I. TextWhat is Business?

“The playthings of our elders are called business”

Saint Augustine, one of the early

Christian church leaders.

Business is a word which is commonly used in many different languages. But exactly what does it mean? The concepts and activities of business have increased in modern times. Traditionally, business simply meant exchange or trade for things people wanted or needed. Today it has a more technical definition. One definition of business is the production, distribution, and sale of goods and services for a profit.

First, production is the transformation of resources into goods and services that people want. Historically, individuals, firms, and countries become rich if they possess more of the following four factors of production than their competitors:

Natural resources – things that are useful in their natural state, such as land, forests, minerals, and water

Human resources – anyone (from company presidents to grocery clerks) who works to produce goods and services

Capital – resources (such as money, computers, machines, tools, and buildings) that a business needs to produce goods and services

Entrepreneurs – people who are willing to take risks to create and operate businesses

At the core of production is the conversion process, the sequence of events that convert resources into products. Input (the basic materials or skills) is transformed (by the application of labour, equipment, and capital) into output:

Input – transformation – output

One example of production is the conversion of iron ore into metal car parts. For a taxi-cab company to serve its customers, tangible and intangible resources – the cab, the driver’s skill, the fuel, and a passenger – are transformed into the intangible service of transporting the customer to the destination.

Next, products need to be moved from the factory to the marketplace. This is known as distribution. A car might be moved from a factory in Detroit to a car dealership in Miami. A lot of work goes on behind the scenes to accomplish this task. Distribution channels are an organized network of firms that work together to get goods and services from producer to consumer. Distribution channels come in all shapes and sizes. Some channels are short and simple; others are complex and involve many people and organizations. An organization’s decisions about which combination of channels to use – the distribution mix – and its overall plan for moving products to buyers – the distribution strategy – play major roles in business success.

Third is the sale of goods and services. Sale is the exchange of a product or service for money. A car is sold to someone in exchange for money. Goods are products which people either need or want; for example cars can be classified as goods. Services, on the other hand, are activities which a person or organization performs for another person or organization. For instance, transporting a customer by a taxi-cab is a service. An auto mechanic performs a service when he repairs a car. A doctor also performs a service by taking care of people when they are sick .

Goods-producing businesses include manufacturing, construction, mining, and agriculture. Service businesses include finance and insurance, trans­por­tation and utilities, wholesale and retail trade, and other services like banking.

Business, then, is a combination of all these activities: production, distribution, and sale. However, there is one another important factor. This factor is the creation of profit or economic surplus. A major goal in the functioning of an American business company is making a profit. Profit is the money that remains after all expenses and taxes are paid. Creating an economic surplus or profit is, therefore, a primary goal of business activity.

However, not all businesses operate to earn a profit. Some businesses – like museums, schools, public universities, symphonies, libraries, and government agencies – exist to provide a valuable service rather than to make a profit. They are not-for-profit organizations. Even though these businesses do not have a profit motive, the business concepts – such as competition, marketing, finance, quality, and so on – apply to not-for-profit organizations as well.