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Business Services

Introduction

Businesses rely heavily on a variety of services to function smoothly and efficiently. These services support the core activities of production, marketing, and distribution by removing various hindrances like place, time, risk, finance, and information. These supportive services are collectively known as Business Services.

Unlike goods, services are intangible and are consumed at the point of sale. Understanding the nature and types of business services is crucial for appreciating their role in facilitating trade and industry.


Nature Of Services

Services are acts, performances, or efforts offered for sale or provided in conjunction with the sale of goods. They are intangible and have unique characteristics that differentiate them from goods.

Difference Between Services And Goods

Basis Services Goods
Nature Intangible; they are performances or efforts. Cannot be touched or seen. Tangible; they are physical objects that can be touched and seen.
Form Heterogeneous; they vary from provider to provider and even from customer to customer. Quality can be inconsistent. Homogeneous; goods of the same type are usually identical or very similar in quality and features (especially manufactured goods).
Inseparability Production and consumption often occur simultaneously. The presence of the customer is often required during service delivery. Production and consumption are separate events. Goods are produced first, then sold, and then consumed later.
Inventory (Stocking) Cannot be stored for future sale (perishability). A service not consumed at the time of delivery is lost. Can be stored as inventory for future sale.
Transfer of Ownership Does not result in the transfer of ownership. The customer pays for the use of the service or the performance of an act. Results in the transfer of ownership from seller to buyer.
Involvement of Customer Customer often participates in the service delivery process (e.g., visiting a bank, travelling on a bus). Customer involvement in the production process is usually not required.
Customisation Can often be highly customised to meet individual customer needs. Often standardised, though some customisation is possible for certain goods.

Understanding these characteristics is important for managing and marketing services effectively.


Types Of Services

Services can be broadly classified into different categories based on the nature of the service provided:

Our focus here is on Business Services.

Business Services

Business services are essential for the smooth functioning of modern businesses. They provide the necessary support infrastructure and facilitate trade and industry by overcoming barriers related to distance, time, risk, and finance. Key business services include:

These services form the backbone of commerce, enabling the efficient flow of goods, funds, and information.


Banking

Banking involves accepting deposits of money from the public for the purpose of lending or investment, repayable on demand or otherwise, and withdrawable by cheque, draft, or otherwise.

Banks play a crucial role in the economy by mobilising savings and channelising them into productive investments. They facilitate payments, provide credit, and offer various financial services.

Type Of Banks

Banks can be classified into various types based on their functions, structure, and ownership:

Functions Of Commercial Banks

Commercial banks perform a wide range of functions:

Primary Functions:

Secondary Functions:

E-Banking (Electronic Banking)

E-Banking refers to the provision of banking services and products through electronic channels. It allows customers to perform banking transactions remotely without visiting a physical branch.

Forms of E-Banking:

E-Banking offers benefits like convenience, speed, 24/7 accessibility, and reduced transaction costs. It has transformed the banking landscape in India.


Insurance

Insurance is a contract whereby one party (the insurer) agrees to indemnify the other party (the insured or policyholder) against a possible loss or damage in exchange for a periodic payment (premium).

Insurance works on the principle of risk sharing. A large number of people exposed to a similar risk pool their premiums, and the accumulated fund is used to compensate those who actually suffer the loss.

Fundamental Principle Of Insurance

The fundamental principle is that of spreading of risk. The loss of one is shared by many. By paying a small premium, a person can protect himself from a huge potential loss.

Functions Of Insurance

Principles Of Insurance

Insurance contracts are based on certain fundamental principles:

1. Principle of Utmost Good Faith (Uberrimae Fidei)

Both the insurer and the insured must disclose all material facts truthfully to each other. A material fact is one that would influence the decision of the other party. Failure to do so can make the contract voidable.

2. Principle of Insurable Interest

The insured must have an insurable interest in the subject matter of insurance. This means the insured must stand to gain financially from the preservation of the subject matter and stand to lose financially from its loss or damage.

In life insurance, insurable interest must exist at the time of taking the policy. In fire and marine insurance, it must exist both at the time of taking the policy and at the time of the loss.

3. Principle of Indemnity

Applicable to fire and marine insurance (general insurance), but not life insurance. The insurer promises to compensate the insured for the actual loss suffered, subject to the sum insured. The insured should not be able to make a profit out of the insurance contract. The compensation is to restore the insured to the position they were in before the loss.

4. Principle of Proximate Cause (Causa Proxima)

When a loss is caused by a chain of events, the most direct or effective cause (proximate cause) is considered for determining the insurer's liability. The loss must be a direct consequence of the peril insured against.

5. Principle of Subrogation

After the insured is compensated for the loss, the insurer gets the right to step into the shoes of the insured and claim damages from the third party responsible for the loss. This principle is also based on the principle of indemnity.

6. Principle of Contribution

If the same subject matter is insured with multiple insurers, and a loss occurs, each insurer will contribute to the loss proportionately to the amount insured by them. The insured cannot claim the full loss from each insurer.

7. Principle of Mitigation of Loss

The insured must take all reasonable steps to minimise the loss or damage to the insured property, just as if it were uninsured. The insured cannot be negligent simply because the property is insured.

Types Of Insurance

Insurance can be broadly categorised into:

Life Insurance

Life insurance is a contract where the insurer agrees to pay a specified sum of money on the death of the insured person or on the expiry of a fixed period, whichever is earlier, in exchange for premium payments.

It is a contract of assurance, not indemnity, as the value of human life cannot be accurately measured. The sum assured is paid regardless of the actual loss.

Types of Life Insurance Policies:

Life insurance provides financial security to the insured's dependents and also serves as a tool for saving and investment.

Fire Insurance

Fire insurance is a contract where the insurer agrees to indemnify the insured for loss or damage caused to property by fire, lightning, or explosion (as defined in the policy), in exchange for a premium.

It is a contract of indemnity. The compensation is limited to the actual loss suffered or the sum insured, whichever is less.

Key elements: Loss must be caused by fire, fire must be accidental (not intentional), and the property must be the subject matter of insurance.

Marine Insurance

Marine insurance is a contract where the insurer agrees to indemnify the insured against losses incidental to marine adventures. These risks are called perils of the sea.

It is a contract of indemnity. It covers risks related to:

Marine insurance is essential for international trade.


Communication Services

Communication services facilitate the exchange of information between persons or organisations. These services are vital for businesses to communicate with customers, suppliers, employees, and other stakeholders.

Postal Services

The Indian Postal Department is the primary provider of postal services in India. It offers various services for sending and receiving letters, parcels, and money.

Types of Postal Services:

Postal services continue to be important, especially for reaching remote areas, although electronic communication has reduced the volume of traditional mail.

Telecom Services

Telecommunication services enable communication over long distances using electronic means. These services have revolutionised business operations, facilitating faster communication and data transfer.

Types of Telecom Services:

Telecom services are provided by both public sector companies (e.g., BSNL, MTNL) and private sector companies (e.g., Airtel, Jio, Vodafone Idea). Competition in this sector has led to significant improvements in accessibility, affordability, and quality of services.


Transportation

Transportation refers to the movement of people and goods from one place to another. It is a crucial business service as it overcomes the hindrance of place, enabling raw materials to be moved to factories and finished goods to be moved to markets and consumers.

Various modes of transport are available:

Businesses choose the mode of transport based on factors like cost, speed, nature of goods, distance, and accessibility.


Warehousing

Warehousing refers to the activity of storing goods in a systematic and orderly manner from the time of their production until they are demanded by consumers. It overcomes the hindrance of time by bridging the gap between production and consumption.

Storage is necessary because goods are often produced in anticipation of demand, or production might be seasonal while demand is continuous, or vice versa. Proper warehousing ensures that goods are protected from damage, theft, and deterioration and are available when needed.

Types Of Warehouses

Warehouses can be classified based on ownership and nature of goods:

Functions Of Warehousing

Warehousing is an integral part of the logistics and supply chain management for businesses.