Classification of Business Activities ( Part 2) - Commerce

  

        

Commerce and Its Nature

   

       Commerce refers to all those activities which are necessary for bringing goods from the place of their consumption. Commerce includes not only trade but also services such as transport, warehousing, packaging, insurance, banking and sales promotion which are incidental or auxillaries to trade.

Characteristics of Commerce

1.Economic Activity : Commerce is an economic activity because it consists of activities which are undertaken for earning profits. A trader buys goods with the aim of selling them at a profit.

2. Exchange of goods and services : Commerce involves exchange and distribution of goods and services. Goods may be purchased or produced for sale.

3. Profit Motive : The motive of commercial activities is to earn profits. Any activity which does not have the aim of profit will not be a part of commerce.

4. Regularity of transaction : An isolated transaction does not imply commerce.

5. Creation of utilities : Commerce creates several types of utilities. It makes goods available as and when demanded. By creating utilities commerce helps to increase the volume of trade.

Functions and Importance of Commerce

The exchange of goods is a complex process beset with several types of hindrances.Commerce removes these hinderances.

1. Hindrance of person : This hindrance refers to the lack of contact between producers and consumers . Trade removes the hindrance of person by making goods available to consumers from producers.

2. Hindrance of place : A major problem faced by producers is to send their goods to distant places without loss through theft, pilferage, damage etc. Commerce solves this problem by means of  transport, packaging and insurance. 

3. Hindrance of time : Warehousing removes the hindrance by storing goods from the time of production till their distribution.

4. Hindrance of exchange: Banking removes the hindrance of exchange by providing finance and facilitating payments through cheques.

5. Hindrance of risk : Insurance removes the hindrance of risk by compensating for loss caused by various types of risk

6. Hindrance of knowledge  : Advertising removes the hindrance of knowledge by providing information and education about goods and services to consumers.

Branches of Commerce

      Commercial activities may be classified into two broad categories:

1. Trade 

2. Aids to trade

 

Trade

   

      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. Traders serve as the link between producers and consumers. They help in directing the flow of goods to the most profitable markets.  In the absence of traders, producers will have to go in search of consumers. 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.

Types of Trade

1. Home Trade : It means buying and selling within the geographical boundaries of one country. Both buyer and seller belong to the same country. Home trade is also known as domestic trade or internal trade. e.g., trade between Hyderabad and Bhubaneswar.

Home trade is of two types:

(a) Wholesale Trade : It  means buying and selling of goods in large quantities. Goods are sold to industrial users or buyers. Traders engaged in wholesale trade are called wholesalers. A wholesaler serves as a connecting link between the producers and the retailer.

(b) Retail Trade : It means buying and selling of goods in small quantities. Traders engaged in retail trade are called retailers. A retailer serves as a connecting link between wholesalers and consumers. 

2. Foreign Trade : It refers to buying and selling of goods and services between two or more countries. A businessman in one country buys from or sells to another businessman in a different country. Foreign trade is also known as external trade or international trade.

Foreign Trade is of the following types :

(a) Export Trade : It implies the sale of goods to foreign countries. e.g., India exports tea to the United Kingdom

(b) Import Trade : It refers to the purchase of goods from foreign countries. e.g., India imports crude oil from Saudi Arabia and Iraq.

(c) Entrepot Trade : It means importing goods from one country for the purpose of exporting (selling) them to another country. e.g., India imports certain commodities from European countries and exports them to Nepal and Bhutan.

Aids to Trade

    

     Aids to trade or auxiliaries to trade refers 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.

1. Transportaion : Transportaion refers to the conveyance of goods and passengers from one place to another. It facilitates trade by assembling and distributiong goods. Transport brings the goods from the place of production to all the far and distant places of consumption.

2. Warehousing : At the present time 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. Warehousing removes the hindrance of time and thereby creates time utility. Warehouses are of three types, Private, public and bonded. Private warehouses are owned by merchants and producers for their own storage needs. Public warehouses are owned by port trusts, wharfingers. 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 fluctuations dishonesty of employees, bad debts, exchange rate fluctuations, loss of goods in transit and storage, fire, floods, etc. Insurance removes the hinderance of risk. With the help of insurance, a businessman can protect hismself from several types of risks. 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.

4. Banking and Finance : There is usually a time gap between production 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. Banks facilitate large scale and efficient business operations by providing cash and security. Banks provide funds in various forms eg., 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 educated consumers  about the use of products and provides them greater satisfaction. The main purpose of advertising is to create and sustain demand. There are various forms of advertising and publicity such as the press, outdoor, displays, radio, tv, letters to customers, fairs exhibitions, cinema, etc.

Distinction between Industry, Commerce and Trade

Basis of Distinction	Industry	Commerce	Trade
Meaning	Production of goods and services	Distribution of goods and services	Buying and selling of goods and service.
Scope	Wide scope of operation as wide range of goods produced	Wide scope consists trade and aids to trade	Narrow scope restricted to buying and selling
Creation of utility	Creates form utility	Creates utilities of person, place, time, etc	Creates only possession utility
Capital	Large capital required	Less capital required as compared to industry	Less capital required as compared to industry
Risk	Higher Risk than in commerce	Low risk than Industry	Low risk than Industry
Types	Genetic, extractive, manufacturing, construction	Trade and Aids to trade.	Home Trade and Foreign Trade
Place of work	Farms, Factory, mine, workshop	From one place to another	Market
Represents	Supply of goods and services	Demand for goods and services	Exchange of goods and services
Ownership and control	By Industrialists	By merchants	By traders

 I hope your concept about Industry, Commerce and Trade is somewhat clear now.. Please do follow my blog for more updates..