Entrepreneurship:

Entrepreneurship refers to the concept of developing and managing a business venture in order to gain profit by
taking several risks in the corporate world. Simply put, entrepreneurship is the willingness to start a new business.
Entrepreneurship has played a vital role in the economic development of the expanding global marketplace.

Types of Entrepreneur:

Based on the Type of Business:

1. Trading Entrepreneur:
As the name itself suggests, the trading entrepreneur undertake the trading activities. They procure the finished
products from the manufacturers and sell these to the customers directly or through a retailer. These serve as the
middlemen as wholesalers, dealers, and retailers between the manufacturers and customers.

2. Manufacturing Entrepreneur:
The manufacturing entrepreneurs manufacture products. They identify the needs of the customers and, then,
explore the resources and technology to be used to manufacture the products to satisfy the customers’ needs. In
other words, the manufacturing entrepreneurs convert raw materials into finished products.

3. Agricultural Entrepreneur:
The entrepreneurs who undertake agricultural pursuits are called agricultural entrepreneurs. They cover a wide
spectrum of agricultural activities like cultivation, marketing of agricultural produce, irrigation, mechanization,
and technology.

Based on the Use of Technology:

1. Technical Entrepreneur:
The entrepreneurs who establish and run science and technology-based industries are called ‘technical
entrepreneurs.’ Speaking alternatively, these are the entrepreneurs who make use of science and technology in
their enterprises. Expectedly, they use new and innovative methods of production in their enterprises.

2. Non-Technical Entrepreneur:
Based on the use of technology, the entrepreneurs who are not technical entrepreneurs are non-technical

entrepreneurs. The forte of their enterprises is not science and technology. They are concerned with the use of

alternative and imitative methods of marketing and distribution strategies to make their business survive and
thrive in the competitive market.
Based on Ownership:
1. Private Entrepreneur:
A private entrepreneur is one who as an individual sets up a business enterprise. He / she it’s the sole owner of
the enterprise and bears the entire risk involved in it.

2. State Entrepreneur:
When the trading or industrial venture is undertaken by the State or the Government, it is called ‘state
entrepreneur.’

3. Joint Entrepreneurs:
When a private entrepreneur and the Government jointly run a business enterprise, it is called ‘joint
entrepreneurs.’

Based on Gender:
1. Men Entrepreneurs:
When business enterprises are owned, managed, and controlled by men, these are called ‘men entrepreneurs.’

2. Women Entrepreneurs:
Women entrepreneurs are defined as the enterprises owned and controlled by a woman or women having a

minimum financial interest of 51 per cent of the capital and giving at least 51 per cent of employment generated
in the enterprises to women.

Based on the Size of Enterprise:

1. Small-Scale Entrepreneur:
An entrepreneur who has made investment in plant and machinery up to Rs 1.00 crore is called ‘small-scale
entrepreneur.’

2. Medium-Scale Entrepreneur:
The entrepreneur who has made investment in plant and machinery above Rs 1.00 crore but below Rs 5.00 crore
is called ‘medium-scale entrepreneur.’

3. Large-Scale entrepreneur:
The entrepreneur who has made investment in plant and machinery more than Rs 5.00 crore is called ‘large-
scale entrepreneur.
Based on Clarence Danhof Classification:
Clarence Danhof (1949), on the basis of his study of the American Agriculture, classified entrepreneurs in the

manner that at the initial stage of economic development, entrepreneurs have less initiative and drive and as
economic development proceeds, they become more innovating and enthusiastic.

Based on this, he classified entrepreneurs into four types:

These are discussed in seriatim:

1. Innovating Entrepreneurs:
Innovating entrepreneurs are one who introduce new goods, inaugurate new method of production, discover new

market and reorganise the enterprise. It is important to note that such entrepreneurs can work only when a certain
level of development is already achieved, and people look forward to change and improvement.

2. Imitative Entrepreneurs:
These are characterised by readiness to adopt successful innovations inaugurated by innovating entrepreneurs.

Imitative entrepreneurs do not innovate the changes themselves, they only imitate techniques and technology

innovated by others. Such types of entrepreneurs are particularly suitable for the underdeveloped regions for

bringing a mushroom drive of imitation of new combinations of factors of production already available in
developed regions.

3. Fabian Entrepreneurs:
Fabian entrepreneurs are characterised by very great caution and skepticism in experimenting any change in their

enterprises. They imitate only when it becomes perfectly clear that failure to do so would result in a loss of the
relative position in the enterprise.

4. Drone Entrepreneurs:
These are characterised by a refusal to adopt opportunities to make changes in production formulae even at the

cost of severely reduced returns relative to other like producers. Such entrepreneurs may even suffer from losses
but they are not ready to make changes in their existing production methods.

Q. intrapreneur is dependent on entrepreneurship describe the statement

Entrepreneurial Process:
1. Discovery: An entrepreneurial process begins with the idea generation, wherein the entrepreneur identifies and
evaluates the business opportunities. The identification and the evaluation of opportunities is a difficult task; an
entrepreneur seeks inputs from all the persons including employees, consumers, channel partners, technical
people, etc. to reach to an optimum business opportunity. Once the opportunity has been decided upon, the next
step is to evaluate it.

An entrepreneur can evaluate the efficiency of an opportunity by continuously asking certain questions to himself,
such as, whether the opportunity is worth investing in, is it sufficiently attractive, are the proposed solutions
feasible, is there any competitive advantage, what are the risk associated with it. Above all, an entrepreneur must
analyze his personal skills and hobbies, whether these coincides with the entrepreneurial goals or not.

2. Developing a Business Plan: Once the opportunity is identified, an entrepreneur needs to create a comprehensive
business plan. A business plan is critical to the success of any new venture since it acts as a benchmark and the
evaluation criteria to see if the organization is moving towards its set goals.

An entrepreneur must dedicate his sufficient time towards its creation, the major components of a business plan
are mission and vision statement, goals and objectives, capital requirement, a description of products and services,
etc.

3. Resourcing: The third step in the entrepreneurial process is resourcing, wherein the entrepreneur identifies the
sources from where the finance and the human resource can be arranged. Here, the entrepreneur finds the investors
for its new venture and the personnel to carry out the business activities.
4. Managing the company: Once the funds are raised and the employees are hired, the next step is to initiate the
business operations to achieve the set goals. First of all, an entrepreneur must decide the management structure
or the hierarchy that is required to solve the operational problems when they arise.
5. Harvesting: The final step in the entrepreneurial process is harvesting wherein, an entrepreneur decides on the
future prospects of the business, i.e. its growth and development. Here, the actual growth is compared against the
planned growth and then the decision regarding the stability or the expansion of business operations is undertaken
accordingly, by an entrepreneur.

The entrepreneurial process is to be followed, again and again, whenever any new venture is taken up by an
entrepreneur, therefore, its an ever ending process.

What is Social Entrepreneurship?

Social entrepreneurship is, at its most basic level, doing business for a social cause. It might also be referred to as
altruistic entrepreneurship.

Social entrepreneurs combine commerce and social issues in a way that improves the lives of people connected
to the cause. They don’t measure their success in terms of profit alone – success to social entrepreneurs means
that they have improved the world, however they define that.

Beyond that, however, there are differing opinions about what constitutes social entrepreneurship. Some believe
the definition applies only to businesses that make money and work toward improving a designated problem by
selling something to consumers. Others say business owners who work to solve a social problem using grant or
government money are also social entrepreneurs.

In the “earned income” model – where the social entrepreneur makes money by selling something – the
company’s customers know that their purchase will help support a stated cause, whether it’s providing soap to
children in need so hand washing can protect them from diseases or selling whistles to help promote peace in the
Congo.

People are often attracted to businesses that use a social entrepreneurship model because they’re helping to solve
a social problem when they spend money on something they need or want.

Social Entrepreneurship Examples

Some contemporary well-known and lesser-known social entrepreneurs include:
 TOMS: When the company was founded, it applied its “one for one” concept to shoes. For every pair of TOMS
shoes purchased, the company donated a pair to a needy child. The company has since expanded the one for
one concept to eye wear, coffee, and tote bags.

 Grameen Bank: Founder Muhammad Yunus provides micro-loans to those in need to help them develop
financial self-sufficiency. Yunus received a Nobel Prize for his work in 2006.

 Badala.org: Founded by Joelle McNamara while she was still in high school, Badala.org is an e-commerce
site that creates jobs for African women by selling the products they make. Products range from jewelry to
wooden kitchen utensils.

Characteristics
According to the Schwab Foundation for Social Entrepreneurship, social entrepreneurs share several
characteristics. They:

 Achieve large scale social change.

 Focus on the social or ecological change they want to make while earning money to support the change.
 Innovate when looking for a solution to a social problem.
 Use feedback to adapt and refine.
While popularized by Gen X, social entrepreneurs have long existed in history. 19th century innovators
Florence Nightingale and landscape architect Frederick Law Olmsted are considered social entrepreneurs.

Difference between Small Business and Entrepreneurship

Behaviour of Small Business and Entrepreneurship

Entrepreneurs and small business owners are both self-employed, but their behaviors are different. Entrepreneurs
often want to change and develop things. They are happy in creating energy as opposed to being comfortable with

their current situation. Small business owners, on the other hand, are content as long as they are successful. They

will rarely try to do more.

Innovation in Small Business and Entrepreneurship

Entrepreneurs are known to invent and develop things. Their minds are technical as opposed to small business

owners who often do what entrepreneurs are doing already. Whereas entrepreneurs are proactive, small business

owners are reactive.

Motive of Small Business and Entrepreneurship

Most entrepreneurs will start up a business because they are passionate about it. They will do what they love

without thinking about the risks or even profits in the case that the business is successful. On the other hand, small
businesses set up their businesses with the main motive of earning profits. That is why when the risks become too

much, they will shut down the business to avoid losses.

Market Share of Small Business and Entrepreneurship

Entrepreneurs often have the vision of helping the world. Therefore, their businesses will have an impact on many

people. For instance, Microsoft is serving almost everybody in the world. They, therefore, have a significant

market share. For small business owners, they have a small market share because they serve people around them.

They put their communities first and their needs. This brings about a gap in the market shares of entrepreneurs

and small businesses.

Mindsets of Small Business and Entrepreneurship

Entrepreneurs and small business owners have different mindsets. While entrepreneurs will look for the next big

venture when their companies are good, small business owners will retain their business. They are sentimental,

and they believe that their business is for their community,

Entrepreneurship vs. Small Business: Comparison Chart
Summary of Small Business vs Entrepreneurship

Both small business owners and entrepreneurs are self-employed, and they have much more in common. As we

have seen above, some of the largest corporations in the world like Apple began as home-based businesses.

Therefore, most entrepreneurs begin from humble beginnings as small businesses but they bloom because they

are always hungry for more success.

Both small businesses and entrepreneurial projects are imperative because they lead to the development of the

economy. In addition to that, they aid in eradicating the high levels of unemployment which has become a major

issue all over the world. The projects have also assisted in the utilization of local resources and development of

technology. Therefore, both are useful for the economy to prosper.

To the entrepreneurial novice, being an entrepreneur or a small business owner is interchangeable. However,
they are not the same. Sure, they are both self-employed, and need to make money (regardless of how they spend
it). But there are a few differences:

 Entrepreneurs rarely want things to stay as they are. They are looking to change things, develop things,
create more energy. Small business owners are often happy with how things are, content to carry on (if
successful).
 Entrepreneurs invent things, look to do things in different ways and are often technically minded. Small
business owners are more likely to do something others are doing, such as opening a shop.
 Entrepreneurs are often looking for the next big thing, ready to move on once their company is good
enough. Small business owners are often more sentimental, and see their business as part of the community
and part of the family.
 Entrepreneurs will do things more often than not because of passion or opportunity rather than strictly profit
or a means of making a living.
 Entrepreneurs want to change the world. Small business owners want to make a living, and often serve
their local community first and foremost.

Problems of entrepreneurship development in Bangladesh.

In Bangladesh there is no abundance facilities for developing entrepreneurship rather exist a large number of obstacles,
which are liable for not developing entrepreneurs in Bangladesh described in below.

1. Improper publicity of Govt. facilities: Sometimes Govt. provides facilities for developing entrepreneurs in
limited basis. Those have not informed properly to the remote villagers. Therefore, these facilities cannot work
well. Some urban centered people accept the facilities that are not all for developing entrepreneurs all over the
country. So this is one of the fundamental obstacles.

2. Insufficient arrangement for pre-investment advice: Pre-investment advice is essential to ensure best use of
investment. In our country there is no sufficient arrangement of pre-investment advice for this reason most of
entrepreneur can’t study market feasibility for the product and business. Demand for the product in market,
possibility of gaining profit etc. with the lack of this study most of the entrepreneur can’t operate their activities
successfully. Many of them fail in their initial activities.

3. Lack of required financing: This is the fundamental problem of developing entrepreneurship in Bangladesh.
Here, entrepreneurs faces problem in collecting required working capital and fixed capital most of the financing
organization demand for supporting papers and apply rigid condition as a result most of the entrepreneurs can’t
get required capital to operate their activities smoothly. Working capital, fixed capital and capital for expansion
of business of business.

4. Scarcity of raw materials and other factors of production: In our country there is an immense shortage of basic
raw materials to operate industrial activities smoothly such as skilled manpower technology capital and so on, for
why the have to import basis raw materials and supplementary factors of production that increase the cost of
production. As a result entrepreneur can’t take initiative to establish industrial organization smoothly.

5. Problem in marketing produced product: Now a day marketing of the product has become an important task in
business that largely exists in our country. In open market economy, product of the home and foreign countries
are compete each other in same market. Usually quality products capture the market. Because of different problem
and lack of factors of production our entrepreneur can’t produce or hardly produce quality product as developed
country. For reason, now a day, they face marketing problem greatly for every product.

6. Lack of training: Training is essential to work efficiently and effectively in any field. Training is a practical
experience regarding job that is necessary to increase efficiency and productivity. In our country, there is no
available training center to provide training in developing entrepreneurs. As a result, people cannot come ahead
to take initiative that is an obstacle to develop entrepreneurship.

7. Lack of package help: In develop country, Govt. and non- govt. sector provide package help for developing
industrial sector. In includes, technical help, (technical men and technology), raw materials, working capital and
so on. These are helpful in creating entrepreneurship as well as industry. But in our country, there is no abundance
package help that is very essential for developing entrepreneurship. So it is another problem of developing
entrepreneurs and entrepreneurship in Bangladesh.
8. Lack of knowledge regarding technology and management: In developed country, most of the business and
industries are technology oriented and they follow modern management technique. Those are helpful in
developing dynamic entrepreneurs. Nevertheless, in our country there is little scope of technology and modern
management. Besides, we also have not proper knowledge regarding those matters.

For going are the obstacles or problem in developing entrepreneurs and entrepreneurship in Bangladesh.

1. Shortage of funds
2. Unskilled employees
3. Time management: Time management might be the biggest problem faced by entrepreneurs, who wear
many (and all) hats. If you only had more time, you could accomplish so much more!

4. Unplanned market strategy

The opportunities or prospects of entrepreneurship development in Bangladesh:
As a third world country a considerable number of entrepreneurs has not been developed. Nevertheless, there is
a great possibility of developing entrepreneurship in Bangladesh. Following are the prospects and opportunity of
entrepreneurship development in Bangladesh.

1. Availability of human resources: Bangladesh has its vast population of about 150 million. So there is a great
possibility of developing entrepreneurship and entrepreneurs in Bangladesh. HR is the fundamental factors of
production that is available in vast amount. So production that is available in vast amount. Therefore,
entrepreneurs can easily use them with low payment that may encourage them to be entrepreneur. Therefore,
abundance of HR is the great opportunity in creating entrepreneurs in Bangladesh.

2. Industrial innovative sensation:

People of Bangladesh have industrial innovative sensation. They may get involved largely in industrial initiative
if they get favorable opportunity. Already they established many small and collage industries with the help of
NGO's and other financing institution.

3. Mobility of profession:

A considerable number of villagers now replaced their agriculture-based profession into petty businesses and
many other small and cottage industry. Many of them transferred into city area. Thus, way here creates mobility
of profession. That is another prospect of developing entrepreneurship in Bangladesh.

4. No religious hindrances on mobility of profession:

In Bangladesh, there are any religious and cultural hindrances on mobility of profession. Most of the people are
changing their work, profession day by day. In past, certain religious people belong to certain profession. But
now people get engaged in their desired profession without religious and cultural hindrance. That is another
prospect of creating entrepreneurs.

5. Large number of educated unemployed:

In our country, there are many educated unemployed people, but there is a limited scope of employment. For this
reason, educated unemployed people will take new initiative to do something new themselves. As there is a close
connection of education and entrepreneurship there is a possibility of developing entrepreneurship.

6. Tendency toward industries work:

Industrials work bears more salary, status, facilities for living in city area and so on. For this reason people
tending towards industrial work. Thus, industrial sector will be developed in future. Such mentality and tendency
is helpful in developing entrepreneurs. Therefore, it is another prospect of developing entrepreneurs.

7. Preference in establishing agro-based industry in government planning

As our country in agro-based, there is a greater possibility of establishing agro-based industry. Besides, most of
the raw materials of industry come from agricultural sector. So our resourceful agriculture sector is helpful in
developing entrepreneurship. Nowadays, Govt. announces preference in agro-based industry that is also greater
opportunity to develop entrepreneurs.

8. Liberalization of govt. industrial policy:

With the aim of rapid industrialization, govt. adopted liberalization in industrial policy and encourages
entrepreneurs to come ahead in industrial sector with their large capital. For this reason, investors are investing
their capital in industrial sector. That is another prospect of developing entrepreneurs in Bangladesh.

9. Disbursement of micro-credit by different NGO’s:

In our country there are large numbers of NGO’s providing micro-credit to the village poor people. That is helpful
in forming small and cottage industry. NGO's also provide training facilities, advice, investment consultancy, raw
materials etc. to its loaner. $hat is another prospect of developing entrepreneurs in Bangladesh.

From above mentioned discussion, we observed that there is a greater possibility of developing entrepreneurs in
Bangladesh.
Herzberg’s Two-Factor Theory of Motivation
In 1959, Frederick Herzberg, a behavioural scientist proposed a two-factor theory or the motivator-hygiene
theory. According to Herzberg, there are some job factors that result in satisfaction while there are other job
factors that prevent dissatisfaction. According to Herzberg, the opposite of “Satisfaction” is “No satisfaction” and
the opposite of “Dissatisfaction” is “No Dissatisfaction”.

FIGURE: Herzberg’s view of satisfaction and dissatisfaction

Herzberg classified these job factors into two categories-

a. Hygiene factors- Hygiene factors are those job factors which are essential for existence of motivation at
workplace. These do not lead to positive satisfaction for long-term. But if these factors are absent / if these
factors are non-existant at workplace, then they lead to dissatisfaction. In other words, hygiene factors are
those factors which when adequate/reasonable in a job, pacify the employees and do not make them
dissatisfied. These factors are extrinsic to work. Hygiene factors are also called as dissatisfiers or
maintenance factors as they are required to avoid dissatisfaction. These factors describe the job
environment/scenario. The hygiene factors symbolized the physiological needs which the individuals
wanted and expected to be fulfilled. Hygiene factors include:

 Pay - The pay or salary structure should be appropriate and reasonable. It must be equal and
competitive to those in the same industry in the same domain.
 Company Policies and administrative policies - The company policies should not be too rigid.
They should be fair and clear. It should include flexible working hours, dress code, breaks,
vacation, etc.
 Fringe benefits - The employees should be offered health care plans (mediclaim), benefits for the
family members, employee help programmes, etc.
 Physical Working conditions - The working conditions should be safe, clean and hygienic. The
work equipments should be updated and well-maintained.
  Status - The employees’ status within the organization should be familiar and retained.
 Interpersonal relations - The relationship of the employees with his peers, superiors and
subordinates should be appropriate and acceptable. There should be no conflict or humiliation
element present.
 Job Security - The organization must provide job security to the employees.

b. Motivational factors- According to Herzberg, the hygiene factors cannot be regarded as motivators. The
motivational factors yield positive satisfaction. These factors are inherent to work. These factors motivate
the employees for a superior performance. These factors are called satisfiers. These are factors involved
in performing the job. Employees find these factors intrinsically rewarding. The motivators symbolized
the psychological needs that were perceived as an additional benefit. Motivational factors include:
 Recognition - The employees should be praised and recognized for their accomplishments by the
managers.
 Sense of achievement - The employees must have a sense of achievement. This depends on the
job. There must be a fruit of some sort in the job.
 Growth and promotional opportunities - There must be growth and advancement opportunities in
an organization to motivate the employees to perform well.
 Responsibility - The employees must hold themselves responsible for the work. The managers
should give them ownership of the work. They should minimize control but retain accountability.
 Meaningfulness of the work - The work itself should be meaningful, interesting and challenging
for the employee to perform and to get motivated.

Limitations of Two-Factor Theory

The two factor theory is not free from limitations:

1. The two-factor theory overlooks situational variables.

2. Herzberg assumed a correlation between satisfaction and productivity. But the research conducted by
Herzberg stressed upon satisfaction and ignored productivity.
3. The theory’s reliability is uncertain. Analysis has to be made by the raters. The raters may spoil the
findings by analyzing same response in different manner.
4. No comprehensive measure of satisfaction was used. An employee may find his job acceptable despite
the fact that he may hate/object part of his job.
5. The two factor theory is not free from bias as it is based on the natural reaction of employees when they
are enquired the sources of satisfaction and dissatisfaction at work. They will blame dissatisfaction on the
 external factors such as salary structure, company policies and peer relationship. Also, the employees will
give credit to themselves for the satisfaction factor at work.
6. The theory ignores blue-collar workers. Despite these limitations, Herzberg’s Two-Factor theory is
acceptable broadly.

Implications of Two-Factor Theory

The Two-Factor theory implies that the managers must stress upon guaranteeing the adequacy of the
hygiene factors to avoid employee dissatisfaction. Also, the managers must make sure that the work is
stimulating and rewarding so that the employees are motivated to work and perform harder and better. This
theory emphasize upon job-enrichment so as to motivate the employees. The job must utilize the
employee’s skills and competencies to the maximum. Focusing on the motivational factors can improve
work-quality.

Maslow’s Hierarchy of Needs Theory

Abraham Maslow is well renowned for proposing the Hierarchy of Needs Theory in 1943. This theory is a
classical depiction of human motivation. This theory is based on the assumption that there is a hierarchy of five
needs within each individual. The urgency of these needs varies. These five needs are as follows-

1. Physiological needs- These are the basic needs of air,

water, food, clothing and shelter. In other words,
physiological needs are the needs for basic amenities
of life.
2. Safety needs- Safety needs include physical,
environmental and emotional safety and protection.
For instance- Job security, financial security,
protection from animals, family security, health
security, etc. FIGURE: Maslow’s Need Hierarchy Model
3. Social needs- Social needs include the need for love,
affection, care, belongingness, and friendship.
4. Esteem needs- Esteem needs are of two types:
internal esteem needs (self- respect, confidence,
competence, achievement and freedom) and
external esteem needs (recognition, power, status,
attention and admiration).
 5. Self-actualization need- This include the urge to
become what you are capable of becoming / what
you have the potential to become. It includes the
need for growth and self-contentment. It also
includes desire for gaining more knowledge, social-
service, creativity and being aesthetic. The self-
actualization needs are never fully satiable. As an
individual grows psychologically, opportunities keep
cropping up to continue growing.

According to Maslow, individuals are motivated by

unsatisfied needs. As each of these needs is significantly
satisfied, it drives and forces the next need to emerge.
Maslow grouped the five needs into two categories -
Higher-order needs and Lower-order needs. The
physiological and the safety needs constituted the lower-
order needs. These lower-order needs are mainly satisfied
externally. The social, esteem, and self-actualization
needs constituted the higher-order needs. These higher-
order needs are generally satisfied internally, i.e., within
an individual. Thus, we can conclude that during boom
period, the employees lower-order needs are significantly
met.
implications of Maslow’s Hierarchy of Needs Theory for Managers
As far as the physiological needs are concerned, the managers should give employees appropriate salaries
to purchase the basic necessities of life. Breaks and eating opportunities should be given to employees.

As far as the safety needs are concerned, the managers should provide the employees job security, safe and
hygienic work environment, and retirement benefits so as to retain them.

As far as social needs are concerned, the management should encourage teamwork and organize social
events.

As far as esteem needs are concerned, the managers can appreciate and reward employees on
accomplishing and exceeding their targets. The management can give the deserved employee higher job
rank / position in the organization.

As far as self-actualization needs are concerned, the managers can give the employees challenging jobs in
which the employees’ skills and competencies are fully utilized. Moreover, growth opportunities can be
given to them so that they can reach the peak.

The managers must identify the need level at which the employee is existing and then those needs can be utilized as
push for motivation.
Limitations of Maslow’s Theory

 It is essential to note that not all employees are governed by same set of needs. Different individuals may be
driven by different needs at same point of time. It is always the most powerful unsatisfied need that motivates
an individual.
 The theory is not empirically supported.
 The theory is not applicable in case of starving artist as even if the artist’s basic needs are not satisfied, he will still
strive for recognition and achievement.

Maslow’s Need Hierarchy Model

Human behavior is goal-directed. Motivation cause goal-directed behaviour. It is through motivation that needs
can be handled and tackled purposely. This can be understood by understanding the hierarchy of needs by
manager. The needs of individual serves as a driving force in human behaviour. Therefore, a manager must
understand the “hierarchy of needs”. Maslow has proposed “The Need Hierarchy Model”.

The needs have been classified into the following in order:

1. Physiological needs- These are the basic needs of an individual which includes food, clothing, shelter,
air, water, etc. These needs relate to the survival and maintenance of human life.
2. Safety needs- These needs are also important for human beings. Everybody wants job security, protection
against danger, safety of property, etc.
3. Social needs- These needs emerge from society. Man is a social animal. These needs become important.
For example- love, affection, belongingness, friendship, conversation, etc.
4. Esteem needs- These needs relate to desire for self-respect, recognition and respect from others.
5. Self-actualization needs- These are the needs of the highest order and these needs are found in those
person whose previous four needs are satisfied. This will include need for social service, meditation.

Henri Fayols 14 Principles of Management

A principle refers to a fundamental truth. It establishes cause and effect relationship between two or more
variables under given situation. They serve as a guide to thought & actions. Therefore, management principles
are the statements of fundamental truth based on logic which provides guidelines for managerial decision making
and actions. These principles are derived: -

a. On the basis of observation and analysis i.e. practical experience of managers.

b. By conducting experimental studies.

There are 14 Principles of Management described by Henri Fayol.

1. Division of Labor
a. Henri Fayol has stressed on the specialization of jobs.
b. He recommended that work of all kinds must be divided & subdivided and allotted to various
persons according to their expertise in a particular area.
c. Subdivision of work makes it simpler and results in efficiency.
d. It also helps the individual in acquiring speed, accuracy in his performance.
e. Specialization leads to efficiency & economy in spheres of business.
2. Party of Authority & Responsibility
a. Authority & responsibility are co-existing.
b. If authority is given to a person, he should also be made responsible.
c. In a same way, if anyone is made responsible for any job, he should also have concerned
authority.
d. Authority refers to the right of superiors to get exactness from their sub-ordinates whereas
responsibility means obligation for the performance of the job assigned.
e. There should be a balance between the two i.e. they must go hand in hand.
f. Authority without responsibility leads to irresponsible behavior whereas responsibility without
authority makes the person ineffective.
3. Principle of One Boss
a. A sub-ordinate should receive orders and be accountable to one and only one boss at a time.
b. In other words, a sub-ordinate should not receive instructions from more than one person
because -

- It undermines authority
- Weakens discipline
- Divides loyalty
- Creates confusion
- Delays and chaos
- Escaping responsibilities
- Duplication of work
- Overlapping of efforts

c. Therefore, dual sub-ordination should be avoided unless and until it is absolutely essential.
d. Unity of command provides the enterprise a disciplined, stable & orderly existence.
e. It creates harmonious relationship between superiors and sub-ordinates.
4. Unity of Direction
a. Fayol advocates one head one plan which means that there should be one plan for a group of
activities having similar objectives.
b. Related activities should be grouped together. There should be one plan of action for them and
they should be under the charge of a particular manager.
c. According to this principle, efforts of all the members of the organization should be directed
towards common goal.
d. Without unity of direction, unity of action cannot be achieved.
e. In fact, unity of command is not possible without unity of direction.
 Basis Unity of command Unity of direction

Meaning It implies that a sub-ordinate should receive It means one head, one plan for a group of
orders & instructions from only one boss. activities having similar objectives.

Nature It is related to the functioning of personnel’s. It is related to the functioning of

departments, or organization as a whole.

Necessity It is necessary for fixing responsibility of each It is necessary for sound organization.
subordinates.

Advantage It avoids conflicts, confusion & chaos. It avoids duplication of efforts and wastage
of resources.

Result It leads to better superior sub-ordinate It leads to smooth running of the

relationship. enterprise.

Therefore it is obvious that they are different from each other but they are dependent on each other i.e. unity of
direction is a pre-requisite for unity of command. But it does not automatically comes from the unity of direction.

5. Equity
a. Equity means combination of fairness, kindness & justice.
b. The employees should be treated with kindness & equity if devotion is expected of them.
c. It implies that managers should be fair and impartial while dealing with the subordinates.
d. They should give similar treatment to people of similar position.
e. They should not discriminate with respect to age, caste, sex, religion, relation etc.
f. Equity is essential to create and maintain cordial relations between the managers and sub-ordinate.
g. But equity does not mean total absence of harshness.
h. Fayol was of opinion that, “at times force and harshness might become necessary for the sake of
equity”.

 Order

a. This principle is concerned with proper & systematic arrangement of things and people.
b. Arrangement of things is called material order and placement of people is called social order.
c. Material order- There should be safe, appropriate and specific place for every article and every place to
be effectively used for specific activity and commodity.
d. Social order- Selection and appointment of most suitable person on the suitable job. There should be a
specific place for every one and everyone should have a specific place so that they can easily be
contacted whenever need arises.
 Discipline

a. According to Fayol, “Discipline means sincerity, obedience, respect of authority & observance of rules
and regulations of the enterprise”.
b. This principle applies that subordinate should respect their superiors and obey their order.
c. It is an important requisite for smooth running of the enterprise.
d. Discipline is not only required on path of subordinates but also on the part of management.
e. Discipline can be enforced if -

- There are good superiors at all levels.

- There are clear & fair agreements with workers.
- Sanctions (punishments) are judiciously applied.

 Initiative

a. Workers should be encouraged to take initiative in the work assigned to them.

b. It means eagerness to initiate actions without being asked to do so.
c. Fayol advised that management should provide opportunity to its employees to suggest ideas,
experiences& new method of work.
d. It helps in developing an atmosphere of trust and understanding.
e. People then enjoy working in the organization because it adds to their zeal and energy.
f. To suggest improvement in formulation & implementation of place.
g. They can be encouraged with the help of monetary & non-monetary incentives.

 Fair Remuneration

a. The quantum and method of remuneration to be paid to the workers should be fair, reasonable,
satisfactory & rewarding of the efforts.
b. As far as possible it should accord satisfaction to both employer and the employees.
c. Wages should be determined on the basis of cost of living, work assigned, financial position of the
business, wage rate prevailing etc.
d. Logical & appropriate wage rates and methods of their payment reduce tension & differences between
workers & management creates harmonious relationship and pleasing atmosphere of work.
e. Fayol also recommended provision of other benefits such as free education, medical & residential
facilities to workers.

 Stability of Tenure

a. Fayol emphasized that employees should not be moved frequently from one job position to another i.e.
the period of service in a job should be fixed.
b. Therefore employees should be appointed after keeping in view principles of recruitment & selection but
once they are appointed their services should be served.
c. According to Fayol. “Time is required for an employee to get used to a new work & succeed to doing it
well but if he is removed before that he will not be able to render worthwhile services”.
d. As a result, the time, effort and money spent on training the worker will go waste.
 e. Stability of job creates team spirit and a sense of belongingness among workers which ultimately
increase the quality as well as quantity of work.

 Scalar Chain

a. Fayol defines scalar chain as ’The chain of superiors ranging from the ultimate authority to the lowest”.
b. Every orders, instructions, messages, requests, explanation etc. has to pass through Scalar chain.
c. But, for the sake of convenience & urgency, this path can be cut shirt and this short cut is known as
Gang Plank.
d. A Gang Plank is a temporary arrangement between two different points to facilitate quick & easy
communication as explained below:

In the figure given, if D has to communicate with G he will first send the communication upwards with
the help of C, B to A and then downwards with the help of E and F to G which will take quite some time
and by that time, it may not be worth therefore a gang plank has been developed between the two.

e. Gang Plank clarifies that management principles are not rigid rather they are very flexible. They can be
moulded and modified as per the requirements of situations

 Sub-Ordination of Individual Interest to General Interest

a. An organization is much bigger than the individual it constitutes therefore interest of the undertaking
should prevail in all circumstances.
b. As far as possible, reconciliation should be achieved between individual and group interests.
c. But in case of conflict, individual must sacrifice for bigger interests.
d. In order to achieve this attitude, it is essential that -

- Employees should be honest & sincere.

- Proper & regular supervision of work.
- Reconciliation of mutual differences and clashes by mutual agreement. For example, for
change of location of plant, for change of profit sharing ratio, etc.
 Espirit De’ Corps (can be achieved through unity of command)

a. It refers to team spirit i.e. harmony in the work groups and mutual understanding among the members.
b. Spirit De’ Corps inspires workers to work harder.
c. Fayol cautioned the managers against dividing the employees into competing groups because it might
damage the moral of the workers and interest of the undertaking in the long run.
d. To inculcate Espirit De’ Corps following steps should be undertaken -
o There should be proper co-ordination of work at all levels
o Subordinates should be encouraged to develop informal relations among themselves.
o Efforts should be made to create enthusiasm and keenness among subordinates so that they can
work to the maximum ability.
o Efficient employees should be rewarded and those who are not up to the mark should be given a
chance to improve their performance.
o Subordinates should be made conscious of that whatever they are doing is of great importance to
the business & society.
e. He also cautioned against the more use of Britain communication to the subordinates i.e. face to face
communication should be developed. The managers should infuse team spirit & belongingness. There
should be no place for misunderstanding. People then enjoy working in the organization & offer their best
towards the organization.

 Centralization & De-Centralization

a. Centralization means concentration of authority at the top level. In other words, centralization is a situation
in which top management retains most of the decision making authority.
b. Decentralization means disposal of decision making authority to all the levels of the organization. In other
words, sharing authority downwards is decentralization.
c. According to Fayol, “Degree of centralization or decentralization depends on no. of factors like size of
business, experience of superiors, dependability & ability of subordinates etc.
d. Anything which increases the role of subordinate is decentralization & anything which decreases it is
centralization.
e. Fayol suggested that absolute centralization or decentralization is not feasible. An organization should
strike to achieve a lot between the two.

PROBLEMS & PROSPECTS

OF SMALL BUSINESS

IN

BANGLADESH

Methodology

The methods that are used to prepare the report are mentioned as follows:
Collecting data from primary and secondary sources (website, annual report, raw data)

Analyzing the factor related to Problems and Prospects of Small Business in Bangladesh

Identifying some suggestions for this sector

Profile of an entrepreneur

Objective

Our objective is to –

• Give an overview of small business in Bangladesh

• Describe the problems and prospects in this sector

• Provide information regarding supportive institution

• Recommending on the overall scenarios of small business in Bangladesh

Executive Summary

Small business is that part of business which is organized and managed by the owner or his or her family. Small
business is a crucial part of the total business scenario of any country. Especially it plays a vital role in case of the
economic development of a less developed or under developed country. Areas that small business covers are-
manufacturing, wholesaling, retailing, service and so on. An interesting point to be considered is that the growth and
development of medium and large industries is mostly dependent on small business. Today, small business is
providing strong contribution the national economy. Features that have made small business separate from other
business forms are – large contribution of owner, source of finance, size and capital of the firm, size of investment,
less legal restrictions and so on. Like other countries small business is in a firm position in our country. As the
unemployment in our country is high, so small business may play an essential role in reducing the rate of
unemployment. Some government and non government organizations are assisting in the expansion of small business
in our country. But unfortunately, small business is facing some unexpected problems. These problems include – lack
of required knowledge and managerial skill of the owner, lack of adequate capital, inventory mismanagement,
negligence of the inhabitants towards small business, unable to compete with large firms, lack of proper counseling
and other forms of assistances and so on. As small business is having a crucial impact on the economic developed
of our country , so government as well as non government institutions must come forward with comprehensive
program to remove all the inconveniences. Because small business has gained a major portion of our country by
contributing to personalized flexibility, creativity, specialization and performance.

SMALL BUSINESS

A small business is a business that is independently owned and operated, with a small number of employees and
relatively low volume of sales. Small business is defined as those engaged in manufacturing or processing or service
activities whose total fixed investment is limited to BDT 30 million (US$ 0.75 million), while cottage industries are those
engaged in manufacturing or servicing and generally run by family members with a total investment limited to Tk. 0.5
million (US$ 12,500) only. The legal definition of “small” often varies by country and industry, but is generally under
100 employees in the United States and under 50 employees in the European Union. In comparison, the definition
of mid-sized business by the number of employees is generally under 500 in the U.S. and 250 for the European
Union. In Australia, a small business is defined as 1-19 employees and a medium business as 20-200 employees.
Small businesses are normally privately owned corporations, partnerships, or sole proprietorships.
In addition to number of employees, other methods used to classify small companies include annual sales (turnover),
value of assets and net profit (balance sheet), alone or in a mixed definition. These criteria are followed by the
European Union, for instance (headcount, turnover and balance sheet totals). Small businesses are usually not
dominant in their field of operation.

Small businesses are common in many countries, depending on the economic system in operation. Typical examples
include: convenience stores, other small shops (such as
a bakery or delicatessen), hairdressers, tradesmen, lawyers, accountants, restaurants, guest
houses, photographers, small-scale manufacturing etc.

The smallest businesses, often located in private homes, are called micro businesses (term used by international
organizations such as the World Bank and the International Finance Corporation). The term “mom and pop
business” is a common colloquial expression for a single-family operated business with few (or no) employees other
than the owners.

Features of small business

Small business has some special characteristics. These characteristics have made small businesses different from
other firms of businesses. The features of small businesses are as follows-

In case of small businesses, owners pay the most vital role as he\she performs all the vital responsibilities .s\he is the
one who takes all the initiatives to start the business’s\he bears all the risk. The business is operated & managed by
his or her\by the owner

It is easy to run the small business compared to large corporations. And there . is little or no delegation of authority.
And the communication process is verbal.

Another important feature is that, there is no separate entity. Business & owner is uniform in this case.

In case of small business, employers are hired internally. Most of the employees are from the family & only few are
hired.

Another important concern is financing .Small business is basically financed by the owner. Limited funds are borrowed.
It has no access in share market.

As, the employees are mostly from the owner’s family & the number of the employees are few, so there remains a
close relationship among owner & employees.

There is little scope of innovation. And also few scope for specialist services.

Small businesses are housed in small establishment. So infrastructural cost is low.

Small businesses are run by the owner. So control is easy.

In case of small business, it is easy to ensure security; compared to large corporations.

Small business is run by limited capital. So, size of investment is comparatively low.

Small business has limited market share. That is sales volume is small.
Another important concern is, use of technology. Modern equipments are not used to a large extent in case of small
business.

The alone mentioned features have made small business different.

Stages of Small Business Development

Any precise quantitative estimate of the importance of small business in Bangladesh economy is precluded by non-
availability of comprehensive statistical information about these industries at the national level. Latest BSCIC
estimates suggest that there are currently 55,916 small industries and 511,612 cottage industries excluding
handlooms under the section of small business. Including handlooms, the number of cottage units shoots up to
600,000 units indicating numerical abundance of small and cottage industries (SCIs) in Bangladesh. The most recent
private sector survey estimates the contribution of the micro, small, and medium enterprises (MSMEs) is 20-25% of
GDP. Regardless of the correct magnitude, SBs undoubtedly play a very important role in the economy of Bangladesh
in terms of output, employment, and private sector activities. Together, the various categories of SBs are reported to
contribute between 23% of total civilian employment. However, serious controversies surround their relative
contribution to Bangladesh’s industrial output due to paucity of reliable information and different methods used to
estimate the magnitude. The most commonly quoted figure by different sources (ADB, World Bank, Planning
Commission and BIDS) relating to value added contributions of the SBs is seen to vary between 45-50% of the total
manufacturing value added. Some specialized financial institutions are working actively in Bangladesh to provide SME
facilities:

· Bangladesh Small & Cottage Industries Corporation (BSCIC)

 Bangladesh Industrial Technical Assistance Center (BITAC)

 Bangladesh Council for Scientific & Industrial Research (BCSIR)
 BASIC Bank

· NASCIB

· MIDAS

· CARITAS

· Commercial Banks (BRAC Bank, AB Bank, Dhaka Bank)

Prospects of Small Business in Bangladesh

Small business in Bangladesh has a significant prospect in respect of social, economical

& cultural perspective. In previous & current year, we observe the owner of the small
business; get auspicious result from conducting this business. Here we identify some
reasons for the prospects of small business in Bangladesh.

Supporting Industry:

Small business work as a supporting industry for the large business unit. Large business
develops products, select market and produce large scale of products which are
distributed to the ultimate consumers by small business. To distribute large scale product
small businesses like distributors, wholesale business, retail business etc. are developed
over time.

Easy formation:

Easy start up & less rules &regulation also help the growth of small business unit in
Bangladesh. As we know to start up a business like small business the formal procedure
is very easy compared to other country in world.

Cultural product demand:

Culture specifies norms and customs of a society. Bangladesh has a established culture
and different cultural event. Bangladeshi people with their norms and in different cultural
events use cultural products. This demand may be fulfilled more efficiently by small
business rather than large business. For example, we use Punjabi and Shari in cultural
events like Pohela Baishak, Pohela Falgun etc.

Unemployment effect:

A large number of unemployed people are playing a crucial role in establishing small
business. In rural area seasonal unemployed people support the small business a lot.
Current global recession also help a large number of skilled people who loss their jobs
will contribute in small business with their skilled labor.

Skilled worker:

For starting small business expensive training program is not necessary. It also does not
require modern technology. Workers can gather experience from their family members.

Women participation:

Women participation in outside work environment is still limited in our country because
of social conservativeness. So women can easily engage in small business activities. As
a result they can play a greater role for the development of their family as well as our
country.

Local demand:

Local demand mainly created according to local culture, people’s idea modes and
norms. Specific local demand can not be fulfilled by large industry. By fulfilling local
demand small business can earn more profit

Location:
For establishing small business it is not so much important for managing area as large
location. Most of the small businesses are established by the combination of family
members. It is not necessary to buy or rent extra land for establishing small business.

Loan facility:

Different financial institutions provide financial support for the development of small
business. Now a day’s different N.G.O’s also play a greater role for providing support to
the small business.

Institutional Support in Small Business Unit

Bangladesh Small & Cottage Industries Corporation (BSCIC)

BSCIC is a promotional organization. It fosters the promotion and extension of Small and Cottage Industries (SCI) in
the private sector in Bangladesh. Its H.Q. is in Dhaka having 4 Regional offices and 64 District offices. It is a
Government statutory body.

Its Objectives are:

 To accelerate the growth of SCI and raise its productivity.

 To create employment opportunity, develop and provide marketing facilities and linkage industries.
 To arrange HRD facilities.

BSCIC Provides

 Pre investment counseling

 In plant advisory services
 Post investment extension services
 Developed Industrial plots for investors

BSCIC Supplies

 Technical information
 Designs and prototypes
 Industrial profiles
 Market information

BSCIC Assists in:

 Financing of SCI through DFIs & NCBs

 Selection of right type of machinery
 Adopting and adapting appropriate technology
 Studying investment feasibility
 Establishing sub- contracting linkages.

BSCIC Organizes

 Technical and management skill development training

 Fairs and exhibitions
  Buyer-seller meet

Bangladesh Industrial Technical Assistance Center (BITAC)

Bangladesh Industrial Technical Assistance Center (BITAC) was set up by government as an autonomous body under
the Ministry of Industries.

Its mandate is to:

(a) Train industrial personnel to upgrade their skills;

(b) Render technical advice to industries;

(c) Disseminate modern know-how and improved techniques among industrial personnel;

(d) Manufacture and supply spare parts, tools and machines; and

(e) Develop equipments tools and processes. BITAC has since its birth played an important but limited role by
facilitating transfer of technology to the industrial sector of the country besides developing human resources through
its skill development training programs. However, it has suffered from chronic paucity of funds necessary for
conducting training and modernization. This venerable organization with years of experience and goodwill should be
reenergized and enabled to play its due role in the national economy.

Bangladesh Council for Scientific & Industrial Research (BCSIR)

Bangladesh Council for Scientific & Industrial Research (BCSIR) has also remained an underutilized organization in
spite of its potential. Particularly, its regional establishments in Chittagong and Rajshahi should have been fully used
to undertake research in locally available materials, which can be used as inputs by the SMEs. The agency’s research
in the area of Soya foods and Spirulina for example has attracted attention of the public but there has been no
sustained effort by BCSIR to remain in the public view. Years of neglect and fund starvation have stifled the growth of
BCSIR. To the best of our information it has no useful linkage with the SME sector. Ways need to be explored to find
mutually beneficial cooperation between the two.

Other Institutions

Over the years a number of semi government and private sector institutions have become active in the SME area.
Some of these like the BASIC Bank, and just named

BCSIR are in the public sector. But more importantly NASCIB, MIDAS, CARITAS, Kumudini, Banglacraft to name a
few are some of the organizations, who have appeared in the private sector and are contributing to promotion and
development of the SMEs particularly those in the traditional sector. However, more SMEs should be encouraged and
assisted to form their own associations and build-up links with the national bodies. The major non-government private
sector support agencies in the field of finance include a large number of non-government microfinance organizations
(NGOs).

Their work among the landless & asset less poor through infusion of microfinance has activated millions of miniscule
SMEs across the country.

Special Incentives for SB in Bangladesh

Tax consideration:
Tax considerations specially tax holiday and income tax benefits for small
business encourages potential entrepreneur to establish a small business.
For small business govt. provide tax holiday for 5-10 years and
entrepreneur’s income are also tax free. Tax holiday facilities will be available
for five or seven years depending on location of the industrial enterprise. Tax
holiday facilities will be provided in accordance with the existing laws. The
period of such tax holiday will be calculated from the month of
commencement of commercial production. Tax holiday certificate will be
issued by NBR for the total tax holiday period within ninety day of submission
of application.

Flexible rules & regulations:

Flexible in rules & regulation also assist the growth of small business in
Bangladesh. For this flexibility small business unit may quickly start up their
operation.Special incentives will be provided to encourage non-resident
Bangladeshi (NRSs) for investment. In case of their investment in
Bangladesh, they will enjoy facilities similar to those given to the foreign
investors.

Consultancy support:

Banks and N.G.O’s provide financial support as well as counseling facilities.

They monitor the performance of the small business. If their performance is
not satisfactory financial institutions provide logistic support in that case..

Reviewing performance:

In order to eliminate any unfair competition, rationalization will be undertaken

keeping in view the interests of the entrepreneurs as well as consumers.
Bangladesh Tariff commission will regularly review such cases and
recommend necessary measures.

Constraints of SB in Bangladesh
Quality and Standards:

Bangladesh has failed to ensure the quality of products and services to consumers not
only in the domestic market but also in international markets. There is no national quality
policy and adequate support systems that provide assistance to all enterprises to
understand the principles of quality and to develop quality consciousness in business
behavior. Currently, the Bangladesh Standards and Testing Institution (BSTI) formulates
national standards of industrial, food, and chemical products. However, the most
important problem is that BSTI lacks credibility.

Marketing:

SBs in Bangladesh, especially the small enterprises, do not have enough

marketingcapability and network. An overwhelming majority of small firms do not have
resources to be invested in marketing. Advertisement is an important determinant
ofdemand but SBs in Bangladesh in most cases are not in a position to use this as
amarketing tool. Export-oriented SBs have very little marketing activities and mostof
them try to survive by linking up with multinational buyers or setting upsubcontracting
relationships with them.

Investment and Working Capital:

One of the most important problems affecting supply is the access to finance. SBsneed
finance to enable them undertake productive investment in order to expand
theirbusiness, to introduce new products, and to market them. Various survey and
microstudies in Bangladesh have identified access to finance as the main problem
facingthe SBs

Shortage of Skilled Workers:

Although Bangladesh is a labor abundant country, shortage of skilled workforce

isperceived to be a major constraint for manufacturing production. This problem
isparticularly acute for medium scale export oriented enterprises. Manufacturing
goodsnow overwhelmingly dominate Bangladesh’s export basket, but a
significantproportion of it comprises very low domestic value addition because of
limitedbackward linkage in the RMG sector, which will require skilled
manpower.Therefore, supply capacity is preconditioned by availability of skilled workers.

Lack of entrepreneurship and management skills:

Most owner-managers and entrepreneurs often lack wider managerial skills thathinder
their long-term success. Strategic planning, medium to long-term vision,marketing,
commitment to quality, knowledge of quality systems, communicating inforeign
languages, cash-flow management, information technology are a few critical elements
of management required to meet challenges of the market economy, especially in the
international market environment. In such a complex setting since it is not possible for
an individual to muster all of these qualities, firms make division ofLabor.
Physical Infrastructure:

The state of physical infrastructure is weak in Bangladesh. It is evidenced that

incountries with poor infrastructure, business must devote more resources to such
tasksas acquiring information, procuring inputs, and getting their products to
market.There are two dimensions of poor infrastructure – oneis the unavailability of a
certain service or utility (such as telephone, water,electricity, roads and highways, etc.)
and the other is the unreliability of the servicesprovided. In Bangladesh there are
problems on both fronts and together underminesthe competitiveness of SBs.

Transport costs:

In some recent survey finds that transport to be a biggerproblem in Bangladesh than in

some comparator countries. Three factors interact toaccentuate this problem. First, the
recent research works on economic geography andinternational trade suggest that
unfavorable geographical locations (e.g. distance)increase the costs of both export and
import trade relative to countries with morefavorable geographical characteristics.

Geographical Disadvantage:

Geographically Bangladesh is away from more lucrative market of world like USA,
Europe. The geographical disadvantage of being farther away from its North American
and EUmarkets compared to many other competitors. Inefficient and corrupt ports and
inland transportation increase the cost of production substantially.

Trade Policy and Incentives:

Bangladesh’s trade policy underwent a radical change particularly in the decade ofthe
1990s. Liberalization of industrial and trade regimes along with globalization are likely to
have had significant effects on Bangladesh’s SBs

Lack of information:

Lack of informationis a major constraint to market development of Bangladesh’sSBs.

Trade information is more than ever an element of competitiveness duemainly to three
reasons:

(i) Assessing market trends and characteristics,

(ii) Understanding the market and new market access conditions, and
(iii) Identifying new market opportunities and potential trading partners. The Internet has
introduced a new way of doing business especially in the field of commercial operations
– selling and buying, advertisement, servicing and training.

Suggestions

Here we are giving some suggestions that may be helpful to improve the Small Business sector in Bangladesh. As
capital is the major problem for Small Business development in Bangladesh special emphasis should be put here.
Commercial banks should finance Small Business by giving them loan in low interest and for long term.

Role of N.G.O.s: NGOs are very active in this sector. There activity should be spending all over the country.

Assistance of Government: Government should make definite plan to boost up this sector. Youth development
department should be more activate. Their fund needs to be increased and rules should be more flexible.

Ministry for Small Business: Special ministry can be made to coordinate all this.

Subsidy: Government can give some subsidies to boost up this sector.

Flexibility in Case of Tax: Taxation rules should be more flexible for Small Business.

Availability of Raw Material: It should be assured that the Small Business firms will get sufficient raw materials in
lower cost.

Removal of Political &Social Inconsistency: Political and social instability should be maintained. Terrorism must
be sustained and keep under control.

Availability of other Facilities: It must be assured that the Small Business firms will get public utility service
connection without any delay and bribe.

Absolute Advantage

According to Adam Smith (who is regarded as the father of modern economics), countries should
only produce goods that they have an absolute advantage in.

A country is said to have an absolute advantage if the country can produce a good at a lower cost
than another. Furthermore, this means that fewer resources are needed to provide the same amount
of goods as compared to the other country. This efficiency in production creates “an absolute
advantage,” which allows for beneficial trade.

As opposed to the Absolute Advantage Theory, the Comparative Advantage theory was
developed by David Ricardo, argues that a country doesn’t have to have an absolute advantage
for beneficial trade to occur.
Assumptions in Absolute Advantage

1. Lack of Mobility for Factors of Production

Adam Smith assumes that factors of production cannot move between countries. This assumption also implies that
the Production Possibility Frontier of each country will not change after the trade.

2. Trade Barriers
There are no barriers to trade for the exchange of good. Governments implement trade barriers to restrict or
discourage the importation or exportation of a particular good.

3. Trade Balance
Smith assumes that exports must be equal to imports. This assumption means that we cannot have trade imbalances,
trade deficits or surpluses. A trade imbalance occurs when exports are higher than imports or vice versa.

4. Constant Returns to Scale

Adam Smith assumes that we will get constant returns as production scales, meaning there are no economies of
scale. For example, if it takes 2 hours to make one loaf of bread in country A, then it should take 4 hours to produce
two loaves of bread. Consequently, it would take 8 hours to produce four loaves of bread.
However, if there were economies of scale, then it would become cheaper for countries to keep producing the same
good as it produced more of the same good.

Example of Absolute Advantage

In our Absolute Advantage example, we assume that there are two countries, which are
represented by a blue and red line, Blue Country and Red Country respectively.

To keep things simple, we also assume that only two goods are produced, Good A and Good B.
From the table below, we can determine how many hours it takes to create one product.

Consider this table, which gives hours required to produce one unit of Good A and Good B by
Blue and Red country:
The Blue country has an Absolute Advantage in the production of Good A (2 hours). This is
because it takes fewer hours to produce a unit of Good A than Red country, which takes 10
hours.

Red Country takes fewer hours to produce Good B (4 hours), therefore Red Country has an
Absolute Advantage in the production of Good B.

As a result, Blue Country will be better off if it specializes in the production of Good A.
Red Country will be better off if it specializes in Good B.

As you can see from our example, it makes sense from businesses and countries to trade with
one another. All countries engaged in open trade benefit from lower costs of production.

Assumptions of the Absolute Advantage Theory

 Smith assumed that the costs of the commodities were computed by the relative
amounts of labor required in their respective production processes.
 He assumed that labor was mobile within a country but immobile between
countries.
 He took into consideration a two-country and two-commodity framework for his
analysis.
 He implicitly assumed that any trade between the two countries considered would
take place if each of the two countries has an absolutely lower cost in the
production of one of the commodities.

Achieving an Absolute Advantage

An absolute advantage is achieved through low-cost production. In other words, an

absolute advantage refers to an individual, company, or country that can produce at a
lower marginal cost. An absolute advantage is established when (compared to
competitors):

 Fewer materials are used to produce a product

 Cheaper materials (thus a lower cost) are used to produce a product
 Fewer hours are needed to produce a product
 Cheaper workers are (in terms of hourly wage) used to produce a product

Advantages of Absolute Advantage

Absolute Cost Advantage

Absolute cost advantage results from the specialization of labor proposed by Smith in his
theory. Specialization of labor, or division of labor, results in a significantly higher
productivity per unit of labor, and in turn, a lower cost of production. Smith also used the
concept of “Economies of Scale” to explain the lowering of production costs, as a higher
output due to labor diversification would significantly reduce production cost.
Natural Advantage

A country would produce those goods that are naturally favoring its climatic environment.
The type of goods produced would also depend on the availability of natural resources.
The presence of lots of natural resources would significantly provide an advantage to such
a country while producing the goods.

Acquired Advantage

Acquired advantage includes advantages in technology and level of skill development.

Absolute Advantage vs. Comparative Advantage

Absolute and comparative advantage are commonly misunderstood concepts. An absolute

advantage looks at the financial costs of production while a comparative advantage looks
at the opportunity cost of production. The two terms are contrasted below:

Absolute Advantage

The ability to produce more of a good or service while using fewer resources compared to
a competing entity.

Comparative Advantage

The ability to produce a good or service at a lower opportunity cost.

Criticisms against Absolute Advantage

The Absolute Advantage Theory theory assumed that only bilateral trade could take place
between nations and only in two commodities that are to be exchanged. This assumption
was significantly challenged when the trade, as well as the needs of a nation, started
increasing. Thus, this theory did not take into account the multilateral trade that could take
place between countries. This theory also assumed that free trade exists between nations.
It did not take into account the protectionist measures that are adopted by countries.
These protectionist measures were in many forms and included quantitative restrictions,
technical barriers to trade, and restrictions on trade on account of environmental
protection or public policy.

Ricardo later came up with his own criticisms of Adam Smith’s theory. Ricardo’s 1817 work
‘On the Principles of Political Economy and Taxation’ introduced a theory that later
attained fame as the theory of comparative advantage, which places opportunity cost at
the focus of agents’ production decisions.

Comparative Advantage

Adam Smith had advocated the theory of Absolute Advantage, where he argued that a country
should produce a good if it can produce more of the good with the same or fewer resources than
another country. This theory is different from Comparative Advantage.
David Ricardo, another Economist, suggested that a country only needs to have Comparative
Advantage. He published this theory in 1817 in his book titled, “On the Principles of Political
Economy and Taxation.”

The definition of Comparative Advantage is when a country may produce goods at a lower
opportunity cost, but not necessarily have an absolute advantage in. This simply means that a
country can produce a good at a lower cost than another country.

Factors Affecting Comparative Advantage

1. Factors of Production
A major factor that affects comparative advantage is the country’s quality and quantity of the factors of production.
For example, the natural availability of mineral resources like iron, gold, and copper is not something a country can
change.

2. Exchange Rate
Movements in exchange rates affect prices of imported and exported goods. For example, if your home currency
depreciates which means foreign currency can buy more of your home currency, then your exports will increase as
your goods are cheaper relative to others.

3. Inflation
An increase in the rate of inflation would make exported goods more expensive and imported goods cheaper.

4. Trade Barriers
Subsidies and taxes that can be implemented by the government to create an artificial comparative advantage. A
subsidy would make exports more competitive and a tax would discourage imports.

Assumptions in Comparative Advantage

1. Constant Returns to Scale

The theory of Comparative Advantage assumes that the costs remain constant for producing any number of goods.
This means that if you require 2 hours to make one shirt, then you will spend 10 hours to make five shirts, 20 hours
to make ten shirts etc. In reality, costs will go down because of economies of scale.

2. Mobility
There is perfect mobility of the factors of production. This means that we assume that we can move any factor of
production to any part of the country at any time. In reality, we cannot move factors of production easily.

3. Costs
There are no transportation costs, i.e. it does not cost anything to move goods from one place to another.

4. Free Trade
Free trade exists between the two countries. This means there are no barriers to trade.

Example of Comparative Advantage

In the above diagram we have two countries: Red and Black country that
can produce two goods: Good X and Good Y.
Red Country has an Absolute Advantage over Black Country in producing
both goods, but since their production possibility curves don’t meet, their
costs are different, and there is room for specialization. Red should
specialize in Good Y, and Black should specialize in Good X.
For Red, 1 unit of Good X ‘costs’ 5/7 or 0.71 units of Good Y, while for
Black, 1 unit of X ‘costs’ 0.67 units of Good Y. Consequently, it’s cheaper
for Black to produce Good Y than it is for Red. Likewise, we can
calculate that Red has a comparative advantage in creating Good Y.

Criticisms of Comparative Advantage

1. Returns
The model assumes constant returns to scale, where as in the real world firms often see increasing returns to scale
and economies of scale.
2. Mobility
It’s not possible to move factors of productions so easily from one location to the other (when countries have to
specialize in a particular good).

3. Costs
There are transportation costs that the model does not consider.

4. Perfect Competition
The model assumes perfect competition which doesn’t exist in the reality. We often see oligopolies and monopolies.

5. Trade Barriers
There are trade barriers that prevent countries from efficiently using comparative advantage such as tariffs and
quotas.

Difference Between Absolute and

Comparative Advantage
Absolute vs Comparative Advantage
Absolute advantage and comparative advantage are two terms that are widely used
in international trade. Both terms deal with production, goods and services.
Absolute advantage is a condition in which a country can produce particular goods
at a lower cost in comparison to another country. On the other hand, comparative
advantage is a condition in which a country produces particular goods at a lower
opportunity cost in comparison to other countries.

While absolute advantage is a condition where the trade is not mutually beneficial,
comparative advantage is a condition in which the trade is mutually beneficial.

Comparative advantage can be described as the ability of a particular country to

produce a certain product better than another country. Comparative advantage
generally compares the output of production of the same type of goods or services
between two countries
A country will have an absolute advantage over another country when it produces
the highest number of goods after the same resources are supplied to both of them.
Absolute advantage also means more goods and services in an efficient way.

Unlike absolute advantage, comparative advantage also looks into the overall
production of the services or goods within a time frame. When compared to
comparative advantage, absolute advantage is concerned with multiple goods.

While cost is a factor involved in absolute advantage, opportunity cost is the factor
that is involved in comparative advantage. Unlike absolute advantage, comparative
advantage is always reciprocal and mutual.

It was Adam Smith who first described absolute advantage in the context of
International trade. Robert Torrens described comparative advantage for the first
time in 1815 in an essay about Corn Laws. But the concept of absolute advantage is
attributed to David Ricardo, who explained the cncept in his book ‘On the
Principles of Political Economy and Taxation’.

Summary:

1. Comparative advantage can be described as the ability of a particular country to

produce a certain product better than another country. A country will have an
absolute advantage over another country when it produces the highest number of
goods after the same resources are supplied to both of them.
2. While absolute advantage is a condition where the trade is not mutually
beneficial, comparative advantage is a condition in which the trade is mutually
beneficial.
3. While cost is a factor involved in absolute advantage, opportunity cost is the
factor that is involved in comparative advantage.
4. Unlike absolute advantage, comparative advantage is always reciprocal and
mutual.
What is Industry ? Meaning - Classification Types of
Industries
The production side of business activity is referred as industry. It is a business activity, which is
related to the raising, producing, processing or manufacturing of products.

The products are consumer's goods as well as producer's goods. Consumer goods are goods, which
are used finally by consumers. E.g. Food grains, textiles, cosmetics, VCR, etc. Producer's goods are
the goods used by manufacturers for producing some other goods. E.g. Machinery, tools,
equipments, etc.

Expansion of trade and commerce depends on industrial growth. It represents the supply side of
market.

Classification / Types of Industries ↓

There are various types of industries. These are mentioned as follows :-

1. Primary Industry

Primary industry is concerned with production of goods with the help of

nature. It is a nature-oriented industry, which requires very little human
effort. E.g. Agriculture, farming, forestry, fishing, horticulture, etc.

2. Genetic Industry

Genetic industries are engaged in re-production and multiplication of

certain spices of plants and animals with the object of sale. The main aim is
to earn profit from such sale. E.g. plant nurseries, cattle rearing, poultry,
cattle breeding, etc.

3. Extractive Industry

Extractive industry is concerned with extraction or drawing out goods from

the soil, air or water. Generally products of extractive industries come in
raw form and they are used by manufacturing and construction industries
for producing finished products. E.g. mining industry, coal mineral, oil
industry, iron ore, extraction of timber and rubber from forests, etc.

4. Manufacturing Industry
Manufacturing industries are engaged in transforming raw material into
finished product with the help of machines and manpower. The finished
goods can be either consumer goods or producer goods. E.g. textiles,
chemicals, sugar industry, paper industry, etc.

5. Construction Industry

Construction industries take up the work of construction of buildings,

bridges, roads, dams, canals, etc. This industry is different from all other
types of industry because in case of other industries goods can be produced
at one place and sold at another place. But goods produced and sold by
constructive industry are erected at one place.

6. Service Industry

In modern times service sector plays an important role in the development

of the nation and therefore it is named as service industry. The main
industries, which fall under this category, include hotel industry, tourism
industry, entertainment industry, etc.

What is Trade? Meaning and Nature - Different

Types of Trade
What is Trade? Meaning and Nature

Trade refers to buying and selling of goods and services for money or money's worth. It involves
transfer or exchange of goods and services for money or money's worth. The manufacturers or
producer produces the goods, then moves on to the wholesaler, then to retailer and finally to the
ultimate consumer.

Trade is essential for satisfaction of human wants, Trade is conducted not only for the sake of
earning profit; it also provides service to the consumers. Trade is an important social activity
because the society needs uninterrupted supply of goods forever increasing and ever changing
but never ending human wants. Trade has taken birth with the beginning of human life and shall
continue as long as human life exists on the earth. It enhances the standard of living of
consumers. Thus we can say that trade is a very important social activity.

Different Types of Trade

Trade can be divided into following two types, viz.,

1. Internal or Home or Domestic trade.

2. External or Foreign or International trade

1. Internal Trade

Internal trade is also known as Home trade. It is conducted within the

political and geographical boundaries of a country. It can be at local level,
regional level or national level. Hence trade carried on among traders of
Delhi, Mumbai, etc. is called home trade.
Internal trade can be further sub-divided into two groups, viz.,
 1. Wholesale Trade: It involves buying in large quantities from
producers or manufacturers and selling in lots to retailers for resale to
consumers. The wholesaler is a link between manufacturer and retailer.
A wholesaler occupies prominent position since manufacturers as well
as retailers both are dependent upon him. Wholesaler act as an
intermediary between producers and retailers.

2. Retail Trade: It involves buying in smaller lots from the wholesalers

and selling in very small quantities to the consumers for personal use.
The retailer is the last link in the chain of distribution. He establishes
a link between wholesalers and consumers. There are different types
of retailers small as well as large. Small scale retailers includes
hawkers, peddlers, general shops, etc.

2. External Trade

External trade also called as Foreign trade. It refers to buying and selling between
two or more countries. For instance, If Mr.X who is a trader from Mumbai, sells his
goods to Mr.Y another trader from New York then this is an example of foreign trade.

External trade can be further sub-divided into three groups, viz.,

1. Export Trade : When a trader from home country sells his goods to a trader
located in another country, it is called export trade. For e.g. a trader from India
sells his goods to a trader located in China.
2. Import Trade : When a trader in home country obtains or purchase goods from
a trader located in another country, it is called import trade. For e.g. a trader
from India purchase goods from a trader located in China.
3. Entrepot Trade : When goods are imported from one country and then re-
exported after doing some processing, it is called entrepot trade. In brief, it can
be also called as re-export of processed imported goods. For e.g. an Indian
 trader (from India) purchase some raw material or spare parts from a Japanese
trader (from Japan), then assembles it i.e. convert into finished goods and then
re-export to an American trader (in U.S.A).

What is Commerce ? Meaning and Importance of

Commerce
Commerce is a branch of business. It is concerned with the exchange of goods and services. It
includes all those activities, which directly or indirectly facilitate that exchange.

Commerce looks after the distribution aspect of the business. Whatever is produced it must be
consumed, to facilitate this consumption there must be a proper distribution channel. Here comes
the need for commerce which is concerned with the smooth buying and selling of goods and
services.

Definition of Commerce

According to James Stephenson,

"Commerce is an organized system for the exchange of goods between the members of the
industrial world."

In a broader sense,

"Commerce is that part of business which is concerned with the exchange of goods and services
and includes all those activities which directly or indirectly facilitate that exchange."

Importance of Commerce

The importance of trade and commerce are mentioned in following points :-

1. Commerce tries to satisfy increasing human wants

Human wants are never ending. They can be classified as 'Basic wants' and 'Secondary wants'.
Commerce has made distribution and movement of goods possible from one part of the world to the
other. Today we can buy anything produced anywhere in the world. This has in turn enabled man to
satisfy his innumerable wants and thereby promoting social welfare.

2. Commerce helps to increase our standard of living

Standard of living refers to quality of life enjoyed by the members of a society. When man
consumes more products his standard of living improves. To consume a variety of goods he must
be able to secure them first. Commerce helps us to get what we want at right time, right place and
at right price and thus helps in improving our standard of living.

3. Commerce links producers and consumers

Production is meant for ultimate consumption. Commerce makes possible to link producers and
consumers through retailers and wholesalers and also through the aids to trade. Consumers get
information about different goods through advertisements and salesmanship. The manufacturers are
regularly informed about the likes and dislikes of the consumers through marketing research. Thus
commerce creates contact between the centers of production and consumption and links them.

4. Commerce generates employment opportunities

The growth of commerce, industry and trade bring about the growth of agencies of trade such as
banking, transport, warehousing, advertising, etc. These agencies need people to look after their
functioning. Increase in production results in increasing demand, which further results in boosting
employment opportunities. Thus development of commerce generates more and more employment
opportunities for millions of people in a country.
5. Commerce increases national income and wealth

When production increases, national income also increases. In a developed country, manufacturing
industries and commerce together accounts for nearly 80% of total national income. It also helps to
earn foreign exchange by way of exports and duties levied on imports. Thus, commerce increases
the national income and wealth of a nation.

6. Commerce helps in expansion of aids to trade

With the growth in trade and commerce there is growing need for expansion and modernization of
aids to trade. Aids to trade such as banking, communication, advertising and publicity, transport,
insurance, etc., are expanded and modernised for the smooth conduct of commerce.

7. Commerce helps in growth of industrial development

Commerce looks after the smooth distribution of goods and services made available by the
industry. Without commerce, industry will find it difficult to keep the pace of production. It helps
to increase demand for goods on one hand and on the other hand it helps industries by getting them
the necessary raw materials and other services. Hence, commerce helps in attaining better division
of labour and industrial progress.

8. Commerce encourages international trade

Through commerce we can secure a fair and equitable distribution of goods throughout the world.
With the help of transport and communication development, countries can exchange their surplus
commodities and earn foreign exchange, which is very useful for importing machinery and
sophisticated technology. It ensures faster economic growth of the country.

9. Commerce benefits underdeveloped countries

Underdeveloped countries can import skilled labour and technical know-how from developed
countries. While the advance countries can import raw materials from underdeveloped countries.
This helps in laying down the seeds of industrialization in the underdeveloped countries.

10. Commerce helps during emergencies

During emergencies like floods, earthquakes and wars, commerce helps in reaching the essential
requirements like foodstuff, medicines and relief measures to the affected areas.

Difference Between Trade and Commerce

Business Activities are grouped into two broad categories, i.e. industry and
commerce. Commerce is concerned with facilitating the exchange of goods and services in
the economy. It is sub-classified as trade and auxiliaries to trade. Many think that trade and
commerce are the same terms and can be used interchangeably. But the fact is both the terms
are different from each other and carry different meanings. Trade simply means buying and
selling of goods and services in return for money or money’s worth.

The scope of commerce is wider than that of trade, which not only refers to the exchange of
goods and services but also includes all those activities that are vital for the completion of that
exchange. To further comprehend the understanding of these two terms the basic comparison
is given below:

Content: Trade Vs Commerce

1. Comparison Chart
 2. Definition
3. Key Differences
4. Conclusion

Comparison Chart

BASIS FOR
TRADE COMMERCE
COMPARISON

Meaning Trade means the Commerce means exchange of

exchange of goods and goods and services between the
services between two or parties along with the activities
more parties in such as insurance,
consideration of money transportation, warehousing,
or money’s worth. advertising etc that completes
that exchange.

Scope Narrow Wide

Type of Activity Social Activity Economic Activity

Frequency of Isolated Regular

Transactions

Employment No Yes
opportunities

Link Between buyer and seller Between producer and consumer

Demand and Represents both Represents only the demand side

supply side

Capital More Less

requirement

Definition of Trade
In trade, the ownership of goods or services is transferred from one person to the another in
consideration of cash or cash equivalents. Trade can be done between two parties or more
than two parties. When the buying and selling take place between two persons, it is called
bilateral trade whereas when it is done between more than two persons, then it is called
multilateral trade.

Earlier the trade was little cumbersome since it followed the barter system where goods were
exchanged in return of other goods or commodities. It is hard to evaluate the exact value
because of the different commodities type involved in the exchange. With the advent of
money, this process became more convenient for both the sellers and buyers.

Trade can be domestic as well as foreign. Domestic trade means within the border of the
country, and foreign trade means across the borders. Foreign trade is done through
investment in securities or funds and can be termed as imports and exports.

Definition of Commerce

Commerce includes all the activities that help in facilitating the exchange of goods and
services from the manufacturer or the producer to the ultimate consumers. Majorly the
activities are transportation, banking, insurance, advertising, warehousing, etc. that act as an
aide in the successful completion of the exchange.

Once the products are manufactured these cannot reach directly to the customer, the same
has to pass through a series of activities. The first wholesaler will purchase the product, and
with the use of transportation, the goods will be made available to the stores and at the same
banking and insurance service will be availed by him to have protection against the loss of
goods. The retailer will then sell to the ultimate consumer. All these activities come under the
commerce head.

In short, it can be said that commerce is the branch of business that helps to overcome all the
hindrances that arise in the facilitation of exchange. Its major function is to satisfy human
wants both basic and secondary by making the goods available to different parts of the
country. No matter where the goods have been manufactured the commerce has made it
possible to reach the world – wide.

Key Differences between Trade and Commerce

Following are the major differences between trade and commerce:

1. Trade is selling and buying of goods and services between two or more parties in
consideration of cash and cash equivalents.Commerce includes the exchange of goods
and services along with activities viz. banking, insurance, advertising, transportation,
warehousing, etc. to complement the exchange.
2. Trade is a narrow term that merely includes the selling and buying whereas commerce
is a wider term that includes exchange as well as the several revenues generating
activities that complete the exchange.
 3. Trade is generally done to satisfy the need of both the seller and the buyer which is
more of a social perspective. Whereas the commerce is more economical in nature
because of the involvement of several parties whose primary aim is to generate the
revenue.
4. Trade is generally a single time transaction between the parties that may or may not
reoccur. Whereas in commerce the transactions are regular and occur again and again.
5. The trade involves two parties the seller and the buyer who facilitates the exchange
without employing anyone in between. Whereas in commerce exchange is done with the
support of several departments thereby giving them employment opportunities.
6. Trade provides a link between the seller and the buyer, the direct parties involved in the
exchange. Whereas the commerce provides a link between manufacturer and the
ultimate customer, who are not direct parties, with the help of several aides of
distribution.
7. Trade represents both the side of demand and supply where both the parties know what
is demanded and what is to be supplied. Whereas in commerce only the demand side is
known i.e. what is demanded in the market and then making that available through
various channels of distribution.
8. Trade requires more capital because the stock has to be kept ready that is entitled to the
sale and also the cash has to be kept ready for the immediate payment. Whereas in
commerce the capital required is less because there are different parties involved who
have to manage their resources individually without imposing a burden on one.

Conclusion

Hence it can be concluded that trade is the branch of commerce that deals in only the
exchange of goods and services whereas commerce are the comprehensive term that includes
all the major activities that facilitate the exchange and generates the revenue for all. Thus, we
can say commerce is the branch of business that keeps everything together and makes the
successful completion of the distribution of goods and services.

The exchange of goods is a complex process beset with several types of hindrances.
Commerce removes these hindrances. According to James Stephenson, "Commerce
embraces all those activities which help to break the barriers between producers and
consumers.

It is the sum total of those processes which are engaged in the removal of hindrances
of persons (trade), place (transport, packing and insurance), and time (warehousing)
in the exchange (banking and finance) of commodities."

Thus the main function of commerce is to remove the following hindrances:

1. Hindrance of person:
This hindrance refers to the lack of contact between producers and
consumers. The producer is faced with the problem of finding the buyers
who need the goods he has produced and who are able and willing to buy
such goods.
The consumer does not know the source of supply of goods which would
satisfy his needs at prices he can afford. Commerce removes this hindrance
by means of trade.
Trade provides an organized market where the buyers and sellers can
contact each other. It saves both producers and consumers from the time-
consuming and expensive exercise of locating each other.
2. Hindrance of place:
A major problem faced by producers is to send their goods to distant places
without loss through theft, pilferage, damage, etc. Commerce solves this
problem by means of transport, packing and insurance.
Modern means of transport carry goods too far-of places quickly and safely.
Packing of goods helps to preserve their quality in transit and storage. With
the help of packing, businessman can preserve the quality of goods. Thus,
transportation and packing are useful commercial activities.
3. Hindrance of time:
In modern industry goods are produced on a large-scale in anticipation of
demand. There is usually a time gap between the production and
consumption of goods. Therefore, it becomes necessary to store the goods
until they are sold.
This problem is solved by warehousing or storage. Warehouses provide
suitable storage facilities to protect the goods from fire, rain, pests, etc.
Warehousing is, thus, an integral part of commerce.
4. Hindrance of exchange:
Buying and selling of goods between persons living in different places
requires a common medium of payment. Money serves as common medium
of payment. However, convenient, and safe means of payment are required
to settle the transaction.
Banks help to remove this obstacle in the process of exchange by making
and collecting payments on behalf of their clients.
Now businessmen can send money from one place to another in the form of
bank-draft, cheque, etc., without facing any risk. Banks also provide credit
in the form of overdrafts, letter of credit, cash credit, discounting of bills,
etc.
5. Hindrance of Risk:
During transportation and storage, there are several possibilities of loss or
damage of goods. There also exist risks of theft, burglary deterioration, fire,
etc.
These risks cause anxiety among businessmen and discourage them from
investing money in business. Insurance helps to remove the hindrance of
risks by compensating businessmen for financial loss. It plays a vital role in
the development of trade and commerce.
6. Hindrance of knowledge:
Often a producer or merchant finds it difficult to sell his goods and services
because consumers are not aware of their benefits and uses.
Advertising and sale promotion remove this hindrance by bringing goods
and services to the knowledge of consumers. Advertising also persuades
people to buy the goods and services.
Thus, commerce plays an important role in the distribution of goods. It
makes available to the users goods produced in different parts of a country
as well as from other countries.
People are able to buy goods produced anywhere in the world. The
producers are relieved of the problem of marketing the goods and can
concentrate on increasing production Commercial activities break the
barrier between producers and consumers.
Commerce ensures a free and smooth flow of goods from producers to
consumers. Commerce provides the advantages of specialization. It helps to
better satisfy human wants by collecting and distributing goods.
Commerce provides the necessary link between the producers and
consumers of goods. It has brought countries close to one another and the
world has become one big market.
Large scale production is impossible without modern commerce.
Commerce has contributed significantly towards the economic
development of society and the quality of life of people.
The basic aim of commerce is to ensure the supply of right goods at the right
time at the right place and to right persons. Commerce brings goods to the
hands of ultimate consumer.