Business, Trade,

and Commerce
Foundations of Business
Course: Business Studies
Chapter: 1
PRESNTED BY:
ARSHIKA PANDEY
 All human beings require different
types of goods and services to
satisfy their needs.

How do these products and services

become available in the market?
Introducti
on - Why This necessity is fulfilled by people
engaged in economic activities:
Study production, manufacturing,
distribution, and exchange.
Business? Business is a major economic
activity concerned with the
production and sale of goods and
services.
Business is central to our lives and
significantly influences our daily
routines.
  The term 'business' is derived from the
word 'busy'.
 Specific Sense: An occupation where
people regularly engage in purchase,
production, and/or sale of goods/services
to earn profits.
 Human Activities Classified:
 Economic Activities: Undertaken to
Concept of earn a livelihood (e.g., worker in factory,
doctor in clinic, teacher in school).
Business  Non-Economic Activities: Performed
out of love, sympathy, sentiment,
patriotism (e.g., housewife cooking for
family, helping an old man).
 Economic Activities Divided into:
 Business: Production & sale of
goods/services for profit by satisfying
human needs.
 Profession: (e.g., doctor, lawyer)
 Employment: (e.g., working for a
salary)
  Business starts with Production and ends with Consumption.
 Industry: The work of producing goods.
The  Commerce: All activities facilitating the exchange of goods and services.

Journey of  Business: A wider term that includes both Industry and Commerce.
 These economic activities lead to:
Goods:  Division of Income among Factors of Production
 Satisfaction of Needs and Wants
From
Production
to
Consumpti
on
  Business, including trade and
commerce, has played a vital role
Role of since ancient times.
 India's golden past was significantly
Business shaped by its trading activities,
in contributing to prosperity.
 Archaeological evidence shows
Economic extensive trading activities via land
Developm and water routes.
 Prominent Routes: Silk Route and
ent maritime trade.
(Ancient  Surplus income from trade led to
engagement in diverse economic
India) activities:
 Agriculture, animal domestication
 Weaving, dyeing, pottery,
handicrafts
 Sculpting, cottage industries
(karkhanas)
  Trade generated surplus income,
leading to the growth of an
indigenous banking system.
 This system financed trading
activities and further investment.
 Hundi and Chitties: Ancient
Indigenou instruments used for safe money
transfer over long distances,
s Banking reducing risk of theft/robbery.
 They were unconditional

System &
promises or orders for payment.
 Facilitated credit transactions
and loans.

Prosperity  India enjoyed a favourable

balance of trade (exports >
imports).
 Indigenous banking benefited
manufacturers, traders, and
merchants with capital for
expansion.
 Later evolved into Commercial,
Industrial, and Agricultural
banks.
Hundis are essentially bills of exchange or promissory notes used for transferring money and
facilitating credit, while Chittis are a form of chit funds or rotating savings and credit
associations.
 Many leading trade centers developed for
import and export:

• Pataliputra: Export of stones.

• Peshawar: Wool, horses; trade with China &
Rome.
• Taxila: Center on India-Central Asia route;
financial/commercial banks.
• Indraprastha: Commercial junction.

Major Trade
• Mathura: Emporium of trade.
• Varanasi: Textile industry (gold silk, sandalwood).
• Surat: Western trade emporium; famous for
Centers & textiles, 'Surat hundi' honored globally.
• And many more: Mithila, Ujjain, Kanchi, Madura,

Exports/Imp Broach, Kaveripatta, Tamralipti.

Major Exports: Spices, wheat, sugar,

orts cotton, indigo, animal products.

(Ancient
Major Imports: Horses, Chinese silks,
India) linen, gold, silver, copper.

Business activities led to the growth of

aids to trade (transportation, banking,
finance, communication).

Indian subcontinent popularly called

'Swaran Bhoomi' (Golden Land) by
travellers due to its prosperity.
 India's
Economic
Journey: A  1st - 7th Centuries CE: India had the largest economy, controlling 1/3 to 1/4 of
world's wealth.

Timeline  British Empire: East India Company changed India from a processed goods exporter
to a raw material exporter and manufactured goods buyer.
 Post-Independence: Focus on planned development, self-reliance, and public
investment in key industries.
 Challenges: Lack of capital, population rise, weak financial system, high fiscal
deficits.
 1991 Economic Liberalisation: Major reforms adopted due to precarious balance
of payment situation.
 Today: India is one of the fastest-growing economies and a preferred FDI destination.
 Recent Initiatives: 'Make in India', 'Skill India', 'Digital India' – aimed at sustainable
growth and trade balance.
  1. An Economic Activity:
 Undertaken with the objective of earning money/livelihood.
 Not driven by love, affection, or emotion.
 Can be small-scale (shopkeeper) or large-scale (company).
 2. Production or Procurement of Goods and Services:
 Businesses either manufacture goods or acquire them from
Characteris producers.
 Goods: consumable items (sugar, pen) or capital goods
tics of (machinery).

Business  Services: facilities offered (transportation, banking, electricity).

 3. Sale or Exchange of Goods and Services:
Activities  Directly or indirectly involves transfer for value.

(Part 1)  Producing for personal consumption is NOT business (e.g.,

cooking at home for family vs. selling in a restaurant).
 4. Dealings in Goods and Services on a Regular Basis:
 Involves repeated transactions.
 A single transaction (e.g., selling a personal radio) does not
constitute business.
  5. Profit Earning:
 Main purpose: to earn income by way of profit.
 Essential for survival and long-term growth.
 Businesses strive to maximize profits by increasing
sales or reducing costs.
Characteris  6. Uncertainty of Return:
tics of  Lack of definite knowledge about the amount of profit
that will be earned.
Business  Always a possibility of losses, despite best efforts.

Activities  7. Element of Risk:

 Risk is the uncertainty associated with exposure to loss.
(Part 2)  Caused by unfavourable events: changes in consumer
taste/fashion, production methods, strikes, competition,
fire, theft, natural calamities.
 No business can entirely avoid risks.
 Feature Business Profession Employment

Entrepreneur's Membership of
1. Mode of Appointment letter,
decision, legal professional body,
Establishment service agreement
formalities certificate of practice

Compariso 2. Nature of Work

Provision of goods
Rendering
personalized, expert
Performing work as
per service

n:
and services
services contract/rules
Qualifications,
No minimum Qualification &
Business, 3. Qualification
qualification
expertise, training
required
training by employer

Profession
4. Reward or
Profit earned Professional fee Salary or wages
Return

, and
5. Capital Required as per size Limited capital for
No capital required
Investment & nature of business establishment

Employme
Profits uncertain &
Fee generally regular Fixed & regular pay;
6. Risk irregular; risk
& certain; some risk no or little risk
present

nt 7. Transfer of
Interest
Possible with some
formalities
Not possible Not possible

Professional code of Norms of behaviour

No code of conduct
8. Code of Conduct conduct to be laid down by
prescribed
followed employer
Legal, medical Jobs in banks, govt.
9. Example Shop, factory
profession, CA departments
 Business activities
are broadly This classification
classified into two leads to:

Classificati
categories:

on of Industry: Commerce:
Industrial Commercial

Business Enterprises Enterprises

Activities Concerned with the

Includes all
activities necessary
production or
for facilitating the
processing of goods
exchange of goods
and materials.
and services.
 Definition of
Industry: Economic
activities connected Three Broad
with the conversion of Categories:
resources into useful
goods.

Also refers to groups of

Sometimes services are
Often involves firms producing
also called industries
mechanical appliances similar/related goods Primary Industries:
(e.g., banking
and technical skills. (e.g., cotton textile
industry).
industry).

Industry:
Concerned with
b) Genetic
extraction and a) Extractive
Industries: Engaged
production of natural Industries: Extract
in breeding plants and
resources, and products from natural
animals for further

Meaning
reproduction/developm sources.
reproduction.
ent of living organisms.

and Types
Examples:
Seeds/Nursery
Supply basic raw
companies, Cattle
materials.
breeding farms, Poultry

(Part 1)
farms, Fish hatcheries.

Examples: Farming,
Mining, Lumbering,
Hunting, Fishing.
 2. Secondary Industries:
• Use materials extracted by primary industries.
• Process these materials for final consumption or further
processing.
• Example: Mining iron ore (primary) -> Manufacturing steel
(secondary).
Industry: • a) Manufacturing Industries: Produce goods by processing raw
materials, creating form utility.
Types • Analytical Industry: Analyses & separates different elements
from the same materials (e.g., Oil Refinery).
(Part 2) • Synthetical Industry: Combines various ingredients into a
new product (e.g., Cement).
• Processing Industry: Involves successive stages for
manufacturing finished products (e.g., Sugar, Paper).
• Assembling Industry: Assembles different component parts to
make a new product (e.g., Television, Car, Computer).
• b) Construction Industries:
• Involved in building structures: buildings, dams, bridges, roads,
tunnels, canals.
• Requires engineering and architectural skills.
Industry: 3. Tertiary
Industries (Service
Types Industries):
• Provide support services
(Part 3) & to primary and secondary
industries, and activities
Tertiary related to trade.
• Often considered part of
Industries Commerce as
Auxiliaries to Trade.
• These industries facilitate
other business activities.
• Examples: Transport,
Banking, Insurance,
Warehousing,
Communication,
Packaging, Advertising.
 Commerce includes:
 Trade: Buying and selling of goods (physical or
virtual).
 Auxiliaries to Trade (Services): Activities required
to facilitate trade.
 Commerce provides the essential link between
producers and consumers.

Commerce  It removes hindrances in the process of exchange:

 Persons: Removed by Trade (making goods
available to consumers).
: Trade  Place: Removed by Transport (moving goods).
 Time: Removed by Storage/Warehousing (holding
and stocks).
 Risk: Removed by Insurance (protection against
Auxiliaries loss/damage).
 Finance: Provided by Banking & Financing
to Trade institutions.
 Information: Provided by Advertising (informing
consumers).
 The Bridge: Commerce as the bridge that connects what
is produced with who consumes it.
 Problem-Solution Approach: Go through each
'hindrance' and how a specific aspect of commerce
resolves it. This makes the function of commerce very
clear.
 Interdependence: Trade cannot exist efficiently without
 Transport and Communication:
• Problem: Goods produced in specific locations (e.g.,
tea in Assam, cotton in Gujarat) are consumed across
the country.
• Solution (Transport): Road, rail, coastal shipping
move raw materials to production sites and finished
products to consumption points.
• Solution (Communication): Postal services,
telephone facilities enable producers, traders, and
Auxiliaries Banking
consumersand Finance:
to exchange information.

to Trade in • Problem: Funds are essential for acquiring assets,

purchasing raw materials, and meeting expenses.
Detail • Solution: Banks provide necessary funds through
overdrafts, cash credits, loans, and advances.
(Part 1) • They also facilitate cheque collection, fund
remittances, and bill discounting. Help in raising
capital.
Insurance:
• Problem: Business involves various risks (fire, theft,
damage to building/machinery/stock, employee
accidents).
• Solution: Insurance provides protection against these
risks. Businesses pay a nominal premium and can
recover losses/compensation from the insurance
company
 Warehousing:
• Problem: Goods are usually not sold or
consumed immediately after production;
they need to be stored.
• Solution: Warehousing provides special
arrangements for storage to prevent loss or
damage.
Auxiliaries • Benefits: Facilitates availability of goods
to Trade in when needed, helps
Advertising and maintain
Publicreasonable
prices through continuous supply.
Relations:
Detail • Problem: Producers/traders cannot contact
every customer individually.
(Part 2) • Solution (Advertising): Paid activity
(print, non-print media) to provide
information about available goods/services
(features, price) and induce customers to
buy.
• Solution (Public Relations - PR):
Normally unpaid strategic communication to
build mutually beneficial relationships and
promote achievements (e.g., press
releases).
 An objective is the starting point of business.
Every business aims to achieve certain
objectives.
Traditional View: Business is primarily for profit.

Modern View: Business enterprises are part of

society and need to fulfill several objectives,
including social responsibility, for long-term
Objectives survival and prosperity.
of • Importance of Profit:
• Source of income for business persons.
Business • Source of finance for expansion.
• Indicates efficient working.
• Society's approval of business utility.
• Builds business reputation.
• Danger of Too Much Emphasis on Profit: Can lead to
neglecting responsibilities towards customers, employees,
investors, and society, potentially resulting in opposition and
loss of business.
 Businesses require multiple objectives for sustainable growth. They
cannot pursue only one objective.

Objectives help analyze performance and guide future improvements.

• Key Objective Areas:

Multiple • i. Market Standing:
• Maintaining goodwill and reputation.
Objectives • Forming a distinct identity compared to competitors.
• Offering competitive products at reasonable prices and
for satisfying customers.
• ii. Innovation:
Sustainabl • Central to growth and competitive edge.
• Introduction of new ideas/methods or modification of existing
e Growth products.
• Two kinds: innovation in products/services AND innovation in
(Part 1) skills/activities.
• Essential for survival in a competitive world.
• iii. Productivity:
• Measure of efficiency: comparing value of output with value of
inputs.
• Aim for greater productivity through the best use of available
resources.
• Ensures continuous survival and progress.
  iv. Physical and Financial
Resources:
 Businesses need physical
resources (plants,
Multiple machines, offices) and
financial resources
Objectives (funds).
 Aim to acquire these
for resources efficiently and
use them effectively.

Sustainabl  v. Earning Profits:

 A primary objective: to
e Growth earn reasonable profits on
capital employed.
(Part 2)  Profitability is crucial for
survival and growth.
 vi. Social Responsibility:
 Obligation of business
firms to contribute
resources for solving
social problems.
 Working in a socially
desirable manner (e.g.,
environmental protection,
fair labor practices).
 Definition: The possibility of inadequate profits or
even losses due to uncertainties or unexpected
events.
Examples: Decline in demand (change in tastes,
competition), increase in raw material prices.

Two Types of Risk:

• Speculative Risks:

Business • Involve possibility of both gain and loss.

• Arise from market changes: demand/supply fluctuations, price
Risk changes, fashion/taste changes.
• Example: Investing in stocks, launching a new product.
• Pure Risks:
• Involve only the possibility of loss or no loss.
• No possibility of gain.
• Examples: Fire, theft, strike.
 Risk is an essential part of every
business:
• Cannot be avoided, though the amount varies.
• Can be minimized but not eliminated.

Business risks arise due to

uncertainties:
• Uncertainty: lack of knowledge about future events.
Nature of • Examples: Natural calamities, changes in
demand/prices, government policies, technological
Business improvements.
Degree of risk depends mainly upon
Risks the nature and size of business:
• Nature (type of goods/services): Fashion items have
high risk.
• Size (volume of production/sale): Large-scale
businesses generally have higher risk.
Profit is the reward for risk taking:
• "No risk, no gain" applies to all businesses.
• Greater the risk, higher the chance of profit.
• Entrepreneurs undertake risks expecting higher
profit.
 Business risks arise due to a variety of
causes:
• i. Natural Causes:
• Little human control.
• Examples: Flood, earthquake, lightning, heavy
rains, famine.
• Affect property and income.
• ii. Human Causes:
• Unexpected events due to human
Causes of actions/inaction.
• Examples: Dishonesty, carelessness, or
Business negligence of employees; strikes, riots,
management inefficiency.
Risks • iii. Economic Causes:
• Uncertainties related to market dynamics.
• Examples: Demand for goods, competition, price
fluctuations, collection of dues from customers,
changes in technology/production methods.
• Financial problems: rise in interest rates, higher
taxes (leading to unexpected costs).
• iv. Other Causes:
• Unforeseen events not categorized above.
• Examples: Political disturbances, mechanical
 Entrepreneurship: The process of setting up one's
own business.
Entrepreneur: The person who sets up the business.

Business Enterprise: The output/unit of the process.

• Entrepreneurship provides self-employment and creates
opportunities for employment and profession, crucial for
Starting a economic development.
Key Factors to Consider for Starting a Business:
Business: • i. Selection of type of business:
• Nature and type of industry and commerce to enter.
Basic • Influenced by profit potential, customer requirements, and

Factors entrepreneur's technical knowledge/interest.

• ii. Size of business:

(Part 1)
• Scale of operation (MSME vs. large-scale, manufacturing vs.
tertiary).
• Depends on demand forecast and capital availability.
 iii. Location of business
enterprise:
• Crucial decision; mistakes can lead
to high costs or inconvenience.
• Factors: availability of raw
materials, labor, power supply, and
services (banking, transport,
Starting a communication, warehousing).
iv. Financing the
Business: proposition:
• Providing necessary capital for
Basic fixed assets (land, building,
machinery) and current assets
Factors (raw materials, stock), and daily
expenses.

(Part 2) • Requires proper financial planning:

capital requirement, sources, and
efficient utilization.
v. Physical facilities:
• Availability of machines,
equipment, building, and
supportive services.
• Decision based on nature/size of
business, funds, and production
process.
 vi. Competent and
committed workforce:
• Every enterprise needs skilled and
unskilled workers, and managerial staff.
• Plans needed for training and
motivating employees to ensure best
performance.

Starting a vii. Tax planning:

Business: • Necessary due to numerous tax laws

that influence business.
Basic • Consider tax liability and its impact on
business decisions in advance.
Factors viii. Launching the
(Part 3) enterprise:
• Mobilizing resources.
• Fulfilling necessary legal formalities.
• Starting the production process.
• Initiating the sales promotion
campaign.
• Choosing legal form: sole proprietor,
partnership, or company, with proper
financial planning.
 • Short Answer Questions:
• Why is business considered an economic activity?
• How does business contribute to the economic development of a
country?
• State the different types of economic activities.
• State the meaning of business.
• How would you classify business activities?

Questions • What are the various types of industries?

• Explain any two business activities which are auxiliaries to trade.

? • What is the role of profit in business?

• What is meant by business risk?
• Long Answer
• State Questions:
the causes of risks involved in business?
• Discuss the development of indigenous banking system in Indian
subcontinent.
• Define business. Describe its important characteristics.
• Compare business with profession and employment.
• Define Industry. Explain various types of industries giving examples.
• Describe the activities relating to commerce.
• Explain any five objectives of business.
• Explain the concept of business risk and its causes.
• What factors are to be considered while starting a business? Explain.