Commercial activities may be classified into two broad categories;
1. Trade, and
2. Aids to trade
1. Trade
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Trade is the process of purchasing and procuring of goods and services with the object of selling them at a profit.
Trade means buying and selling of goods and services with the aim of earning profits. It involves the exchange of commodities for money or money’s worth. It is the means by which people sell those goods which they do not need.
Traders serve as the link between producers and consumers. They help in directing the flow of goods to the most profitable markets. They, also bring about the equitable distribution of goods.
In the absence of traders, producers will have to go in search of consumers. Trade is the nucleus of commerce. Other parts of commerce such as transport, insurance, warehousing, banking and advertising revolve around trade.
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The objective of trade is to make goods and services available to those persons who need them and are able and willing to pay for them.
Trade may be classified into home trade and foreign trade. Home trade may further be subdivided into wholesale trade and retail trade. Similarly, foreign trade may be sub-divided into import, export and entrecote trade. These various types of trade are described below.
Home trade is also known as domestic trade or internal trade. It means buying and selling within the geographical boundaries of one country. Both the buyer and seller belong to the same country. For example, trade between Bombay and New Delhi is home trade. Payments in this type of trade are made in the currency of the country.
Home trade is of two types:
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(a) Wholesale Trade:
It implies buying and selling of goods in large quantities. Goods are sold to industrial users or institutional buyers. Traders engaged in wholesale trade are called wholesalers. A wholesaler buys goods in large quantities directly from the producers and sells them to other dealers.
He serves as a connecting link between the producers and the retailer. A wholesaler specializes in a limited variety of goods. A wholesaler generally has to keep a large stock of goods. He usually sells goods on credit. Therefore, a huge amount of capital is required in wholesale trade.
(b) Retail Trade:
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It involves buying and selling of goods in small quantities. Traders engaged in retail trade are called retailers. A retailer buys goods from the wholesalers and producers and sells them directly to the ultimate consumers.
He serves as a connecting link between wholesalers and consumers. He generally keeps a wide variety of goods and maintains personal contacts with consumers. Retail trade is the final stage of distribution.
2. Foreign trade:
Foreign trade is also known as external trade or international trade. It refers to buying and selling of goods and services between two or more countries. In foreign trade, a businessman in one country buys from or sells to another businessman in a different country.
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Foreign trade provides a very wide market for the distribution of products. It enables a country to concentrate on the production of goods for which it is best suited.
Every country can obtain the articles which it cannot profitably produce at home. Special problems such as international means of transport (shipping and airways), foreign currency, licensing, government rules and regulations, marine insurance, etc., are involved in foreign trade. Foreign trade is of the following types:
(a) Export Trade:
It implies the sale of goods to foreign countries. For example, India exports tea to the United Kingdom.
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(b) Import Trade:
It refers to the purchase of goods from foreign countries. For instance, India buys petrol from Iran.
(c) Entrecote Trade:
It means importing (buying) goods from one country for the purpose of exporting (selling) them to another country. For example, India imports certain commodities from European countries and exports them to Nepal and Bhutan. This type of trade is also known as re-exporting trade.
Aids to Trade
Aids to trade or auxiliaries to trade refer to the activities essential for smooth flow of goods from producers to consumers. These activities facilitate trade by removing various barriers in the buying and selling of goods. The main aids to trade are given below:
1. Transportation:
Transportation refers to the conveyance of goods and passengers from one place to another. It facilitates trade by assembling and distributing goods. Goods are produced at one place and consumed at another place.
For example, tea is produced mainly in Assam and West Bengal but is consumed all over the world. Transport brings the goods from the place of production to all the far and distant places of consumption.
It helps the consumers in getting a wide variety of goods at reasonable prices. It promotes specialisation of business activities. It overcomes the barrier of distance and creates place utility.
Transport widens the market and helps to equalize prices at different places. It results in the equitable distribution of goods among far flung areas.
Quick and economical means of transport such as railways, roadways, airways and shipping have widened the scope of trade to include international transactions.
Transport helps to increase the size and scale of business. Well-developed facilities of transport help industrial units to locate at the most economical places and grow to their optimum size.
Transport facilitates mutual cooperation and unity among people and nations. Thus, transport has become the lifeline of modern industry and trade.
2. Warehousing:
Now-a-days goods are produced in anticipation of demand. It is, therefore, necessary to store and preserve the goods until they are sold. Many products such as wheat, sugar, rice, etc. are produced in a particular season but they are needed throughout the year.
Proper storage arrangements must be made in order to make the goods available throughout the year. Besides, it is necessary to store commodities such as woolen garments and umbrellas to meet the desired seasonal demand.
Warehousing removes the hindrance of time and thereby creates time utility. It helps to stabilise prices through equal distribution of surpluses over different time periods.
Warehouses are of three types, namely, private, public and bonded. Private warehouses are owned by merchants and producers for their own storage needs.
Public Warehouses are owned by harbingers, port trusts, etc. Bonded warehouses are set up by customs authorities to store goods which are liable to custom duty.
3. Insurance:
Business involves several types of risk e.g., risks arising from price fluctuation dishonesty of employees, bad debts, exchange rate fluctuations, loss of goods in transit and storage, fire, floods, etc. Insurance removes the hindrance of risk.
With the help of insurance, a businessman can protect himself from several types of risks. Insurance is based on the “principle of pooling of risks”.
A large number of people who are subject to a particular risk contribute to common fund, out of which compensation is paid to those few who actually suffer the loss.
In this way the amount of risk borne by an individual businessman is reduced by distributing the burden of loss over a large number of persons.
There are various types of insurance, e.g., fire insurance, marine insurance, workmen’s compensation insurance, life insurance, etc. Insurance facilitates expansion of trade by providing security against heavy risks.
It helps businessmen to develop sense of security and freedom from anxiety. Businessmen can carry on their business with confidence and peace of mind.
4. Banking and finance:
There is usually a time gap between production or purchase and sale of goods. It takes time to collect money after sale of goods on credit. During this period, businessmen need finance to carry on their business activities.
Banks and other financial institutions provide funds and credit to businessmen. Production and distribution of goods and services on a large scale requires a huge amount of money at low rates of interest.
Banks facilitate large scale and efficient business operations by providing cash and security. Banks also provide safe, quick and economical means for remittance of money from one place to another.
They collect money from those who do not need it and make the same available to businessmen. Banks provide funds in various forms e.g. loans, overdraft, cash credit, discounting of bills, etc.
5. Advertising and publicity:
Advertising and publicity inform the consumers about the availability of various products and services. They remove the hindrance of knowledge. Advertising educates consumers about the use of products and provides them greater satisfaction. The main purpose of advertising is to create and sustain demand.
In the absence of advertising, consumers may remain ignorant of the availability of goods and services and businessmen may not be able to sell their products.
There are various forms of advertising and publicity such as the press, outdoor, displays, radio, television, letters to customers, fairs, exhibitions, cinema, etc.
6. Other aids:
Proper packing of goods is essential for efficient trade. Packing attracts consumers to buy goods. Proper packing prevents damage to goods in the process of transport and warehousing.
It helps to remove the hindrance of risk by ensuring safety of goods. Modern means of communication like telephone, telex, and postal services have become essential for the expansion of trade and industry. Businessmen and their agents travel from place to place.
They need eating, lodging and recreation facilities. Hotels, restaurants and cinema theatres provide these facilities and thereby help buying and selling of goods and services.