Question

Explain in detail the classification of Business Activities on the basis of their function.

Answer 1

Various business activities may be classified into two broad categories — industry and commerce. Industry is concerned with the production or processing of goods and materials. Commerce includes all those activities which are necessary for facilitating the

exchange of goods and services. On the basis of these two categories, we may classify business firms into industrial and commercial enterprises.

• Industry
  

Industry refers to economic activities, which are connected with conversion of resources into useful goods. The term industry is used for activities in which mechanical appliances and technical skills are involved. These include activities relating to producing or processing of goods as well as breeding and raising of animals. The term industry is also used to mean groups of firms producing similar or related goods. For example, cotton textile industry refers to all manufacturing units producing textile goods from cotton. Similarly, electronic industry would include all firms producing electronic goods, and so on. Further, in common parlance, certain services like banking and insurance are also referred to as industry, say banking industry, insurance industry etc. Industries may be divided into three broad categories namely primary, secondary and tertiary.

• Commerce

Commerce includes two types of activities, viz., (i) trade and (ii) auxiliaries

to trade. Buying and selling of goods is termed as trade. But there are a lot of activities that are required to facilitate the purchase and sale of goods. These are called services or auxiliaries to trade and include transport, banking, insurance, communication, advertisement, packaging and warehousing. Commerce, therefore, includes both, buying and selling of goods etc. Hence, commerce is said to consist of activities of removing the hindrances of persons, place, time, risk, finance and information in the process of exchange of goods and services.