Classification of business activities


Classification of Business Activities

Business activities are undertaken to satisfy human wants by producing goods or rendering services.

We may classify business activities on the basis of functions into two broad categories

(a) Industry and

(b) Commerce.

Industry is concerned with the production and processing of goods. This type of business units are called ‘industrial enterprises’ which produce consumer goods as well as machinery and equipments. On the other hand, ‘commerce’ includes all those activities which are necessary for the storage and distribution of goods. Such units are called ‘commercial enterprises’ which include trading and service activities like transport, banking, insurance and warehousing.


Industry and its Types

Industry means production of goods for sale by the application of human or mechanical power. In other words, industry refers to economic activities which are connected with raising, producing and processing of goods and services.

Characteristics of Industry

The main characteristics of industry are as follows:-

• Industry refers to the productive aspect of business.

• Production is done by the application of human or mechanical power.

• It creates form utility to natural or partly processed goods.

• It is concerned with the production of both producer and consumer goods.

• Industrial activities are regulated by different laws.

• It involves continuous operation.

Types of Industries

Industries are divided into two broad categories:

(i) Primary industries

(ii) Secondary industries.

Primary industries include all those activities which are connected with extraction, producing and processing of natural resources. These industries may be further sub-divided into two types: (a) extractive and (b) genetic.

Secondary industries are concerned with the materials which have already been produced at the primary stage. For example, mining of iron ore is a primary industry, but manufacture of steel is a secondary industry.

a) Extractive Industries:

Extractive industries are concerned with the extraction of materials from the earth, sea and air such as mining, farming, fishing and hunting etc. Products of these industries are used either directly for consumption such as food grains, fruits and vegetables or as raw materials such as cotton, sugar-cane, etc.

b) Genetic Industries:

Genetic industries include activities connected with rearing and breeding of animals and birds and growing plants. Reproduction and multiplication is the main activity in these industries, such as, agriculture, animal husbandry, dairy, poultry, pisciculture etc. Main products are milk, wool, butter, cheese, meat, egg, fish, seeds of plants, etc.

Secondary industries may also be of two types: (a) manufacturing, and (b) construction.

a) Manufacturing Industries :

Industries engaged in the conversion of raw materials or semi-finished products into finished product are called manufacturing industries. Cotton is converted onto textiles and iron one is converted into in these industries. It creates a form utility of the product.

b) Construction Industries :

The activities of Construction industries include erection of buildings, bridges, roads, railways canals etc. Their output do not consists of movable goods. It makes use of the output of other industries like brick, cement, steel etc.


commerce  & trade

Characteristics of Commerce

Commerce is the sum total of all the activities connected with the placing of the product before the ultimate consumer. It provides the necessary link between the producer and the consumer of goods.

Commerce is defined ‘as activities involving the removal of hindrances in the process of exchange’. Commerce includes all those business activities which are undertaken for the sale or exchange of goods and services and facilitates their availability for consumption and use – through trade, transport, banking, insurance, and warehousing. Thus commerce includes trade and auxiliaries to trade, that is transport, banking, insurance and warehousing.

The main characteristics of commerce are as follows:

(i) Commerce is the sum total of activities which facilitate the availability of goods to consumers from different producers.

(ii) It aims at ensuring proper distribution of goods.

(iii) It adds different type of utilities to the goods by making goods available at the right time and the right place to the people who need them.

(iv) It includes trade and auxiliary to trade.

Trade and its types

Trade is an integral part of commerce and refers to sale and transfer of goods. It involves actual buying and selling of goods. It means exchange of goods and services for cash or credit. Traders help in directing the flow of goods to the most profitable market. They also bring about equitable distribution of goods on a national and international scale. It is because goods are produced on a large scale and it is difficult for producers to reach individual customers, that trade is said to remove the hindrance of persons through traders. Goods acquire place utility through trade.

Characteristics of Trade

The main characteristics of trade are as follows:

(i) Trade is regarded as the primary activity in commerce;

(ii) It means exchange of goods and services for price;

(iii) It helps in directing the flow of goods to the most profitable market;

(iv) It helps to equalise the supply of and demand for goods in different markets both national and international.

Classification of Trade

Trade may be classified into (i) Home Trade or Internal Trade and (ii) Foreign

Trade or External Trade.

i) Home Trade:

Home Trade means trade carried on within the boundaries of a country. The primary object of home trade is to bring about proper distribution of goods within the country. It may be divided into two types

(a) Wholesale Trade and (b) Retail Trade

(a) Wholesale Trade: Wholesale trade involves buying goods from producers and selling them in small quantities to retailers. The wholesaler generally deals in large quantities of goods of a limited number of varieties. He serves as a connecting link between the producer and the retail dealer.

(b) Retail Trade: A retail trade consists of selling goods directly to the consumers in small quantities. A retailer usually purchases goods from wholesalers or manufacturers and deals in a variety of goods of different manufacturers.

ii) External Trade:

External trade refers to trade between two countries. It implies buying and selling of goods by traders of two different countries. It creates a very wide market for goods produced in different countries.

External trade involves (a) Export and (b) Import.

Export is concerned with the sale of goods to foreign countries. Import trade relates to the purchasing of goods from other countries.

Distinction between Industry, Commerce and Trade


Basis of Difference Industry Commerce Trade
1 Meaning Production of goods and services for sale Sum total of activities connected with transfer of goods from producers to consumers Exchange of goods for price through buying and selling
2 Utility Creates form utility Creates time and place utility Creates time and place utility and removes hindrance of persons
3 Broad classification Four types: genetic, extractive, manufacturing and construction Two types: Trade and auxiliaries to trade Two types: internal and external.










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