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Chapter 3 Structure of Business
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3.1 Introduction Structure of business refers to the broad categories of business activities. The structure of business may be viewed in terms of size, ownership and function.
3.2 Classification of business activities On the basis of size, business activities can be classified into small scale and large scale business. Small scale business as the name suggests is relatively small in terms of investment and operation. Large scale business on the other hand operates with large amount of capital with wide range of products and wider geographical coverage.
On the basis of ownership, business can be classified into private and public sector. Private sector businesses are owned and managed by private individuals; Public sector businesses are under government ownership. There are a few enterprises that are owned partly by the government and partly by private individuals. They are called joint sector enterprises.
On the basis of function business activities are mainly classified into commerce and industry. Commerce includes all those activities in the exchange of goods and services. It also includes the supporting activities for the exchange of goods and services. Thus commercial activities involve trade, banking, transport, insurance, warehousing and advertisement.
Industrial activities are non-commercial economic activities. Their main job is producing finished products out of raw materials. The activities of extracting raw materials are also considered industrial activities.
3.3 Industry and its Types Industry refers to economics activities that are concerned with conversion of resources into useful goods. The term industry is used for business activities in which mechanical appliances and technical skills are involved. In a wider sense the term industry is also used to mean a group of firms engaged in identical activities or certain services like banking, insurance etc..
Industry may be divided into three broad categories:
1. Primary industry Primary industries are those industries that are directly connected to nature. It derives the raw-materials from the nature. Mining, farming, forestry etc. are examples of primary industries. These are further classified into two categories:
2. Secondary industry Secondary industries depend on goods produced by primary industries. They are sub-divided into: a. Manufacturing Industries b. Construction Industries
3. Tertiary industries These industries are basically concerned with support service to primary and secondary industries. They also serve trade and other commercial activities.
Extractive industries: Extractive industries are the first category of primary industries. They extract their products directly from nature. Mining industry, fishing etc are examples of extractive industries. These industries do not invest in the generating of items that they extract from nature. They support other industries because their products are mostly raw materials for other manufacturing industries.
Genetic industries: Genetic industries are also directly connected to nature. These industries invest in the generation of products they extract from nature. Agriculture and fishing farming are the examples of genetic industries. Fishing from sea or cutting timber from forest are not genetic industries.
Manufacturing industries: manufacturing industries belong to the category of secondary industries. They convert raw materials into finished products. They depend on primary industries for their raw materials. Manufacturing industries are mainly dependent on primary industries for the supply of their raw-materials. Manufacturing industries consist of manufacturing of capital goods and consumer goods. Capital goods are goods like machinery and equipment which are mainly used for producing consumer good and consumer goods are goods for daily consumption such as cosmetics, textiles, paints, cement etc
Construction industry: Construction industries are in the business of making buildings, bridges, dams, roads etc. The main feature of these activities is that their products are immovable. They depend on several other manufacturing industries for their supplies such as bricks, cement, steel etc.
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