Understanding Business (Guide)

The purpose of a business is to organize some sort of economic production (of goods or services). Economic production is an activity carried out under the control and responsibility of an institutional unit that uses inputs of labour, capital, and goods and services to produce outputs of goods or services.

There are three forms of production in economics namely: primary production (extractive industry), secondary production (manufacturing and constructive industry) Tertiary production (commercial and direct services).

In economics, Production Function is an equation that expresses the relationship between the quantities of productive factors (such as labour and capital) used and the amount of product obtained. Further, factors of production are the resources people use to produce goods and services; they are the building blocks of the economy.

Economists divide the factors of production into four categories: land, labor, capital, and entrepreneurship. Based on economic factors and function, most businesses operate to generate a profit, commonly called for-profit. Production is one of the most important processes within any business, and is a core part of what it means to be in business.

Without this activity, no finished goods or services would be created, and there would be nothing to sell to customers.

Business also refers to the efforts and activities undertaken by individuals to produce and sell goods and services for profit. But, some businesses have a goal to advance a certain cause without profit are referred to as not-for-profit or nonprofit. These entities may operate as charities, arts, culture, educational, and recreational enterprises, political and advocacy groups, or social services organizations.

Businesses range in scale and scope from primary production (extractive industry), secondary production (manufacturing and constructive industry) Tertiary production (commercial and direct services).

Primary production: This form of production involves the extraction of raw materials in their natural form from nature. Mining, hunting, quarrying and fishing. Thus it involves acquiring raw materials for example, metals and coal have to be mined, oil drilled from the ground, rubber tapped from trees, foodstuffs farmed and fish trawled. This is sometimes known as extractive production.

It is the primary production stage of the supply chain, where raw materials are extracted from the land. Any process which involves the extraction or harvesting of raw materials from the natural environment is part of the Primary Sector.

Secondary Production: This form of production is also known as manufacturing and assembly process. Businesses in the secondary sector acquire raw materials from businesses in the primary sector to either manufacture or assembly. For example, manufacturing plastics from oil or assembling products like bridges, roads and building houses.

Tertiary Production: This it is the production of services. It implies that all tertiary production does not produce any physical thing. Tertiary production is the creation of intangible goods. The tertiary sector involves the provision of services to other businesses as well as to final consumers.

This implies that all tertiary production does not produce any physical thing, but produces services that assist in the selling or use of the manufactured goods themselves. This sector basically, deals with the communication of manufactured goods to the public.


Factors of production are all the things companies use to create products and services for profit: land, labor, capital, and enterprise. Land is combined with labor and capital (tools and machinery, like a tractor) to grow crops and mine materials. More labor and equipment are used to transport those commodities around the world, where they are transformed into the products customers buy. 

Entrepreneurs (the owners of enterprises) start up businesses, combine the other factors of production, and bring buyers and sellers together. Owners of businesses across all sectors of production seek to organize their resources to maximize productivity and opportunities. 

A company often defines its business by the industry in which it operates. For example, the real estate business, advertising business, or bottle production business are examples of industries. This is because a business is a term often used to indicate transactions regarding an underlying product or service.

Companies develop supply chains so they can reduce their costs and remain competitive in the business landscape. supply chains entire system of producing and delivering a product or service, from sourcing the raw materials to the final delivery of the product or service to end users.

The fundamental steps of a supply chain in order are as follows:

Sourcing raw materials.
Refining those materials into basic parts.
Combining those basic parts to create a product.
Order fulfillment/sales.
Product delivery.
Customer support and return services.

In essence all sectors all work together to create an economic chain of production. The primary sector gathers the raw materials, the secondary sector puts the raw materials to use, and the tertiary sector sells and supports the activities of the other two.

In the supply chain, before a product gets to end customers, it will first pass through at least three stakeholders: a manufacturing business, a distribution business, and a retail business.

Supply chains aim to meet customer demands. Value chains seek to add value to a product on top of its inherent value. The purpose of the value chain is to give the company a competitive advantage in it's industry.

What Are The Different Types Of Industries?

An industry comprises the systematic production of goods and services for sale. Business owners must understand the important characteristics of the different types of industries and the sector they are in to take advantage of all of the benefits associated with carrying on a business activity.

So what are the three sectors of business?

Primary Industry:

Primary industries profit from the natural resources that can be obtained or developed on the earth. The following are some examples of primary industries:


About 89 percent of U.S. farms are small, with gross cash farm income less than $350,000; the households operating these farms typically rely on off-farm sources for most of their household income. In contrast, the median household operating large-scale farms earned $402,780 in 2020, and most of that came from farming.

Agriculture is one of the industries that makes up the primary sector. It is the skill of producing raw food using farming techniques.

The goods are categorised into four categories: Raw materials, textiles, food, and fuel. The food category includes eggs, milk, vegetables, meat, oil, and fruits. Cotton, which is used to make garments, is used as a raw material in agriculture.


Mining is the process of extracting raw resources from the earth, such as rock, slit, metals, clay, gemstones, & minerals. Thus, a product of mining, various economically valuable products might be obtained, that is, coal, diamond, metallic ores, oil, and so on. The reserves and resources of a mining corporation are its most valuable assets.

The contemporary mining process comprises determining the potential profit of a mining operation, locating ore deposits, and extracting precious commodities. The secondary sector also relies significantly on mining for raw materials to manufacture and produce a wide range of key products.

Non-renewable resources such as natural gas, petroleum, and water are also included in the definition of mining.


One of the most significant primary industries in the world is fishing. The fishing industry includes any industry or activity concerned with taking, culturing, processing, preserving, storing, transporting, marketing or selling fish or fish products. Industrial fish farming is the world's fastest-growing food production method, and fish farms currently provide almost half of the world's seafood.

Seafood plays an essential role in feeding the world's growing population. Healthy fish populations lead to healthy oceans and it's our responsibility to be a part of the solution. Commercial fishermen harvest a wide variety of animals.

However, a very small number of species support the majority of the world's fisheries of these species are herring, cod, anchovy, tuna, flounder, mullet, squid, shrimp, salmon, crab, lobster, oyster and scallops. All except these last four provided a worldwide catch of well over a million tonnes in 1999, with herring and sardines together providing a catch of over 22 million metric tons in 1999.


Forestry is the means by which trees can be produced as a renewable resource for wood or biomass for direct timber sales, production of trees for ornamental. The forestry industry includes individuals and business engaged in activities which include:

Forestry gathering and growing activities, plantation cultivation, plantation harvesting, logging activities including logging, hewing, shaping, cutting or felling.

The forest products industry contributes significantly to global economies. Forestry is a significant source of raw materials for a wide range of industries. All types of forest sector products contribute to meeting some of modern society's necessities and increasing global human well-being.

To run a business in the forestry industry, or any of the primary industries you need to know about the relevant Federal, State and Local government regulations, legislation, licences and permits as well as other business requirements.

Secondary Industry

After primary industries have accumulated raw materials, secondary industries enter into the picture. Secondary industries are those that take the raw materials produced by the primary sector and process them into manufactured goods and products.

The construction and manufacturing industries are primarily included in the secondary industry. The transition of raw materials into finished items is part of the secondary sector. For example, wood is used to make furniture, steel is used to make automobiles, and textiles are used to make clothing. 

Basically, secondary industries include heavy manufacturing , light manufacturing such as Energy production, Chemical manufacturing, Metallurgical manufacturing, Food processing, Glass production, Textile and clothing, Electricals etc. It encompasses industries that produce a finished, usable product or are involved in construction.

In order to manufacture products that will be marketed to the general public, secondary industries frequently use massive machinery in production plants. Even human power can be employed to package these items for distribution to retailers and other locations.

What are the two main businesses in the secondary industry?

Heavy industry: Heavy industry is a type of business that involves large-scale undertakings, big equipment, large areas of land, high cost, and high barriers to entry. Large-scale manufacturing often necessitates a significant capital investment in equipment and machinery. Heavy and massive items are among the features of the heavy industry. It caters to a vast and diverse market, which includes various manufacturing sectors.

This industry is primarily made up of construction, aerospace manufacturing,chemical and engineering enterprises, petroleum processing, machinery production, ships are among the most common operations in this heavy industry.

Businesses under this industry uses large machines to produce raw materials or to make large objects they also invest heavily in producing massive items, equipment, and facilities for industrial consumers.

Light industry: This division of the secondary industry focuses on the production of small goods that will be sold to people who use them rather than to another manufacturer. The light industry usually requires a relatively smaller quantity of raw materials, lesser power and smaller area. The items produced in light industries are minimal, and they are very easy to transport.

Home, personal products, food, beverages, bottlers, electronics and apparel are among the most common operations in this light industry.

Most light industry products are produced for end users rather than as intermediates for use by other industries. Light industry usually use less capital than heavy industry and are more consumer-oriented than business-oriented, as they typically produce smaller consumer goods.

Fast-moving consumer goods is the conversion of raw materials to finished goods. They include processed foods, tea, sugar, ready to eat foods, cosmetics, toiletries, medicines, perishable items, frozen foods, cookies, office supplies, cleaning products, and clothing. It also covers products like automobiles, furniture and houseware. Moreover, footwear, and handcrafted crafts and also consumer goods.

Tertiary Industry:

Tertiary industries market secondary industries' products to consumers. It is a part of a country's economy concerned with the provision of services. Thus, this industry is usually not involved in creating products but rather in the provision of services to the general public and other industries. The product being sold may be immaterial but the office towers, shopping malls, warehouses, rental apartment complexes, etc. where the activity is conducted are very material intensive.

Business activities associated with this sector include investment, finance, accounting, insurance, banking, wholesale, retail, transportation,distribution, real estate services, resale trade, legal, hotels, personal services, tourism, restaurants, repair and maintenance services(i.e plumbing and landscaping), police, security, defence services, administrative, consulting, entertainment, media, information technology, health,clerical services, social welfare and so on.

In essence, the tertiary sector covers a wide range of business activities from commerce to administration.

The creation of different nature services, such as experiences, discussion, access, is the most significant feature of the tertiary sector.

The tertiary sector is divided into two categories.

The first group consists of businesses that are into making money, such as those in the financial sector.

The second group consists of the non-profit sector, which includes services such as public education.

Taking advantage of a business entity status means choosing an entity form for your business, operating within your chosen entity form, and undertaking business transactions with various entity types. Understanding business entity characteristics includes familiarizing ones self with the ownership structure, organizational structure, potential liability, compensation methods, and tax laws applicable to the business entity. Lastly, the owners of a business must comply with the procedural and substantive laws applicable to that business entity. This is generally known as business governance.

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