ABU DHABI INDIAN SCHOOL - BRANCH 1, AL WATHBA

Grade 11-CM Notes (Unit -1)

Subject : Business Studies Nature & Purpose of Business

People undertake various activities to satisfy their needs. Human activities can be classified
into two, they are Economic Activities and Non-Economic Activities.

Human Activities

Economic Activities - Activities undertaken to earn money Eg; Running a factory, Retail shop,
Cultivating land.

Non-Economic Activities - Activities which are undertaken not for any reward but for the
personal satisfaction. Example: A mother looks after her children, A house-wife cooks food for
the family, Visiting Temples etc.

Difference between Economic and Non-economic activities

Basis Economic Activities Non- Economic Activities
Meaning The activities whose objective is to earn The activities whose aim is
money and create wealth. not to earn money but to
satisfy emotional needs.
Example A Teacher teaching in school. A teacher teaching her own
child.
Profession - Profession may be defined as an economic activity that requires special
knowledge and skills to be applied by individuals in their work to earn income.

Employment: - It may be defined as an economic activity in which people work for others and
receive remuneration (salaries/wages) in return.
Business
The term business is derived from the word
‘busy’.Business refers “to an occupation in which people
regularly engage in activities related to purchase,
production and / or sale of goods and services with a
view to earn profits.”

Characteristics of Business
1. An Economic Activity - It is undertaken with an object of earning money or livelihood
but not for love, affection etc.
2. It involves Production or Procurement of Goods and Services - Every business
should either produce or acquire the goods in which it deals.
3. It is concerned of Sale or Exchange of Goods & Services -There should be sale or
exchange of goods or services between the seller and buyer. Goods produced for
personal consumption is not a business.
4. Dealing in Goods & Services on a Regular Basis - A single transaction cannot be
treated as a business. Eg: A persons sells his old scooter even at a profit cannot be
treated as a business as there is no continuity.
5. Earning Profit is the main objective - The business activity must be intended to earn
profit.
6. Uncertainty of Returns - No business can predict its future profit.
7. Element of Risk - Every business is subject to risk due to various reasons.
Eg: Change in fashion, fire, theft, natural calamities etc.

Difference between Business Profession and Employment

Basis Business Profession Employment
Nature of work Provision of goods and Rendering of Performing work as per
services to the public. personalised expert the contract.
services.
Qualifications No minimum Qualifications , expertise Qualification and
Qualification is and training in specific training as prescribed by
necessary field as prescribed by the employer.
the professional body is
a must.
Reward/ Return Profit earned Professional fee Salary or wages
Capital Capital investment Limited capital needed No capital required.
Investment required as per the size for the establishment.
and nature of the
business.
Risk Profits are uncertain and Fee is generally regular Fixed and Regular pay ;
irregular; risk is present. and certain ; some risk. No risk
Transfer of Transfer possible with Not possible Not possible.
Interest some formalities.
Code of Conduct No code of conduct is Professional code of Norms of behaviour laid
prescribed. conduct is to be down by the employer
followed. are to be followed.
 Example Shop, factory Legal, Medical Jobs in Banks , insurance
profession companies .
Mode of Entrepreneur’s decision Membership of a Appointment letter and
establishment and other legal professional body and service agreement.
formalities. certificate of practice.

Classification of Business Activities

Industry
Industry refers to economic activities which are connected with raising, producing and
processing of goods and services.

TYPES OF INDUSTRY

Industries are divided into three broad categories:

(i) Primary industries

(ii) Secondary industries

(iii) Tertiary industries

PRIMARY INDUSTRY

Engaged in extracting, producing and processing of natural resources. Eg: Extractive

industries and genetic industries.
EXTRACTIVE INDUSTRY

Extractive industries are concerned with the extraction of material from the earth, sea and air
such as mining, fishing and hunting etc

Genetic industries:

An industry engaged in the reproduction and multiplication of certain

species with the main object of earning profit by selling them in the market
is known as Genetic industry. Example, agriculture for the production of
crops, dairy farming, poultry farming, pisciculture etc.

SECONDARY INDUSTRY

Secondary industries:

The sector of industry that use the raw materials produced by primary industries and change
them into finished items is called secondary industry. Examples are: manufacturing including
refining and processing metals and minerals, food and drink processing, textiles, footwear and
clothing, construction of building, road and bridge.

Manufacturing industry -

Industries engaged in the conversion of raw materials or semi-finished goods into finished
product are called manufacturing industries. For example, Cloth from cotton, steel from iron
ore, sugar from sugar cane etc.
Manufacturing industries may further be classified into four parts:

• Analytical industry: It is concerned with separating a single material

into different elements. In oil industry, for example, crude oil is analyzed
and separated into a variety of products like petrol, diesel, kerosene etc.

• Synthetical industry: Here, many raw

materials are mixed to produce a more useful
product. For example cement is manufactured by
mixing lime-stone, gypsum and coal.

• Processing industry: Here, products are

manufactured by making the raw material pass
through different production process. For
example, in cotton textile industry, cotton is
subject to a series of operations such as
spinning, weaving, bleaching, dyeing etc. before
it is converted into cloth.

• Assembling industry: It is concerned with assembling

various components and parts already manufactured to roll
out a new product. Example, television, computer, car, scooter
etc.

Construction industries-

Activities concerned with building houses for various purposes

and making roads, bridges, dams etc. belong to the category of
construction industry. These industries produce things which
are of permanent nature.

Tertiary Industry

The sector of industry that provides service is called ‘Tertiary industry. Examples of tertiary
industries are Banking and financial services, insurance, transport, advertisement etc.
 • Tertiary Industry is also known as Service Industry.
• Tertiary industry assists the primary and secondary industry and facilitaates trade.
COMMERCE

Commerce includes all those activities ,which are necessary for facilitating the exchange of
goods and services.

Functions of Commerce
1. Removal of Hindrance of Person -It refers to the lack of contact between the producers
and customers. Here the trader acts as an intermediary among them and customers are
able to find out the products which they are wanted from the market
2. Removal of Hindrance of Place -Producers and customers are in distant places, hence
the commodities should be transferred from the production centre to the customers. This
problem can be solved by the system of commerce by means of transport.
3. Removal of Hindrance of Risk - Goods and properties of business are subject to various
risk such as fire, theft, damage etc., They can be protected by insurance.
4. Removal of Hindrance of Time -There may be a gap between the production and
consumption as the production is carried out in anticipation of future demands.
Therefore, it becomes necessary to store the goods until they are sold. This problem can
be solved by warehousing.
5. Removal of Hindrance of Knowledge -Knowledge of customers about the products and
services offered by business organisations is a major problem in business. Advertising
helps in the removal of hindrance of knowledge among the buyers
6. Removal of Hindrance of Finance -The problem of finance can be handled by banks,
which form part of commerce. It will also help the businessman in exchange of money
between different persons at different places.

Commerce can be classified into two :

(i) Trade and

(ii) Auxiliaries to Trade

• Trade refers to sale , transfer

or exchange of goods.
• Auxiliaries to Trade –
activities that facilitate trade
are called auxiliaries to trade.

Trade is classified into Internal Trade and External Trade

 Internal Trade – is concerned with buying and selling of goods and services within the
geographical boundaries of a country.
a) Wholesale trade – refers to buying and selling of goods and services in large
quantities for the purpose of resale or intermediate use.
b) Retail Trade – When goods are purchased and sold in smaller quantities , for final
co
nsumption , they are referred to as retail trade.
External Trade – consists of exchange of goods and services between persons or
organisations operating in two or more countries.
a) Import trade – If goods are purchased from another country , it is called Import
Trade.

b) Export trade – If goods are sold to other countries , it is known as export

trade.
c) Entrepot Trade - When good are imported for export to other countries , it is
known as Entrepot trade.

Describe the various Auxiliaries to trade.

• Banking and Finance – Necessary funds can be
obtained by the businessmen from a bank. Thus bank
helps to overcome the problem of finance.
• Insurance – Business involves various types of
risks. Insurance provides protection against the risk of
loss due to accident, fire, earthquake, theft, damage of goods in
stock and transit.
• Transportation – It creates place utility . It facilitates
movement of raw materials and goods from the place of
production to the place of consumption.
• Communication - Communication is very essential, which
helps the producers, traders and consumers in exchange of
information.Postal service, telephones and other modern
means of communication may be regarded as auxiliaries to
business activities
 • Storage / Warehousing : Hindrance of time is been removed by
storage. It facilitates the availability of goods when needed. It
creates time utility.
• Advertising : helps in providing information
about available goods and services , stimulates
customers to buy particular items.

BUSINESS RISKS:
The term ‘business risks’ refers to the possibility of inadequate profits or even losses due to
uncertainties or unexpected events.
Business enterprises constantly faces two types risk – (i) speculative (ii) pure

Speculative risks involve both the

possibility of gain as well as the
possibility of loss. It arises due to change
in market conditions including
fluctuations in demand and supply ,
changes in prices or changes in fashion
and tastes of the customers. Favorable
market conditions are likely to result in
gains whereas unfavorable ones may
result in losses.
Pure risks involve only the possibility of loss or no loss . The chance of fire , theft or strike are
examples of pure risks. Their occurrence may result in loss, whereas non-occurrence may explain
absence of loss, instead of gain.

Nature of Business Risks: -

Nature of business risks can be understood in terms of their peculiar characteristics:
(i) Business risks arise due to uncertainties: Uncertainty refers to the lack of knowledge
about what is going to happen in future. Natural calamities, change in demand and prices,
changes in government policies and prices, improvement in technology, etc., are some of the
examples of uncertainty.
(ii) Risk is an essential part of every business: Every business has some risk. No business
can avoid risk. Risk can be minimised, but cannot be eliminated.
(iii) Degree of risk depends mainly upon the nature and size of business: Nature of
business (i.e., type of goods and services produced and sold) and size of business (i.e., volume
of production and sale) are the main factors which determine the amount of risk in a business.
For example, a large-scale business generally has a higher risk than what a small scale has.
(iv) Profit is the reward for risk taking: Greater the risk involved in a business, higher is the
chance of profit. An entrepreneur undertakes risks under the expectation of higher profit.
Profit is thus the reward for risk taking.

Cause of Business Risks: -

Business risks arise due to a variety of causes, which are classified as follows:
(i) Natural causes: Human beings have little control over natural calamities, like flood,
earthquake, lightning, heavy rains, famine, etc. property and income in business.
(ii) Human causes: Human causes include such unexpected events, like dishonesty,
carelessness or negligence of employees, stoppage of work due to power failure, strikes, riots,
management inefficiency, etc.
(iii) Economic causes: These include uncertainties relating to demand for goods, competition, price,
collection of dues from customers, change of technology or method of production, etc.

(iv) Other causes: These are unforeseen events, like political disturbances, mechanical failures, such
as the bursting of boiler, fluctuations in exchange rates, etc., which lead to the possibility of business
risks.

MULTIPLE OBJECTIVES OF BUSINESS:

The following are the objectives of business, namely
1. Market standing: Market standing refers to the position of an enterprise in relation to its
competitors. A business enterprise must aim at offering competitive products to its customers
and serving them to their satisfaction.
2. Innovation: Innovation is the introduction of new ideas or methods. No business
enterprise can flourish in a competitive world without innovation. Therefore, innovation
becomes an important objective.
3. Productivity: It is used as a measure of efficiency. In order to ensure continuous survival
and progress, every enterprise must aim at greater productivity through the best use of
available resources.
4. Physical and financial resources: Any business requires physical resources, like plants,
machines, offices, etc., and financial resources, i.e., funds to be able to produce and supply
goods and services to its customers. The business enterprise must aim at acquiring these
resources according to their requirements and use them efficiently.
5. Earning profits: One of the objectives of business is to earn profits on the capital employed.
Every business must earn a reasonable profit which is so important for its survival and
growth.
6. Manager performance and development: Business enterprises need managers to
conduct and coordinate business activity. Various programs for motivating managers need to
be implemented.
8. Worker performance and attitude: Workers’ performance and attitudes determine their
contribution towards productivity and profitability of any enterprise. Therefore, every
enterprise must aim at improving its workers’ performance. It should also try to ensure a
positive attitude on the part of workers.
9. Social responsibility: Social responsibility refers to the obligation of business firms to
contribute resources for solving social problems and work in a socially desirable manner.

Role of profit in business

Profit is the reward for risk bearing. Profit is necessary for the survival, growth, prosperity
and prestige of the business. Profit making is essential in business due to the following
reasons.
1. It is a source of income for business persons.

2. It can be a source of finance for meeting expansion requirements of business.

3. It indicates the efficient working of the business.

4. It can be taken as a society’s approval of utility of business.

5. It builds up the reputation of a business enterprise.

Make in India
‘Make in India’ is an initiative launched by the Government of India on 25 September 2014,to
encourage national as well as international companies to manufacture their products in India.
The major objective behind this project is to create employment opportunities and enhance
skill development in 25 sectors of the economy.

Skill India
Skill India programme was launched on July 15,2015 to enable Indian economy and industry
benefit from the county’s young work force. Prime Minister Sh. Narendra Modi launched:
• National Skill Development Mission
• National Policy for Skill Development and Entrepreneurship.
• Rural India Skill

Digital India
This initiative was started on 1st July 2015 to connect people of rural areas with the high-
speed internet networks to access any information needed. The aim of launching this
campaign is to provide Indian citizens electronic government services by reducing the paper
work.
The important elements of digital India are:
• Creation of digital infra structure.
• Digital literacy
• Delivering services digitally all over the country.