Classification of Business

Classification of Business Activities

The business activities are broadly classified into two categories namely:

1. Industry 
2. Commerce. 

Let us have brief information about both the terms.

1. Industry

The industry sector is defined as a sector where raw material gets transformed into beneficial products. An industry may create capital goods or consumer goods such as cloth, radio, bread, butter, etc. The industry can be classified into three categories namely: 

1. Primary Industry
2. Secondary Industry
3. Tertiary Industry

Let Us Understand Briefly About the Three Types of Industries:

Primary Industry

Primary industry is known as extractive industries. It involves activity connected with the production of wealth directly from natural resources such as water, air, land, etc. The primary sector involves activities like processing and extraction of natural resources etc. These primary industries are further divided as:

• Extractive Industry: Industries that draw out or extract products from natural sources are known as Extractive Industry. Some of the examples of extractive industries involve lumbering, farming, mining, hunting, and fishing operations.
• Genetic Industry: The industries that involve the ventures of breeding and rearing of living organisms, such as plants, birds, animals, etc. are known as genetic industry. For example, rearing of cattle dairy farms or rearing of plants in the nursery is covered in the genetic industry.

Secondary Industry

The industry that uses raw materials as input and produces finished products as output is known as the secondary industry. Secondary industries are divided into two parts:

• Manufacturing Industries: These industries are involved in the process of transformation of semi-finished goods or raw materials into finished goods.
• Construction Industries: These industries are involved with the construction of dams, roads, buildings, etc. These industries use the commodities of manufacturing industries such as iron and steel, cement or lime.

Tertiary industry

Tertiary industries are regarded as providing services that promote the flow of services and goods. This industry helps in the actions of the primary and secondary sectors.

2. Commerce

Commerce refers to the sum total of all the activities related to the placing of products before the ultimate consumers. It provides a significant link between the producer and consumers of goods. The term “ commerce” is defined as an activity that aims to remove the hindrance in the process of exchange. Commerce includes all those business activities which are related  to the sale and purchase of goods and services and facilitate their availability for consumption and use through trade, banking, insurance,and warehousing. Commerce is classified into two different categories namely:

1. Trade
2. Auxiliary to trade

1. Trade

Trade is an essential part of commerce. It involves selling and buying goods and services. There are two types of trades namely – Internal and External Trade.

• Internal Trade: It refers to the selling and buying of goods or services within the geographical contours of a country. Internal trade is also known as domestic trade or home trade. Internal trade is divided into two types: Retail trade and Wholesale trade.
• External Trade: External trade is referred to the selling and buying of goods or services beyond the geographical contours of the country. In external trade, the market is vast. External trade is of 3 types: export trade, import trade, and entrepot trade.

2. Auxiliary To Trade

In terms of business, the term “Auxiliary to Trade ” refers to all those activities which provide support to performing activities related to trade and industry. In fact, the auxiliary to trade provides a facilitating base to industry and trade. Such activities include insurance, banking, warehousing, advertising, and communication.

Meaning and characteristics of Business

The term business refers to an organization or enterprising entity engaged in commercial, industrial, or professional activities. The purpose of a business is to organize some sort of economic production (of goods or services).

Business also refers to the efforts and activities undertaken by individuals to produce and sell goods and services for profit.

Characteristics of Business

In order to be classified as a business, an organization must exhibit certain characteristics of business and perform certain tasks. What is the definition of characteristics? Some of these characteristics include economic activity, buying and selling, continuous process, profit motive, risk and uncertainties, creative and dynamic, customer satisfaction, social activity, and government control.

Economic Activity

Businesses perform the economic activities of producing goods and services and making them available to consumers. These activities also support the economy through job creation, as well as industrial and economic development.

Buying and Selling

Businesses participate in the buying and selling of products in order to make a profit. Examples of things they may buy include raw materials to repurpose, machinery for production, and property to conduct their business. Businesses sell the finished products made from raw materials and machinery to retailers, or directly to consumers. If the business provides services to consumers, they may sell them directly or through another company.

Continuous Process

To be considered a business, an entity must engage in regular transactions to achieve an ongoing profit flow. The process of producing and distributing goods and services is continuous and involves frequent strategizing to increase the business’s profitability.

Profit Motive

The success or failure of a business is determined by its profitability. Businesses are centered on achieving the highest profit level possible by producing and selling goods and services. Higher profits enable a business to grow economically and expand its goals.

Risk and Uncertainties

Every business should continuously take account of their possible insurable and non-insurable risks, which are the effects of uncertainty on the business’s goals. Non-insurable risks are unpredictable, so risk preparedness can keep a business from suffering due to surprise obstacles.

Creative and Dynamic

Due to the competitive nature among businesses in the same industry, it is important for them to develop creative ways to sell their goods and services to consumers. The dynamics of the business may evolve overtime as consumer needs change to stay profitable.

Customer Satisfaction

Profit is a business’s main goal and can only be achieved if customers buy the goods and service they sell. Successful businesses constantly monitor customer satisfaction and adjust things like price or quality as needed. Satisfied customers become regular customers, and often produce more customers through word of mouth.

Social Activity

Businesses and society depend on each other, and businesses should be considered socially responsible. Their goal should be to meet societal needs by providing goods and services that people need and want to buy. In turn, various social groups help a business survive, such as employees, customers, investors, and suppliers.

Government Control

All businesses have to adhere to government regulations and function under a certain level of control. This is to make sure that the business functions ethically, sells products and services that benefit society, and interact with customers and employees fairly.