What is meant by business activity and what does it involve? Business activity is the process of producing goods and providing services to satisfy consumer demand – needs and wants.
Needs and wants
Businesses provide consumers with all the products (goods and services) that we need in order to live, and those products we would like to have but are not essential for living. Consumer demand is expressed in the form of needs and wants of people and other businesses. It is usually identified by conducting market research in the marketing department. Consumers can be both private individuals (like you and me) who need to buy new clothes or want to buy sports cars, as well as other business organizations which need to purchase accounting services, property insurance or cleaning services in order to run their businesses every day.
Production process
Business activity is carried out throughout five different sectors of the economy. As there are several stages in the production of goods and services, the chain of production starts with gathering raw materials, through processing them in the production process, until delivering finished products. Throughout the production process at each different stage, businesses add value to resources making them more desirable by the final customer, e.g. IKEA turns logs of wood into design furniture, McDonald’s turns meat, bread and vegetables into hamburgers, and Audi turns steel, rubber and glass into cars, etc.
Output
Goods and services are the most basic products of an economy. Goods are tangible consumable items, e.g. delicious ice creams, music CDs or fashionable clothes, while services describe tasks that are performed by individuals for the benefit of someone else, e.g. TAXI transportation services, banking, health insurance, etc.
Resources
What businesses do is they turn resources into goods and services to meet all the needs and wants of people around the world. Resources, which include land, labor, capital and enterprise, are always scarce. It means that there is lack of sufficient resources to fulfill the total needs and wants of the population – approximately 7,800,000 people living in more than 200 countries. When turning resources into products, businesses aim to make a profit (the positive difference between sales revenue and total costs) that will allow them to operate sustainably in the long run in the future.
Scarcity
Business activity uses scarce resources that we can find on Earth, and very soon on other planets like the Moon, Venus and Mars, to produce goods and services that allow us to enjoy much higher standard of living than would be possible without businesses being present in our lives. While both a rough cold stone cave and a 4-bedroom house with the sea view and beautiful garden can provide shelter against rain and dangerous animals, the latter is much more pleasant and comfortable to live in. Isn’t it?
Economic environment
All business activities happen in the economic environment in which a business operates. There is a close relationship between the business and its environment. Inter-relationships also happen between different businesses.
The structure of the economy, which is established and regulated by the governments, has impact on how successful businesses are. All businesses exist within limits imposed by those governments on business activity. The healthier the economic environment, the easier and faster it is for the businesses to become successful, for example New Zealand, Singapore and Hong Kong, where doing business is the easiest in the world, have the most business-friendly laws and regulations.
The economy includes both private sector and public sector. The private sector comprises companies owned by private individuals like you and me. The companies in the public sector are owned by the government. The dominance of each sector varies among countries depending on a political system.
Stakeholders
The activities of all businesses affect several different groups of people such as customers, managers or workers. These groups, or stakeholders, have their own objectives for the business. They influence businesses and they are influenced by the activity of the business.
Business functions
Internally, most businesses have four different departments. These departments carry out various business functions including Marketing, Finance, Human Resources and Production (Operations). For each department, businesses hire directors and managers who make decisions that will influence the future success or failure of their business. Managers are paid high salaries because there is risk involved in decision-making; managers are supposed to know certain techniques to make better decisions and have the information and knowledge needed to choose between different options in order to make the business successful.
External factors
Business activity is always affected by a number of external forces which are beyond the control of the individual business and its management. These include political decisions, development of technology or natural disasters, to name just a few.
The business world is all around us and business activity does not take place in isolation. Think about the food that you eat for breakfast, the underwear that you wear, the bus that you come to school or the car that you drive to work every morning, the music that you listen to in the evening – all these goods and services were made and provided by businesses. From the minute we get up in the morning to when we go to bed at night, we are using products made by businesses from around the world. This is something worth remembering.
