Introduction to Business: Definition, Features, Stakeholders, Classification

What is Meaning of Business?

Business is an economic activity, which is related to continuous and regular production and distribution of goods and services for satisfying human wants with the object of earning profits. All of us need food, clothing and shelter.

We also have many other household requirements to be satisfied in our daily lives. Shopkeepers help us meet these requirements. The shopkeepers procure these items from wholesalers, who in turn buy from manufacturers. The shopkeeper, the wholesaler and the manufacturer do business and are therefore called Business people.

Every day, we come across the word ‘business’ or ‘businessman’ directly or indirectly. The business has become an essential part of the modern world. The business literally means being busy.

However, in a specific sense, business refers to an occupation in which people regularly engage themselves in activities related to the purchase, production and/or sale of goods and services with a view to earning profits.

But the purpose of business goes beyond earning profit. There are:

It is an important institution in society.
Be it for the supply of goods and services.
Creation of job opportunities.
Offer of better quality of life.
Contributing to the economic growth of the country.

Definition of Business

The following definition of business are given by the authors:

Stephenson defines a business as, “The regular production or purchase and sale of goods undertaken with an objective of earning profit and acquiring wealth through the satisfaction of human wants.”

Lewis Henry defines a business as, “Human activity directed towards producing or acquiring wealth through buying and selling of goods.”

Urwick and Hunt define business as “Any enterprise which makes, distributes or provides any article or service which the other members of the community need and are able and willing to pay for.”

Prof. Owen’s definition of business is that it is “An enterprise engaged in the production and distribution of goods for sale in a market or rendering services for a price.”

Features of Business

A business has several important features of business that are as follows:

Economic Activity

A Business is primarily an economic activity because it involves production and distribution of goods and services for earning money. However, a business is also a social institution because it helps to improve the living standards of people through effective use of scarce resources of the society. Only economic activities are included in business. Non-eco-nomic activities do not form a part of business.

Creation of Utilities

Business makes goods more useful to satisfy human wants. It adds time, place, form and possession utilities to various types of goods. In the words of Roger, “a business exists to create and deliver value satisfaction to customers at a profit”.

The business enables people to satisfy their wants more effectively and economically. It carries goods from place of surplus to the place of scarcity (place utility). It makes goods available for use in future through storage (time utility).

Profit Motive

Profit is an indicator of the success and failure of the business. It is the difference between the income and expenses of the business. The primary goal of a business is usually to obtain the highest possible level of profit through the production and sale of goods and services. It is a return on investment. Profit acts as a driving force behind all business activities.

Risk and Uncertainties

Risk is defined as the effect of uncertainty arising on the objectives of the business. Risk is associated with every business. Business is exposed to two types of risk, Insurable and Non-insurable. An insurable risk is predictable.

Changes in customers’ tastes and fashions, demand, competition, Government policies, etc. create risk. Food, fire, earthquake, the strike by employees, theft etc., also cause losses. A business person can reduce risks through correct forecasting and insurance. However, all risks cannot be eliminated.

Dealings in Goods and Services

Every business enterprise produces and/or buys goods and services for selling them to others. Goods may be consumer goods or producer goods. Consumer goods are meant for direct use by the ultimate consumers, such as bread, tea, shoes etc.

Producer goods are used for the production of consumer or capital goods such as raw materials and machinery. Services, namely, transport, warehousing, banking and insurance, may be considered as intangible and invisible goods.

Continuous Process

Business is not a single time activity. It is a continuous process of production and distribution of goods and services. A single transaction of trade cannot be termed as a business. A business should be conducted regularly in order to grow and gain regular returns.

Government Control

Business organisations are subject to government control. They have to follow certain rules and regulations enacted by the government. The government ensures that the business is conducted for social good by keeping effective supervision and control by enacting and amending laws and rules from time to time.

Stakeholders in Business

A stakeholder of business is any person, organization, social group, or society at large that has a stake in the business. A stake is a vital interest in the business or its activities. It can include ownership and property interests, legal interests and obligations, and moral rights.

Stakeholders can affect a business or be affected by a business or be both affected by a business and affect a business.

Thus, stakeholders can be:

Internal Stakeholder

Any person, organization, social group, who works for and owns, or has shares in, a particular company and is likely to want the company to be successful. Internal stakeholders of a business are as follow:

Owners or Shareholders: This is related to the stakeholder/s who risk their own money in a venture. They are entitled to a return on their investment, usually in the form of a dividend. They have a vested interest in seeing that the organisation succeeds, to not only guarantee their dividend but also to ensure that it grows.
Employees: Employees are one of the most important primary stakeholders in an organization. An employee contributes labour and/or expertise to an organization, and in many cases forms the connecting tissue between the products or services being provided and the customer.

External Stakeholder

Any person, organization and social group outside a particular company who is affected by its success or failure. External stakeholders for a business are as follow:

Customers: Customers are one of the most immediate external stakeholders that a company must consider. For retailers, consumers are customers. Attracting, retaining and generating loyalty from core consumer markets its critical to long- term financial success. For business-to-business companies, the customers are the businesses that buy goods for business use.

Trade resellers sell directly to wholesalers or retailers, but they must also consider end customers as part of their stakeholders. If consumers don’t buy manufactured goods, for instance, nobody in the distribution channel succeeds.

Suppliers, distributors and other business partners: Suppliers and distributors also play a very important role in the success of a business. Suppliers provide raw materials and other inputs to business. On the other hand distributors help the business in the distribution of its products to the ultimate customers.
Communities and Governments: Communities and governments are closely tied external stakeholders. Companies operate within communities, and their activities affect more than just customers. Businesses pay taxes, but they are also informally expected by residents to operate ethically and with environmental responsibility.

Communities also like to see businesses get involved in events and local charitable giving. Government entities make decisions that can significantly impact a company’s operations. It is important, therefore, for company managers to maintain good relationships with local officials to anticipate legal or regulatory changes or community developments that may affect them.
Creditors: Businesses commonly use lenders to finance business ventures, building and asset purchases and supply purchases. Banks often provide loans for major purchases, such as a new building. Suppliers may provide product inventory on account, which a business than pays down the road.

Current creditors basically expect that a business meets its payment deadlines responsibly and consistently. Doing so helps your business maintain good relationships with creditors and also makes you more likely to get quality financing in the future.

Classification of Business Activities

Thus business activities may be broadly classified into two categories:

Industry

This refers to economic activities, which are connected with conversion of resources into useful goods. Generally, the term industry is used for activities in which mechanical appliances and technical skills are involved. These include activities relating to producing or processing of goods and breeding and raising of livestock.

Goods produced by industries may be consumer goods or producer goods. Consumer goods are meant for direct consumption by the consumer, such as shoes, cloth, toothpaste and radio. Producer goods or capital goods are used in the production of other goods. Steel, machinery and factory buildings are some examples of producer goods.

Industries may be classified into:

Primary Industries

Primary industries include all those activities which are connected with extraction, producing and processing of natural resources. These industries may be further sub-divided into two types: (a) extractive and (b) genetic.

Genetic industry: This is related to the re-producing and multiplying of certain species of animals and plants with the objective of earning profits from their sale. This includes nurseries, cattle breeding, fish hatcheries, poultry farms.
Extractive industry: This industry extracts or obtains products from natural sources. Extractive industries supply some basic raw materials that are mostly products of a geographical or natural environment. Products of these industries are usually transformed into many other useful goods by manufacturing industries. Important extractive industries include farming, mining, lumbering, hunting and fishing operations.

Secondary Industries

The industrial sector of an economy that is dominated by the manufacture of finished products. Unlike a primary industry, which collects and produces raw materials for manufacture, a secondary industry makes products that are more likely to be consumed by individuals. Secondary industries may also be of two types:

Manufacturing Industry: This industry is engaged in producing goods through processing of raw materials and thus creating form utilities. They bring out diverse finished products that we consume or use, through the conversion of raw materials or partly finished materials in their manufacturing operations. Most of the goods that are used by consumers are produced by manufacturing industries. These industries also supply machines, tools and other equipment to other industries.
Construction industry: This industry entails the construction of buildings, bridges, roads, dams, canals, etc. It is different from all other types of industries, because goods of other industries can be produced at one place and sold at another place. However, goods produced and sold by the constructive industry are erected at one place.

Commerce

Commerce is an organized system for the exchange of goods between the members of the industrial world.” Commerce has a wide meaning. In broader sense “Commerce is that part of business which is concerned with the exchange of goods and services and includes all those activities which directly or indirectly facilitate that exchange.

It includes trade and aids to trade. Besides trade, it includes all those activities that help in the expansion of trade. The aids to trade include transport, banking, insurance, warehousing, advertising and salesmanship. Without the help of such agencies, it is not possible to transport goods from one place to another. Mainly, the term commerce includes ‘trade’ and ‘auxiliaries to trade’.

Trade

The term ‘trade’ is used to denote buying and selling. Therefore, one who buys and sells is a trader. A trader is a middleman between the producer and the consumer. Trader is engaged in trading activities as agents to make the goods available to consumers in different markets.

In the absence of trade, it would not be possible to undertake production activities on a large scale. Trade may be classified into (i) Home Trade or Internal Trade and (ii) Foreign Trade or External Trade.

Auxiliaries of Trade

All activities that facilitate a smooth flow of goods from manufacturing centres to the consumption centres are called Aids or Auxiliaries to trade. Transports, Banking, Insurance, Warehousing and Advertising are regarded as auxiliaries to trade because these activities play a supportive role.

Auxiliaries to trade may be classified into five categories: (i) transportation, (ii) warehousing, (iii) insurance, (iv) advertising, and (v) banking.