods produced in one country are readily available
in other countries. So, to face the competition in the global market every business
has certain objectives in mind, which may be called the global objectives. Let us
learn about them.
i. Raise general standard of
living
Growth of business activities across national borders makes
available quality goods at reasonable prices all over the world. The people
of one country get to use similar types of goods that people in other
countries are using. This improves the standard of living of people.
ii. Reduce disparities among
nations
Business should help to reduce disparities among the rich and poor
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nations of the world by expanding its operation. By way of capital investment

in developing as well as underdeveloped countries it can foster their industrial
and economic growth.

iii. Make available globally competitive goods and

services

Business should produce goods and services which are globally

competitive and have huge demand in foreign markets. This will improve the
image of the exporting country and also earn more foreign exchange for the
country.

Structure of Business:

We ma y be purchasing several items of your daily need from the local shopkeepers. If we
observe their activities, we find that actually they buy goods from different sources and
then sell those to you as per your requirement. In this process they earn some profit. We
can say that they all are engaged in business. Similarly, you know that individuals who
manufacture products for sale, construct roads and buildings, own vehicles and give it on
rent for carrying goods and commodities, publish books, magazines and newspapers, are
all engaged in business. Some may be running establishments to provide various services
like giving cable TV connection, booking rail and air tickets, organising tours & travels etc.
These are all examples of business activities. People engaged in business undertake their
activities regularly and thereby earn profit. Although, all these businesses have a common
objective of earning profit, they differ from each other with respect to their size, nature,
volume of transaction, management and ownership, etc. Thus, structurally they are
different. In this lesson, let us learn about the structure of business.

Broadly, business may be classified on the basis of size, ownership and functions. Let us
discuss this in detail.
A. Classification on the basis of Size

The size of business may be measured by the amount of capital invested, number
of persons employed, the volume of transactions and the area of operation. On
the basis of these, business activities can be grouped into small-scale and large-
scale. Those business units which require less capital, employ few workers,
produce and sell limited items within a limited area, are called small-scale
business. Small-scale business units are generally owned and managed by a single
individual or a few individuals. Grocery stores, stationery stores, restaurants,
poultry farms, etc, are some of the examples of small-scale business.
Similarly, business units that require heavy capital investment, employ a large
number of workers, produce and sell large volume of goods and services are
called large-scale busi- ness. Their area of operation and volume of activities are
larger as compared to small-scale business. These business units are generally
owned and managed by groups of individuals or the government. Iron and steel,
aluminium, fertilizer, petrochemicals, and automobile manufacturing units are
some of the examples of large-scale business.
B. Classification on the basis of ownership

You must have seen the owners of the small shops in your locality. But have you
ever seen the owners of Tata Steel Company, Honda Motors, NCELL ? As you know,
these are large-scale business enterprises and therefore their owners are not
single individuals. There may be a group of individuals or the government who

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own these businesses. So on the basis of owners of business, we can classify

business as Private sector enterprise and Public sector enterprise.
Business enterprises owned and managed by the government are called public
sector enter- prises. These enterprises are formed by government as departmental
undertakings, statu- tory corporations or government companies. Business
enterprises owned and managed by individuals or group of individuals other than
the Government are called private sector enterprises. These enterprises may be
organized in the form of Sole Proprietorship, Partnership, Joint Hindu Family, Joint
Stock Company and Co-operative Society.

C. Classification on the basis of Functions

We may classify business as Industry and Commerce on the basis of functions.

Industry includes activities involved in conversion of raw materials into useful
products. It processes raw materials or semi-finished goods into finished goods. For
example, cotton is converted into cloth in textile industries, sugar is extracted from
sugarcane in sugar industries, automo- biles are produced in automobile industries,
and so on. These activities are called industrial activities and the units that
undertake these activities are called industrial enterprises.

On the other hand, Commerce includes all those activities which are necessary for
the purpose of exchange of goods and services. It refers to various activities that
make goods available to the consumers for consumption. Trade, transportation,
storage, packaging etc. are all included in commerce. These activities are called
commercial activities and the units that undertake these activities are called
commercial enterprises. Let us study more about Industry and Commerce.

Industry
Industry refers to all business activities, which are connected with raising,
producing and processing of goods and services. They convert raw materials into
useful products by the application or use of human or mechanical power. These
products are then sold. Sometimes the term industry is used to represent a group of
business enterprises engaged in producing similar products or providing similar service.
For example, all units engaged in producing automobiles, whether two wheelers, three
wheelers or four wheelers, together constitute automobile industry. Similarly we find film
industry, banking industry, telecom industry and many more.
Types of industry: Industries may be divided into three broad categories

i. Primary Industries: Industries engaged in extracting, producing and processing

natural resources like minerals, oil, agricultural products, plants and animals, are
called primary industries. These industries use natural resources as their raw
material and provide finished goods to the consumers. We may further classify
these industries into a) Extractive industries, and b) Genetic indus- tries.

a) Extractive Industries- These industries are engaged in

extraction of minerals, oil and natural gas from the earth, fish from the sea,
timber from the forest etc. Mining, forestry, fishing are examples of extractive
industries. The distinctive feature of these industries is that they use natural
resources and the materials once extracted or used cannot be replaced.
b) Genetic Industries- These industries are engaged in
rearing and breeding birds and animals and growing plants for sale.
Agriculture, dairy farming, poultry farming, pisiculture (breeding fish),
horticulture, orchard farming, floriculture (growing flowers) are examples of
genetic industries.

ii. Secondary Industries: Secondary industries are those industries that engage
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in the production or processing of items produced by primary industries. They use

the products of primary industries as their raw materials and produce a variety of
goods for our use. For example- iron ore is ex- tracted from the earth by primary
industries. This is used as raw material by the secondary industries to produce iron
and steel for our use. Thus, mining of iron ore is a primary industry but manufacturing
of iron and steel is a secondary industry.

We may further classify secondary industries as,

a) Manufacturing Industries- Industries engaged in conversion of raw

materials or semi-finished products into finished products are called manufacturing
industries. For example, cotton is converted into textile, timber into furniture, iron-ore
into steel, bauxite into aluminium etc.
b ) Construction Industries- Industries engaged in
erection of buildings, dams, bridges, roadways, railways are called
construction industries. They use the products of other industries
as their raw materials and construct different types of structures
as per the requirements of the consumers.

iii. Tertiary industries (Service Industry): Industries providing services to

consumers are called tertiary industries. These activities may include personal
services like medical treatment, nursing, teaching, etc., or commercial services like
transport, banking, insurance, etc.

Co m m e r c e:
We have learnt about various types of industry that deal with the production of goods
and services. The question arises, why are these goods and services produced? Actually
industries produce goods and services for consumption or use by the consumers. But,
how do the consumers get these goods? We know that goods and services are of no use
unless these are made available to the persons who can use them. Here comes the role
of Commerce. Commerce includes all those activities which facilitate transfer of goods
and services from one place to another or from one person to another. It deals with the
movement of goods from the person who produces them to the person who consumes
them.

Commerce is defined as “the sum total of activities involving the removal of hindrances in
the process of exchange of goods and services and facilitates the availability for
consumption or use
Types of commerce includes,
i. Trade
ii. Auxiliaries to trade or aids to trade.

i. Trade: Trade means buying and selling of goods and services on a

continuous or regular basis. It refers to the exchange of goods and services for cash or
on credit. A person who buys goods for the purpose of selling is known as trader. The
shopkeepers of your locality who buy goods from the producers and other shops for the
purpose of selling are traders. There are a number of persons engaged in trading activities
in different ways. Some traders buy goods in bulk and also sell in bulk. Some sell goods in
the local market while others sell in the international market.
So, according to the nature of activities of all these traders we may
classify trade as,
a. Home trade: Home Trade refers to buying and selling of goods and

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services within the boundaries of a country. It is also known as internal trade or

domestic trade. Payment for goods and services in home trade is made in the
currency of the home country. Thus, goods sold by a trader in Biratnagar or
Birgunj to a buyer in Kathmandu or Pokhara or the same locality, village or town
are called home trade. Home trade may also be of two types: Wholesale trade and
retail trade. “Wholesale trade involves purchase of goods in large quantity from
producers for sale to other traders or buyers in smaller quantities. Generally, the
wholesale trader deals in limited variety of goods. The person who does wholesale
trading is known as whole- saler. Retail trade refers to purchase of goods from the
wholesalers or producers for sale to the ultimate consumers in smaller quantities.
The retail trader generally has a variety of goods needed by consumers. The
person who does retail trading is known as retailer.
b. Foreign trade: It refers to buying and selling of goods or
services between people living in different countries. It is also known as External
trade or International trade. Payment for goods or services are required to be
made in the currency of the seller’s country or in the currency acceptable to the
seller.

Foreign trade may be sub-divided into three

categories,
 Import Trade
 Export Trade
 Entrepot
Trade
When goods or services are purchased from a foreign country
for selling in our own country, it is known as import trade.
Similarly, when goods and services are sold to
a foreign country it is called export trade. When goods or
services are imported into one country for the purpose of
exporting the same to some other country with or without
making any change, it is known as entrepot trade or re-export
trade. Such types of trade may be necessary due to the reason
that (a) the exporting country does not have any accessible
trade routes connecting the importing country; or (b) the goods
imported require processing or finishing before export for which
facilities are lacking in the exporting or importing countries.

To understand the nature and types of trade clearly, let us take the following
example. Suppose ready-made garments are produced at Biratnagar, and some
wholesaler of Pokhara buys garments in bulk from Biratnagar with the object of
reselling them to retailers. This is a case of wholesale trade. Further suppose, traders
from different parts of Pokhara buy the garments from the wholesaler for selling the
same to consumers in different markets. This will obviously be a case of retail
trading. And since, all these trading activities take place within Nepal, this will be a
part of home trade. If the manufacturers of ready made garments at Biratnagar
decide to sell their products to traders of India or Pakistan or USA, or any other
country, that will be a part of Nepal’s foreign trade. Suppose, goods are purchased
by the traders of Biratnagar from China, then it would also be a part of foreign
trade. What is the difference then between these two types of trade? Obviously in
the first case it is export trade and in the second case it is import trade. Suppose,
traders in Pakistan were unable to import goods from China due to the absence of
trade agreements between the governments of Pakistan and China then traders in
Biratnagar(Nepal) can import Chinese goods and export the same to Pakistan. This
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would be a case of entrepot trade.

ii. Aids or Auxiliaries to trade: You know that commerce includes not only
buying and selling of goods and services, but also a number of activities that
facilitate the distribution of goods and services. For example, a trader who buys
goods from a producer, must carry the goods to his shop located in a market. He
must hire a cart or truck or some other means of transport. Having carried the
goods to his place of business, he must arrange proper storage of the goods to
prevent damage or loss. Also he may have to insure the goods as a means of
protection against the risk of loss by theft or fire. He will also require money to buy
or store the goods before selling the same. He may have to borrow money from
the bank. In the process of buying and selling he may have to contact a number of
other persons by using the telephone, fax or any other means of communication.
Thus, transport, warehousing, insurance and banking, communication, etc., are
activities which facilitate the business of a trader. Taken together these activities
are known as auxiliaries or aids to trade. Thus, we can say that activities which
support trade are the auxiliaries or aids to trade. Some examples of aid to trade are,
 Transportation
 Distribution
 Advertising
 Banking
 Warehousing
 Packaging
 Insurance
 Communication

Functions of Business:
1. Management: Man, Money, Material, Machines, Methods, Minutes(6
Ms)
2. Finance
3. Production: Research and development
4. Sales and Marketing: Promoting ,Distributing, Market research

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