(1) BACKGROUND OF BUSINESS
Basic Concepts about Businesses
When the social existence of a human develops, individual needs also widened gradually. When the needs and wants were diversified, it was difficult to produce all their needs and wants by themselves. As a remedy to this problem, people started to produce a large quantity of goods that they could produce the best, with the skills and resources they had. Therefore, an excess of goods was created. Then people exchanged their excess goods with others to obtain other goods they wanted. This system of exchanging goods was known as the 'Barter System'.
Even today, no one produces all what he or she wants. The farmer produces rice; the carpenter makes furniture; the teacher teaches. This individual is either a producer or a consumer in different instances. Such producers and consumers fulfill their needs and wants through businesses. Therefore, businesses are given immense importance in the modern society.
Business Concept
Man needs goods and services from birth to death. These needs and wants are fulfilled by the businesses. Businessmen manufacture and distribute various goods and services according to the human needs and wants. The way businesses manufacture and distribute goods and services and the way man fulfills his needs and wants have become different and complex today.
A business is an economic activity which manufactures or provides different goods and services in order to fulfill human needs. Most of the firms are profit oriented whereas some firms are not profit oriented. Especially, most of the businesses in the government sector are driven by the social welfare motive.Even though a majority of private sector businesses are driven by the profit motive, some firms are also driven by the welfare motive.
A majority of production activities carried out manually in the past are now carried out using new technology. Most of the businesses do their transactions through electronic media. Therefore, today, any business activity such as ordering goods, paying money and advertising etc can be performed rapidly and easily through electronic media. Due to the accelerating growth in information and communication technology, the world has become a global village through electronic media. Any individual in any country is now consuming different goods produced in different countries in order to fulfill their needs and wants. The following activity will facilitate you to understand the extent to which your daily life has been connected to the global market today.
Business Objectives
As a consumer your objective is to obtain a quality product at a reasonable price to satisfy a need. Similarly, consumers and other different stakeholders of businesses have specific objectives to be fulfilled. Every business has a specific objective or set of objectives to be achieved, because the parties such as owners of a business, its managers, employees, customers, government and community expect different returns from a business.
The following are some business objectives that can be seen in common in a profit oriented business
01. Earning profits Profit earning objective is essential for a business because it has to pay a sufficient return to the owners for their investment.
02. Increasing customer satisfaction The survival of a business depends on how it satisfies the needs and wants of its customers.
In achieving the above objectives, businesses need to focus on sub objectives. Some of them are discussed below.
(a) Increasing the quality of goods and services Businesses intend to provide quality goods and services at a reasonable price as well as to fulfill consumer needs and wants.
(b) Generating employment opportunities Another goal of businesses is to generate different job opportunities from labourers to top managers.
(c) Employee welfare
Providing various welfare facilities in addition to wages to satisfy the employees is another objective of most of the businesses. Food, accommodation facilities, transportation facilities and medical facilities are some examples for those various welfare facilities offered by a business.
Consumer needs and wants
Needs
- Being essential - It is essential to fulfill the needs for existence.
- Being common - Needs are common to every individual.
- Cannot be created - Needs will arise naturally and hence cannot be created by businessmen.
- Being limited - Needs are relatively very low in number.
Wants
Characteristics of wants
- Not essential - For existence it is not essential to fulfill a want as that need could be satisfied by another similar want instead.
- Being diverse - Even though the needs are common to any individual, the way they satisfy them differs depending on their socio - economic condition.
- Can be created - Businessmen can create wants.
- Being complex - Due to being unlimited and diverse, fulfillment of wants are also complex.
- Being unlimited - There are different wants that can be used to fulfill a single need.
Manufacturing Businesses
- Commodity manufacturing businesses
- Service providing businesses
Commodity manufacturing businesses
Service Providing Businesses
Any activity or a process rendered to consumers by a business in order to fulfill their needs and wants are known as services. The businesses providing these services are known as service providing businesses.
Examples :-
- Wholesale businesses
- Retail businesses
- Insurance Institutions
- Banking Institutions
- Beauty salons
- Educational Institutions
Factors of Production
Businesses require different resources to produce goods and services. These resources required are known as factors of production. The factors of production can be categorized basically as land, labour, capital and entrepreneurship.
Land
All the natural resources available are considered as land. It includes resources on the surface of the land as well as resources in the inner part of the land.
Examples :- Minerals, forests, soil
Labour
The mental and physical contribution in a business can be considered as labour in simple terms. Examples :-
Individuals rendering physical efforts - Workers in the mines Sanitary labourers
Individuals rendering mental efforts - Accountants Managers
Capital
Anything produced by man in order to facilitate manufacturing process is known as capital.
Examples :- Machinery, buildings, motor vehicles, money.
Entrepreneurship
Entrepreneurship encompasses the role of organizing factors of production such as land, labour and capital required for production in order to start and conduct a manufacturing process. An entrepreneur takes the risk, creates innovations and takes decisions with regard to the business.
Stakeholders of businesses
Stakeholders are the different parties who are interested in the business activities. These parties are interested in business operations in order to fulfill various objectives.
Let us study about the stakeholders mentioned in the above figure in detail.
Owners - Owners are the persons providing resources to the business. The owner of a business can be either a single person or a group of persons.
Managers - The business operations are conducted and decisions of the owners are implemented by managers. In large scale businesses, there can be number of managers such as finance manager, marketing manager, etc.
Customers - Customers are the persons who buy goods and services from a business. They can buy these goods either with the re-selling motive or with the motive to use on own consumption.
Suppliers - Suppliers are the providers of raw materials, transport facilities, etc. to a business.
Competitors - Competitors are other businesses producing or selling similar goods or services to a business in operation.
Financial - Financial institutions are the institutions providing institutions required loans, consultancy services etc. to a business.
Employees - Individuals performing the operations of a business are known as employees.
Government - The government propagates policies required to achieve economic growth of a country.
Community - Includes the population living outside of the business in the society
Examples :- Journalists, environmentalists pressure groups
Future - Individuals and institution willing to invest investors
All these stakeholders intend to achieve various objectives from the business. Some selected objectives of them are depicted in Table 1.1.
A business is required to conduct its operations in a way that it satisfies various objectives of its stakeholders. In this regard, business also expects certain contributions from its stakeholders. Table 1.2 depicts examples of some contributions expected by a business from some selected stakeholders.
Table 1.2 Expected contributions from stakeholders
Accordingly, the ability and the future success of a business depends on the mutual relationship between the business and its stakeholders.
Interesting. Thank You.
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