Chapter 2- Business Problem

by • 09/06/2011 • B.COM PART 1 Introduction to BusinessComments (0)804

Q 1 – What are the business problems?


What factors are to be considered in starting a new business?


What are the essentials of establishing a business house?

Business Risk: “No risk, no business” is a popular proverb. But risk is not the only problem of business. A business, whether new or old, big or small, continuously faces a variety of problems, some to a great extent and others a little.


Most commonly faced problems or essentials of establishing a business houses are as under:

1-Organizational Problems

a- Type of ownership

b- Type of channels to be used

c- Internal organization

2-Nature of business


4-Future of business

5-Finance of raising capital


7-Labor problem

8-Types or goods and services to be dealt in




12-Government laws

13-Business information

1-Organizational Problem:All business have to face the problem of organization. The businessman has to decide on the following

a-Types of ownership

b-Distribution channel

c-Internal organization

a-Types of ownership: Ownerships are of four types that a businessman has to decide on:

i-Sole proprietorship


iii-Joint stock company

iv-Cooperative society

i-Sole Proprietorship: It is the form of business organization that has only one owner who invest capital in business and is fully responsible for his business operation.

ii-Partnership: It is the kind of business ownership with at least two co owners and maximum twenty. Profit or loss is divided equally among partners.

iii-Joint stock company: It is also referred to as corporation. It is an artificial being, intangible, invisible, and existing is accordance with the law. It has its own existence separate from its owners and hence can sue, be sued, and enter into agreement in its own name.

iv-Cooperative society: It is an association of consumer to establish a business based on mutual cooperation and operated on no profit, no loss basis. Cooperative banks and cooperative housing securities are quite popular in Pakistan.


b-DISTRIBUTION CHANNEL:At the time of formation a business it is decided as to what channel of distribution is to be selected, That is, the proprietor will decide to act as wholesaler, retailer, broker, importer, exporter etc. The channel selection depends on his experience, the amount of capital, and the type of products to be dealt in, and many other criteria.

c-INTERNAL ORGANIZATION: To run a business systematically and efficiently it is necessary to draw up a proper internal organization which requires to work out an organization chart. According to it, the firm is divided into several departments, powers and delegated, responsibilities are fixed.

2-NATURE OF BUSINESS: In starting a new business the businessman has to decide on the type and nature of business. The field open to him are industrial, commercial or service areas. he may choose manufacturing, wholesaling, retailing, import or export. The selection decision will be based on the availability of capital, scope of business, experience and nature of demand

3-INFRASTRUCTURE: It provide a sound basis for all types of business. It includes basic installation and facilities, as road, power plants, transportation and communication system.

4-FUTURE OF BUSINESS:This factor should be considered separately and precisely. the factor of technology is of especial consideration because it is changing and renders almost daily existing products outdated and obsolete. Today’s product get outdated tomorrow. As past experience tells us that black and white TV, fountain pen and radios have been replaced by color TV, ball pen and CD player respectively to quote only a few examples.

5-FINANCE/ RAISING CAPITAL: Finance is the core part of business.. Finance is used in purchasing equipment, land, machinery, plant, merchandize, and raw material. It is required to pay long term liability as bonds payable.

6-LOCATION:Success of business depends on right location. Right product, at the right time, at the right price, at the right place are the ingredients of success. For location of industries different views are taken into accounts, as availability of raw material, labor, power, fuel, water, transportation, climate and other infrastructure facilities.

7-LABOR PROBLEM: The business requires labor. The larger the business the greater the number of laborers required.

Labor may be classified into thee groups

a-Skilled Labor: includes engineers, doctors, charter accountants, MBA’s, professors,  business managers and pilots

b- Semi Skilled Labor: includes mechanics, accountants, books keepers, clerks

c- Unskilled Labor: includes porters, diggers, loaders, coolies, peons and domestic servants.

8-TYPES OF GOODS AND SERVICES: It has to be decided what type of goods and services are to be offered to consumers, and whether they are to be manufactured or bought. Products are offered to the public on the basis of price, color, size, design, model, packing and warranty.

8- MARKETING: Marketing facilities the goods and services to move from producer to consumer. It includes buying, selling, transporting and warehousing. Marketing is not possible without grading or standardization.

9- COMPETITION: Competition, oligopoly, duopoly, monopoly are different business conditions. Competition refers to a condition when a substantial number of suppliers (e.g. shopkeepers, manufacturers) exist in the market. Under competition prices are low or competitive, quality is better, services are in abundance and the consumer is the king.

10:RISK: Risk is an essential factor of every business. Before starting a new business the investor must calculate how much lies ahead and how much he can assume. Change in fashion, unfavorable movement of prices, new inventions, competition, consumer demand and taste, death of a key employee etc are different examples of risks.

11- GOVERNMENT POLICIES:The new business is boosted if the government offers interference as facility of importing raw materials and plant at zero or lower duties, and the like. Sometimes, the government puts restrictions on forming a new business( in the form of limited company) in a certain city or a province.

12- BUISNESS INFORMATION: New or old business can only survive on latest, relevant and right information. The businessman needs to know of the completion ,sources of supply .location and income of customer, inventions, changes in technology, government policies, and a lot of other business information.

Q 2 –What do you know of the characteristics of modern business. Elaborate your answer.


Modern business can be seen from the following background:





5-Managerial standards


Modern business world is prolific with great amount of production of both industrial and consumer goods, This heavy production has made the world market highly competitive. The immense competition has given rise to low prices, high quality and smooth supply and consumer satisfaction.


Now hand made goods have almost become a past history. Most of them are now machine made. Mechanization got a push from the era of industrial revolution and has resulted in attractively shaped goods with amazing finishing.


This is the era of automatic machines. Whether it is industrial goods or consumer durable goods, all become automatic. The invention of timers has made automation more effective. VCRs, TVs, Music system, washing machines are few examples of automation.


Modern business world is marked with grades and standards. Without which buying, selling, imports, exports are not possible. Every agriculture produce must be graded and all industrial and consumer goods standardized or branded.


Managerial standards have been set up against which personnel are hired, appraised, promoted, or transferred. Standardized written tests and interviews are conducted. Taylor, Fayol, Chester Bernard, Peter Drucker, Luthans, Fulmer are among those management scientist who effectively established managerial standards and practices.

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