Notes, Exercises, Videos, Tests and Things to Remember on Components of Business
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The business consists of a number of components. These components and parts build the structure of a business. Thus, the structure of a business refers to the components and parts of the business comprising different classes of activities that are performed. Business activities can be broadly classified into the following three categories:
The term industry refers to the production of goods and services through the utilization of various resources like men, material, money, and machines by completing some specific processes. There are two types of industries they are:
The industries engaged in farming, fishing, oil extraction and other firms that extract natural resources whose products can be used to produce goods by other businesses are called primary industries. It can be classified into two types they are:
Those industries on which plants and animals are reproduced for generating value are called genetic industries. Nurseries of plants for the reselling purpose, meat, and eggs for poultry firm, silk and leather from animal husbandry, wool and meat from sheep, fish from pisciculture, etc. are the example of genetic industry.
Extraction of materials and products having the commercial value from nature such as the air, climate, and soil are called extractive industries. Coal, gold, oil, gas, fishing from the sea, electricity from air and rivers, crops from soil and climate are the example of the extractive industry.
Those industries which are generally involved in transforming raw materials or semi-processed materials into finished products are called secondary industry. It can be classified into two types they are:
The industries which are involved in constructional developmental works are called the construction industry. These industries construct roads, bridges, buildings, dams, canals, etc. Construction industries use cement, iron, steel, bricks, concretes and tar coal as raw materials.
Those industries which are involved in converting or transforming raw materials or semi-processed materials into finished goods are known as the manufacturing industry. Examples of manufacturing industries are iron and steel, machinery, automobile, electrical and electrons, sugar and textile mills, etc. It is divided into the following categories:
i) Analytical Industries:
Analytical industries are those industries that employ analytical processes in the production of goods. The examples of analytical industries are paper mills that produce cardboard paper, newsprint paper, photocopy paper, notebook paper, etc. Similarly, the next example may be oil refiners that produce kerosene, petrol, diesel, Mobil, etc.
ii) Synthetic Industries:
Synthetic industries are that industry that employs synthetic processes in the production of goods. For example, cement is produced by mixing limestone, red soil, stones, chemicals, etc.
iii) Processing Industries:
In this type of industry, raw materials are processed through the different stages of production to obtain the final product. The example of such industries is the jute industry in which raw jute passes through different stages of spinning, weaving, sewing, and dying to produce jute bags.
iv) Assembling Industries:
Assembling industries are those industries that assemble or combine various types of components or parts to produce usable products. Manufacturers of radio, television, computer, vehicle, etc. are the example of assembling industries.
v) Continuous Industries:
In this type of manufacturing industry, all the required raw materials are fed into the machine at one point from which successive operations are automatically performed to turn them into finished products. For example, Butwal Spinning Mill, Bhirkuti Paper Mill, and Lumbini Sugar Mill are examples of continuous Industries.
Commerce is the process of buying and selling which includes all the activities of storing, grading, warehousing, transportation, banking, insurance, packing, and financing. The major function of business is to remove the hindrances of person, place, time, exchange and knowledge regarding the distribution of goods until they reach the final customers. Commerce can be classified into two groups they are:
The word trade denotes the activity of buying and selling or exchanging goods and services between people or countries. It refers to the process of exchanging, sale or transfer of goods and money or other goods. It is an integral part of the business in which the ownership of goods and services is transferred from one person to another for profit. There are two types of trade they are:
Home trade is also known as a domestic or internal trade which is conducted inside the country. It includes the production, purchase, and sale of goods within the geographical boundary of the country. It may be classified into two types. They are:
a) Wholesale Trade
A wholesale trade is such type of trade in which the purchase and sale of goods take place in bulk. In this type of trade, a trader purchases goods in bulk directly from producer and sales them in smaller lots to the retailers. The wholesaler acts as a middleman between the producer and retailers.
b) Retail Trade
The retail trade refers to the act of buying goods from a wholesaler and reselling those goods to the final consumers in small quantities. A trader who is involved in the retail trade is called retailer. A retailer is the last link in a trading chain. It deals with a variety of goods.
The buying and selling of goods and services between the people of two or more countries are known as foreign or International trade. International trade involves the use of foreign exchange and international means of trade. Such trade is conducted mostly on the wholesale basis. It may be divided into three types. They are:
a) Import trade
Purchase of goods from a foreign country for use in the domestic market is known as import trade. For example, if the enterprise of Dhangadi purchases television sets from Sony Company of Japan for the use in the Nepalese market, it is known as import trade.
b) Export trade
The sale of goods from the home country to a foreign country is known as export trade. It is the sale of domestic goods to foreign market. For example, the woolen carpets sold to Monte Carlo Company of Germany is known as export trade.
c) Enter import trade
If the goods imported from a country is exported to another country, it is known as enter import trade. In other words, when a trader purchases goods from one country and sells the same goods to another country they are called enter import trade. For example, a trader of Nepal imports umbrellas from China and exports them to a trader in India.
The activities which assist or support to trade is known as auxiliaries of trade. For the promotion of trade at the national and international level, auxiliaries of trade play the most important role. They provide support for the smooth operation of the trade such as finance, physical distribution, store, a risk of loss, damage etc. The important auxiliaries of Trade are as follows:
Banking is an important auxiliary of trade. No one can think about modern business without banking. It supports an operation of the business by providing short terms and long terms loans. Making payment to suppliers, remitting money from one place to another place etc.
Packaging is the process of packing goods that make their handling easy. It aids the recognition of the product by the consumer. Today, the packaging of goods has emerged as an important business.
Distribution is a chain of middlemen between producers and customers to facilitate the supply of goods. Wholesalers, retailers, stockiest, agents, brokers and so on are auxiliaries of trade to persuade effective distribution.
Warehousing is an important auxiliary of trade. It is concerned with storing of products in a safe manner to meet the gap between production and consumption of goods. It creates time utility in goods. The cold-storage center is an example of warehousing.
The process of carrying of goods and services from producers to the place of consumption is called transportation. It creates place utility in goods and services. Transportation can be carried out by different modes of transport like road, water, air, and pipelines.
The trade involves a number of risks such as losing goods during transport and storage, destroying goods by fire, flood, and theft. Insurance covers the risk of loss through financial compensation to the trader. It creates risk-utility in goods and properties. It can be categorized into Life Insurance, Non-Life Insurance, and Marine Insurance.
Advertising creates awareness of the availability of various goods and services in the market. It is the process of educating consumers to create an image of goods and services for increasing sales and profit. There are several media of advertising such as newspaper, radio, television, internet, hoarding boards etc.
Communication means transferring a message, knowledge, experience, ideas, and meaning between buyers and sellers. Therefore, it is an important auxiliary of trade. The means of communication can be letters, newspaper, magazines, radio, television, cinema, website, fax etc.
The business which is established for providing services instead of producing physical goods is known as service enterprises. There are some hotels and multiplexes which only produce and sell intangible services, not physical goods. A hotel does not sell a room but provides a recommendation to stay a few days. Due to the development of information technology, there is a very important role of service in the modern business. Such service business includes educational services, medical services, repair and maintenance, accounting and legal services, information services, cleaning, and saloons etc.
Khanal, Soma Raj, Surendra Thapa Aslami and Sitaram Dhakal. Business Studies. Kathmandu: Taleju Prakashan, 2067.
Pant, Prem R., et al. Business Studies. Kathmandu: Buddha Academic Publishers and Distributors Pvt. Ltd., 2010.
An industry is a classification that refers to groups of companies that are related based on their primary business activities.
There are two types of industries they are: