Business, refers to an organized approach to providing customers with the
goods and services they want. The word business also refers to an organization
that provides these goods and services. Most businesses seek to make a
profit—that is, they aim to achieve revenues that exceed the costs of operating
the business.
Prominent examples of for-profit businesses include Mitsubishi Group,
General Motors Corporation, and Royal Dutch/Shell Group. However, some
businesses only seek to earn enough to cover their operating costs
. Commonly
called nonprofits, these organizations are primarily nongovernmental service
providers. Examples of nonprofit businesses include such organizations as
social service agencies, foundations, advocacy groups, and many hospitals.
Business plays a vital role in the life and culture of countries with
industrial and postindustrial (service- and information-based) free-market
economies such as the United States.
In free-market systems, prices and wages are primarily determined by
competition, not by governments. In the United States, for example, many people
buy and sell goods and services as their primary occupations. In 2001 American
companies sold in excess of $10 trillion worth of goods and services.
Businesses provide just about anything consumers want or need, including basic
necessities such as food and housing, luxuries such as whirlpool baths and
wide-screen televisions, and even personal services such as caring for children
and finding companionship.
TYPES OF BUSINESSES
There are many types of businesses in a free-market economy. The three most
common are (1) manufacturing firms, (2) merchandisers, and (3) service
enterprises.
Manufacturing Firms
Manufacturing firms produce a wide range of products. Large manufacturers
include producers of airplanes, cars, computers, and furniture. Many
manufacturing firms construct only parts rather than complete, finished
products.
These suppliers are usually smaller manufacturing firms, which supply parts
and components to larger firms. The larger firms then assemble final products
for market to consumers.
For example, suppliers provide many of the components in personal
computers, automobiles, and home appliances to large firms that create the
finished or end products. These larger end-product manufacturers are often also
responsible for marketing and distributing the products.
The advantage that large businesses have in being able to efficiently and
inexpensively control any parts of a production process is known as economies of scale. But small
manufacturing firms may work best for producing certain types of finished
products. Smaller end-product firms are common in the food industry and among
artisan trades such as custom cabinetry.
A great example of Manufacturing firms is the Automobile Plant. The
automobile industry has been important to the economy of Detroit since the
early 1900s. As the foremost automobile manufacturing center in the world,
Detroit earned its nickname, The Motor City. Shown here, cars are assembled in
one of Detroit’s auto plants.
These larger end-product manufacturers are often also responsible for
marketing and distributing the products. The advantage that large businesses
have in being able to efficiently and inexpensively control any parts of a
production process is known as economies of scale. But small manufacturing
firms may work best for producing certain types of finished products. Smaller
end-product firms are common in the food industry and among artisan trades such
as custom cabinetry.
Merchandisers
Merchandisers are businesses that help move goods through a channel of
distribution—that is, the route goods take in reaching the consumer.
Merchandisers may be involved in wholesaling or retailing, or sometimes both.
A wholesaler and a retailer
A wholesaler is a merchandiser who purchases goods and then sells them to
buyers, typically retailers, for the purpose of resale. A retailer is a
merchandiser who sells goods to consumers.
A wholesaler often purchases products in large quantities and then sells
smaller quantities of each product to retailers who are unable to either buy or
stock large amounts of the product. Wholesalers operate somewhat like large,
end-product manufacturing firms, benefiting from economies of scale. For
example, a wholesaler might purchase 5,000 pairs of work gloves and then sell
100 pairs to 50 different retailers.
Some large American discount chains,
such as Kmart Corporation and Wal-Mart Stores, Inc., serve as their own
wholesalers. These companies go directly to factories and other manufacturing
outlets, buy in large amounts, and then warehouse and ship the goods to their
stores.
The division between retailing and wholesaling is now being blurred by new
technologies that allow retailing to become an economy of scale.
Telephone and computer communications allow retailers to serve far greater
numbers of customers in a given span of time than is possible in face-to-face
interactions between a consumer and a retail salesperson.
Computer networks such as the Internet, because they do not
require any physical communication between salespeople and customers, allow a
nearly unlimited capacity for sales interactions known as 24/7—that is, the
Internet site can be open for a transaction 24 hours a day, seven days a week
and for as many transactions as the network can handle. For example, a typical
transaction to purchase a pair of shoes at a shoe store may take a half-hour
from browsing, to fitting, to the transaction with a cashier. But a customer
can purchase a pair of shoes through a computer interface with a retailer in a
matter of seconds.
Computer technology also provides retailers with another economy of
scale through the ability to sell goods without opening any physical stores,
often referred to as electronic commerce or e-commerce. Retailers that provide
goods entirely through Internet transactions do not incur the expense of
building so-called brick-and-mortar stores or the expense of maintaining them.
Service Enterprises
Service enterprises include many kinds of businesses. Examples include dry
cleaners, shoe repair stores, barbershops, restaurants, ski resorts, hospitals,
and hotels.
In many cases service enterprises
are moderately small because they do not have mechanized services and limit
service to only as many individuals as they can accommodate at one time.
For example, a waiter may be able to provide good service to four tables at
once, but with five or more tables, customer service will suffer.
The first McDonald’s fast-food restaurant in Moscow is a popular spot with
locals. Service enterprises such as restaurants, hotels, and vacation resorts have
grown to become major business sectors in many countries, in some cases even
overtaking manufacturing and other production-oriented businesses. A service
business, such as McDonald's, often supports a number of related production
businesses, from farms to food processing plants to kitchen appliance
manufacturers.
The first Jollibees’s fast-food restaurant in Hongkong is a popular spot
with locals. Service enterprises such as restaurants, hotels, and vacation
resorts have grown to become major business sectors in many countries, in some
cases even overtaking manufacturing and other production-oriented businesses.
A service business, such as
Jollibee's, often supports a number of related production businesses, from
farms to food processing plants to kitchen appliance manufacturers.
In recent years the number of service enterprises in wealthier free-market
economies has grown rapidly, and spending on services now accounts for a
significant percentage of all spending. By the late 1990s, private services accounted
for more than 21 percent of U.S. spending.
Wealthier nations have developed
postindustrial economies, where entertainment and recreation businesses have
become more important than most raw material extraction such as the mining of
mineral ores and some manufacturing industries in terms of creating jobs and
stimulating economic growth.
Many of these industries have moved
to developing nations, especially with the rise of large multinational
corporations. As postindustrial economies have accumulated wealth, they have
come to support systems of leisure, in which people are willing to pay others
to do things for them.
In the United States, vast numbers
of people work rigid schedules for long hours in indoor offices, stores, and
factories. Many employers pay high enough wages so that employees can afford to
balance their work schedules with purchased recreation. People in the United
States, for example, support thriving travel, theme park, resort, and
recreational sport businesses.
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