COMMERCE
We know that the business activities are classified into: I)
industry, and 2) commerce. We also know that the industrial activities are
concerned with the production of want satisfying goods and services. Unless
these goods and services are trade available to those who need them, they may
not fulfil their objectives i.e., satisfying human wants. Therefore, the goods
produced by the industries should be made available to the consumers at right
place, right time, right quantity, right price and in right manner. Here comes
the activity of commerce to fulfil all these requirements. All the activities
which establish link between the producers of goods and consumers of these
goods, and maintain a smooth and uninterrupted flow of goods between them come
under commerce.
A smooth and uninterrupted flow of goods and services from
producer to consumer is beset with many barriers and hindrances. For instance,
goods produced by one may be consumed by another. In such a case, unless the
producer and consumer identify each other, there is no scope for exchange of
goods between them. This is the hindrance of person. Similarly, for
buying a product, consumers should have the knowledge about the existence of
that product, its features, etc. Therefore, there is a need to provide such
information to the consumers. This is the hindrance of knowledge. The
hindrance of time arises out of the time gap between the time of production
and the time of consumption. In many cases goods are produced at one place
while they are consumed at another place. So, the goods should be carried from
the place of production to the place of consumption. This gives rise for the
hindrance of place. Commerce eliminates all these hindrances and
facilitates the exchange of goods between producers and consumers. Later, we
will learn in detail how these hindrances are eliminated through various
business activities which form part of commerce.
In a nutshell, commerce is mainly concerned with the
purchase and sale of goods, and also embraces all those functions which are
essential for maintaining smooth and uninterrupted flow of goods and services
between the buyers and sellers. Thus, there are two main aspects in commerce:
i) purchase and sale of goods, and ii) activities essential for the smooth and
uninterrupted flow of goods. Therefore, we can classify the whole range of
commerce activities into two categories:
I) Trade—activities of purchase and sale.
2) Aids to Trade— activities which facilitate the
smooth and uninterrupted flow of goods.
Trade
You have already learnt that the human activities engaged in
buying and selling of goods and services come under trade. Therefore, trade
includes sale, transfer or exchange of goods and services with the intention of
earning profit. The objective of trade is to make goods available to those
persons who need them and are willing to pay for them. Thus, trade plays a
major role in establishing contact between the producers and the consumers and
eliminates the hindrance of person.
A person who is engaged in trade is called 'trader' or
'middleman'. Various traders operate in between producers and consumers and
remove the hindrance of person. We can classify trade into two broad
categories: I) internal trade, and 2) external trade.
1-
Internal Trade: When the trade takes place within the boundaries of
the country, you can call it 'internal trade'. It means that both buying and
selling should take place within the country. Payment for the same is generally
made in national currency. This internal trade is also termed as inland trade
or national trade or home trade or domestic trade.
On the basis of the scale of operations. we can classify
internal trade into: a) wholesale trade, and b) retail trade.
a) Wholesale Trade: Buying and selling in relatively
larger quantities is called wholesale trade. A person who is involved in
wholesale trade is called wholesaler.
b) Retail Trade: This refers to buying and selling in
relatively smaller quantities. A person engaged in retail trade is called a
retailer.
Let us now discuss in some detail how these wholesalers and
retailers operate and eliminate the hindrance of person. A wholesale trader
buys goods in large quantities from the manufacturers and sells in relatively
smaller quantities to the retailers. Thus, the wholesale traders constitute a
link between the producers on the one hand and the retailers on the other hand.
Retailers who buy goods from the wholesalers, sell them in smaller quantities
to the consumers. Thus, retail traders establish link between wholesale traders
on the one hand and consumers on the other. Thus, the wholesalers and retailers
establish a link between the producers and consumers and eliminate the
hindrance of person. However, sometimes producers may take the services of only
either wholesalers or retailers, or may establish a direct link with the
consumers. The whole chain of traders/middlemen operating in between producer
and consumer is referred to as 'channel of distribution'.
2-
External Trade: This is also called 'foreign trade' or
'international trade'. When the trade takes place across the boundaries of
a country, you can call such trade as external trade. In other words, external
trade refers to the trade between nations. This trade could be in the form of
exchange of one commodity for another or for money.
We can classify foreign trade into three categories: a)
import trade. b) export trade, and c) re-export trade.
a) Import Trade: when a country buys goods from
another country, it is called 'import trade'. For example, India bought
machinery from the USA. This is an import trade for India.
b) Export Trade: When a country sells goods to
another country, it is called 'Export Trade'. For example, India sells leather
goods to USSR, and tea to USA. For India such selling of goods shall be termed
as 'export trade'.
c)
Re-export Trade: This is also called 'entrepot trade'. When
the goods are imported from one country and the same are exported to another
country, such trade is called 're-export trade'. Re-export is done by those
countries which have ports that are conveniently situated to serve as
distributing points for neighboring countries. Such countries import large
quantities of goods and re-export the same to the neighboring countries.
Aids to Trade
Activities which facilitates the trade are called 'aids to
trade'. Thus, all human activities which eliminate the hindrances and
facilitate the flow of goods from producers to consumers come under aids to
trade. They are also called 'auxiliaries to trade'. The whole range of
activities corning under aids to trade may be classified into five categories:
I) transportation. 2) warehousing. 3) insurance, 4) advertising, and 5)
banking.
1-Transportation:
Generally, all the goods are not consumed at the same place where they are
produced. Therefore. goods are to be moved from the place of production to the
place where they are demanded. The activity which is concerned with such
movement of goods is called 'transportation'. Thus, transportation eliminates
the hindrance of place and creates place utility to goods.
Transportation can be of three types:
a) Land transportation — road, rail
b) Air transportation--airplane
c) Water transportation—boat, ship
2-Warehousing:
Goods may not be consumed immediately after production. Normally there will be
time gap between production and consumption. This is the hindrance of time.
Therefore, goods once produced should be preserved properly till they are consumed.
Particularly, perishable goods like milk, meat, vegetables; flowers, etc.,
should be preserved very carefully, Otherwise they get spoiled and become
useless. For this reason, warehousing is recognized as yet another aid to
trade. Warehousing refers to preservation of goods to make them available as
and when needed by consumers. Thus, warehousing eliminates the hindrance of
time and provides time utility to goods.
3-Insurance:
The goods may he destroyed while in production process, or in transit due accidents,
or in storage due to fire or theft, etc. The businessmen would like to cover
these risks. Insurance companies come to their rescue in this regard. They
undertake to compensate the loss suffered due to such risks. For this purpose,
the business has to take an 'insurance policy' and pay a certain amount
regularly, called 'premium'. Thus, insurance eliminates the hindrance of
risk.
4-Advertising:
Exchange of goods is possible only when the consumers have the knowledge about
the existence of a product. This is the hindrance of knowledge. This
hindrance is eliminated through advertising. Through advertisement,
producers communicate all information about their goods to the prospective
consumers' and create in them a strong desire to buy the product. Thus,
advertising facilitates the flow of goods between producers and consumers by
bringing the knowledge about the products to the consumers. Advertising is done
through TV, radio, newspapers, magazines, hoardings, wallposters, etc.
5-Banking:
Banking facilitates the flow of goods by removing the hindrance of finance
and credit. Now-a-days we cannot think of business without banks. To start
the business or to run it smoothly we require money. Banks supply money. A bank
is an organisation which accepts deposits of money from the public, withdrawal
on demand or otherwise, and lends the same to those who need it. Banks also
provide many services required for the business activity.
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