Various types of business activities that usually take place in an economy are:
- Extraction of oil, natural gas or minerals
- Manufacturing of commodities
- Buying of goods from one place or country and selling it at different place or country
- Construction of buildings, roads, and bridges, etc
- Providing services like ticketing, warehousing, transportation, banking, insurance, etc
Most business activities are concerned with production or processing of goods and services or distribution of goods and services. The former is known as Industry and the latter as Commerce. So, business is classified as Industry and Commerce.
Industry primarily refers to all such business activities concerned with production, raising or processing of goods and services. It processes raw materials or semi-finished goods into finished goods. Extracting raw materials from earth’s surface, manufacturing goods and commodities, producing crops, fish, flowers, etc., constructing buildings, dams, roads etc. are all examples of industry.
These activities are called industrial activities and the units engaged in these activities are known as industrial enterprises. However in a broader sense, provision of services like banking, insurance, transport also form part of industries known as tertiary industries.
Classification of Industries
Classification of industry based on nature of activity involved.
1. Primary Industries
Primary industries refer to the activities of extraction of natural resources like coal, oil, minerals etc. and reproduction and development of living organisms like plants and animals etc. Primary industries can be categorised as extractive and genetic industries. All the are industries engaged in rearing and breeding animals and birds and growing plants or flowers for sale and are known as genetic industries. Genetic industries are growing in number which include Horticulture (growing fruits and vegetables), Floriculture (growing flowers), Dairy Farming, Poultry Farming, Pisiculture (breeding fish) etc.
2. Secondary Industries
The products of primary industries are normally used as raw materials to produce a variety of finished goods. It is the secondary industry that uses the products of primary industry as its raw materials. The activities of secondary industries may be of manufacturing or construction. Manufacturing industries are engaged in producing finished goods out of raw materials or semi-finished products. For example, cotton is used to produce textile, timber to produce furniture, bauxite to produce alumina.
The industries engaged in erection of buildings, dams, bridges, roadways, railways, canals, tunnels etc. are known as construction industries. They make use of the products of other industries and construct different types of structures as per the requirements of the customers.
3. Tertiary Industries
These industries are basically concerned with generating or processing of various services and facilitate the functioning of primary industries and secondary industries as well as activities of trade. These include service industries like banking, insurance, transport etc. Film industry which provides entertainment to the individuals, produces films; tourism industry which provides services to the individual by facilitating their travel, booking of tickets and hotel rooms etc. are also included in this category.
Manufacturing industries may be divided further into the following categories:
Analytical Industries manufacture different types of products by analysing and separating different elements from the same product. Petrol, diesel, kerosene, lubricating oil etc. are produced from the crude oil in oil refinery industry.
Synthetic Industries put together various ingredients and manufacture a new product. For instance, soap is produced by combining potassium carbonate and vegetable oil. Similarly, cement is produced by using limestone, coal and other chemicals.
Processing Industries are those in which raw materials are processed through successive stages to get the final products. Textile, sugar and paper are the examples of processing industry.
Assembling Industries put together various manufactured products and make a new product as in the case of car, scooter, bicycle, radio and television etc.
All goods and services produced are to be made available by those who need them. This involves a number of additional activities. For example when somebody produces bread, he has to make it available at convenient locations at right time. This involves activities like making people aware about the product, storing the product at right places, arranging retail outlets, packaging the product, transportation of the product, selling the product and so on. All these activities taken together are known as Commerce.
It provides the necessary link between producers and consumers of goods and services and facilitates the purchase and sale of goods and services. It performs all functions, that are essential for maintaining a smooth and uninterrupted flow of goods and services to the customers. Thus, commerce involves:
- Buying and selling of goods and services
- Activities essential for the smooth and uninterrupted flow of goods and services from the point of production to the point of consumption
The first activity, that is, purchase and sale of goods and services is termed as Trade, and the second activity i.e., the activities that ensure smooth flow of goods to customers are known as Auxiliaries to trade. Thus, commerce is classified as:
- Auxiliaries to trade
Trade is an integral part of commerce. It simply refers to sale, transfer or exchange of goods and services. It helps in making the goods and services available to ultimate consumers. The manufacturers of goods who produce in bulk or large quantity generally find it very difficult to sell those goods directly to the consumers.
The reasons may be distance of the consumers from the place of manufacturing, or the quantity of the product bought at one point of time, the problem of payment and so on. Hence they utilise the services of some firms or individuals who buy goods from the manufactures and sell it to the consumers. For example, the local grocery shop owner sells grocery items to the consumers after buying it from the manufactures. Sometimes, he buys it from the wholesalers who buy goods in bulk from the manufactures and sell it to him. The wholesalers as well as the grocery shop owners are said to be engaged in trading.
Thus, the features of trade can be summed up as follows:
- It involves actual buying and selling of goods
- It refers to procuring goods from one place/person to sell it to another person or at another place
- Traders, also known as middlemen facilitate the distribution of goods
- Trading helps in equalising demand and supply. For example, the state of Punjab may be producing plenty of rice without much demand for it in its own state. Traders buy rice from Punjab and make it available to other states where there is a great demand for rice. Thus, the demand and supply ratio is maintained.
On the basis of area of operation, trade can be classified as:
- Internal Trade
- External Trade
1. Internal Trade
When trade takes place within the boundaries of a country it is called internal trade. It means both the buying and selling take place within the country. For example, a trader can buy woollen garments from the manufacturers at Ludhiana and sell it to the retailers in Delhi. Similarly a trader of a village can buy goods from the wholesale market of a city for sale in the village.
Internal trade can be:
- buying from manufactures and selling it to retailers in bulk (known as wholesale trade)
- buying from manufacturers or wholesalers and selling it to consumers (known as retail trade)
2. External Trade
Trade that takes place between different countries is known as external trade. In other words, external trade refers to buying and selling of goods or services across national boundaries. This may take any of the following forms:
- Firms of country ‘A’ purchase goods from firms of county ‘B’ to be sold in their own country. This is known as Import trade.
- Firms of country ‘A’ sell goods produced in their own country to firm of country ‘B’. This is known as Export trade.
- Firms of country ‘A’ purchase goods from firms of country ‘B’ to be sold to firms of country ‘C’. This is known as Entrepot trade.
Aids or Auxiliaries to Trade
To facilitate buying and selling of goods (trade) a variety of other activities are required to be performed. These include, transport of goods, storage of goods, financial transactions, insurance of goods etc. For example, when a company at Chennai buys goods from Delhi or imports it from Singapore, it needs to undertake most of the following activities, in addition to buying and selling of goods.
Carrying of goods physically from Delhi or Singapore to Chennai (called Transportation)
Systematic storage of goods once the goods are received at Chennai (called Warehousing)
Arranging money and making payments to the seller through banks and other sources (called Banking)
Covering risk of damage or loss of goods in transit from Delhi or Singapore or while it is in store (called Insurance)
Exchange of information with each other through postal and telecom services (called Communication)
Advertising: In today’s competitive market, it is not possible for a businessman to sit and wait for customer after investing heavily in business. To attract customers towards his product, a producer has to provide full knowledge of his product to the customer. Advertising does this properly. Advertisement enhances the knowledge of the customer about the products available in the market and with the help of this knowledge, a customer takes decision about the purchase of the product. In this way, advertisement enhances the knowledge of the customers and eliminates the hindrance of information.
All the above activities help in facilitating the trading activities or providing support to the trading activities. That is why these are called auxiliaries to trade. So auxiliaries to trade refer to those activities that facilitate trade. These activities not only facilitate the trading activities, but also provide the necessary support to the entire business in its successful functioning. Hence, these are also called support services of business.