Lecture 1 INTRODUCTION - Virtual University of MGT211 - UpIntroduction to Business –MGT 211

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  • IntroductiontoBusinessMGT211VU

    CopyrightVirtualUniversityofPakistan

    1

    Lecture1

    INTRODUCTION CONCEPTOFBUSINESSLiterally,thewordbusinessmeansthestateofbeingbusy.Generally,thetermbusinessincludesallhumanactivitiesconcernedwithearningmoney.Inotherwords,businessisanactivity inwhich various persons regularly produce or exchange goods and services formutualgainorprofit.Thegoodsandservicesproducedorpurchasedforpersonalusearenotincludedinbusiness.DEFINITION1. AccordingtoL.H.Haney

    Businessmaybedefinedashumanactivitiesdirectedtowardprovidingoracquiringwealththroughbuyingandsellingofgoods.

    2. JamesStephensonsaysthat:

    Every human activitywhich is engaged in for the sake of earning profitmay becalledbusiness.

    3. InthewordsofB.W.Wheeler

    Aninstitutionorganizedandoperatedtoprovidegoodsandservicestothesociety,undertheincentiveofprivategainisbusiness.

    StructuralDiagram

    Business

    BuyingandSelling

    BuyingandSelling

    Wealth

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    CopyrightVirtualUniversityofPakistan

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    CHARACTERISTICSFollowingaretheessentialcharacteristicsofagoodbusiness:1. CapitalCapitalisthelifebloodofeverybusiness.Itisthemostessentialandimportantelementofbusiness.Incaseofdeficiency,loanscanbetakenfromvariousfinancialinstitutions.2. CreationofUtilityUtility isaneconomic term referring to thatcharacteristicofacertaincommodity,whichcan satisfy any human need. Business creates utility,which gives benefit to the entiresocietyaswellasthebusinessmen.3. DealinginGoodsandServicesEverybusinessdealswithsale,purchase,productionandexchangeofgoodsandservicesforsomeconsideration.4. Employment Business is a good sourceofemployment for itsowners aswell as forotherpeople, forexample,employees,agents,transportersetc.5. IslamicProcessBusinessisanIslamicwayofearningliving.Incomefrombusinessisknownasprofit,whichisRizqeHalal.TheHolyProphetMuhammad(SAWW)himselfdidprosperousbusiness.6. MotiveThemotiveofbusinessistoearnprofit.Otherwiseitwillnotbetermedasbusiness.7. OrganizationEverybusinessneedsanorganization for its successfulworking. Aproperorganization ishelpfulinthesmoothrunningofbusinessandachievingtheobjectives.8. ProductionsorPurchaseofGoodsAbusinessmandealsinproductionorpurchaseofgoods.Thesegoodsaresuppliedtothepeople.So,itisnecessarythatmoregoodsshouldbeproducedsothatdemandofpeoplemaybefulfilled.

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    9. RegularTransactionBusinesshasanatureof regulardealingsandseriesof transactions. So, inbusiness,onlythosetransactionsincludedwhichhaveregularityandcontinuity.10. RisksandUncertaintyBusinessinvolvesalargevolumeofriskanduncertainty.Theriskelementinbusinesskeepsapersonvigilantandhetriestowardoffhisriskbyexecutinghispoliciesproperly.11. SaleorTransferforvalueAnothercharacteristicofbusinessisthesaleortransferofgoodsforvalue.12. SocialWelfareBusiness does not only satisfy the producer, but also the consumerwhen products areofferedforsaleatlowpricesinmarkets.NATUREOFBUSINESSThefollowingpointsstatethenatureofbusinessinbrief:1. EconomicActivityBusiness is an economic activity as it is concernedwith creation ofwealth through thesatisfactionofhumanwants.2. HumanActivityBusiness is an economic activity and every economic activity is done by human beings.Thus,businessisoneofthemostimportanthumanactivities.3. SocialProcessBusiness is runbyowners and employeeswith thehelpofprofessionals and customers.Thus,businessisasocialprocess.4. SystemBusinessisasystematicarrangementofvariouselements,whichleadstotheattainmentofparticularobjective,accordingtoawellestablishedplan.

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    COMPONENTSANDSCOPEOFBUSINESSBUSINESSThewordBusinessincludesallhumanactivitiesconcernedwithearningmoney.Inotherwords,businessisanactivityinwhichvariouspersonsregularlyproduceorexchangegoodsandservicesformutualgainorprofit.COMPONENTSOFBUSINESSBusinessbearsthefollowingcomponents:

    Industry Commerce

    Business

    Industry CommerceINDUSTRYIndustry is connectedwith theproductionandpreparationofgoodsand services. It isaplacewhererawmaterialisconvertedintofinishedorsemifinishedgoods,whichhavetheability to satisfyhumanneedsor canbeused inanother industryasabasematerial. Inotherwords, industrymeans that part of business activity,which is concernedwith theextraction,productionandfabricationofproducts.KINDSOFINDSTRY

    1. PrimaryIndustry2. SecondaryIndustry

    Industry PrimaryIndustry SecondaryIndustry (a)Extractive (a)Construction (b)Genetic (b)Manufacturing (c)Services

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    1. PRIMARYINDUSTRYPrimaryindustryisengagedintheproductionorextractionofrawmaterials,whichareusedinthesecondaryindustry.Primaryindustrycanbedividedintotwoparts: (a) ExtractiveIndustry (b) GeneticIndustry(a) ExtractiveIndustryExtractiveindustriesarethoseindustries,whichextract,raiseorproducerawmaterialfrombeloworaboveorabovethesurfaceoftheearth. Forexample, fishery,extractionofoil,gasandcoaletc.(b) GeneticIndustryGenetic industries are those,which are engaged in reproducing andmultiplying certainspeciesofanimalsandplants. Forexample,poultry farm, fishing farm,diary farm,plantnurseriesetc.2. SECONDARYINDUSTRYTheseindustriesuserawmaterialsandmakeusefulgoods.Rawmaterialoftheseindustriesisobtainedfromprimaryindustry.Secondaryindustrycanbedividedintothreeparts: (a) ConstructiveIndustry (b) ManufacturingIndustry (c) ServicesIndustrya) ConstructiveIndustryAllkindsofconstructionsareincludedinthisindustry.Forexample,buildings,canals,roads,bridgesetc.b) ManufacturingIndustryInthisindustry,materialisconvertedintosomefinishedgoodsorsemifinishedgoods.Forexample,textilemills,sugarmillsetc.c) ServicesIndustryThese industries include those industries, which are engaged in providing services ofprofessionalssuchaslawyers,doctors,teacheretc.

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    COMMERCECommerce is the second component of business. The term commerce includes allactivities,functionsand institutions,whichare involved intransferringgoods,produced invariousindustries,fromtheirplaceofproductiontoultimateconsumers. InthewordsofEvelynThomas:

    Commercialoccupationsdealwiththebuyingandsellingofgoods,theexchangeofcommoditiesanddistributionofthefinishedgoods.

    Insimplewords,tradeandaidstotradeiscalledcommerce.SCOPEOFCOMMERCEThescopeofcommercecanbeexplainedas:

    1. Trade2. AidstoTrade

    Commerce

    Trade Aidstotrade

    1. TRADETradeisthewholeprocedureoftransferringordistributingthegoodsproducedbydifferentpersonsor industriestotheirultimateconsumers. Inotherwords,thesystemorchannel,whichhelpstheexchangeofgoods,iscalledtrade.TYPESOFTRADETherearetwotypesoftrade: (a) Hometrade (b) ForeignTrade

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    Trade

    HomeTrade ForeignTrade (i)WholesaleTrade (i)ImportTrade (ii)RetailTrade (ii)ExportTrade(a) HomeTradeThepurchaseandsaleofgoodsinsidethecountryiscalledhometrade.Itisalsoknownasdomestic,localorinternaltrade.Hometradehastwotypes: (i) WholesaleTrade (ii) RetailTrade(i) WholesaleTradeItinvolvessellingofgoodsinlargequantitiestoshopkeepers,inordertoresalethemtotheconsumers.Awholesalerislikeabridgebetweentheproducersandretailers.(ii) RetailTradeRetailingmeanssellingthegoodsinsmallquantitiestotheultimateconsumers.Retailerisamiddleman,who purchase goods frommanufacturers orwholesalers and provide thesegoodstotheconsumersneartheirhouses.(b) ForeignTradeTradeorexchangeofgoodsandservicesbetweentwoormore independentcountriesfortheirmutualadvantagesiscalledforeigntrade.Itisalsocalledinternationaltrade.Foreigntradehastwotypes: (i) ImportTrade (ii) ExportTrade(i) ImportTradeWhengoodsorservicesarepurchasedfromothercountryitiscalledimporttrade.(ii) ExportTradeWhengoodsorservicesaresoldtoanyothercountryitiscalledexporttrade.

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    2. AIDSTOTRADETrademansbitingandsellingofgoods,whereas,aidstotrademeanallthosethingswhicharehelpfulintrade.

    a) Bankingb) Transportationc) Insuranced) Warehousinge) Agentsf) Financeg) Advertisingh) Communication

    (a) Banking

    Indailybusinessroutine,commercialbanksandother financial institutionshelp thesellerandthebuyerinreceivingandthebuyerinreceivingandmakingpayments.(b) Transportation

    Thegoodswhicharemanufacturedinmillsandfactories,reachtheconsumersbydifferentmeansoftransportationlikeair,roads,rails,seasetc.(c) Insurance

    Thetransferofgoodsfromoneplacetoanotherisnotfreefromriskofloss.Thereisariskof lossduetoaccident,fire,theftetc. The insurancecompanieshelpoutthetraderswiththisproblemthroughinsurancepolicy.(d) Warehousing

    The manufacturers today, produce goods in large quantity. Therefore, a need forwarehousesarisesinordertostorethemanufacturedgoods.(e) Agents

    Theyarethepersonswhoactastheagentsofeitherbuyerorseller. Theyperformtheseactivitiesforcommission.(f) Finance

    A largeamount isneeded to setupan industry. Financial institutionsprovide longtermfinance to theproducers. Theproducersaloneareunable tomanufacturegoodswithoutfinancialhelp.

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    (g) AdvertisingTheconsumermaysometimes,notknowabouttheavailabilityofgoodsinthemarket.Theproducermustsellhisgoodsinordertoremaininbusiness.Advertisementisaneasywayto informthe largenumberofcustomersaboutthegoods. ThiscanbedonethroughTV,newspapers,radioetc.(h) Communication

    Theproducers,wholesalers,retailers, transporters,banks,warehousekeepers,advertisersandconsumersliveatdifferentplace.Thispostoffice