Nature and Purpose of Business
Types of Business Activities
Business activities can be of two main types, viz. Industry and Commerce.
The term industry is used for those activities in which resources are modified for better usage by humans. Industry does some sort of value addition to the resource. For example; when flour is sent to a bakery, the bakery does value addition by converting flour into bread and cake. Similarly, a biscuit factory changes the same flour into biscuits.
Sometimes, the term industry means group of firms producing similar items. For example; electronics industry includes all those companies which produce any kind of electronic goods. Similarly, cotton textiles industry includes all the firms which are involved in processing cotton items.
Types of Industry
- Primary Industry
- Secondary Industry
- Tertiary Industry
Activities which are concerned with extraction and production of natural resources and reproduction and development of living organisms are included in primary industry. Mining is a good example of primary industry. Rearing of animals and breeding of plants also come under primary industry. The primary industry can be further divided into two types, viz. extractive industries and genetic industries.
- Extractive Industry: The industries which draw out product from natural sources are called extractive industry. Extractive industries supply some of the basic raw materials which are mostly products of geographic or natural environment. Farming, mining, lumbering, etc. are examples of extractive industries.
- Genetic Industry: Activities which remain engaged in breeding of plants and animals for their further reproduction come under genetic industry. Nurseries, seed producing companies, cattle breeding farms, poultry farms, hatcheries, etc. are examples of genetic industries.
Industry in which some primary resources are processed is called secondary industry. Making steel from iron ore is an example of secondary industry. Construction also comes under the secondary industry. Secondary industry processes primary material either to make the final product or to make intermediary products which would be further processed to make the final product. Secondary industry can be further divided into manufacturing industries and construction industries.
Manufacturing industries are involved in processing of raw materials to produce goods and thus enhance the value of the raw material. Manufacturing industries either make fully finished products which we consume or partly finished products which serve as intermediary for other industries. Manufacturing industry can be further classified as follows:
- Analytical Industry: The industry which analyses and separates different elements from the same material is called analytical industry. Oil refinery is an example of analytical industry.
- Synthetic Industry: The industry which combines various raw materials to make a product is called synthetic industry. Cement industry is an example of synthetic industry.
- Processing Industry: The industry which involves successive stages of manufacturing finished products is called processing industry. Sugar and paper are examples of processing industry.
- Assembling Industry: The industry which assembles different components to make a product is called assembling industry. Television and computer industries are examples of assembling industry. In these cases, no component is made by the manufacturer rather all the components are just assembled by the manufacturer.
This industry is involved in making houses, bridges, stadiums, road, etc.
Tertiary industries provide support services to the primary and secondary industry. Banking, transport, warehousing, communication are examples of tertiary industry. The whole service sector comes under the tertiary industry. The activities of tertiary industry can be considered as part of commerce.
Commerce facilitates business activities of industries. There are two types of commercial activities, viz. trade and auxiliary to trade. Trade involves buying and selling of goods. A factory needs to sell its goods to the end user. It is not possible for a company to directly sell goods to the end user. Wholesalers and retailers work as channel partners to facilitate trade. Insurance and advertising work as auxiliaries to trade. Advertising is a tool which motivates customers to buy a product. Banking and finance, transport, warehousing are also auxiliaries to trade.