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CHAPTER 1 NATURE AND SCOPE OF BUSINESS

.In the literal sense, the term "Business" means the state of being busy. But it is a very wide

connotation of business because it covers every human activity. Business is really concerned with the

production and exchange of goods and services with the aim of earning money. Business creates

utilities by producing and selling goods and services to satisfy human wants. Business is an activity,

in which different persons exchange something of value, whether goods or services, for mutual gain

or profit. It is an organised or systematic activity involving the satisfaction of human wants.Business

involves regular or recurring purchase and sale of goods and services with the purpose of earning

profits through the satisfaction of human needs. Repeated dealings rather than a single isolated

transaction constitute business. Business may be distinguished from other activities by the fact that

goods and services created or

The salient features of business are given below:

1. Creation of utilities:

Business makes goods more useful to satisfy human wants. It adds time, place, form and possession

utilities to various types of goods. In the words of Roger, "a business exists to create and deliver value

satisfaction to customers at a profit".

Business enables people to satisfy their wants more effectively and economically. It carries goods

from place of surplus to the place of scarcity (place utility). It makes goods available for use in future

through storage (time utility).

2. Dealings in goods and services:

Every business enterprise produces and/or buys goods and services for selling them to others. Goods

may be consumer goods or producer goods.

Consumer goods are meant for direct use by the ultimate consumers, e.g., bread, tea, shoes, etc.

Producer goods are used for the production of consumer or capital goods like raw materials,

machinery, etc. Services like transport, warehousing, banking, insurance, etc. may be considered as

intangible and invisible goods.

Services facilitate buying and selling of goods by overcoming various hindrances in trade.

3. Continuity in dealings:

Dealings in goods and services become business only if undertaken on a regular basis. According to

Peterson and Plowman, "a single isolated transaction of purchase and sale will not constitute

business recurring or repeated transaction of purchase and sale alone mean business."

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For instance, if a person sells his old scooter or car it is not business though the seller gets money in

exchange. But if he opens a shop and sells scooters or cars regularly, it will become business.

Therefore, regularity of dealings is an essential feature of business.

4. Sale, transfer or exchange:

All business activities involve transfer or exchange of goods and services for some consideration. The

consideration called price is usually expressed in terms of money. Business delivers goods and

services to those who need them and are able and willing to pay for them.

For example, if a person cooks and serves food to his family, it is not business. But when he cooks

food and sells it to others for a price, it becomes business. According to Peter Drucker "any

organisation that fulfils itself through marketing a product or service is a business".

5. Profit motive:

The primary aim of business is to earn profits. Profits are essential for the survival as well as growth

of business. Profits must, however, be earned through legal and fair means. Business should never

exploit society to make money.

6. Element of risk:

Profit is the reward for assuming risk. Risk implies the uncertainty of profit or the possibility of loss.

Risk is a part and parcel of business. Business enterprises function in uncertain and uncontrollable

environment.

Changes in customers' tastes and fashions, demand, competition, Government policies, etc. create

risk. Food, fire, earthquake, strike by employees, theft, etc. also cause loss. A businessman can

reduce risks through correct forecasting and insurance. But all risks cannot be eliminated.

7. Economic activity:

Business is primarily an economic activity as it involves production and distribution of goods and

services for earning money. However, business is also a social institution because it helps to improve

the living standards of people through effective utilisation of scarce resources of the society.

Only economic activities are included in business. Non-economic activities do not form a part of

business.

8. Art as well as science:

Business is an art because it requires personal skills and experience. It is also a science because it is

based on certain principles and laws.

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The above mentioned characteristics are common to all business enterprises irrespective of their

nature, size and form of ownership.

PROFESSION

The term 'Profession' stands for an occupation which requires some specialised study and training,

and the purpose of which is generally to provide skilled services and guidance in lieu of a definite fee

or remuneration. A profession is a calling and implies acquisition of a fond of knowledge, range skills

and their application in service of humanity. They services rendered by a professional may be direct

as will the case of teachers and doctors or indirect as is in the case of teacher educators i.e. teacher of

a teacher.

This service might be rendered for limited segment of the population or for a limited period of time

or phase of life. This service is not rendered to the entire student population which gets graduation

or post-graduation, but, it is rendered to those who have aptitude for the profession. Any

professional provides professional service for a limited period of time when his/her clientele are in

an institution or within the institutional framework. A profession can be practiced independently or

within an institution or both

Distinguish between business, profession andemployment.

The main points of distinction between Business, profession and Employment are given below:

1. Mode of establishment:

A business enterprise is established when an entrepreneur takes a decision to carry on some businessactivity. In a profession, on the other hand, the membership or enrollment of a recognisedprofessional association or institution is essential. In order to take up employment, a person has toenter into a contact of service.

2. Nature of work:

A business exists to provide goods and services to satisfy human wants. On the other hand, aprofessional renders personalised service of a specialised nature to his clients. An employee performsthe work assigned by the employer under the contract of service.

3. Qualifications:

No formal education is compulsory in order to carry on a business. But for a profession, specialisedknowledge and training are essential. Minimum educational qualifications are prescribed for everyprofession. In case of employment, the qualifications required depend upon the nature of the job.

4. Main objective:

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In business, the basic motive is to earn profits. A professional, on the other hand, is expected toemphasise the service motive and sense of mission.

That is why; a rigorous code of ethical behaviour is laid down in every profession. In case of service,the motive of an employee is to earn salary and receive other benefits.

5. Investment:

Every business requires capital depending upon the nature and scale of operations. A professionalalso has to invest some capital to establish an office for rendering services. There is no need forcapital in case of employment.

6. Risk:

There is an inherent element of risk in business and profession but practically no risk is involved incase of employment. There can be loss in business but in profession and employment return is nevernegative.

7. Reward:

Profit is the reward of a businessman while professional fee is the reward of a professional. Thereward in case of employment is wage or salary. Wage/salary and fee are more regular and fixed thanprofits.

8. Transfer of interest:

It is possible to transfer ownership interest in business. But no such transfer is possible in case ofprofession and employment

BUSINESS

Business may be defined as any activity in which a man is very much interested and these activities

bring him profit, money, prestige and power. In economic sense, the term business means works,

efforts and acts of people, which are connected with the production of wealth and activities, which

are directed with the object of making profit. Production and distribution of goods to consumers

for a profit constitute business. The term business also includes services.

We may distinguish business from profession and employment. In the case of profession,

specialised services have to be rendered by professional persons like Lawyers, Engineers, Doctors,

etc., They must possess the qualification prescribed by law or by their association. In case of

employment a person has to work under an agreement and perform the work assigned by the

employer.

Important characteristics of business

1. All business activities are mainly concerned with the transfer or exchange of goods and services

for value to satisfy human needs.

2. Business deals with goods and services.

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3. Exchange of goods and services should frequently take place.

4. The profit motive is an important distinguishing feature of business.

5. Business has to meet the various types of risks and this may result in heavy loss and uncertainty

of profit.

Every business has certain objectives which govern its activities. Objectives of business may be

classified into two broad categories as follows.

Economic Objectives:

Business is an economic activity and its main purpose is to achieve economic results. The economic

objectives of business are given below:

1. Earning profits:

A business is established for earning profits. It is the hope of earning profits that inspires people to

start business. Profits are absolutely necessary for the survival and growth of every business

enterprise.

The efficiency of business is also measured in terms of profits. However, profits must be earned by

satisfying the wants to customers and after paying workers their dues.

In the words of Arvind Mafatlal, "no business or industry is run philanthropically. It has to make a

profit for further growth. But this profit cannot be at the expense of labour and the community at

large."

2. Creating customers:

Profits are not created by God or by the force of nature. They arise from the businessman's efforts to

satisfy the needs and wants of customers. A businessman can earn profits only when there are

enough customers to buy and pay for his goods and services.

In the words of Drucker, "there is only one valid definition of business purpose: to create a customer.

The customer is the foundation of business and keeps it in existence.

It is to supply the customer that society entrusts wealth-producing resources to a business

enterprise." No business can succeed without providing customers value for their money.

Business exists to satisfy the wants, tastes and preferences of customers. In order to earn profit,

business must supply better quality goods and services at reasonable prices. Therefore, creation and

satisfaction of customers is an important economic objective of business.

3. Innovations:

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Business is an organ of dynamism and change. In these days of competition a business can be

successful only when it creates new designs, better machines, improved techniques, new varieties,

etc. Modern science and technology have created a great scope for innovation in the business world.

Innovation is not confined to the invention of a new machine. It comprises all efforts made in

perfecting the product, minimising the costs and maximizing benefits to customers. It involves

improvements in management, production, selling servicing, methods of personnel and accounting,

etc.

Social Objectives:

Business does not exist in a vacuum. It is a part of society and it can achieve its economic objectives

only by having deep roots in the society. According to Henry Ford, "The primary aim of business

should be service and subsidiary aim should be earning of profit.

The purpose of business is not only earning profits but also discharging responsibility towards

society." Business is not merely an economic activity; it is also a social institution. The social

objectives of business are as follows:

1. Services to employees:

Employees work day and night to ensure smooth functioning of business. Therefore, it is the duty of

employers to provide social justice to their employees in the following ways.

(a) Fair wages:

Employees must be given fair compensation for their work. In addition to the minimum wages

prescribed by law, a reasonable part of profits should be distributed among employees in recognition

of their contribution. Such sharing of profits will help to increase the motivation and efficiency of

employees.

(b) Good working conditions:

It is the obligation of business to provide healthy and safe work environment for employees. Good

working conditions are beneficial to the organisation because these help to improve the productivity

of employees and thereby the profits of business.

(c) Employee welfare:

Business is expected to make adequate and satisfactory provision for medical, educational, housing

and other welfare facilities for workers. This is because the Government is not in a position to take

care of all these activities. Employee welfare facilities will help business to secure the dedication and

loyalty of workers.

(d) Development and promotion:

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Business should provide reasonable opportunities for training, growth and promotion of employees.

Business can facilitate self development of employees by encouraging creativity and innovation

among them.

This will create a sense of satisfaction and self-confidence among workers. They can bear higher

responsibilities and assist in the growth of business itself.

(e) Partnership in business:

Employees should be allowed to work with honour and job satisfaction. For this purpose, their

participation in the ownership and management of business is necessary. They should be considered

as partners in business rather than as servants.

2. Services to society:

Business is expected to serve the society in the following ways:

(a) Employment Generation:

Business can provide opportunities for gainful employment to members of the society. In a country

like India employment has become a serious problem and the Government is unable to offer jobs to

all. Therefore, provision of adequate and full employment opportunities is a significant service to

society.

(b) Standard of living:

Business should raise the living standards and material well- being of people by providing high

quality products and services at cheaper prices. This can be done through mass production and

distribution.

(c) Pollution free environment:

Rapid industrialisation has resettled in air, water and noise pollution. Business is responsible for

reducing the adverse effect of business on the quality of life. It must make proper arrangements for

the disposal of smoke, effluents, wastes, etc. to protect the health and life of people, animals and

birds.

(d) Investor satisfaction:

Business should ensure safety and appreciation of the money invested by shareholders and creditors.

A reasonable return in the form of dividends, interest, etc. should be paid to them regularly and in

time. They should be kept informed of the financial health and future prospects of business.

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Business activities may be classified into two broad categories namely, a. Industry and b.

Commerce

INDUSTRY

Industry involves the production of goods and materials. The term industry refers to that part ofbusiness activity, which concern itself with the increase in production. When the goods of an

industry is used for final consumption it is called consumer goods e.g. tooth paste, soap, television

etc.,

But if another industrial undertaking for further production uses the goods of an industry, is called

capital goods. E.g. Machine tools, spare parts etc.,

Industries may be classified into four types: 1. Extractive Industries 2. Genetic Industries 3.

Construction Industries 4. Manufacturing Industries 5. Assembling Industries

Extractive Industries

Industries, which are engaged in the supply of commodities extracted from the earth, are called

extractive industries.

Examples: Hunting, fishing, mining etc.,

Genetic Industries

Activities, which are concerned with reproducing and growing certain species of plants and

animals with the object of earning Profit from sale.

Examples: Fishery, poultry and piggery.

Construction Industries

Industries, which are engaged in the construction of buildings, dams and bridges, are called

construction industries. It uses the products of manufacturing industries especially cement, and

iron and steel.

Manufacturing Industries

Industries, which are engaged in the conversion of raw materialsor semi-finished products into

finished products, are known as manufacturing industries. Cotton textile mill is an example, which

converts raw cotton into yarn and yarn into fine cloth. Manufacturing industries may be classifiedinto continuous and assembling industries.

Continuous industries

In this type of industry, raw materials are fed from one end of the factory and they emerge as

finished products from the other end after passing through various processes.

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Examples: Textile, paper, and sugar industries

Assembling Industries

In this type of industry the components are produced by different industries and assembled to turn

out new useful products in the form of car, scooter, bicycle, computer, etc.

1. TRADE

Trade removes hindrance of person through wholesalers, retailers and mercantile agents. Goods

are owned and possessed by those who produce them. Unless these goods go into the hands of the

consumers they will have no meaning for the society. Ownership and possession ofgoods must pass

on from the producers to the ultimate consumers. Then only consumers can enjoy these goods.

This is made possible by the organization of trade. Wholesale traders take goods from the

producers and from the wholesale traders, retail traders take the goods to the consumers. Thus

trade, through traders removes hindrance of person.

Trade may be defined as the means by which the hindrance due to person is removed. It is that

branch of commerce, which is concerned, with the removal of personal hindrance. The hindrance

arises because the producer and the consumer are different persons and there is no direct contact

between them. Trade acts as a connecting link between them. The functions of trade are to act as an

intermediary in exchange of commodities between the producer and the consumer.

Trade may be classified into two.

(i) Internal / Home / Domestic Trade

(ii) Foreign / External Trade/ International Trade

Home Trade

Home trade is one, which is carried on within the boundaries of a particular country. It consists of

buying and selling of goods within the country. In this case, both the buyer and the seller belong to

the same country. Eg: Mangoes grown in Andhra Pradesh are sold in Tamil Nadu. Wheat grown in

Punjab is sold in Tamil Nadu.

Home trade consists of two main subdivisions namely wholesale trade and retail trade.

Wholesale tradeis known as purchase of goods in bulk from the manufacturers and sell them in

lesser quantities to others (Retailers).Retail trade on the other hand, deals with the distribution of

goods in small quantities to the consumers.

Foreign TradeForeign trade is a trade between one country with another country. It involves the

exchange of goods of one country with other countries.It is generally, carried out by large business

houses.Eg: Petroleum products of Gulf countries are sold in India.

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Types of foreign trade

Import TradeImport trade means buying goods from a foreign country for domestic use.Eg: India

imports Petroleum from Saudi Arabia.

Export TradeExport trade means sale of domestic goods to foreign countries. Eg: Export of Iron

ore from India to Japan.

Entrepot Trade Entrepot trade means importing of goods from one country and exporting the

same to other foreign countries. The country which carries on this trade is acting as collecting and

distributing centre for certain special facilities like large bonded ware houses, assembling and value

addition facilities. Eg: Singapore.

AUXALARIES TO TRADE

2. Transport

Transport removes place hindrance. Goods may be produced at places where they are in lessdemand. These goods are to be taken to the place of consumption with the help of transport

facilities we can create place utility in goods. The goods are taken from a place where there is less

demand, to the places where they are in more demand. The place utility helps the producer to

increase the production and earns a remunerative price. The consumer is also helped by supplying

him with the goods which otherwise might not have reached him. The various modes of transport

i.e., road, rail, sea, air have helped the growth of commerce and industry. A producer can produce

goods on any scale, according to the demand.

3. Warehousing

Warehousing removes hindrance of time. Many goods, such as cotton, jute, food grains, sugar, etc.,are produced during particular seasons of the year. But they are needed throughout the year. To

make these goods available throughout the year arrangement must be made for their proper

storage. Similarly certain goods are needed in particular seasons, e.g.. woollen cloth is required

during winter. Raincoats and umbrellas are essential during rainy season. These goods must be in

stock in sufficient quantity before the commencement of the season. This is done with the help of

warehousing.

4. Banking

There is also difficulty of finance. There is always a time-gap between the time of production and

consumption. During this period of time-gap, traders need funds to carry on their trade. Thesefunds are made available by commercial banks and other financial institution

5.Advertisement and salesmanship

The consumers may not be aware of the availability of various goods in the market. The absence of

information about goods is a great hindrance for buying them. The producer will also like to have

more consumers. Advertisement and salesmanship help in informing the consumers about the

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availability and usefulness of various products in the market. With the advent of TV, FM Radio,

Internet, etc., Consumer awareness on various goods is increasing.

6.Insurance

There is a risk involved in transporting goods from one place to another. This can be a risk of fire or

theft. The fear of loss of goods due to any cause is an obstacle in the development of trade. The

insurance companies provide the coverage for all types of losses of goods. The insurance coverage

has given a fillip not only to the national trade but also to the international trade.

7.Communication

The buyers and sellers need the services of various agencies for communicating their messages

among themselves. The producers inform their customers about the production of goods. The

intending buyers send orders to producers for the supply of goods. The services of post offices,

private courier services, fax, telephones, cell phones etc., are utilised for communication purpose.

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CHAP 2 SMALL BUSINESS

Meaning and Concept of Small Scale Industry:

In most of the developing countries like India, Small Scale Industries (SSI) constitute an important

and crucial segment of the industrial sector. They play an important role in employment creation,

resource utilisation and income generation and helping to promote changes in a gradual and phased

manner. They have been given an important place in the framework of Indian planning since

beginning both for economic and ideological reasons. The reasons are obvious.

The scarcity of capital in India severely limits the number of non-farm jobs that can be created

because investment costs per job are high in large and medium industries. An effective development

policy has to attempt to increase the use of labour, relative to capital to the extent that it is

economically efficient.

Small scale enterprises are generally more labour intensive than larger organisations. As a matter offact, small scale sector has now emerged as a dynamic and vibrant sector for the Indian economy in

recent years. It has attracted so much attention not only from industrial planners and economists but

also from sociologists, administrators and politicians.

The Small Scale Industries Board in 1955 defined, "Small-scale industry as a unit employing less than

50 employees if using power and less than 100 employees if not using power and with a capital asset

not exceeding Rs. 5 lakhs".

'The initial capital investment of Rs. 5 lakhs has been changed to Rs. 10 lakhs for sma industries and

Rs. 15 lakhs for ancillaries in 1975. Again this fixed capital investment limit was raised to Rs. 15 lakhs

for small units and Rs. 20 lakhs for ancillary units in 1980. The Government of India in 1985, has

further increased the investment limit to Rs. 35 lakhs for small-scale units and 45 lakhs for ancillary

units.

Again the new Industrial Policy in 1991, raised the investment ceilings in plant an machinery to Rs.

60 lakhs for small-scale units and Rs. 75 lakhs for ancillary units.

As per the Abid Hussain Committee's recommendations on small-scale industry, the Government of

India has, in March 1997 further raised investment ceilings to Rs. 3 crores for small-scale and

ancillary industries and to Rs. 50 lakhs for tiny industry.

Following are the characteristics of some industries which identify them as small-scale industries:

1. Labour intensive:

Small-scale industries are fairly labour-intensive. They provide an economic solution by creating

employment opportunities in urban and rural areas at a relatively low cost of capital investment.

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2. Flexibility:

Small-scale industries are flexible in their operation. They adopt quickly to various factors that play a

large part in daily management. Their flexibility makes them best suited to constantly changing

environment.

3. One-man show:

A small-scale unit is generally a one-man show. It is mostly set up by individuals. Even some small

units are run by partnership firm or company, the activities are mainly carried out by one of the

partners or directors. Therefore,' they provide an outlet for expression of the entrepreneurial spirit.

As they are their own boss, the decision making process is fast and at times more innovative.

4. Use of indigenous raw materials:

Small-scale industries use indigenous raw materials and promote intermediate and capital goods.

They contribute to faster balanced economic growth in a transitional economy through

decentralisation and dispersal of industries in the local areas.

5. Localised operation:

Small-scale industries generally restrict their operation to local areas in order to meet the local and

regional demands of the people. They cannot enlarge their business activities due to limited

resources.

6. Lesser gestation period:

Gestation period is the period after which the return or investment starts. It is the time period

between setting the units and commencement ol production. Small-scale industries usually have a

lesser gestation period than large industries. This helps the entrepreneur to earn after a short period

of time. Capital will not be blocked for a longer period.

7. Educational level:

The educational level of the employees of small industries is normally low or moderate. Hardly there

is any need of specialised knowledge and skill to operate and manage the SSI.

8. Profit motive:

The owners of small industries are too much profit conscious. They always try to keep high margins

in their pricing. This is one of the reason for which the unit may lead to closure.

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PROBLEMS OF SMALL SCALE INDUSTRIES

Small-scale industries in India could not progress satisfactorily due to various problems that they are

confronted with while running enterprises. In spite of having huge potentialities, the major

problems, small industries face are given below.

1. Problem of skilled manpower:

The success of a small enterprise revolves around the entrepreneur and its employees, provided the

employees are skilled and efficient. Because inefficient human factor and unskilled manpower create

innumerable problems for the survival of small industries. Non-availability of adequate skilled

manpower in the rural sector poses problem to small-scale industries.

2. Inadequate credit assistance:

Adequate and timely supply of credit facilities is an important problem faced by small-scale

industries. This is partly due to scarcity of capital and partly due to weak creditworthiness of the

small units in the country.

3. Irregular supply of raw material:

Small units face severe problems in procuring the raw materials whether they use locally available

raw materials or imported raw materials. The problems arise due to faulty and irregular supply of

raw materials. Non-availability of sufficient quantity of raw materials, sometimes poor quality of raw

materials, increased cost of raw materials, foreign exchange crisis and above all lack of knowledge of

entrepreneurs regarding government policy are other few hindrances for small-scale sector.

4. Absence of organised marketing:

Another important problem faced by small-scale units is the absence of organised marketing system.

In the absence of organised marketing, their products compare unfavourably with the quality of the

product of large- scale units. They also fail to get adequate information about consumer's choice,

taste and preferences of the type of product. The above problems do not allow them to stay in the

market.

5. Lack of machinery and equipment:

Small-scale units are striving hard to employ modern machineries and equipment in their process ofproduction in order to compete with large industries. Most of the small units employ outdated and

traditional technology and equipment. Lack of appropriate technology and equipment create a major

stumbling block for the growth of small-scale industries.

6. Absence of adequate infrastructure:

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Indian economy is characterized by inadequate infrastructure which is a major problems for small

units to grow. Most of the small units and industrial estates found in towns and cities are having one

or more problems like lack of of power supply, water and drainage problem, poor roads, raw

materials and marketing problem.

Thus absence of adequate infrastructure adversely affect the quality, quantity and production

schedule of the enterprises which ultimately results in under-utilization of capacity.

7. Competition from large-scale units and imported articles:

Small-scale units find it very difficult to compete with the product of large-scale units and imported

articles which are comparatively very cheap and of better quality than small units product.

8. Other problems:

Besides the above problems, small-scale units have been of constrained by a number of other

problems also. They include poor project planning, managerial inadequacies, old and orthodox

designs, high degree of obsolescence and huge number of bogus concerns. Due to all these problems

the development of small-scale industries could not reach a prestigious stage.