11 MM VENKATESHWARA BUSINESS AND INDUSTRIAL OPEN UNIVERSITY ORGANIZATION www.vou.ac.in BUSINESS AND INDUSTRIAL ORGANIZATION INDUSTRIAL AND BUSINESS BUSINESS AND INDUSTRIAL ORGANIZATION BBA [BBA-303] VENKATESHWARA OPEN UNIVERSITYwww.vou.ac.in BUSINESS AND INDUSTRIAL ORGANIZATION BBA [BBA -303] BOARD OF STUDIES Prof Lalit Kumar Sagar Vice Chancellor Dr. S. Raman Iyer Director Directorate of Distance Education SUBJECT EXPERT Dr. S. Raman Iyer Programme Director Dr. Richa Agarwal Assistant Professor Dr. Anand Kumar Assistant Professor Dr. Babar Ali Khan Professor in Commerce Dr. Adil Hakeem Khan Professor in Management CO-ORDINATOR Mr. Tauha Khan Registrar Authors S. Tripathy: Units (1.3, 2.2-2.4, 3.2-3.2.1) © S Tripathy, 2019 Anjani Singh Tomar: Units (Unit 4, 5.6) © Reserved, 2019 Harjit Singh: Units (5.0-5.5.2, 5.7-5.11) © Harjit Singh, 2019 KC Shekhar and Lekshmy Shekhar: Units (6.2-6.10) © KC Shekhar and Lekshmy Shekhar, 2019 Dr Premvir Kapoor: Units (7.2-7.3) © Reserved, 2019 Prasad G Godbole: Units (7.5-7.5.2, 7.6-7.7, 7.9) © Prasad G Godbole, 2019 Vikas Publishing House: Units (1.0-1.2, 1.4-1.9, 2.0-2.1, 2.4.1, 2.5-2.9, 3.0-3.1, 3.2.2, 3.3-3.8, 6.0-6.1, 6.11-6.16, 7.0-7.1, 7.4-7.4.4, 7.5.3, 7.8, 7.10-7.14) © Reserved, 2019 All rights reserved. No part of this publication which is material protected by this copyright notice may be reproduced or transmitted or utilized or stored in any form or by any means now known or hereinafter invented, electronic, digital or mechanical, including photocopying, scanning, recording or by any information storage or retrieval system, without prior written permission from the Publisher. 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Office: A-27, 2nd Floor, Mohan Co-operative Industrial Estate, New Delhi 1100 44 Website: www.vikaspublishing.com Email: [email protected] SYLLABI-BOOK MAPPING TABLE Business and Industrial Organization Syllabi Mapping in Book Unit I: Nature and Scope of Business: Business, Trade and Unit 1: Nature and Commerce, Objectives of a Business, Problems before establishing Scope of Business a New Business, Social Responsibility of Business. (Pages: 3-20) Unit II: Forms of Business Organisation: Sole Trader, Unit 2: Forms of Partnership and Joint company their characteristic features, Business Organization Cooperatives, Suitability of a form of Organisation. (Pages: 21-41) Unit III: Public Enterprises and their Rationale, Public Enterprises Unit 3: Public Enterprises in India and their main contributions, Causes of low productivity and their Rationale and efficiency in Public Enterprises. (Pages: 43-58) Unit IV: Home Trade Transactions: Different Forms and Unit 4: Home Trade Documents used in Home Trade. Transactions (Pages: 59-79) Unit V: Functions and Organisation of wholesale and Retail Trade, Unit 5: Wholesale and Departmental Stores and Multiple Shops, Super market, Mercantile Retail Trade (Pages: 81-107) Agents and their functions. Unit VI: Banking and Insurance Sectors and their functions. Unit 6: Banking and Insurance Sectors (Pages: 109-180) Unit VII: Introduction to Business Combinations and their different Unit 7: Introduction to forms. Business Combinations (Pages: 181-249) CONTENTS INTRODUCTION 1 UNIT 1 NATURE AND SCOPE OF BUSINESS 3-20 1.0 Introduction 1.1 Unit Objectives 1.2 Business, Trade and Commerce: An Overview 1.2.1 Objectives of a Business 1.3 Problems in Establishing a New Business 1.3.1 Factors to be Considered While Starting a Business Enterprise 1.3.2 Key Areas for Assessing the Feasibility of a New Venture 1.4 Social Responsibility of Business 1.4.1 History of Corporate Social Responsibility 1.4.2 Theories of Corporate Social Responsibility 1.4.3 Benefits of Corporate Social Responsibility 1.4.4 Challenges to Corporate Social Responsibility 1.5 Summary 1.6 Key Terms 1.7 Answers to ‘Check Your Progress’ 1.8 Questions and Exercises 1.9 Further Reading UNIT 2 FORMS OF BUSINESS ORGANIZATION 21-41 2.0 Introduction 2.1 Unit Objectives 2.2 Sole Trader 2.3 Partnership and Joint Company 2.3.1 Essential Characteristics of Partnership 2.3.2 Various Aspects of Partnership Firm 2.3.3 Joint Stock Companies 2.3.4 Forming a Company 2.3.5 Differences Between a Company and a Partnership 2.4 Cooperatives 2.4.1 Suitability of a Form of Organization 2.5 Summary 2.6 Key Terms 2.7 Answers to ‘Check Your Progress’ 2.8 Questions and Exercises 2.9 Further Reading UNIT 3 PUBLIC ENTERPRISES AND THEIR RATIONALE 43-58 3.0 Introduction 3.1 Unit Objectives 3.2 Public Enterprises and their Rationale 3.2.1 Forms of Organization of Public Undertakings; 3.2.2 Rationale for the Public Sector 3.3 Causes of Low Productivity and Inefficiency in Public Enterprises 3.3.1 Performance of Public Enterprises 3.4 Summary 3.5 Key Terms 3.6 Answers to ‘Check Your Progress’ 3.7 Questions and Exercises 3.8 Further Reading UNIT 4 HOME TRADE TRANSACTIONS 59-79 4.0 Introduction 4.1 Unit Objectives 4.2 Different Forms of Trade 4.3 Documents of Trade 4.3.1 Importance of Trade Documents 4.3.2 Types of Trade Documents 4.4 Trade Documents Used in International Trade 4.4.1 Cash Discount and Trade Discount 4.5 Summary 4.6 Key Terms 4.7 Answers to ‘Check Your Progress’ 4.8 Questions and Exercises 4.9 Further Reading UNIT 5 WHOLESALE AND RETAIL TRADE 81-107 5.0 Introduction 5.1 Unit Objectives 5.2 Retail Trade 5.2.1 Functions of a Retailer; 5.2.2 Retailing Principles 5.2.3 Retailing in India; 5.2.4 Retail Market Prospects in India 5.2.5 Retailing Across the Globe 5.3 Wholesalers 5.4 Organization of Wholesale and Retail Trade 5.4.1 Process of Organizing a Retail Firm 5.5 Departmental Stores 5.5.1 Multiple Shops; 5.5.2 Super Market 5.6 Mercantile Agents and Their Functions 5.7 Summary 5.8 Key Terms 5.9 Answers to ‘Check Your Progress’ 5.10 Questions and Exercises 5.11 Further Reading UNIT 6 BANKING AND INSURANCE SECTORS 109-180 6.0 Introduction 6.1 Unit Objectives 6.2 Banking Sector 6.3 Commercial Banks 6.3.1 Functions of Commercial Banks and the Services Rendered by Them 6.3.2 General Structure and Methods of Commercial Banking 6.3.3 Earning Assets of a Bank 6.4 Systems of Banking 6.5 Investment Banking and Mixed Banking 6.6 Universal Banking 6.7 Merchant Banking 6.8 Virtual Banking 6.9 Green Banking 6.10 Central Banking 6.10.1 Functions of a Central Bank; 6.10.2 Secondary Reserve Requirements 6.10.3 As Banker and Advisor of the State; 6.10.4 Recent Trends in Central Banking 6.11 Insurance Sector 6.11.1 Insurance Transaction 6.12 Summary 6.13 Key Terms 6.14 Answers to ‘Check Your Progress’ 6.15 Questions and Exercises 6.16 Further Reading UNIT 7 INTRODUCTION TO BUSINESS COMBINATIONS 181-249 7.0 Introduction 7.1 Unit Objectives 7.2 Different Forms of Business Combinations 7.2.1 Mergers; 7.2.2 Acquisitions; 7.2.3 Amalgamation 7.2.4 Takeovers; 7.2.5 Leveraged Buyouts 7.3 Motives for Business Combinations 7.3.1 Types of Business Combinations 7.3.2 Motives and Benefits of Mergers and Acquisitions 7.4 Regulation of Mergers 7.4.1 Organization Restructuring; 7.4.2 Mergers and Consolidations 7.4.3 Friendly vs Hostile Takeover 7.4.4 Merger Process: Target Identification, Negotiation and Closing Deal 7.5 Regulation of Takeovers 7.5.1 Takeover Tactics; 7.5.2 Defence Tactics 7.5.3 Anti-Takeover Amendments 7.6 Companies Law 7.7 Income Tax Law 7.8 SEBI Guidelines for Takeovers 7.9 Other Applicable Laws 7.10 Summary 7.11 Key Terms 7.12 Answers to ‘Check Your Progress’ 7.13 Questions and Exercises 7.14 Further Reading Introduction INTRODUCTION NOTES The business environment now is one of global competition, scarce resources, rapid technological changes, increasing demand for social responsibility and downsized organizational structures. Businesses are also realizing the importance of corporate restructuring in the form of mergers and acquisitions for not only the health of a particular business but also a nation. Further, larger communication networks, increasing internet resources and the emergence of a global village have all contributed to changing the face of business today. It is no wonder then, that Peter Drucker described the times that we live in as ‘age of discontinuity’. Thus, today’s businesses face a complex web of difficult and exciting challenges. And management has, therefore, never been more crucial for the development of an organization. This book attempts to address these issues in a way that will enable you to understand the complexity of today’s business environment. In doing so, it will further explain the nature of business, evolution of business in India over the years as well as various forms of business ownership.