The Purpose and Types of Business Activity
The Purpose of Business Activity
Understanding the purposes of business activity is essential. Businesses exist mainly to:
- Satisfy customer needs and wants through the provision of goods and services. This is achieved through the process of production, which involves combining various inputs such as raw materials, labour, capital and enterprise.
- Create value. This is achieved when the selling price of goods or services exceeds their cost of production, resulting in profit.
- Address societal needs. Businesses form part of the wider society and therefore have a role in contributing to societal needs such as providing employment, promoting sustainable use of resources, and contributing to the economy through taxes.
Types of Business Activity
Businesses engage in various types of activities. These are usually categorised into:
- Primary sector activities: These involve the extraction and collection of natural resources. Examples include agriculture, mining, fishing, and forestry.
- Secondary sector activities: These involve the transformation of raw materials into finished or semi-finished goods. This is often referred to as manufacturing and includes industries such as automobile manufacturing, food processing, and furniture making.
- Tertiary sector activities: These involve the provision of services to consumers and other businesses. They include retailing, transportation, healthcare, education, and financial services.
Each of these sectors interacts and relies upon the other. Primary sector businesses provide raw materials for the secondary sector, which in turn produces goods for the tertiary sector to distribute or provide as services. Understanding this interdependence of sectors is crucial in the business environment.
Classifications of Businesses
It's also important to recognise businesses can also be classified according to various characteristics including ownership, size, and scale of operations.
- Ownership could be private, public, or voluntary. A private business is owned by private individuals or organisations, a public business is owned by the government, and a voluntary business is usually a non-profit organisation run by volunteers.
- The size of a business can range from small (a sole trader or partnership) to medium-sized (usually defined as having a certain number of employees) to large (usually multi-national corporations).
- The scale of operations can range from local to regional, national, or global.
Understanding these various classifications helps give insight into the structure, objectives, and potential behaviour of businesses. This in turn plays a role in understanding the business environment as a whole.