Trade and Auxiliaries to Trade
Commerce is a wide term consisting of all those activities, which are necessary for sale, transfer or exchange of goods and services. Commerce includes two kinds of activities trade and auxiliaries to trade. Buying and selling of goods is termed trade. But there are a lot of activities involved between this buying and selling, which are known as auxiliaries to trade or aids to trade. These include transport, banking, warehousing, insurance, etc. Thus, commerce includes both trade and auxiliaries to trade. The link between producers and consumers is provided by commerce, which ensures distribution of goods and services. The hindrance of persons is removed by trade, by making goods available to the customers. Transport removes the hindrance of place by moving the goods from one place to another. Hindrance of time is removed by storage and warehousing by storing the goods and making them available when needed. As goods kept in storage and warehouses are prone to many risks, to remove such risks, insurance is helpful. Banking is required to remove the hindrance of capital and funds, and advertising helps producers in informing customers about various goods and services. So, commerce removes various hindrances in the process of exchange of goods and services, hence all the activities which involve the removal of hindrances, be it in respect of persons, place, time, risk, finance, etc., is done by commerce.
Buying and selling of goods and services with the aim of earning profits is known as Trade. It is one of the most essential parts of commerce. It enables to make the goods available to the consumers or users. These days goods are manufactured on a large scale and it is very difficult for the producers to reach the consumers by themselves. Middlemen serve as a link between the producers and consumers by making the goods available to them. In the absence of trade, both producers and consumers will have to search for each other, and it would not be possible to carry on business on a large scale. Trade can be carried out on small scale, like in the case of Hawkers and small shops, or large scale, like Departmental stores.
Trade may be classified on the basis of the geographical area into two bases: 1) Internal Trade and 2) External Trade
1. Internal Trade: Internal trade is concerned with buying and selling of goods and services within the geographical boundaries of a nation. It is also known as Home trade or domestic trade. Here, both buyers and sellers belong to the same country.
Internal trade is further divided in two parts: i) Wholesale Trade and ii) Retail Trade
i) Wholesale Trade: Wholesale trade involves buying and selling of goods in large quantities or in bulk. Wholesaler buys goods directly from the manufacturer in large quantities and sells them in relatively less quantities to retailers. Wholesaler serves as an important link between manufacturers and retailers, and maintain large stock of goods.
ii) Retail Trade: It involves buying goods in small quantities from the wholesalers and selling them to the final for final consumption is known as retail trade. A retailer serves a link between the wholesaler, manufacturers and consumers. They maintain direct contact with the customers and provide feedback to the wholesalers about the likings and dislikings of the customers.
2. External Trade: External or foreign trade consists of the exchange of goods and services between persons or organisations operating in two or more countries. It is also known as foreign trade or international trade.
External trade is further divided in three parts: i) Import Trade ii) Export Trade iii) Entrepot Trade
i) Import trade: When goods are purchased from another country, it is known as import trade. For example, India imports crude oil from the Middle-east countries.
ii) Export Trade: When goods are sold to other country, it is known as export trade. For example, India exports cereals, spices and other products to USA.
iii) Entrepot trade: When goods are imported from a country for purpose of exporting it to another country, it is known as entrepot. For example, India imports many commodities from European countries to export them to Nepal.
Auxiliaries to Trade
Activities which are made for assisting trade are known as auxiliaries to trade. These activities or services facilitate the purchase and sale of goods and services. These are generally referred to as services because their nature is to facilitate the activities related to industry and trade. These include banking, transport, warehousing, warehousing and insurance. These not only support trade but also industry, and hence entire business activity. These activities help in the removal of various hindrances which arise in the exchange of goods and services.
The various auxiliaries are as follows:
1. Transport and Communication: It involves all the activities which are concerned with the movement of goods from one place to another. As we know that production takes place at various places and these goods are required at other places for consumption. For example, jute is produced in West Bengal, but it is consumed in various other places. The hindrance of place is removed by means of transportation, like road, rail, etc. Transport helps in the movement of raw material to the place of production and finished products from the factories to the place of consumption.
Communication is one of the most important services. It serves as a link between manufacturers, producers, wholesalers and consumers, and helps in exchanging information. Postal services, Telephone services, Fax, Internet, etc., help in communication and are regarded as auxiliaries to trade.
2. Banking and Finance: It involves activities which are related with providing finance for various business activities. Business activities cannot start without having adequate funds. Funds are needed acquiring machinery, raw materials, meeting expenses, etc. Banking solves the problem of finance. It helps to overcome the hindrance of finance. Various facilities are provided by the bank, like overdraft, cash credit, and various types of loans and advances. Banks also undertake collection of cheques, issue of bank drafts, discounting of bills, etc. Banks also help exporters in collecting money from importers, in case of foreign trade. They also help in raising capital from public.
3. Insurance: It involves all the activities which are concerned with protection from various kinds of risks. Business involves many kinds of risks. and insurance helps to protect the businesses from such risks. Insurance removes the hindrance of risks by protecting against various risks. Factory, building and other assets must be protected against fire, theft, burglary, etc. Employees should also be protected against the risk of accidents and occupational hazards. Insurance protects against all these risks. Businesses have to pay a nominal amount known as a premium, and in return, the amount of loss or compensation can be recovered.
4. Warehousing: It is concerned with storing goods in order to facilitate their supply to the market at the right time. There is always a time gap between production and consumption of goods as goods are not produced immediately after they are produced. This time gap is because of irregular demand or irregular supply. Warehousing helps in the storage of goods and providing goods at the right time, and thus, removes the hindrance of time. Warehousing ensures stable prices in the market, as goods are supplied continuously when needed. To maintain a smooth flow of goods throughout the year and protect goods from various damages, like moisture, insects, thefts, etc., they are stored in warehouses and storages.
5. Advertising: It involves all those activities which are concerned with providing information about products and services. It is one of the most important ways of promoting the sale of products and services, especially in the case of consumer goods. It is not possible for the manufacturers, producers and traders to meet each and every consumer and inform them about the product. Thus, advertising informs the consumers about the product and various other useful information, like features, price, uses, quality, etc., related to the product. Thus, it removes the hindrance of information.