Business: Definition, How it Works, Compete

What’s it: A business is an entity or activity involved in producing goods and services to satisfy the consumers’ needs and wants. Entrepreneurs take risks to build a business by combining resources and using them to produce goods and services. They identify consumer needs and offer products to satisfy them.

The business aims to satisfy needs and desires for profit. They add value to input by processing it to become output. That way, they can sell it at a higher price. The value they add helps them sell and make more money.

Products: goods and services

Businesses produce goods and services to meet our needs. Goods represent tangible products, which we can see, touch, or store for our future use. There are many types of goods, including consumer goods, capital goods, raw materials, and semi-finished goods.

Meanwhile, services represent intangible products. They are produced and consumed at the same time. We cannot see them, touch them, or use them later. We can only feel the benefits without being able to prove their value using any real evidence. Examples include consulting, logistics, personal care, and financial services.

Business types

Businesses vary in size. Some are privately run, such as small and medium-sized businesses, while others are companies with trillions in revenue and thousands of employees.

Another variation is sales orientation. Some focus on the domestic market, others only sell overseas products, and some combine the two.

Some companies offer their shares to the public through the stock exchange. That way, the general public can buy and sell their shares. We call such companies a public company. Meanwhile, others are private companies, and their shares are not available to the public.

Business variations can also be based on the sector in which they operate.

• The primary sector includes the various companies involved in harvesting and extracting natural resources. They operate in the agricultural, plantation, fisheries, livestock, and mining sectors. They produce low value-added output. Their output becomes raw material for businesses in the secondary sector or for direct consumption, such as staple foods.
• The secondary sector includes manufacturing, utilities, and construction companies. Manufacturing companies process raw materials from the primary sector into final output or semi-finished output. They sell final outputs to households and businesses, such as consumer products and capital goods. Meanwhile, the semi-finished output is sold to other businesses in this sector.
• The tertiary sector includes various service companies. They provide both commercial and public services. Examples are transportation, banking, insurance, retail, wholesale, hotels, restaurants, and tourism.
• The quaternary sector also provides services but is more specific in knowledge-based and intellectual services. Businesses in this sector include computing, information, and communication technology.

Business structure

Furthermore, we also get to know various businesses based on their structure, including:

Sole proprietorship. One person owns and operates the business. There is no legal separation between the business and the owner. A business’s taxes and legal obligations are the responsibility of the owner.

Partnership. Two or more people partner for the business. Each partner contributes resources and shares in the profits and risks of the business.

Corporation. Businesses have legal entities separate from their owners. Owners appoint directors to represent their interests in the business by carrying out day-to-day operations. The owner is not personally responsible for the company’s debts and obligations. Owners get returns from dividends, and for public companies, from capital gains from stock price appreciation.

• Private limited company. Company shares are not available to the public. In other words, they do not offer their shares on the stock exchange. Sometimes, we refer to them as privately-held companies or closed companies.
• Public limited company. Company shares are available for sale by the public. The company lists its shares on the stock exchange. When it sells its shares through the stock exchange for the first time, we call it an initial public offering (IPO). We also call it a public company or listed company.

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• Human Resources in a Business