The modern form of business organization hand evolved through different stages from its inception to date, which may be discussed as follows.
Self-Economy (family)
As discussed earlier the first business transaction occurred with the inception of Barter System Before that the members of a family used to produce all goods and services, which they produced without any surplus for others. Thus, both producers and consumers were the members.
Barter System
An economic system in which two parties trade certain goods and services that each needs to survive. Say the farmer would exchanges a cow for seeds; the cobbler would swap shoes for flour. As a matter of fact, the first stages of business started with the facility of exchanging goods for good, Batter deals. It meant that one had to produce something in excess of one’s own requirements in order to pay for goods bought from the neighbors. Naturally, people began to specialize in the production for which they had the best advantage and aptitude. This resulted in the division of labor and exchanges of goods and this way barter system had developed. Because of specialization, skill and craftsmanship developed and occupation become hereditary. This system which furnished well while we were living in agrarian society. Grew awkward and become obsolete as households less sufficient, and specialization arrived with the industries revolution. But it was subject to two serious drawbacks, namely.
- Non-coincidence of wants: Before a transition to take pieces it necessary not only to find someone who could offer what the other person required. But someone who could do this and at the same time was willing to accept what was offered in exchange.
- Non-Fragmentation: In Barter System, there was another problem, problem of non-segmentation, as how much of one thing would have to be given in exchange for the other.
Monetary Economic System
The drawbacks of Barter System were overcome by the introduction of money as the medium of exchange. The use of money made possible even greater specialization of production and as a result, both greater varieties of goods and increasing quantities of those become available for exchange. Money also facilities assignment of price to goods offered for sale.
Pricing of goods have facilitated transaction with the strangers expanded exchanger over larger area and greater division of labor facilitated under the handicraft system and these initiated the evolution of industry.
Handicraft System
Under the handicraft system the family, sometime with some outside helpers started producing goods indecently. They work in their workshops, procured raw materials from nearby sources and sold the finished goods in the nearby markets. The division of labor was horizontal rather than vertical. Craft were separate from one another. The workman finished everything by hand and, hence the name handicraft was the handicraft system.
Guild System
Gradually, these individual. Crafts were united together and large organization known as guilds were initiate. That developed in two principal forms: 1. the merchant-guild, and 2. the craft-guild. The merchant guild was an association of persons engaged in trade buying and selling goods in the towns. It objective was to ensure a fair price to the consumer and fair reward to the seller. The craft-guild was an association of artisans in a town or district engaged in the same occupation. Membership of a craft guild was compulsory, which ensured a fair monopoly.
Domestic System
On the verge of decline of guild, another system known as Domestic System developed. Under this system an entrepreneur gave out works to employees and supplied materials or tools or both and the employees produced the goods in their own homes. The entrepreneur was essentially a merchant and in no way a craftsman.
Factory System
Industrial Revaluation, began after the mid-eighteenth century (1760appre)gave rise to Factory System in place of guild and domestic system With the invention of machinery and power to drive it, industries come to be concentrated near the sources of power and raw materials. Large-scale production become possible, which resulted in still greater division of labor. It comes to be known as Factory System with which emerged a complete demarcation between the industrialists and the workers. Factory System becomes the modern way of production, and side by side the branches of commerce transportation banking warehousing, insurance, trade advertising developed.
With the introduction of large scale production by Factory System trade had become world-wide hence, Global Business or ‘Multinational corporation (MNC’s) had developed.