Introduction to Business

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Definition of Business:

“… that part of organised individual activities which is concerned with the attainment of requisites of living or well being of an individual or business activities. They involve work or efforts connected with production of wealth” – Dictionary of management by R. Chopra.

The definition implies that a business refers to being engaged in commercial activities in an industry. This in turn means, any entity (an individual or a group of individuals) involved in producing and/or distributing goods and services in a market. The main objective of a business is to achieve private gain, which can either in form of wealth (profit) or welfare (happiness, wellbeing, health, etc) or both. Accordingly, there exists profit and non-profit based businesses wherein though the purpose is to serve needs of consumers or individuals, profit businesses serve entrepreneurs or shareholders with financial benefits and pay taxes whereas non-profit business benefits a community or society and they do not pay taxes.

Need for Business

Businesses in the telecommunication industry can cater to manufacturing phone sets (Nokia, Samsung, Apple, etc) with innovative operating systems (Google’s Android, Microsoft’s Windows, Apple’s Ios, etc), which can be used through either GSM or CDMA networks provided by network providers (Vodafone, Airtel, Docomo, etc). A small-scale business in comparison to all of the above businesses can be small retail outlets offering energy drinks in a PCO. The examples suggest the role of business in the real world:

  1. Social welfare: Businesses can cater to human wants, can provide satisfaction and can improve standard of living[1] of consumers. In our telecommunication industry example, the welfare generated is building and maintaining social relationships among people. How does this bring about improvement in standard of living? Does mobile phone provide any kind of comfort to your friends or family (whether you are in college, whether you got admissions)?  Can we say that mobile phones have improved standard of living by improving the means of communication? It is availability and accessibility to a means of communication such as the mobile phone that improves standard of living.
  2. Continuous demand: Human wants or desires grow continuously. In our telecom industry example, one would demand for more variety in mobile sets or more applications within the mobile set. Accordingly, mobile phone manufacturers (Nokia, Apple, Blackberry) provide variety of mobile phones with features through different operating systems (Ios, Windows, Android) and facilitate the use of the features through relevant network providers (Vodafone, Airtel, etc)
  3. Employment and Income generation: Businesses allocate resources like land, machinery, raw materials and human resources leading to employment and income generation. Businesses can also generate employment and income indirectly for other businesses in other industries.
  4. Education and Skills Development: Businesses create opportunities for qualified and educated individuals to contribute through innovative and creative ideas to cater to human demands and desires. Accordingly, they promote the need for educational and recreational institutes that develop knowledge and skills in the society. For example, to be a part of telecommunication industry, there are specialised graduate / post-graduate degrees and certifications for engineers, managers, etc present in our country.
  5. Support to government: The basis of association of businesses with the government is in the form of corporate taxes, provident fund for employees, registration of new companies, submission of financial information of business to the Ministry of Corporate Affairs (MCA), environment permits, customs and duties paid by businesses. The government in turn utilizes the money in its administration, which in turn (ideally) work towards developing infrastructure (roads, ports, railways, etc), education, health, insurance, regulatory and policy formulations for businesses to grow within an economy.
  6. Economic development: Businesses in one industry generates linkages with several industries that have a cumulative effect on the economy. For example, any telecommunication business, while it generates employment/income within its industry, generates employment/incomes in industries such as agriculture, realty (housing), retail (kiranas/malls), utilities (electricity, water, public transportation), banking & insurance, hospitality (hotels/restaurants), automobiles, travel and tourism, trade, etc. A sustained business can thus directly and indirectly have a cumulative and long-term impact leading to an overall economic development

Resources required for a business

Businesses rely on certain resources for production or distribution of goods and services. For a business to operate in the long-run, any business – small or large, profit or non-profit – require resources in order to make relevant business decisions for formulating business strategies and activities[2]. Accordingly, businesses require the following resources:

  1. Natural resources – Natural resources include materials or substances such as minerals, forests, land, stocks of fish, stands of trees, water, oil and other naturally occurring resources[3]. Businesses rely on natural resources for the purpose of production and distribution of goods/services. For example, minerals for mining companies, fisheries for stocks of fish, food-processing companies for agricultural produce and land for setting a production/distribution site.
  2. Human resources – Human resources are individuals who conduct different tasks and activities in a business. The individuals are characterised with specialised skills and qualifications based on which they are assigned specific tasks and duties. In return, these individuals received salaries at a regular time interval (mostly every month) and relevant benefits or perks depending upon the nature of their responsibilities in a business
  3. Capital – Capital is money or assets invested in a business in order to income[4] and can include property, machinery, equipment, tools (devices and knowledge-based tools like IT) and physical facilities used to produce goods/services. In accounting, capital can be further differentiated into current and long-term assets, such that current assets include items that can immediately converted into cash and long-term, whereas long-term assets include assets include those that cannot be easily converted into cash (machinery, property, etc)
  4. Entrepreneurship – An act of being an entrepreneur is entrepreneurship and involves owning a business, conceiving innovative ideas and possessing the willingness and the ability to undertake business risks.

The aforementioned resources required for a business are allocated through individuals or group of individuals that directly or indirectly influence the creation of a business as explored in the following section.

Stakeholders of a Business

Stakeholders are any individuals or group of individuals who can affect or are affected by the actions, decisions, policies, practises or goals of a business[5]. In a business, there are primary stakeholder that directly influence the operations of a business and include owners, creditors, employees, suppliers, and customers. These stakeholders are broadly explored in the following figure:

Secondary stakeholders such as media, governments, competitors, lobbyists, courts, public and society can also influence a business though the involvement and interests of these stakeholders depends upon the nature of the industry the business represents. For example, media plays a (secondary though) critical role for businesses in FMCG sector, businesses in banking sector are influenced by policies formulated by the Reserve Bank of India (RBI), oil lobbyists influence the prices of petrol, diesel, etc. I have considered two secondary stakeholders below who indirectly influence business operations across most industries.

  1. Government – Most businesses in India are largely influenced by regulations and policies initiated by the government. The regulations and policies play a critical role in shaping up the representative industries/sectors of businesses. Examples for regulation include the Factories Act, 1948, Competition Act, 2002, Foreign Trade Act, 1992, etc[6], which prescribe adherence norms for businesses[7]. Examples for policies can include changes in interest rates, customs, duties, etc that influence the cost of production and distribution and encourages growth of the business’ representative industry
  2. Competitors – Competitors encourage healthy competition within an industry and influence the price and quality of products and services in an industry. A business’ decision on targeting different markets and products depends is assessed based on the market strategies considered by its competitors. Competitors accordingly, play a significant role in positioning products/services and in turn positioning a business in the market. What happens in a monopoly?

Interaction among stakeholders

Owners invest or hire employees/managers for conducting business activities leading to production and/or distribution or selling products and/or services to customers (end-consumers or other businesses). To conduct business activities including allocation of resources (natural, human, capital) from suppliers, owners/managers borrow money from creditors as loans that translates into revenues or profit earned from customers. The day-to-day business activities leading to profits are also influenced by government policies and regulations that aim at safeguarding interests of businesses and other stakeholders. Government also provide the use of utilities (electricity, water), infrastructural facilities (roads, railways, airports, ports, etc) that assists businesses for supply, production and distributional requirements. Also, competitors of businesses encourage competitive pricing, availability and accessibility to good quality goods/services. The profits earned are returned into the system as bonuses to human resources, dividends to shareholders, interest payments to creditors and payment for supplies. Businesses pay taxes to government that are utilized for managing government expenditures on administration and facilities. Theoretically, in a perfectly competitive scenario, businesses in particular equally share industry profits between their competitors. However, imperfect competition exists in the real world and depending upon the nature of competition (monopoly, oligopoly, monopolistic competition, etc) profits vary among competitors and can be depicted through changes in market share. One of the most significant factors that broadly influence changes in market share are prices and quality of goods /services. Other factors include, interrelationships in the supply chain, costs of production, technology, etc.

 


[1] Degree of wealth and material comfort available to a person or a community

[2] Maintain Business Resources By Helen Burnie.

[3] Resource Economics By Jon M. Conrad

[4] Sterling Dictionary of Business Terms: A handy Reference Book by Patricia Fernando and Chandrabanu Samaraweera

[5] Business Ethics: A Stakeholder and Issues Management Approach by Joseph W. Weiss