Chapter 1

Nature and Purpose of Business

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1.1 Introduction

Human beings require different types of goods and services to satisfy their needs. To earn these goods and services they engage in different activities. These activities bring in their income. Their income determines their standard of living. Large amount of goods and services are required to maintain a higher standard of living. Thus people continuously engage in activities to raise their income levels to achieve higher standard of living. Thus some engage in farming, some in trading and some others in providing services. The purpose all these activities is to earn income for meeting their needs.

1.2 Economic Activities

Economic activities are those activities engaged with the object of generating income. Income is used for meeting the needs. When the income is more than the needs it becomes wealth. The basic character of economic activity is expectation of income. An activity without the aim of making money is non economic activity. Thus activities such as sports and games are non economic activities. It is done out of interest that give them satisfaction. There are some activities undertaken as part of moral duty or social obligation. All such activities are called non-economic activities.

Economic activities may be pursued by a single person on small scale or a group of persons on large scale. When a person is regularly engaged in an economic activity, it is said to be his occupation.

1.3 Types of Economic Activities

Economic activities or the types of occupation of people can be divided into three categories:

i)                     Business

ii)                   Profession

iii)                  Employment

Business refers to those economic activities in the production and purchase or sale of goods or services, with the aim of making profit. The income from business is profit.

Profession is an occupation requiring special knowledge and skill in doing the job. Such activities are generally subject to codes of conduct laid down by professional bodies. Those engaged in profession are known as professionals. Doctors, Lawyers and Chartered Accountants are professionals.

Employment refers to the occupation in which people work for others and get paid for it. Those who employ people are known as employers. People who work in factories and offices for salary are employees.

1.4 Concept and Characteristics of Business

1.4.1     Concept of Business

Business may be defined as any economic activity on a continuous basis which involves production or purchase of goods for sale, transfer or exchange goods, or supply of services for the purpose of earning profit.

Business has a wider meaning beyond goods, services and profit. A business does not become a business without a customer. Therefore any definition of business is complete only when it includes the customer in it. The customer determines what a business is. The revenue of business comes from the customer, when he pays for the goods or services of the business. No business can exist without customer.

The existence of a business depends on its customers. Therefore it can be said that the purpose of business is to create and retain customers. To fulfill this purpose a business enterprise should concentrate on two basic functions – marketing and innovation.

Marketing is a specialized activity which covers the entire business. All activities in a business balanced according to the needs of market. Therefore marketing include identifying the needs of the customers, planning the product or service and selling the goods at price which satisfies the customer.

The second function of business in customer creation is innovation. Products available to customers are continuously improving due to technology. Therefore a business must strive for improving the quality of product and reducing the price continuously to stay ahead of competition.

Technology helps the business to innovate design, production and marketing techniques. Investment in technology will ultimately reduce cost and bring in more profit. Innovation is possible in every aspect of business. There can be innovation in distribution methods, advertising, selling and every other area of business. Thus business is not restricted to only dealing with goods and services. Creating customer, marketing and innovation are more important aspects of business

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