Business refers to the production and distribution of goods and services. There is a wide spectrum of business activities ranging from procurement of raw materials, its conversion into finished or value added products to the distribution of goods to the ultimate consumers.
Various business activities can be classified under two broad categories – 1. Industry 2. Commerce.
Commercial activities may further be categorised under – (a) Trade (b) Aids to Trade or Auxiliaries to Business.
Classification and Types of Business Activities: Industry and Commerce
Classification of Business Activities – Industry and Commerce (With Their Types)
Various business activities may be classified into two broad categories:
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I. Industry:
Industry is that branch of business which is concerned with the production of goods and services. The term industry is used to refer to the processes by which things are extracted from the environment and transformed and multiplied.
Industry is of the following types:
i. Extractive Industries – These industries extract or draw out various products from natural sources such as – earth, soil, water, air etc.
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The products raised by these industries are provided by nature and collected by human beings.
ii. Genetic Industries – Genetic implies heredity or parentage. Genetic industries involve multiplying or reproduction of certain species of plants and animals.
iii. Manufacturing industries – These industries are concerned with the conversion or transformation of raw materials and semi-finished products into finished products.
(a) Analytical – In an analytical manufacturing industry, a basic raw material is analysed or separated into a number of products.
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(b) Synthetical – In these industries, two or more materials are combined or mixed together to manufacture a new product.
(c) Processing – These industries are engaged in the processing of raw materials through different stages of production.
(d) Assembling – In this case, various components or parts are brought together to produce a finished product. Manufacture of bicycles, radios, televisions, watches are the typical example of assembling industry.
iv. Construction Industries- These industries are engaged in the erection or construction of buildings, bridges, roads, dams, canals etc. Construction industries use the products of extractive industries e.g., stone, marble bricks etc., and also the products of manufacturing industries such as -cement, iron and steel, wires etc.
Sometimes industries are classified into primary industry and secondary industry. Primary industry consists of extractive and genetic industries which supply basic raw materials for further production. Manufacturing and constructive industries constitute secondary industry.
II. Commerce:
Commerce embraces all those activities which ensure a free and smooth flow of goods and services from producer to consumer. It consists of trade and the activities which facilitate trade. It covers not only the function of buying and selling and handling goods but also the many services which must be provided to finance insure, store and transport goods in the course of these exchanges. It bridges the gap between producers and consumers.
i. Trade:
Trade is that branch of commerce which is concerned with the sale, transfer or exchange of goods and services. It involves the buyings and sellings of goods and services. Trade is the nucleus of commerce because all commercial services like transportation, storage, insurance, banking, packaging, advertising, etc., revolve around trade. The superstructure of commerce is built upon the foundation of trade.
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Trade is of the following types:
a. Internal or Home Trade:
It is concerned with the buying and selling of goods within the boundaries of a country. Payment for the goods sold is made in national currency either in cash or through the banking system. Such trade is also known as domestic trade or inland trade.
Internal trade may be further classified into two categories as follows:
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(i) Wholesale Trade – It refers to the purchase and sale of goods of a specific variety in bulk. A wholesaler buys goods in large quantities directly from manufacturer(s) and sells them in comparatively small quantities to the retailers. Wholesale trade constitutes a link between the producers and the retailers.
(ii) Retail Trade – It involves the sale of goods to the ultimate consumers. A retailer buys goods from wholesalers or manufacturers and sells them to the final consumers. He serves as the last link in the chain of distribution.
b. International or Foreign Trade:
It consists of the exchange of goods and services between persons or organisations operating in two or more countries. International trade involves the use of foreign currency (known as foreign exchange) and international means of transport.
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International trade may be further classified into the following categories:
(i) Import Trade – It involves purchase of goods from foreign countries for use in the domestic market.
(ii) Export Trade – It is concerned with the sale of domestic goods to foreign buyers or in foreign markets.
(iii) Entrepot Trade – Entrepot or re-export trade involves the import of foreign goods with a view to re-export them. For instance, India may buy wheat from Australia to supply the same to Bangladesh.
ii. Auxiliaries to Trade:
In addition to trade, commerce includes several ancillary services which facilitate exchange of goods and services.
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These auxiliary services or aids to trade are described below:
a. Transportation:
Transportation carries goods from producers to traders and finally to consumers. It bridges the geographical distances and thereby performs a useful function in commerce. It is because of transportation that a producer can sell his goods in different parts of the world. It makes for speed and efficiency in exchange. Transportation provides the whets of commerce. It creates ‘place utility’.
b. Warehousing or Storage:
It refers to the holding and preservation of goods until they are finally consumed. Goods have to be stored at every stage in the process of exchange. Warehousing performs a useful function by matching supply with the demand. It helps to make available the seasonally produced goods throughout the year.
In the absence of warehousing, a producer will have to dispose of the goods as soon as they are produced. Warehousing creates ‘time utility’.
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c. Insurance:
It facilitates trade by providing a cover against the loss or damage of goods in the process of transit and storage. By getting their goods insured, producers and traders can avoid the risk of loss due to fire, theft pilferage, etc. Packaging also helps to protect the goods during transit and storage.
d. Banking:
Banks are traders of money and credit. They help in the buying and selling of goods by providing a convenient and safe mode of payment. Banks also grant credit to businessmen with which they can carry on larger volume of trade.
e. Advertising:
Advertising brings goods and services to the knowledge of prospective buyers. It helps to highlight the distinctive features and utility of different products. With the help of such knowledge, consumers can obtain better value for their money. Marketing research helps to know and understand the requirements of consumers.
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There is a close interrelationship between the different branches of business. One cannot function without the support of others. Commerce helps industry before and after production through the purchase of materials and the sale of finished products. Production of goods and services is meaningless unless they are distributed among the consumers.
Trade, involving buying and selling of goods, maintains a smooth flow of commerce and thereby supports industry. At the same time, industry provides the goods and services for distribution and thereby gives rise to commerce. As industry develops, trade and commerce also grow.
Classification of Business Activities – 4 Important Types: Industrial Activities, Commercial Activities, Trading Activities and Service Activities
We can classify all business activities into two broad categories – (i) Industry, and (ii) Commerce. And commercial activities may further be categorised under – (a) Trade, and (b) Aids to Trade or Auxiliaries to Business. Thus, the structure of business refers to the network of both industrial and commercial enterprises.
A business undertaking which deals with growing, extracting, manufacturing or construction is called an industrial enterprise. On the other hand, a business undertaking which is concerned with exchange (buying and selling) of goods and services or with activities that are incidental to trade (like transport, warehousing, banking, insurance and advertising), is called a commercial enterprise.
A brief overview of the various types of business activities is given below:
(i) Industrial Activities or Enterprises:
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Industry or industrial activities involve extracting (e.g., mining), genetic operations (e.g., breeding and multiplication of animals as in poultry farms), manufacturing of products and construction of buildings, roads, etc. The firms engaged in such activities are known as industrial enterprises. They are also known by the nomenclature of the activities being carried out by them, e.g., manufacturing industry, mining industry, construction industry, etc.
(ii) Commercial Activities or Enterprises:
Commerce or commercial activities involve exchange (buying and selling) of goods and services and the activities incidental to trade like transport, warehousing, banking, insurance and advertising. The firms engaged in such activities are called commercial enterprises. The commercial enterprises may further be classified as trading firms and service firms.
(iii) Trading Activities or Enterprises:
Trade refers to purchase and sale of goods to earn profits by the businessmen known as traders. Traders are engaged in – (a) home trade, and (b) foreign trade. Home trade includes both wholesale and retail trade. Foreign or international trade includes import, export and entrepot trade. Firms engaged in foreign trade are known as – ‘Import Houses’, ‘Export Houses’ or ‘Foreign Trade Houses.’ Wholesalers and retailers are also known as ‘Distributors’ of goods.
(iv) Service Activities or Enterprises:
These include those services which facilitate smooth trade and also serve as the backbone of modern industry. Service activities include banking, transportation, warehousing, insurance, packaging, advertising, etc. Since these are all commercial activities, firms engaged in banking, transportation, insurance, etc., are known as commercial enterprises. Moreover, performance of these services involve distinct operations and processes. That is why, they are also called ‘Service industries’.
Commerce includes – (i) Trade, and (ii) Services which facilitate exchange like transport, banking, warehousing and insurance. All such activities are performed by different commercial firms with a view to earn profits and accumulate wealth for the well-being of their owners. In other words, economics is the basis of all such activities.
Economics is the study of the action of people in the ordinary course of life. It enquires how a person earns income and how he spends it. A person engaged in any commercial activity is, in fact, pursuing an economic activity to earn some income. This obviously explains the economic basis of commerce which includes activities that add to the value and utility of goods, create wealth and contribute to the material well-being of the society.
The basic problem that economics seeks to resolve is that of ends and means. There are unlimited human wants but limited means or resources. Hence, it is necessary to ensure that there is best possible use of available resources like men, money, machines, materials, etc. It is necessary also because consumers want to make the best use of their income (resources) to satisfy their wants to the maximum possible extent. Commerce involves activities which keep in view what to distribute, where and when at the most affordable price.
In economics, we study the principle of division of labour. The application of the principle can facilitate better utilization of resources and higher productivity and better quality products. Division of labour is at the root of all commercial activities. As a result, we have different people and different firms engaged in trade, banking, insurance, transportation, warehousing, packaging, etc. This leads to better performance of each commercial activity and greater economy in the use of scarce resources.
Classification of Business Activities
Business activities are broadly classified into two categories:
1. Industry and
2. Commerce.
Commerce is further classified into two categories—trade and auxiliaries to trade.
1. Industry:
Industry includes all those activities which are concerned with extraction, production, conversion, processing or fabrication of goods.
Thus, industry involves creation of many types of goods which may be broadly classified into three categories:
i. Consumer goods,
ii. Producer goods, and
iii. Intermediate goods.
i. Consumer Goods – Consumer goods are those goods which are used by consumers, for example, TV, refrigerator, cloth, edible oil, toothpaste, hair oil, etc.
ii. Producer Goods – Producer goods are those goods which help in producing other goods, for example, machine, tools, etc. These are also known as capital goods.
iii. Intermediate Goods – Intermediate goods are in the form of raw materials which are used for producing other goods, for example, steel, copper, crude oil, etc.
Types of Industries:
There are different types of industries which may broadly be grouped into three categories, with each group having further classification:
(1) Primary,
(2) Secondary, and
(3) Tertiary.
(1) Primary Industry:
Primary industry includes all those activities which are concerned with extracting and processing of natural resources.
Primary industry is divided into two categories:
i. Extractive industry, and
ii. Genetic industry.
i. Extractive Industry:
Extractive industry involves extracting goods from natural resources, such as land, air and sea. The goods extracted and processed are used in secondary industry. Activities which are included in extractive industry are mining, lumbering, hunting, fishing, etc.
ii. Genetic Industry:
Genetic means parentage or heredity. Thus, genetic industry includes activities which involve breeding of plants and animals for their use in further reproduction. Activities which are included in genetic industry are plant breeding, nursery, etc. In addition, activities like animal husbandry, dairy farming, poultry farming and fish hatchery come under genetic industry.
Secondary industry is concerned with activities which involve processing materials that have been produced by primary industry. For example, iron ore is extracted at the primary stage and is processed to manufacture iron and steel at the secondary stage.
Secondary industry is classified into two categories:
i. Manufacturing industry, and
ii. Construction industry.
i. Manufacturing Industry:
Manufacturing industry includes those activities which are involved in conversion of raw materials into finished goods. Since manufacturing industry transforms raw materials into finished goods, it creates form utility. Examples of manufacturing industry are- steel, cement, textiles, etc.
There are four forms of manufacturing industry which are as follows:
(a) Analytical Industry:
Analytical industry includes activities which are involved in analysing and separating basic material into a number of products. For example, petroleum refining is an analytical industry in which crude oil extracted from the earth is processed and separated into a number of products like petrol, diesel, kerosene, etc.
(b) Synthetic Industry:
In synthetic industry, two or more materials are mixed together to create a new product. Soap, cement, fertiliser, cosmetics, etc., fall in this category.
(c) Processing Industry:
In processing industry, raw materials are processed to produce finished goods through a series of manufacturing operations. For example, manufacturing of a textile product used by the ultimate customer is produced through a series of manufacturing operations- spinning (yarn), weaving (grey fabrics) and finishing (processed fabrics). Sometimes, these stages are undertaken by different business organisations.
(d) Assembling Industry:
In this industry, the finished product is produced by assembling various components. Vehicle, TV, etc., fall in this category.
ii. Construction Industry:
Construction industry includes those activities which are concerned with constructing buildings, dams, roads, etc. These activities use materials produced by manufacturing industry like cement, steel, marble, etc. A basic feature of this industry is that it creates immovable assets.
Tertiary industry, also known as service sector, includes those activities which provide support to primary and secondary industries as well as to trade. Such activities are transportation, warehousing, banking, insurance, etc. Various activities which fall in the category of tertiary industry are included in commerce.
2. Commerce:
Commerce includes all those activities which are concerned with moving goods and services from producers to consumers. Thus, commerce establishes a link between producers and consumers.
In establishing links between producers and consumers, two broad categories of activities are performed- trade and auxiliaries to trade.
Commerce performs the role of removing various types of hindrances—of person, place, storage, finance, information and risk—which come in the way of moving goods from producers to consumers.
Thus, commerce performs the following roles in the process of linking producers and consumers:
1. Removing Hindrance of Persons:
Both producers and consumers are located at different places. This results in hindrance as producers may not be able to contact consumers. Traders of goods help in overcoming this hindrance. There are different types of traders— agents, wholesalers and retailers—who provide a link between producers and consumers.
2. Removing Hindrance of Place:
Locations of producers and consumers differ considerably. This is so because producers choose those locations of production which provide various facilities while consumers are spread throughout the country. Transportation, an element of commerce, removes this hindrance by transporting goods from the location of production to location of consumption.
3. Removing Hindrance of Time:
There is a time lag between production and use of goods. During this period, goods should be stored safely. Warehousing overcomes the hindrance of storage as goods can be stored in warehouses. Thus, warehousing creates time utility for goods.
4. Removing Hindrance of Finance:
Both businessmen and consumers need finance. Businessmen need finance to run their businesses and consumers need it to buy goods. But they may not have sufficient finance. Banking removes the financial hindrance by providing financing facilities to both the businessmen and consumers.
5. Removing Hindrance of Information:
Producers may not be able to communicate the positive features of their products to consumers. Similarly, consumers may not be aware of the types of products available in the market. Advertising comes in the picture to remove this hindrance as it is a tool’ for mass communication.
6. Removing Hindrance of Risk:
There are a number of risks involved in carrying out a business. Similarly, consumers also face some risks when they use costly consumer durables. Insurance helps in overcoming risk hindrance at a nominal cost.
Types of Commercial Activities:
There are different types of commercial activities which may be grouped into two broad categories:
I. Trade and
II. Auxiliaries to trade.
Some people tend to use trade and commerce synonymously which is not correct because trade is a part of commerce dealing with its specific aspect.
Trade is defined as follows:
Trade involves buying and selling of goods and services.
The persons who are involved in trading activities are known as traders. Traders provide a useful link between producers and ultimate customers of goods and services. There are different types of trades which are classified on two bases- geographical area and volume of trade.
a. Internal Trade:
Internal trade, also known as home trade or domestic trade, is defined as follows:
Internal trade refers to purchase and sale of goods within the boundaries of a country and the payment is made in national currency either in cash or through the banking system.
Internal trade may take place between two parties located in the same city or in different cities of a country.
On the basis of volume of trade involved in a single transaction, internal trade may be in the form of wholesale trade or retail trade.
i. Wholesale Trade:
Wholesale trade involves purchase and sale of goods of a specified type in bulk. A wholesaler purchases goods in bulk either directly from the producer or its agent and sells in comparatively smaller quantities to retailers. Thus, a wholesaler works as a link between producers and retailers.
ii. Retail Trade:
Retail trade involves buying goods in larger quantities from wholesalers and selling these in smaller quantities to ultimate customers. Retail trade has been conducted traditionally through shops, stalls, peddlers, etc. However, in retail trade, some new features have emerged- mail order trading and Internet trading either by producers or bulk traders and large-scale retailing through specialised outlets like departmental stores, chain stores, etc. In general, retail trader is a link between wholesalers and ultimate customers.
b. External Trade:
External trade, also known as foreign trade or international trade, is defined as follows:
External trade refers to exchange of goods and services between two or more countries and payment involves foreign currencies.
External trade takes place in three forms:
a. Import,
b. Export and
c. Entrepot.
a. Import Trade:
Import trade, simply known as import, involves purchase of goods and services to be used by the importers themselves or sold in domestic markets. For example, many Indian companies import raw materials, machines, etc., from foreign countries for their own use; many importers import foreign goods to be sold in the Indian markets.
b. Export Trade:
Export trade, simply known as export, involves selling goods and services in foreign markets. For example, if an Indian firm is selling garments in other countries, it is export trade.
c. Entrepot:
The word entrepot has been derived from the French word meaning warehousing. Entrepot involves import of goods from a foreign country and export of these goods to other countries. For example, if an Indian firm imports goods from the US and exports them to other countries like Nepal, Sri Lanka, etc., it is entrepot.
In business context, the term ‘auxiliaries to trade’ means those activities which provide support to performing activities related to industry and trade. In fact, they provide facilitating base to industry and trade. Such activities include banking, insurance, transportation, warehousing, communication and advertising. These activities help in the smooth flow of processes related to industry and trade.
A brief discussion of the role of these activities is as follows:
1. Banking – Banking is the business of accepting deposits of money from the public for the purpose of lending or investment. This money is withdraw-able by cheques or other instruments.
2. Insurance – Insurance is a contract under which the insurer agrees, in consideration of insurance premium, to pay an agreed sum of money to the insured to make good the loss, damage or injury by some uncertain event or on expiry of the contract period.
3. Transportation – Transportation provides physical means which facilitate movement of people, goods and services from one place to another.
4. Warehousing – Warehousing refers to activities involving storage of goods on a large scale in a systematic and orderly manner and making these available when needed.
5. Communication – Communication involves exchange of information and its understanding between two or more persons.
6. Advertising – Advertising is an impersonal form of communication which is paid for by sponsors (organisations) to promote their products.
Classification of Business Activities – Industry and Commerce
Business refers to the production and distribution of goods and services. There is a wide spectrum of business activities ranging from procurement of raw materials, its conversion into finished or value added products to the distribution of goods to the ultimate consumers.
Various business activities can be classified into two categories:
1. Industry, and
2. Commerce.
Industry is concerned with the production of goods, whereas, commerce refers to all the activities which help directly or indirectly in the distribution of goods to the ultimate consumer.
1. Industry:
Industry refers to an economic activity that is concerned with the production of goods, extraction of material or the provision of services. All the products available for use in the market are finished products and are the result or products of some industry. Many factors like scale of operations, availability of raw material, nature and type of goods produced, capital investment, government policies, etc., influence the location, development and growth of industries.
Industries may be broadly classified into:
(i) Primary Industries,
(ii) Secondary Industries, and
(iii) Tertiary industries.
Primary Industries use natural resources as their basic raw material. Some common examples of primary industry include agriculture, fishing, mining and forest industry. Their main inputs are agricultural produce, oceans, minerals deposits and forests. Primary industries comprise of extractive and genetic industries, which supply basic raw material for further production.
Extractive Industries draw or extract their inputs from natural resources. For instance, fishing, mining, hunting, agriculture, etc. The produce of such industries may be used by the manufacturing and construction industries.
Genetic Industries involve breeding of plants and animals for their use in further reproduction. Poultry farms, cattle breeding, fish hatcheries, etc., are examples of genetic industries.
Secondary Industries involve the conversion of raw materials into finished products, for instance, manufacturing cloth from cotton, steel from iron ore, etc. The secondary industries consist of manufacturing and construction industries.
Manufacturing Industries are engaged in conversion or transfer of raw materials or semi-finished products into the finished products. These industries, create form utility by changing the form of the raw materials. For example, conversion of wood into furniture.
Construction Industries are concerned with the construction of buildings, dams, roads, etc. They use the products of extractive industries like cement, bricks, iron, etc. Their main feature is that the products cannot be shifted to the market, the construction remains at fixed sites only.
(iii) Tertiary Industries:
Tertiary Industries are also called service industries. They are concerned with providing services to facilitate smooth functioning of business to produce goods and services, for example, transport, banking, insurance, advertising, storage, etc.
2. Commerce:
Commerce includes all those activities which ensure a free and smooth flow of goods and services from the producers to consumers to satisfy human needs and wants. According to James Stephenson, “Commerce is an organised system for the exchange of goods between the members of the industrial world.” Commerce is that part of business which is concerned with the exchange of goods and services and includes all those activities which directly or indirectly facilitate that exchange.
Commerce links the producers and consumers through middlemen and also through aids to trade. The main function of commerce is to remove the hindrances or obstacles in the process of exchange to ensure an uninterrupted flow of goods and services. It covers not only the functions of buying and selling of goods but also includes services which must be provided, like finance, transport, insurance, advertising, banking and communication, in the process of exchange.
Trade is that part of commerce which is concerned with sale, transfer or exchange of goods and services. It refers to the actual process of buying and selling of goods and services. It is the pivot of commerce as all services like transportation, storage, warehousing, insurance, banking and advertising depend on trade.
Trade may be broadly classified into following categories:
i. Internal or Home Trade:
It comprises the exchange of goods and services within the boundaries of a country. The payment for the same is made in the national currency either in cash or through the banking system. It is also called domestic trade.
Internal trade can be classified into two categories:
(a) Wholesale trade – It consists of the bulk purchase and sale of the goods of a specific variety. A wholesaler buys in bulk quantity from the manufacturer and sells in relatively small lots to the retailers. The wholesale trade seems as a link between the producers and the retailers.
(b) Retail trade – It involves the sale of goods to the final consumers. A retailer buys goods from the wholesalers or manufacturers and sells them to the final consumers. The retail trade can take place in several forms; malls, departmental stores, multiple-chain stores, mail-order houses, hawkers, peddlers, etc.
ii. International or Foreign Trade:
International trade consists of exchange of goods and services between two or more countries. It involves the use of foreign currency (commonly called foreign exchange) and international means of transportation. In India, RBI plays a pivotal role in settlement of international transactions.
Foreign trade can be divided into following three categories:
(a) Import Trade – It refers to the purchase of goods from the foreign country for consumption in the domestic market.
(b) Export Trade – It refers to the sale of goods by the home country to foreign country.
(c) Entrepot Trade – It is also known as re-export. It involves import of goods from one country and then exporting them to some other country after some processing operations.
Activities (or Services) which Facilitate Trade:
Commerce also includes those activities which are undertaken to overcome the obstacles in the course of buying and selling of goods. These activities are necessary to ensure the smooth flow of goods from producers to consumers.
The main aids to trade are given below:
i. Transportation – It helps in carrying goods from the place of production to the place of consumption. Transportation overcomes the obstacle of distance by facilitating the distribution of goods. It connects all part of the world and thus widens the market. Transport helps the industrial units to locate at economical places and increase the scale of business.
ii. Warehousing – Goods are produced in anticipation of demand. It is, therefore, necessary to store the goods until they are sold. They help in stabilising the prices and making the goods available whenever needed. Warehousing removes the obstacle of time and creates time utility for the goods.
iii. Insurance – Business is subject to various kinds of risks, e.g., risks arising out of bad debts, price fluctuations, theft, loss of goods in transit, etc. Insurance protects the business from the hindrance of risk. There are different types of insurance like fire insurance, marine insurance, workmen’s compensation insurance, life insurance, etc., to provide security against heavy risks. Insurance thus facilitates expansion of trade by removing the hindrance of risk.
iv. Banking – Banks facilitate the purchase and sale of goods on credit. They provide funds to businessman at low rates of interest. They also provide quick, safe and economical means of transfer of funds from one place to another. Banks fulfil the finance requirement of the business and provide many other services.
v. Advertising – Advertising facilitates industry and trade by creating and maintaining the demand. It informs people about the availability of goods and services, provides information about the goods available and persuades them to buy the goods. Advertising eliminates the hindrance of information by enhancing the knowledge of the customers.
vi. Communication – Quick and reliable means of communication are a necessity for the efficient conduct of business activities. Telephone, e-mail, internet, etc., provide important means of communication for industry and commerce. They enable the businessmen to exchange information and finalise their deals of sales and purchases.
Classification of Business Activities – With the Relationship between Industry, Commerce and Trade
Various business activities may be classified into three broad categories:
1. Industry
2. Commerce
Industry is concerned with the production of goods while commerce involves their distribution. According to L.H. Haney, “On the one hand, business rests on the technical process of manufacture; on the other hand, it looks to the market. At the junction stands the businessman, either directing the technical process of production or gauging the market, or doing both; but always engaged in buying and selling for the purpose of gain.”
1. Industry:
The term industry is used to refer to the process by which useful things are extracted from the environment, and transformed, processed, fabricated and multiplied into other products.
Industry is of the following types:
i. Extractive Industries:
These industries extract or draw out various products from natural resources such as earth, soil, water, air, etc. The products raised by these industries are provided by nature and collected by human beings. Agriculture, mining, hunting, finishing, lubering, oil exploration, quarrying, etc. are examples of extractive industries. The products of such industries are used by manufacturing and construction industries.
ii. Genetic Industries:
Genetic implies heredity or parentage. Genetic industries involve breeding or reproduction of plants and animals. Plant-breeding nurseries, cattle-breeding farms, poultry farms, fish hatcheries and commercial kernels are examples of genetic industries.
iii. Manufacturing Industries:
These industries are concerned with the conversion or transformation of raw materials and semi-finished products into finished products. Such industries, therefore, create ‘form utility’. Manufacturing industries supply most of the products for daily use. Goods supplied by these industries are known as factory production.
Manufacturing industries are of the following types:
(a) Analytical:
In an analytical manufacturing industry, a basic raw material is analyzed or separated into a number of products. For instance, an old refinery separates crude oil into kerosene, gasoline, diesel oil, lubricating oil and petrol.
(b) Synthetically:
In these industries, two or more materials are combined or mixed together to manufacture a new product. Soap, plastics, cement, paints, cosmetics, fertilizer, etc. are the products of synthetically industries.
(c) Processing:
These industries are engaged in the processing of raw material through different stages of production. Examples of processing industry include textiles, sugar, steel, etc.
(d) Assembling:
In this case, various components or parts are brought together to produce a finished product. Manufacture of bicycles, radios, televisions, watches, automobiles are typical examples of assembly industry.
iv. Construction Industries:
These industries are engaged in the erection or construction of buildings, bridges, roads, dams, canals, etc. Construction industries use the products of extractive industries, e.g., stone, marble, bricks, etc., and also the products of manufacturing industries such as cement, iron and steel, wires, etc.
These industries create the basic infrastructure for development. The distinguishing feature of these industries is that their products are made or fabricated at fixed sites. Their products are not carried to the market for sale.
Sometimes, industries are classified into primary and secondary industry. Primary industry consists of extractive and genetic industries which supply basic raw materials for further production. Manufacturing and constructive industries constitute secondary industry. According to scale of operation, industries may be classified as large-scale industry and small-scale industry.
Industries requiring huge investment and sophisticated technology, e.g., ship-building, iron and steel, petroleum refining, etc., are known as heavy industry while light industry which requires small investment and simple technology consists of sugar, paper, textiles, etc. But all such classifications are relative rather than absolutely watertight categories.
Industries on the Basis of Economic Activity:
Industries may also be classified on the basis of the nature of economic activity carried out in an establishment. The term establishment is defined as an economic unit which is engaged in one or predominantly one economic activity at a single physical location under single ownership control of a firm or enterprise, which may have more than one establishment engaged in different activities at the same location or the same activities in different locations. Each establishment is to be counted separately and classified appropriately.
Like International Standard Industrial Classification, 1968, the National Industrial Classification, 1970 groups economic activities which are akin in terms of process type, raw material used and finished goods produced. The classification does not make any distinctions according to the type of ownership or type of economic organization, and except in some cases the classification does not distinguish between large scale and small scale.
2. Commerce:
Commerce embraces all those activities which ensure a free and smooth flow of goods and services from producers to consumers. It consisted of trade and the activities which facilitate trade. According to James Stephenson, “Commerce is concerned with the exchange of goods; with all that is involved in the buying and selling of goods at any stage in their progress from raw materials to finished goods in the consumers’ hands.
It covers not only the functions of buying and selling and handling goods but also the many services which must be provided to finance, insure, store and transport goods in the course of these exchanges.” Commerce is thus an organized system for the exchange of goods and services between the members of the business world. It serves as a link between producers and consumers.
Role of Commerce:
However, the process of exchange is beset with several hindrances. The principal function of commerce is to remove these hindrances so as to ensure a free and interrupted flow of goods and services from producers to consumers.
These hindrances have been discussed under:
i. Hindrance of Person:
The manufacturers and ultimate consumers of goods are often unknown to each other. They are not always situated at the same place. Therefore, certain persons called traders are required to bridge the gap between them. Various types of traders such as wholesalers, retailers and mercantile agents help to remove the hindrance of persons. Traders play an important role in the field of commerce by establishing a link between sellers and buyers.
ii. Hindrance of Place:
Very often goods are produced at places far away from the points of consumption. Various means of transport remove this barrier of distance and help to establish a link between the two packaging of goods to protect them from damage and pilferage in the course of transit also helps to remove the hindrance of place and thereby creates ‘place utility’.
iii. Hindrance of Time:
These days goods are generally produced in anticipation of demand. Therefore, it becomes necessary to store them and make them available as and when the consumers demand them. Warehouses perform this function of storage thereby balancing the time lag between production and consumption. They help to create time utility.
iv. Hindrance of Risk:
During transportation and storage, goods are subject to several types of risk. Goods may be stolen or damaged. Fire, floods, earthquake, storm, riot, etc., and other calamities may result in the destruction of goods. Insurance removes this hindrance by covering the risk of loss or damage of goods. Insurance also helps in the safe transportation and storage of goods.
v. Hindrance of Exchange:
Large-scale exchange or sale of goods requires safe and economical arrangements for the payment or price. Money serves as the medium of exchange and thereby removes the hindrance of exchange. Banks facilitate exchange by providing credit in various forms. Banking is, therefore, an important part of commerce and banks are useful commercial institutions. Payments for goods and services can be made easily and safely through the banks.
vi. Hindrance of Knowledge:
Exchange of goods can take place only when the seller brings his products to the notice of prospective buyers. Advertising and publicity provide the necessary information to prospective buyers about the utility and features of various products. In this way, they help to remove the hindrance of knowledge.
To sum up, commerce is the sum total of those activities or processes which are engaged in the removal of hindrances of person (through trade), place (through transportation), time (through storage), risk (through insurance), exchange (through banking), and knowledge (through advertising and publicity).
Trade:
Trade is that branch of commerce which is concerned with the sale, transfer or exchange of goods and services. It involves the buying and selling of goods and services. Trade is the nucleus of commerce because all commercial services like transportation, storage, insurance, banking, packaging, advertising, etc., revolve around trade. The superstructure of commerce is built upon the foundation of trade.
Trade can be classified into the following types:
i. Internal or Home Trade:
It implies the buying and selling of goods within the boundaries of a country. Payment for the goods sold is made in national currency either in cash or through the banking system. Such trade is also known as domestic trade or inland trade.
Internal trade may be further classified into two categories as follows:
(a) Wholesale Trade:
It refers to the purchase and sale of goods of a specific variety in bulk, a wholesaler buys goods in large quantities directly from manufacturer(s) and sells them in comparatively small quantities to the retailers. Wholesale trade constitutes a link between the producers and the retailers.
(b) Retail Trade:
It involves the sale of goods to the ultimate consumers. A retailer buys goods from wholesalers or manufacturers and sells them to the final consumers. He serves as the last link in the chain of distribution. Retail trade is carried on in several forms, e.g., department stores, multiple shops, mail-order houses, super bazaars, etc. Small-scale traders like hawkers, peddlers, street stall holders, pavement dealers and neighbourhood stores also carry on retail trade.
ii. International or Foreign Trade:
It consists of the exchange of goods and services between persons or organizations operating in two more countries. International trade involves the use of foreign currency (known as foreign exchange) and international means of transport. A system of international banking has been developed to facilitate payment in the foreign exchange transactions. International means of transport consist generally of shipping and airways. International trade is also carried on between the Governments of different countries.
International trade may be further classified into the following categories:
(a) Import Trade- It involves purchase of goods from foreign countries for use in the domestic market.
(b) Export Trade- It is concerned with the sale of domestic goods to foreign buyers or in foreign markets.
(c) Re-Export Trade- Re-export trade involves the import of foreign goods with a view to re-export them.
Auxiliaries to Trade:
In addition to trade, commerce includes several ancillary services which facilitate exchange of goods and services.
These auxiliary services or aids to trade are:
(i) Transportation:
Transportation carries goods from producers to traders and finally to consumers. It bridges the geographical distances and thereby performs a useful function in commerce. It makes for speed and efficiency in exchange. Transportation provides the wheels of commerce. It is because of transportation that a producer can sell his goods in different parts of the world. It creates ‘place utility’.
(ii) Warehousing or Storage:
It refers to the holding and preservation of goods until they are finally consumed. Goods have to be stored at every stage in the process of exchange. Warehousing performs a useful function by matching supply with the demand. It helps to make available the seasonally produced goods throughout the year. In the absence of warehousing, a producer will have to dispose of the goods as soon as they are produced. Warehousing creates ‘time utility’.
(iii) Insurance:
It facilitates trade by providing a cover against the loss or damage to goods in the process of transit and storage. By getting their goods insured, producers and traders can avoid the risk of loss due to fire, theft, pilferage, etc.
(iv) Banking:
Banks are traders of money and credit. They help in the buying and selling of goods by providing a convenient and safe mode of payment. Banks also grant credit to businessmen with which they can carry on larger volume of trade.
(v) Advertising:
Advertising brings goods and services to the knowledge of prospective buyers. It helps to highlight the distinctive features and utility of different products. With the help of such knowledge, consumers can obtain better value for their money. Marketing research helps to know and understand the basic requirements of consumers.
There is a close interrelationship between the different branches of business described above. One cannot function without the support of others. Commerce helps industry before and after production through the purchase of materials and the sale of finished products. Production of goods and services is meaningless unless they are distributed among the consumers.
Trade involving buying and selling of goods, maintains a smooth flow of commerce and thereby supports industry. At the same time, industry provides the goods and services for distribution and thereby gives rise to commerce. As industry develops, trade and commerce also grow.
Relationship of Industry, Commerce and Trade:
Industry, commerce and trade are interconnected and interdependent. Industry presupposes existence of commerce. Production in a manufacturing industry, for example, is possible when raw material is made available to it through commerce. Similarly, produced goods reach ultimate consumers with the help of commerce.
Thus, commerce serves as a link between a producer and a consumer. As production and industry are not possible without commerce, in the same way, no commercial activity is possible in the absence of commerce. Therefore, both industry and commerce are interdependent.
Trade involves transfer of goods from producer to consumers. It is the heart of commerce because all business activities revolve around sale, transfer or exchange. The entire superstructure of commerce is based on the strong and sturdy foundation of trade. Similarly, the specialized commercial activities like banking, insurance, transport, warehousing and advertising, etc., assist in the smooth flow of trade operations. Thus, both are interdependent and interrelated.
To conclude, between the two ends of business activity, i.e., producer and consumer, all the industrial and commercial (i.e., relating to trade and aids to trade) activities are essential for producing and selling goods or providing service to consumers. All of them are interrelated to each other and none can survive in isolation.