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GUIDE
PARTICIPANT
GUIDE
Business Theory
Session 1:
Business Fundamentals
Participant Guide
Business Fundamentals
Business Theory
ThinkLink Learning
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First published by ThinkLink Learning in 2014
Business Fundamentals
Business Theory
Table of Contents
Introduction to the guide .......................................................................................................... 3
Learning Objectives: .................................................................................................................. 4
Introduction to Business ............................................................................................................ 5
Business Classification ............................................................................................................... 8
Characteristics of Services ....................................................................................................... 11
Type of Activities ..................................................................................................................... 13
Sectors of Economy ................................................................................................................. 15
Commerce and Trade .............................................................................................................. 18
Business Objectives ................................................................................................................. 21
Summary.................................................................................................................................. 25
Web Resources: ....................................................................................................................... 25
Classroom Activity ................................................................................................................... 29
Business Fundamentals
Business Theory
Content includes:
Referral material
Topic description
Home assignments
Program curriculum:
This module has 17 chapters:
Session 1: Business Fundamentals
Session 2: Mission, Goals and Strategies
Session 3: Business Environment and Processes
Session 4: Stakeholders Analysis
Session 5: Communication and Information Flows I
Session 6: Communication and Information Flows II
Session 7: Fundamentals of Marketing
Session 8: Marketing of Logistics Services
Session 9: Financial Accounting
Session 10: Working Capital Management
Session 11: Products and Services Costing
Session 12: Budgeting and Reconciliation
Session 13: Business Plan and Sources of Funds
Session 14: Legal Framework for Logistics
Session 15: International Trade
Session 16: Corporate Social Responsibility
Session 17: Case Study
Business Fundamentals
Business Theory
Learning Objectives:
Business Fundamentals
Business Theory
Introduction to Business
Business:
Business is an economic activity, in which goods or services are purchased,
produced and sold in exchange of money. It is carried out on a regular basis
with the prime objective of making profit.
What is expense?
Investment incurred in running a
business (supply, wages, etc.).
What is cost?
The amount of money required
for each stage of production (raw
material)
What is profit?
Income that is left after all
expenses and costs are covered.
Scenario:
A roadside vendor sells Rs 2000
worth of fast food every day.
Where the cost of the food is
Rs.800, the hawker rents the
stand for Rs 200 per day and
pays Rs 100 for the permit (per
day). He also has a helper with
him, whom he pays 100 and
keeps 200 as his own wages.
Participants in business:
There are mainly four direct participants: owners, employees, customers and
suppliers.
Owners invest money into business, create/polish the business idea,
and bring together resources (money, people) needed to turn an idea into
business, hire employees.
Employees work for the company and help the company reach their
goals.
Customers buy products and services offered by the businesses to
satisfy their needs and wants.
Suppliers supply goods and services that the company uses to
produce goods and services that it sells to its customers.
Business Fundamentals
Business Theory
First of all, the business needs to identify the customer needs in terms of size of the refrigerator (70 / 165 / 210 /
320 litres); type (frost free / single door / side doors); designs / colours etc. it also needs to decide the price and
promote the product to the customers. This part of the business is handled by the Marketing function. The role of
marketing is identifying and responding to customer needs, developing benefits and features of products, price and
quality evaluation and controls, promotion and delivery of products, keeping and attracting customers and satisfying
customer needs.
Having known the type and features of the product to be developed, the business needs to create drawings and
specification of the product as well as the parts and components that go into it e.g. rating and type of compressor.
This part of business is handled by the Research and Development function. This function is concerned with new
product developments as well as improvements to existing products or product lines.
Now that the product has been developed, it needs to be manufactured as per the customer demand, quality
standards and agreed timelines. It is handled by the Operations function. This function is responsible for designing
and overseeing processes that convert resources into goods and services, controlling the quality and ensuring
timely operations.
Supply Chain Management handles sourcing of raw materials and components required for manufacturing goods.
Once the finished goods are ready, they are distributed to the customers through a network of warehouses.
The goods, once produced, need to be sold to the customer through various channels e.g. distributors, wholesalers
and retailers. It is the responsibility of the Sales function to make sure that goods are sold to end customers in
return for money. A sale is the act of selling a product or service in return for money or other compensation.
To purchase goods, customers or the channel partners (distributors / retailers) place the orders. The role of the
Customer Service function is to ensure that goods are delivered on time and also to respond to the enquiries of the
customers on delivery, quality and feedback. Nowadays customer expectations are very high. When people contact
a business they expect a prompt, polite and knowledgeable response. Unless they get a high level of service they
are likely to take their demand to other businesses in the future.
In order to run the business i.e. buying materials, paying salaries, meeting expenses etc., funds are needed. The
role of the Finance function is to obtain and manage company funds effectively.
The business owners and their shareholders need to know the financial health (sales revenue, profits, cash flow
etc.) of the business. The role of the Accounting function is to monitor, measure and report the financial and
managerial information.
Finally, the businesses need a team of people that set goals, make strategies, organize resources, make important
decisions, evaluate performance and take corrective actions. The team that oversees the overall direction of the
business and manage these functions is called Management.
Business Fundamentals
Business Theory
Nature of business
Size of business
Presence
Ownership
Features of Business:
Key Features:
Benefits of business:
1.
2.
3.
4.
Business Fundamentals
Business Theory
Business Classification
Small Scale Industry
Small scale industries receive
many concessions and benefits
from the government such as loan
on easy terms, sales and
marketing support.
1. For-profit business
2. Non-profit business
2. Non-profit business:
Non-profit businesses do not necessarily have profit as the primary
motive; however it works toward certain social goals. For example, raising
money for social and human welfare would fall under this category.
Classification based on business or organization size:
1. Small scale enterprises or industries
Classification in terms of
presence within or across
nations:
1.
National
2.
Multinational
Business Fundamentals
Business Theory
Classification based on
business output:
Business
Goods
Services
Goods
In economics, goods are tangible materials that satisfy human wants and provides utility, for example, a consumer
making a purchase. Commodities may be used as a synonym for economic goods but often refer to marketable raw
materials and primary products.
There are many different kinds of goods. Consumer goods are those such as food and clothing that satisfy human
wants or needs. Producer goods are those such as raw materials and tools, used to make consumer goods. Capital
goods are that machinery, used in the production of commodities or producer goods.
Business Fundamentals
Business Theory
Service
According to Lovelock (2004), service is any act, performance or experience that one party can offer another; one that
is essentially intangible, and does not result in the ownership of anything. Its production may or may not be tied to a
physical product.
The service can be understood in various concepts. Some of the common service concepts are:
Service industries and companies: Classified within the service sector whose core product is service (eg;
Bank)
Service as products: Represent the wide range of intangible product offerings that customers value and pay
for. Sold by service and non-service companies. (eg; Savings Account in a bank)
Customer Service: Service provided in support of companys core products (typically not charged for)
(eg; Supporting opening an bank account, activating accounts offline & online)
Hidden services: Another way of thinking about products and services (eg; Paying for utility bills & other
services
through the bank account without physical presence)
The broad definition of services implies that intangibility is a key determinant of whether an offering is a service. The
following figure shows the tangible versus intangible elements in
The term service refers to an intangible activity which full fills a certain need or a want, and just as in case of a
physical product a customer needs to have a want and the monetary ability to acquire a service. Any organization
which fulfils its customers needs by providing a certain service rather than a physical product is known as a service
organization. Some of the examples of services organizations are given below:
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Business Fundamentals
Business Theory
Characteristics of Services
4BU
There are five main characteristics which are associated with services. The following figure shows these characteristics:
1. VARIABILITY
When you go to a bank, do you get same level of service every time? Or, does every customer of the bank get
the same level of service? Does every branch of the bank provide same level of service? Compare it with a
product, such as noodle of a particular brand and flavour.
Wherever and whenever you buy it, you can expect to get same
taste every time. In the production and marketing of physical
products, companies have increasingly paid special attention to
ensuring consistency in quality, feature, packaging, and so on.
More often than not all customers can be sure that every bottle
of Coke he/she buys, even in a life-time of purchases, will not
vary. The provision of services, however, invariably includes a
large measure of the human element. Indeed, with many
services, we are purchasing nothing else but the skills of the
suppliers. Because of this, it is often very difficult for both
supplier and consumer to ensure a consistent product or quality of service. Services are highly variable
because they are not only dependent on the customers and the service providers but also on the place and time
at which they are provided. Since service depends upon individual customers, it can be said that no two
services are exactly same and that services are always unique. For this reason service providers face a lot of
problems trying to deliver standardized services. Even the customers are Aware of this problem and hence,
look at previously provided services and their results. Therefore it is very important to have a consistency in
every service provided. Proper training and constant monitoring of customer feedback is important in achieving
high standards of services.
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Business Theory
2. INTANGIBILITY
Physical products in the store are widely displayed for customers
to see, feel, touch, weigh or sniff at before deciding whether or
not to buy. Compare this with the choice of the service of say, an
insurance policy. You cannot touch, see or smell the products
before choosing, although clearly you can make some
assessment based on past experience, word of mouth, or even
the location and decor of the insurance office. Services are
intangible and do not appeal to the senses like look or smell.
This causes problems for customers and providers both in
evaluating the value and quality of the service. Thus, customers
tend to look at other attributes like the surroundings or the decorum of the place where service is provided.
3. INSEPARABILITY
A key distinguishing feature of service marketing is that the service provision and provider are inseparable from
the service consumption and consumer. For example, we cannot take a hotel
room home for consumption; we must consume this service at the point of
provision. Similarly, the hairdresser needs to be physically present for this
service to be consumed. In other words, service provider and the actual
service cannot be separated from each other. For example when a doctor
performs an operation he has to be physically present to perform the service,
and the same way the customer also has to be present to obtain a service
unlike in case of a physical product where he need not be present physically.
Services are produced and consumed simultaneously. This has implications
both for channels of distribution and scale of operations. Inseparability of production and consumption increases
the importance of the quality in services. Therefore, service marketers not only need to develop task-related,
technical competence of service personnel , but also , require a great input of skilled personnel to improve their
marketing and inter personal skills. For example, the role of a surgeon is not only to have an expertise in
performing a surgery but also to gauge patients state of mind and make him or her feel relaxed before the
surgery.
4. PERISHABILITY
Services are highly perishable compared to physical products.
Services cannot be stored. Their consumption takes place
simultaneously as when they are produced. In other words, services
have zero inventory. Once sold, they stand sold and cannot be
returned. Service providers cannot improve their supply chain to
improve the service frequency.
A vacant seat on a plane is lost forever; similarly a partly-used
operation theatre will take longer to recover the cost of building it.
Unlike services, goods once produced can be stored and sold later. Companies produce and store goods for
the peak seasons such as festivals, which is not possible in case of services.
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Business Fundamentals
Business Theory
5. NON-OWNERSHIP
The final distinguishing feature of a service is that, unlike a physical product, the
consumer does not secure ownership of the service. Rather the customer pays
only to secure access to or use of the service. Again the hotel room is a good
example. Similarly, with banking services, although the customer may be given a
cheque book or a credit card, they serve only to allow the customer to make use
of what he or she is actually buying, namely, bank services.
Type of Activities
Activities which human beings undertake are known as human activities. These may be cultivating land, growing plants,
rearing animals, teaching in a school or college, working in a factory or office, watching television, listening to radio,
reading newspaper, worshipping in a temple, playing football, etc. Business is a complex process that includes multiple
activities, and each of these activities may be divided into two broad
categories asa.
b.
Non-Economic activities
a. Economic Activities
Activities, which are performed with an objective to earn money, are
known as economic activities. For example, a farmer grows crops to sell
them, a factory or an office employee works and gets wage or salary, a
businessman earns profit through buying and selling goods.
For example,
Economics-the study of
how scarce resources are used
to produce outputs-goods and
services- that are distributed
among people. Resourcesinputs used to produce outputsland
and
other
natural
resources,
labour
(physical/mental),
capital
(buildings,
equipment,
and
money), entrepreneurship.
b. Non-economic Activities
Activities, which are not performed to earn money but to get some satisfaction, are called non-economic activities.
These activities are performed to discharge social obligation or for physical fitness or for recreation. People visiting
places of worship, providing relief to the victims of flood and earthquake, engaging in sports activities, gardening,
listening to radio or watching television are all examples of non-economic activities.
For example,
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Business Fundamentals
Business Theory
Exercise 1
1. What is the purpose of economic activities?
______________________________________________________________________________________
_____________________________________________________________________
What is the outcome of such activities?
______________________________________________________________________________________
______________________________________________________________________
Business Activities: Business Activities refer to all the activities in a company that enable the business to
achieve its economic and non-economic objectives.
Business activities are broadly classified into two main categories:
a. Industrial activities, and
b. Commercial activities
a. Industrial activities: These activities are related to production or extraction of goods through utilization of various
resources. Growing crops and plants, extracting oil, natural gas and minerals from the surface of the earth,
processing raw materials into finished and semi-finished goods, construction of buildings, dams and bridges are
examples of industrial activities.
Example:
Growing crops
b. Commercial activities: Commercial activities include all those business activities, which are undertaken for selling
or exchanging goods & services, and for facilitating their availability for consumption and use. Thus, it includes trading
activities and other service activities like transport, banking, insurance, warehousing etc.. These service activities are
known as auxiliaries to trade or aids to trade. They facilitate the business by carrying goods from the place of production
to the place of consumption, providing finance, undertaking risk, systematic storing of goods etc.
Example:
Buying and selling of goods by wholesalers, dealers, retailers, also called as Trading.
Activities and other service activities like transport, banking, insurance, warehousing etc. that support
the trading activities.
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Business Fundamentals
Business Theory
Sectors of Economy
Based on the dependence of a sector on the natural resources directly or indirectly they are classified as:
1. Primary sector
2. Secondary sector
3. Tertiary sector
1. Primary Sector
Industries engaged in extracting, producing and processing natural resources such as minerals, plants, agriculture or
animals are called primary industry. These industries use natural resources as raw materials and produce finished
goods.
Examples:
Mining
Oil Extraction
Dairy Farming
Poultry Farming
Horticulture
Fisheries etc.
2. Secondary Sector
Industries that use the products produced by primary industry as the raw materials and produce variety of goods are
called secondary industry.
Examples:
Iron (primary source - iron ore).
Wood Furniture (primary source wood/trunk).
Breakfast Cereals (primary source cereals/grains).
3. Tertiary Sector
Sectors providing services to the consumers are called tertiary industries.
Examples:
Healthcare
Banking
Insurance
IT services
Transport, etc.
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Business Fundamentals
Business Theory
Secondary industry:
Textile Mill
Primary indstry:
Cotton crop
production
Image 3
Tertiary industry:
Apparel Store
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Business Fundamentals
Business Theory
Exercise 2
Identify the primary and secondary industries for the following tertiary industries:
Primary Sector
Secondary Sector
Tertiary Sector
1) ________________________
_________________________
Transport Industry
2) ________________________
_________________________
Healthcare Industry
3) ________________________
_________________________
Retail Industry
4) ________________________
_________________________
Insurance Industry
Exercise 3
1. Business benefits only the shareholders and doesnt contribute to the development of a nation.
a) True
b) False.
2. The activities that include production and extraction of goods are called _____________ activities.
3. A business group contributing money to the Prime Ministers relief fund is _______________.
4. Social responsibility is one of the important features of the business.
a) True
b) False
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Business Fundamentals
Business Theory
Manufacture
Seller
Custom
Distributor
Retailer
Consumer
Trade :
Buying and selling of goods & services either
for cash or on credit. The person who buys
goods for the purpose of selling is a trader.
For example, a shopkeeper who buys goods
from a distributor or a wholesaler in bulk and
sells it to the individual consumers is a trader.
There are also two types of trade, i.e.
Domestic Trade (done within a country) and
International Trade (done with other
countries).
Trade
Domestic
International
Trdae
Tradel
Wholesale
18
Retail
Import
Export
Entrepot
Business Fundamentals
Business Theory
Domestic Trade:
Refers to buying and selling goods or services within the boundaries of a country. The payment is done in the currency
of the country, Indian Rupees for Indian domestic trade e.g.. Domestic trade is again divided into wholesale and retail.
Wholesale:
A trader that buys goods from a company in a bulk quantity and sells it to
the smaller traders, is called a wholesale trader. They do not sell directly
to the end consumers. There are wholesale markets in every city where
such trade happens. One of such wholesale market for electronic goods
in Delhi is Lajpat Rai market. Can you find out wholesale markets for
various categories of products in your city?
Retail:
A trader who buys in bulk from a company or a wholesaler and sells it to
the end consumer, is called a retail trader. All the shopkeepers,
departmental stores or company outlets are examples of retail. All the big
outlets for the consumers such as Big Bazar, Reliance, Spencer and
Croma, which do retailing on a large scale & have a proper infrastructure
of storing, moving and displaying goods are called Modern Retail.
Retail Trade
International Trade: If the buying & selling of goods happens across the boundary of the country, it is called
international or foreign trade. The payment is done in international currencies such as US Dollar, Euro, Pounds etc.
The international trade is further classified as:
Import: Goods or services purchased from foreign country for selling in own country.
Export: Goods or services sold to another country.
Entrepot: Goods imported from one country for the purpose of exporting to other country with or without making
any change. For example, some companies import parts and components from other countries, assemble them
into finished product and then export to other countries.
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Business Fundamentals
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Electronic Commerce:
What is common between the companies whose logo are shown below? You must have used their sites to buy
products or service.
If the buying and selling of goods and services happens over the internet or other computer networks, it is called
electronic or e Commerce. Even the payments are electronically transferred from the buyers to sellers account. There
are number of websites available that provides this facility including listing features & details of the products, price of
the products, availability and delivery time, payment options etc.
Advantages of e Commerce:
a. Low cost of business: e Commerce can connect a business with a large number of customers across the
globe, at a fraction of a cost that is required to reach so many customers in a traditional way of setting up
physical outlets at every place and stocking goods in each outlet.
b. Wider Choice of Goods: The customers have a wider choice of goods & services to select from.
c. Convenience: The customers can purchase goods right from home or office using internet and do not
physically need to go to any outlet.
d. Quick Response to Customers: The goods to end customers can be reached directly without routing
through the distributor or wholesalers. The customers get better service, faster transaction, fewer
shortages of the products etc.
Exercise 4
Fill in the blanks
1. Trade matches the gap between producer and _________________.
2. Commerce consists of activities that include trade and __________________________.
3. A trader imports washing machine in India for exporting to neighbouring countries. This trade is
called ____________________.
4. A trader in Chawri bazar buys goods in bulk to sell to the smaller retailers. The trader is a
____________________.
5. Ramesh buys household grocery from a _______________.
6. Easy Trade.com allows traders to buy and sell goods on internet, also known as
_______________.
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Business Fundamentals
Business Theory
Business Objectives
A business has four main objectives:
1.
2.
3.
4.
Economic objective
Social objective
People objective
National objective
Marketing / advertisement
Infrastructure
1. Economic objective
Economic objective is the primary objective of any business that leads to
the growth of business, earning profit and providing value to shareholders.
Economic objectives are:
a. Profits:
- Required for business growth.
- Provide return to the investors.
- Act as cushion against any future risks.
b.
-
Growth:
To increase sales revenue.
To be competitive in the market.
To expand customer base.
Higher growth
leads to more
profit
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Business Fundamentals
Business Theory
2. Social objective
Business should contribute to the improvement of wellbeing of the society
and should not engage in any activity that harms the society or its
environment in any manner.
Organizational approach towards
Corporate social responsibility
(CSR):
Philanthropic approach
c. Business Ethics:
All the business need to adhere to laws of the country and follow
ethical ways of doing business. They should adapt fair trade practice,
should not discriminate against any gender, caste or a race. They should
not make false claims or mislead public for their personal gain.
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Business Fundamentals
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3. People objective
U
Every business employs people to run and manage its operations. The human objective of the business
therefore includes well-being of their employees, providing opportunities for their development & growth,
making the work environment conducive & safe, and providing social security benefits such as insurance,
medical cover, pension etc.
People objectives are:
a. Employee well-being:
-
b. Employee development:
- Invest on skill building trainings and workshops.
- Provide opportunities to take higher responsibility and challenges.
- Arrange counselling or coaching sessions if needed.
- Equip employees with the required infrastructure.
- Motivate to learn and grow.
4. National Objective
U
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Business Fundamentals
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GDP Comparison for major economies (figs. for the year 2010):
United States
China
India
Exercise 5
Please select the appropriate business objective (people, economic, social, and national) against each of the
following statements:
Business activity
1
A business should ensure that it pays all the due taxes to the
government on time.
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Business Objective
Business Fundamentals
Business Theory
Summary
Business is an economic activity in which goods or services are purchased, produced and sold in exchange of
money.
Characteristics of Services businesses that makes it more challenging are: Variability, Intangibility,
Inseparability, Perishability, Non-ownership
Business not only help the owners earn profits but also serves the National, Economic and Social cause
All the three sectors are linked to each other and play an important role in the economy of a country
Commerce is the branch of business that support and regulate the trade
E Commerce is f the fastest growing channel of trade that has many advantages over the traditional channels of
trade
Web Resources:
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Business Fundamentals
Business Theory
Students Activities
Quick Games
Identify the brand by the logo:
Brand Logo
Brand Name
Brand Logo
01
11
02
12
03
13
04
14
05
15
06
16
07
17
08
18
09
19
10
20
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Brand Name
Business Fundamentals
Business Theory
Brand Tagline/Slogan
01
There are some things that money cant buy, for everything
else theres...
02
03
04
05
06
07
08
09
10
A Passion to Perform
11
12
ON DEMAND
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Brand Name
Business Fundamentals
Business Theory
13
A Positive A++itude
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Das Auto
18
Journalism of Courage
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Business Fundamentals
Business Theory
Classroom Activity
Pick any industry e.g. food, automobile, furniture and discuss the following with your group:
Plot all the business activities right from obtaining the materials to reaching to end consumer or user.
Classify each of these activities as:
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Business Fundamentals
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Notes:
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