Nature and Purpose of Business

Classification of Business Activities

Business is the buying, selling & exchange of goods & services for-profit service or motive is commonly known as business. The term business is derived from the word ‘busy’.  In a specific sense, business activities refer to any occupation in which people regularly engage in an activity with a view to earning the profit. Let us take a look at the classification of business activities.

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Classification of Business Activities

Into two broad categories, various business activities can be classified-


The sector where raw material gets converted into useful products is called industry. Activities related to production & processing as well as activities related to rearing & reproduction of animals or other living species are all included in the industry. The purpose of industry is to create form utility by converting raw materials into useful forms of finished products.

An industry may produce consumer goods or capital goods. Goods such as bread, butter, cloth, radio, etc. are consumer goods. These goods are directly used by the consumer. Goods such as machinery, cement etc. are called capital goods as these are used further in the production process to make useful products.

Industry can be classified into three broad categories.

  • Primary industry
  • Secondary industry
  • Tertiary industry

Primary Industry

This is also known as extractive industries. It includes activity connected with the production of wealth directly from natural resources such as water, air, & land etc. Primary industry includes activities like extraction & processing of natural resources etc. These industries are further subdivided as follows:

  • Extractive industry: These industries extract or draw out products from natural sources. Raw materials that are mostly products of the soil are some basic supply of extractive industries. Manufacturing industries transform these products into many other useful goods. Some of the examples of extractive industries include farming, mining, lumbering, hunting & fishing operation.
  • Genetic industry: The industries involved in the activities of rearing & breeding of living organism i.e. birds, plants, animals etc. are known as a genetic industry. For example, rearing of cattle for milk, dairy farms, poultry farms, rearing of plants in the nursery, growing fish in ponds etc. are included in the genetic industry.

Secondary Industry

Classification of Business Activities

This industry is concerned with converting raw material into finishing product. The materials which have already been extracted at the primary stage is the concern of the secondary industry. Such materials are processed to produce goods for final consumption or for further processing by other industrial units in these industries. Secondary industries may be further divided as follows:

  • Manufacturing industries: These industries are engaged in the process of conversion of raw materials or semi-finished goods into finished goods. These industries create from the utility by changing the form of raw materials into finished products.
  • Construction industries: These industries are concerned with the construction of buildings, dams, roads etc. These industries use the products of manufacturing industries such as cement, iron & steel, lime etc.

Tertiary Industry

These industries are concerned with providing those services which facilitate a  flow of goods & services. This industry helps in the activities of the primary & secondary industry.


We can refer to commerce as all those activities which help directly or indirectly in the distribution of goods to the ultimate consumer. There will be no use of producing goods unless & until these goods reach the ultimate consumer. Goods are produced at one place & consumers are scattered at different places. Commerce can be classified into two broad categories:

  • Trade
  • Aids to trade


Trade is an integral part of commerce. It includes buying & selling of goods & services. The trade segment of commerce brings together the manufacturer & the consumer, i.e. it is a link between the manufacturer & the consumer.

Trade can be classified into two types:

  • Internal trade: It refers to buying & selling of goods or services within the geographical boundaries of a country. It is also known as home trade or domestic trade. Under internal trade, goods & services are bought & sold in the home currency only. The internal trade can be two types:
    1. Wholesale trade
    2. Retail trade
  • External trade:  When the buying & selling of goods & services is beyond the geographical limits of the country it is called external trade. It is also known as trade between two or more countries. In external trade, the market is very wide. External trade is of the following types:
    1. Export trade
    2. Import trade
    3. Entrepot trade

Aids to Trade

The activities which help in the smooth flow of trade are known as aids to trade. These activities make buying & selling of goods easier. These help in removing various hindrances of trade which arises in production & distribution of goods. The common aids to trade are:

  • Transport & communication
  • Banking & finance
  • Insurance
  • Warehousing
  • Advertising

Solved Example for You

Q.1 What are the types of various business activity?

Ans. Various business activities may be classified into two broad categories-

  • Industry: Viewed collectively, or one of these individually, enterprises which manufacture or are technically productive in a particular field, country, region, or economy is an industry. Such as the tourist industry or the entertainment industry can be isolated from others in any general business or commercial enterprise
  • Commerce: Commerce is a branch of business. All those activities, which directly or indirectly facilitate the exchange of goods and services are included in commerce.

Q.2 What do you mean by internal and external trade?

Ans: Internal Trade: Buying and selling of goods within the nation is called internal trade. The internal trade can be two types:

  • Wholesale trade
  • Retail trade

External Trade: Beyond the geographical limits of the country, buying and selling of goods and services is called external trade. It is also known as trade between two or more countries. In external trade, the market is very wide.

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