Introduction to Business: Importance & Meaning | StudySmarter

Businesses should aim to improve customers’ quality of life. This is done by trading goods and services and improving the production quality of goods and services to satisfy consumers’ needs. There is much more to the business process, though. Read along to take a closer look at some of the fundamentals.

What is Business?

Business is economic activity that involves the exchange of products and/or services for profits, or other motives. It is a transactional activity.

Business looks to satisfy customers’ needs through the provision and production of necessary services or goods.

Goods are tangible items produced and traded by businesses in order to generate profits. Examples include bags, food, and electronics.

Services are intangible products that cannot be touched, held, or stored. Examples include services from lawyers, doctors, banks, or internet providers.

Business activities are important for improving the standard of life by creating employment opportunities, providing services, and producing goods.

Some businesses are not established for profit generation, though. These businesses, referred to as not-for-profit organisations, are established for purposes other than the generation of profit.

These purposes usually include goals that benefit society as a whole, such as the provision of education or community empowerment. Examples of such organizations include Amnesty International, Boy Scouts, and the Bill and Melinda Gates Foundation.

Introduction to Business: Business Factors of Production

In the provision of goods and services, businesses utilise the four factors of production. They are land, labour, capital, and entrepreneurship (see Figure 1 below).

Fig. 1 – Factors of Production

Introduction to Business: Land (natural resources)

Often referred to as just land, natural resources are inputs such as raw materials and land areas essential for business activities. Examples of natural resources include minerals, farmland, water, forests, etc.

Introduction to Business: Capital

Capital refers to the resources and money used by the business to create further wealth. It is used to purchase non-current assets like machinery, equipment, warehouses, etc.

Introduction to Business: Labour (human resources)

Often referred to as labour, human resources involve human input – skilled or unskilled – into business activities. Examples include business managers, workers, scientists, and all employees who work for a company.

Introduction to Business: Entrepreneurship

These are risk-takers who manage other factors of production to provide the goods and services needed to satisfy consumers’ needs, while also making profits for the business. They are referred to as risk-takers because not all business processes return profits.

Business Environment

The business environment takes into consideration all events, factors, or conditions, internal or external, that influence business activities. These factors may either have a direct or an indirect effect on the business and may either provide it with an opportunity or a risk.

The interaction between the environment and business is mutual. Examples of business environments include government regulations, health and safety regulations, the economic climate, the political environment, technology changes, environmental culture, competition, and customer demand.

Types of business environments

The two types of business environments are internal and external.

Fig. 2 – Types of Business Environments

Introduction to Business: Internal Environment

The internal environment is related to the internal functions of the business, such as its operations, its employees, its management, ethics, marketing resources, etc.

Introduction to Business: External Environment

The external environment is related to influences that come from outside of the business, such as governmental bodies, the economic climate, customer demands, etc.

Introduction to Business: Stakeholders

Stakeholders are either internal or external parties who hold interest in the activities of a business, and can exert or receive influence in regard to that business. Stakeholders include owners, investors, employees, suppliers, customers, communities, trade associations, and government bodies.

A business stakeholder can be of two types – internal or external.

Introduction to Business:

Internal stakeholders

Internal stakeholders have a direct relationship with the business. They could be employees or investors. Thus they have a significant interest in the business.

Introduction to Business:

External stakeholders

External stakeholders are those who don’t have a direct relationship with the business but are still affected by or are affecting business activities. Examples include suppliers and local communities.

Check out our explanation on Stakeholders to find out more!

Introduction to Business Management

Business management refers to the organising, maintaining and allocating of business resources in order to achieve business goals and develop the business. Business managers are responsible for overseeing the management processes of the business enterprise.

Introduction to Business: Business enterprise and entrepreneurship

An ‘entrepreneur’ is someone who uses an available opportunity to set up a new business. This opportunity may arise due to an unsatisfied market need, a drive to make a social difference, or simply to make a profit. Entrepreneurs bear most of the risks that come with setting up a new business. However, they also enjoy the rewards if it is a success.

Want to learn more about entrepreneurship? Take a look at our Business enterprise explanation

Risks and Rewards of starting a business

Starting a new business is risky. The kinds of risks in starting a new business include:

1. Strategic risks

2. Operational risks

3. Financial risks

4. Compliance risks

5. Reputation risks.

The rewards of starting a new business include:

1. Sense of satisfaction

2. Financial rewards mostly from business profitability

3. Expanding business reach

4. Provides the entrepreneur with autonomy

5. Provides the entrepreneur with a platform for growth and development.

To learn more about this topic, check out our explanation, Risks and rewards of business enterprise.

In conclusion, businesses are essential for improving stakeholders’ quality of life. An entrepreneur might have a fantastic idea for a business opportunity that leads to a huge amount of sales and profit. Starting a company is a huge challenge, though, and there are numerous internal and external risks businesses face. It is important to pay attention to these to minimise business failure.

Introduction to Business – Key takeaways

• Business is any economic activity that involves the exchange of products and/or services for profits, or other motives. It is a transactional activity.

• Goods are tangible items produced and traded by businesses in order to generate profits. Examples include bags, food, and electronics.

• Services are intangible products that cannot be touched, held, or stored. Examples include services from lawyers, doctors, banks, or internet providers.

• When providing goods and services, businesses utilise the four factors of production. They are land, labour, capital, and entrepreneurship

• The business environment takes into consideration all events, factors, or conditions – internal or external – that influence business activities.

• Stakeholders are either internal or external parties who hold an interest in the activities of a business.

• An’entrepreneur‘ is someone who uses an available opportunity to set up a new business.

• There are various risks and rewards associated with starting a business.