What is business? It is a common term used in everyday communication and in different context. Although the meaning in every context seems almost the same, a closer study shows that business goes way deeper than what many perceive it to mean. Hence this article. So, back to the topic: what is business? In simple terms, business is an activity of providing goods and/or services in exchange for money. Business can also be defined as an organised group of persons that offers needed commodities, value and services to the community in exchange for money, with the aim of generating profits. Examples are a retail store that provides groceries, or a law firm that provides legal services.
The word ‘business’ is coined from the old English word ‘busyness’ which means “a state of being much occupied or engaged with something.” ‘Business’ can possibly consist of almost all economic activities carried out by humans; however, it is better to narrow it down to activities that involve manufacture or exchange of articles or goods. Like that of economic activities, the history of business can be easily divided into three periods. They are:
Business before industrialisation
Business during the industrialisation
Business in the networked world.
Business before industrialisation
The main economic activity pre-industrialization the world over was agriculture. Still, there were significant non-agricultural business activities in that era in the form of trade, handicrafts, rural and domestic industries etc. The common practice was trade by barter between individuals and households, which grew steadily in a structured form, spreading across countries and continents. Evidences of local as well as international trading in precious metals, spices, jewels, art pieces and dry fruits were found in all major ancient civilizations including Egypt, China, India and Rome.
Manufacturing business in the earlier times, took place at different levels. It consisted of weaving, metal crafts and wood based manufactures in the rural group while in the more urbanized centres, trading activities dominated. There were different classes of people who specialized in these business activities only, when specialized trading classes began to thrive in all civilizations of the time. In India for example, the trader-business class was called “Vaishya” and was one of the four castes of the society; a division that is still on to some extent, even today.
International trade had proliferated across Asia and Europe by third century B.C. Traders travelled far and wide covering vast distances and products were exchanged. The existence of large empires in Persia, Europe, China, India and Africa also helped trade to prosper during this period.
Business during Industrialization
In the pre-industrialisation era, the factors of production were land and labour, both of which were limited. But with the advent of machines, business got a new meaning. Technology was introduced through machines, which in turn multiplied the efficiency of labour and made way for surplus production, far beyond the consumption capacity of the producer. This capacity of surplus production created the incentive for trade and created the modern markets.
With the dawn of the industrial age, a family or a village was mostly self-sufficient. They produced what they required and consumed what they produced. With machines, the production capacity began to exceed their consumption capacity. From the sixteenth century onwards, there was a staggering leap in scientific developments. Perhaps the most significant was the invention of the printing machine which changed man’s behaviour forever by allowing the spread of knowledge across Europe. This ushered in a new era that began with the renaissance of Europe, and later spread to the rest of the world.
The surplus production also gave rise to the need for new trading routes and markets. European sailors began making historical voyages to find new ground. One of such journeys by Christopher Columbus, intending to find a sea route to the East, ended in the discovery of the new world which is today’s America. For around two hundred years, the Dutch East India Company enjoyed dominance over these routes, becoming the first giant multinational corporation, till it was replaced by the British East India Company. The resultant effect of international trade which these trading companies had come to dominate across the world, was the colonization of Asian and African countries based on the power of gunpowder and industrial wealth.
In the nineteenth century, business and trade soared to extraordinary levels; taking the centre stage of human social existence. At this point paper money was introduced, replacing gold and silver. It was also in this period, that the artificial business identities began to take deep roots in America. The first American industrialists were called Rubber Barons. By the end of nineteenth century, other future giants were established. These included Central Pacific Railroad, J.P Morgan’s U.S. Steel and Carnegie Steel Company, founded by Andrew Carnegie in 1870s. By early twentieth century, there were a number of countries in Europe who were competing with each other to dominate world business. They were closely followed by American businesses and in Asia, Japan made significant progress. The twenty first century has witnessed the rise of emerging markets from Africa, Asia and South America including China, India, Brazil, Nigeria and South Africa.
What are the Characteristics of a typical business?
Economic Activity: Business is an economic activity, as it is conducted with the primary objective of earning money. An example is offering transportation services and charging money for it.
Production/purchase of goods and services: Goods and services are manufactured or purchased by business entities, so as to add value and sell them to the consumer. Goods are either produced by the company or procured from the supplier, with the aim of selling it further to the consumer, for profit.
Selling of goods and services: Business must involve the transfer of goods to the customer for value, through selling; like purchasing bags of rice to sell in a retail store. This means that if the goods are acquired for personal consumption, like buying bags of rice in bulk for the family, then the transaction will not amount to a business activity.
Continuity in dealings: Every business requires regularity in transactions; hence a one-time transaction of purchase or sale cannot be classified as a business. Example is selling your car for money; but if you deal in selling fairly used cars, that is a business. So, to constitute a business, the dealings must be carried out on a regular basis.
Profit earning: The basic purpose of business is to make profit from its activities. The profit is the difference between the selling price of a product and its cost price. If a property is bought for $100,000 and later sold for $1,000,000, the profit from the transaction is $900,000. Profit is the spine of business, which keeps the business going, in the long term.
Element of risk: Risk is the key element of every business; concerned with exposure to loss. The factors that affect business are uncertain and so does the business opportunities, which can be a shift in demand, floods, fall in prices, strikes, government policies, money market fluctuation, etc. Adequate preparations and plans should be made for these eventualities.
Uncertain return: In business, the return is never predictable and guaranteed, i.e. the amount of money which the business is going to reap is not certain. It may be possible that the business earns a huge profit or suffer heavy losses.
Legal and Lawful: All businesses have to adhere to government regulations and function under a certain level of control. This is to make sure that the business functions ethically, sells products and services that benefit society, and interact with customers and employees fairly.
Creative and Dynamic: Due to the competitive nature among businesses in the same industry, it is important for them to develop creative ways to sell their goods and services to consumers. As consumer needs change, the dynamics of the business has to evolve overtime to stay profitable.
Social Activity: Businesses and society depend on each other, and businesses should be considered socially responsible. Their goal should be to meet societal needs by providing goods and services that people need and want to buy. In turn, various social groups help a business survive, such as employees, customers, investors, and suppliers.
Consumer satisfaction: The aim of business is to supply goods and services to consumers, so as to satisfy their wants; this is important for every business because when the consumer (final user) is satisfied, he/she will purchase more of the goods or services. Successful businesses constantly monitor customer satisfaction and adjust things like price or quality as needed. Satisfied customers become regular customers, and often produce more customers through word of mouth.
Classification of business activities
Industry: Industry implies the economic activities that are associated with the conversion of raw materials into finished products, ready for use. This involves production, processing and mining of goods. The industry is further divided into three broad categories; primary industry, secondary industry and tertiary industry.
Commerce: In simple terms, commerce refers to the buying and selling of goods for value; and includes all those activities which facilitate the transaction. Further, commerce encompasses two types of activities, trade and auxiliaries to trade.
Modern businesses aim at profit through service or profit- nun service and not profit regardless of service, customers satisfaction and society in general. Now-a-days, the profit concept is replaced by profit-cum-service. This concept of profit through service has become popular and widely accepted by the modern businesses. All types of modern business activities create a movement of goods and services that may be referred to as National Output, generating a flow of income which means national income through employment of human and non-human material resources in the best possible manner. Business activities contribute directly to economic development and increase the gross national income or wealth of a country.