Introduction to Business

by admin · Published May 27, 2026 · Updated May 27, 2026

1. Concept of Business

Business is one of the most fundamental human activities. From ancient barter exchanges to modern multinational corporations, the pursuit of producing and distributing goods and services has always been at the heart of organized society. Before understanding the components, objectives, and responsibilities of business, it is essential to grasp what business truly means.

According to B.O. Wheeler, “Business is an institution organized and operated to provide goods and services to society under the incentive of private gain.”

L.H. Haney defines business as “human activity directed toward producing or acquiring wealth through buying and selling of goods.”

According to James Stephenson, “Business in the broadest sense is commonly defined as the activities of people engaged in transforming resources into goods desired by consumers and in distributing these goods to consumers.”

Urwick and Hunt state that “Business is any enterprise which makes, distributes or provides any article or service which other members of the community need and are able and willing to pay for.”

From these definitions, it is clear that business is an economic activity involving the regular production, purchase, or sale of goods and services with the primary motive of earning profit, while simultaneously satisfying the needs and wants of society. It is not a one-time transaction but a continuous and organized process.

2. Characteristics of Business

A thorough understanding of business requires examining its defining characteristics:

i. Economic Activity Business is essentially an economic activity carried out to generate income or profit. It involves the creation and exchange of economic value between parties.

ii. Production or Procurement of Goods and Services Every business either produces goods (manufacturing), extracts natural resources (mining, farming), or provides services (banking, education). The output, whether tangible or intangible, is what defines the business.

iii. Dealing in Goods and Services Business involves dealing in goods (movable physical products) or services (intangible offerings). Goods may be consumer goods (for direct use) or producer goods (for further production).

iv. Regularity of Transactions A single isolated transaction does not constitute business. Business requires regular and repeated buying and selling. A person who sells their personal car is not engaged in business; a car dealer who does so regularly is.

v. Profit Motive The primary driving force behind any business activity is the desire to earn profit. According to Adam Smith, “Every individual endeavours to employ his capital so that its produce may be of greatest value. He generally neither intends to promote the public interest, nor knows how much he is promoting it.” Profit acts as both a reward and an incentive.

vi. Risk and Uncertainty According to Frank Knight, business involves two kinds of uncertainty: measurable risk (insurable) and unmeasurable uncertainty. No business can guarantee profit. The future is uncertain, and the businessman must be willing to bear the possibility of loss.

vii. Buyer and Seller Relationship Business requires at least two parties — a buyer and a seller. The exchange must be mutually agreed upon, and consideration (usually money) must change hands.

viii. Satisfaction of Human Wants Ultimately, business exists to serve human needs. Peter Drucker famously stated: “The purpose of a business is to create a customer.” Every business activity, at its core, is directed toward satisfying some want or need in society.

3. Components of Business

Business is a broad term that encompasses three major components: Industry, Commerce, and Direct Services.

3.1 Industry

Industry refers to all activities involved in the production of goods — from the extraction of raw materials to the manufacture of finished products.

According to Evelyn Thomas, “Industries are those economic activities which are concerned with the extraction, production, or fabrication of products.”

Industries are further classified as:

Primary Industry: Activities that directly extract or cultivate natural resources from the earth. Examples include agriculture, fishing, forestry, and mining. These form the base for all other industries.
Secondary Industry: Activities that convert raw materials obtained from primary industries into finished or semi-finished goods. Manufacturing factories, construction companies, and processing plants fall in this category.
Tertiary Industry: Activities that provide services to both producers and consumers. Banking, transport, insurance, education, and healthcare are examples. This is also called the service sector.

3.2 Commerce

Commerce is the branch of business that deals with the exchange of goods and services. It encompasses all activities between the producer and the consumer.

According to James Stephenson, “Commerce embraces all those processes which help to break the barriers between producers and consumers.”

Commerce has two main branches:

i. Trade — The actual buying and selling of goods. Trade may be:

Home Trade (Internal Trade): Buying and selling within the boundaries of a country. Includes wholesale trade (large quantities to retailers) and retail trade (small quantities to end consumers).
Foreign Trade (External Trade): Buying and selling across national boundaries. Includes import (buying from abroad), export (selling abroad), and entrepot (re-export of imported goods).

ii. Auxiliaries to Trade — Supporting services that facilitate trade by removing various barriers:

Auxiliary	Barrier Removed
Transport	Barrier of place — moves goods from producer to consumer
Banking	Barrier of finance — provides credit and safe money transfer
Insurance	Barrier of risk — compensates for losses due to fire, theft, accidents
Warehousing	Barrier of time — stores goods until they are needed
Advertising	Barrier of information — connects buyers with sellers
Communication	Barrier of knowledge — enables exchange of business information

3.3 Direct Services

Direct services refer to professional and personal services offered directly to consumers which do not fall under industry or commerce. Doctors, lawyers, teachers, accountants, and engineers provide direct services. These activities contribute to the economy without producing tangible goods or facilitating trade.

4. Functions and Objectives of Business

4.1 Functions of Business

Business performs several essential functions within an economy:

i. Production Function: Converting inputs (raw materials, labour, capital) into outputs (goods and services).

ii. Marketing Function: Identifying consumer needs, promoting products, and ensuring goods reach the right customers at the right time and price.

iii. Finance Function: Procuring, managing, and allocating financial resources to ensure smooth business operations.

iv. Personnel Function: Recruiting, training, motivating, and retaining the human resources needed for the business.

v. Research and Development: Continuously improving products, processes, and technologies to stay competitive.

4.2 Objectives of Business

According to Peter Drucker, “Profit is not the purpose of a business but a test of its validity.” This insight captures how modern thinking about business objectives has evolved well beyond mere profit-making.

Business objectives can be grouped as follows:

Economic Objectives:

Earning adequate profit to survive and grow
Increasing market share and sales
Ensuring long-term business survival and stability
Making efficient use of resources

Social Objectives:

Generating employment opportunities
Supplying quality goods and services at fair prices
Contributing to community welfare and infrastructure
Protecting the environment
Promoting national economic development

Human Objectives:

Providing fair wages and good working conditions to employees
Developing the skills and potential of workers
Ensuring employee satisfaction and well-being

5. Importance of Business

Business plays an indispensable role in the economic and social development of any nation. Its importance can be understood from the following points:

i. Fulfillment of Human Wants: Business produces and distributes goods and services that satisfy the diverse needs of people — from basic necessities like food and clothing to sophisticated modern technology.

ii. Generation of Employment: Business establishments create jobs for millions of people, reducing unemployment and improving living standards.

iii. Increase in National Income: Through production and trade, business contributes significantly to the Gross Domestic Product (GDP) and the overall national income of a country.

iv. Capital Formation: Businesses save and invest profits, leading to the accumulation of capital that fuels further economic growth.

v. Standard of Living: By making available a wide variety of goods and services at competitive prices, business raises the material standard of living of the population.

vi. Promotion of Entrepreneurship: Business activity encourages innovation and risk-taking, fostering entrepreneurship and a spirit of enterprise in society.

vii. Economic Development: In a country like Nepal, small and medium enterprises, cooperatives, and trade activities are vital engines of economic development and regional integration.

6. Social Responsibilities of Business

The concept of social responsibility acknowledges that business does not operate in isolation — it exists within and affects society. The responsibilities of a business extend beyond profit-making to the welfare of all its stakeholders.

According to Howard R. Bowen, often called the “Father of Corporate Social Responsibility,” “Social responsibility refers to the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society.”

Keith Davis defines social responsibility as “the firm’s consideration of, and response to, issues beyond the narrow economic, technical, and legal requirements of the firm.”

The NEB syllabus identifies five key stakeholder groups toward which a business bears social responsibility:

6.1 Responsibility towards Investors

Investors provide the capital that makes business possible. In return, business has a duty to:

Provide a fair and regular return on investment (dividends, interest)
Maintain transparency and accuracy in financial reporting
Protect the capital invested and ensure business stability
Inform investors of major decisions that affect their interest
Reinvest profits wisely to ensure growth and capital appreciation

6.2 Responsibility towards Consumers

According to Philip Kotler, “The purpose of a business is to create and keep a customer.” Consumers are the ultimate reason a business exists. Responsibilities include:

Supplying goods and services of consistent and reliable quality
Charging fair and reasonable prices — avoiding price gouging
Providing accurate and honest product information — no misleading advertising
Ensuring goods are safe and do not harm health
Offering after-sales services and honouring warranties
Avoiding adulteration, short weights, and deceptive practices

6.3 Responsibility towards Employees

Employees are the backbone of any business. Their well-being directly affects productivity and business success. Responsibilities include:

Paying fair wages and salaries commensurate with work done
Providing a safe, healthy, and dignified working environment
Offering social security benefits — provident fund, medical, insurance
Providing opportunities for training, promotion, and career growth
Recognising merit and contribution without discrimination
Respecting workers’ rights and freedom of association

According to Elton Mayo, whose Hawthorne Studies demonstrated the link between worker welfare and productivity, treating employees as human beings — not just factors of production — is not just a moral obligation but a business necessity.

6.4 Responsibility towards Community

Business draws its resources — labour, land, water, infrastructure — from the community in which it operates. In return, it must:

Protect the environment and minimize pollution
Avoid practices that degrade natural resources
Contribute to community infrastructure (roads, schools, hospitals) through CSR activities
Generate local employment and support local suppliers
Respect cultural traditions and social norms of the community
Support education, health, and social welfare initiatives

6.5 Responsibility towards Government

Business operates under the legal and regulatory framework established by the government. Its responsibilities include:

Paying all taxes — income tax, VAT, customs — honestly and on time
Complying with all laws and regulations (labour law, environmental law, company law)
Providing accurate data and statistics to government agencies
Supporting and cooperating with government development programs
Avoiding corrupt practices, bribery, and tax evasion
Acting in ways consistent with national economic policies

7. Evolution of Business

The history of business is as old as human civilization itself. Business has evolved through several distinct stages:

i. Barter System: The earliest form of trade, in which goods were directly exchanged for other goods without the use of money. While simple, it suffered from the “double coincidence of wants” problem — both parties needed to have exactly what the other desired.

ii. Introduction of Money: The invention of money as a medium of exchange overcame the limitations of barter. Commodity money (gold, silver, shells) gradually gave way to metallic coinage and eventually paper currency, making trade far more efficient.

iii. Local and Regional Trade: As settlements grew into towns and cities, trade expanded beyond immediate communities. Markets, fairs, and bazaars became centres of commerce. Guilds and merchant associations emerged to regulate trade.

iv. Long-Distance and International Trade: The age of exploration (15th–17th centuries) opened trade routes across continents. Merchant companies like the East India Company facilitated international commerce, though often through exploitative colonial means.

v. Industrial Revolution (18th–19th Century): The mechanization of production transformed business fundamentally. Factories replaced cottage industries, mass production became possible, and business began to operate on an unprecedented scale. Joint stock companies emerged to pool the large capital required.

vi. Modern Business: The 20th and 21st centuries have brought further transformation — multinational corporations, e-commerce, digital services, and global supply chains. According to John Kenneth Galbraith, the modern large corporation has become a planning entity that shapes, rather than merely responds to, market forces.

8. Business Environment

Every business operates within a larger environment that shapes its opportunities and challenges. Understanding this environment is critical to strategic decision-making.

According to Barry M. Richman and Melvyn Copen, “Environment consists of factors that are largely, if not totally, external and beyond the control of individual industrial enterprise and their managements.”

William F. Glueck and Lawrence R. Jauch define business environment as “the process by which strategists monitor the economic, governmental/legal, market/competitive, supplier/technological, geographic, and social/demographic settings to determine opportunities and threats.”

8.1 Internal Environment

Internal environmental factors are those within the organization that management can control or influence. These include:

Human resources (quality and capability of employees and management)
Financial resources (available capital, profitability, credit capacity)
Physical resources (machinery, technology, infrastructure)
Organizational culture (values, norms, and management philosophy)
Research and development capability

8.2 External Environment

External factors lie outside the business and are largely beyond its direct control.

Micro (Operating) Environment — forces in the immediate business environment:

Customers and their changing preferences
Suppliers of raw materials and inputs
Competitors and their strategies
Intermediaries (wholesalers, retailers, agents)
Public opinion and media

Macro (General) Environment — broader societal forces:

Economic factors: GDP, inflation, interest rates, employment levels
Political and legal factors: Government policies, regulations, political stability
Social and cultural factors: Demographics, lifestyle changes, cultural values
Technological factors: New inventions, automation, digital transformation
Natural and ecological factors: Climate, geography, environmental regulations

According to Philip Kotler, businesses that fail to monitor and adapt to their environment risk becoming irrelevant: “There is only one winning strategy. It is to carefully define the target market and direct a superior offering to that target market.”

9. Considerations Before Starting a Business

Starting a business is not a spontaneous act but requires careful planning and analysis. Key considerations include:

i. Nature and Type of Business: What product or service will be offered? What sector — trade, manufacturing, or service — is most appropriate?

ii. Capital Requirement: How much initial investment is needed? What are the sources — personal savings, bank loans, partners, investors?

iii. Location: Where will the business operate? Proximity to raw materials, labour, transport links, and the target market are all critical factors.

iv. Market Analysis: Is there sufficient demand for the product? Who are the competitors? What is the potential market size?

v. Legal Formalities: What licenses, registrations, and permits are required? In Nepal, businesses must register under the relevant act — Private Firm Registration Act 2014 BS, Company Act, or cooperative legislation.

vi. Human Resources: What skills and staffing will the business need? Is experienced management available?

10. Requisites of Business Success

According to C.A. Ostrolenk, “A business enterprise to be successful must have: a suitable product, a sufficient market, adequate capital, proper organization, efficient management, and an honest and capable personnel.”

The key requisites for business success are:

Adequate Capital: Sufficient funds to cover initial setup and ongoing operations without financial strain.
Proper Location: A strategic location that minimizes costs and maximizes accessibility to customers and suppliers.
Efficient Management: Skilled leadership that can plan, organize, direct, and control business activities effectively.
Quality Product or Service: Offering something that genuinely meets consumer needs and compares favourably with competitors.
Market Knowledge: A thorough understanding of customer needs, competitor strategies, and market trends.
Honest Dealings: Trust built through fair dealing with customers, suppliers, employees, and government.
Adaptability: The ability to respond to changing market conditions, technological developments, and economic shifts.
Ethical Conduct: Operating within legal and ethical boundaries, which builds a sustainable reputation.

Conclusion

Business, in its broadest sense, is the engine of human progress. From the simplest village market to the most complex global corporation, the principles of production, exchange, and value creation underpin civilized economic life. Understanding what business is — its characteristics, components, objectives, social responsibilities, and the environment in which it operates — is not merely an academic exercise for Grade 11 students in Nepal. It is the foundation for becoming informed citizens, responsible entrepreneurs, and thoughtful participants in an increasingly interconnected economic world.

As Peter Drucker aptly summarized: “The best way to predict the future is to create it.” For the young students of Nepal beginning their journey in business studies, this is both a challenge and an invitation.

Prepared for NEB Grade 11 Business Studies — Chapter 1: Introduction to Business Aligned with the National Curriculum Framework 2076, Curriculum Development Centre, Sanothimi, Bhaktapur

Introduction to Business

1. Concept of Business

2. Characteristics of Business