26-11-2012, 05:53 PM
NATURE AND SCOPE OF BUSINESS
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In your day-to-day life you may be engaged in several activities. However, when someone asks you as to what you want to become in your life or what you want to do infuture, your answer may be – “I want to join a suitable job or I want to become a doctor,an engineer, a dancer or a musician”, or you may say, “I want to do my own business”. Butwhy do you want to do any of such activities? Obviously, it is mainly to earn your livelihood.
Broadly speaking, every human activity in which one is engaged for the purpose of earningone’s livelihood is known as economic activity. In this lesson we shall learn about all suchactivities, their categorization and some other related aspects.
1.1 HUMAN ACTIVITIES
Every human being is engaged in one activity or the other. It may be cultivating land,preparing food, playing football, reading storybooks, studying in a school, teaching in acollege, working in an office, jogging in the park and so on. If you try to ascertain as towhy individuals engage themselves in one activity or the other, you will find that by doingsuch activities they are trying to satisfy some of their needs or wants. All these activitieswhich human beings undertake to satisfy their needs or wants are called human activities.
However, even if all human activities satisfy the needs and wants, they differ among eachother in terms of the purpose for which they are undertaken and the end result. For example,let us take the activity of preparing food – one prepared by a mother at home for herfamily and the other by a cook in a hotel. Here you will notice that the purpose and endresult of the activity of preparing food (a) by a mother and (b) by a cook varies. In the firstcase, the purpose is to feed the family members without any expectation of monetaryreturn while in the second case, cooking food is a part of his job so as to earn money interms of salary or wage. The end result in the first case is ‘self-satisfaction’ and lookingafter the family, while in the second case it is ‘earning money’ for livelihood.
The human activities that are undertaken with an objective to earn money or livelihood arecalled economic activities. Whereas the other types of activities that are undertaken toderive self-satisfaction, are called non-economic activities. A farmer growing crops, aworker working in a factory for wage/salary, a businessman engaged in buying and sellingof goods are examples of economic activities. While activities like meditation, engaging insports for physical fitness, listening to music, providing relief to flood victims etc., areexamples of non-economic activities.
1.2 CLASSIFICATION OF ECONOMIC ACTIVITIES
Economic activity can be a one-shot affair or a continuous one. For example, you knowhow to stitch clothes and one day you stitch a shirt for your friend and he pays somemoney to you. Of course, this is an economic activity as you have some monetary gain butit is a one-shot affair. But, if you start stitching shirts on a continuous basis and chargemoney for that, you are said to be engaged in some continuous or regular economic activity.
It may be noted that by getting themselves engaged regularly in a particular economicactivity people try to earn their livelihood. So, the activities in which individuals engagethemselves on a regular basis and earn their livelihood are known as their ‘occupations’.
In fact everyone is engaged in one occupation or the other, and these can be broadly
Categorized as –
(a) Profession;
(b) Employment; and
© Business.
Let us know a few more details about these occupations.
1.2.1 PROFESSION
You are aware of doctors. What are they and what do they do? They are basically individualswho have a special knowledge and training to examine the patients, find out the ailment, ifany, and then treat them to be cured from such ailment. And, for doing all these theycharge a fee from patients. Similarly, we have Chartered Accountants who specialize inmatters related to accounts; taxes etc. and help people and organizations for such jobs fora fee. If we look further, we find Engineers, Architects, Film-stars, Dancers, Artists andmany others engaged in their own field having specialized knowledge and training. Theyare all known as professionals and the activities they are engaged in are called profession.
In order to gain clarity on the concept of a profession, let us look at its basic featureswhich can be summarized as follows:
(a) Profession is an occupation for which the individual has to acquire a special knowledgeand skill.
(b) The money they get for providing such a service is usually known as ‘fee’.
© Most of the professionals are regulated by a professional body, which frames thecode of conduct to be followed by the member professionals. For example, CharteredAccountants in India are regulated by a professional body known as Institutes ofChartered Accountants of India, Cricketers by International Cricket Council (ICC),and so on.
(d) Professionals acquire the specialized knowledge mostly from colleges, universities orspecialized institutes. In some cases, individuals also acquire such knowledge and skillthrough training or coaching by an expert in the same field, say for example, dancersand musicians, etc.
Medical Professionis regulated byMedical Council ofIndia
Law Profession isregulated by BarCouncil of India.
Engineeringprofession isregulated by TheInstitution ofEngineers.
(e) Professionals usually work on their own and get a fee for their services and termed asthose in practice. However, some of them may work in organizations as employees orconsultants.
(f) The primary objective of every profession is to provide service though they may chargea fee. They should not exploit the people using their knowledge of expertise.
All those economic activities which involve the rendering of personalservice of specialized and expert nature based on professional trainingand skill and require the observance of certain rules and regulations(code of conduct) are termed as Professions.
1.2.2 EMPLOYMENT
You have seen people going regularly to offices, factories, firms etc. for work. These areindividuals who are engaged by organizations or individuals to work for them in return fora wage or salary. They are said to be in employment. Thus, we find a postman is inemployment in the department of posts to deliver letters. Here the department is called theemployer and the postman is the employee. The postman works on the basis of certainterms and conditions and gets a monthly salary in return. The main features of employmentare:
(a) It is an occupation where a person (called employee) is to work for another (calledemployer).
(b) There are certain terms and conditions of work like hours of work (how many hoursa day), duration of work (how many days or hours in a week or month etc.), leavefacility, salary/wages, place of work etc.
© The employees get salary (normally paid on a monthly basis) or wage (normally paidon daily/weekly basis) in return of their work. This amount is normally predetermined,mutually agreed upon and may increase over time.
(d) Legally the employer-employee relationship is based on a contract and any deviationfrom any side permits the other party to take legal recourse.
(e) There are jobs for which no technical education or specialized skill is required foremployment. But, for skilled jobs, specialized jobs and technical jobs, a certain levelof basic/technical education is required.
(f) The main purpose behind employment is to secure assured income through wagesand salaries.
The economic activity, rendered by one person to another, under acontract of service, for some remuneration, is called employment.
1.2.3 BUSINESS
You must have heard about Tata Companies. They manufacture so many things from saltto trucks and buses and sell these to individuals like you and me. In the process, they earna profit. Look at a shopkeeper nearby. What does he do? He buys products in bulk andsells us in small quantities. He also earns some profit in the process. Similarly, the cable TVoperator provides us a connection at a price so that we watch various channels on ourtelevision set. In this process the cable TV operator earns a profit. All of them are said tobe engaged in business and are called businessmen. They all perform their activities regularlyto earn profit. Thus, the term ‘business’ refers to human activities which involve productionor exchange of goods and services regularly with the object of earning profit.
Business may be defined as an activity involving regular productionor purchase of goods and services for sale, transfer and exchangewith an object of earning profit.
We find people like mill owners, transporters, bankers, traders, tailors, taxi operators etc.doing business. All of them are engaged in an activity of manufacturing or trading (buyingand selling) or providing some service. They have invested their money, bear the risksinvolved and work for earning some profit. Thus, the main characteristics of business are:
(a) It is an occupation where a person is engaged in manufacturing or buying and selling ofgoods and services. The goods may be consumer goods or capital goods. Similarlythe services may be in the form of transportation, banking, insurance etc.
(b) The activities must be carried on regularly. A single transaction is usually not treated asa business. For example, if a person sells his old car at a profit, it is not treated as abusiness activity. However, if he is engaged in the activity of buying old cars and sellingthem on a regular basis, he shall be treated as engaged in business activity.
© The sole objective of business is to earn profit. It is essential for the survival of business.
(d) Every business requires some investment in cash or kind or both. It is usually providedby the owner or is borrowed by him at his own risk.