Trade

Trade is the act of buying and selling of goods and services. It is broadly classified into two main divisions: Home Trade (internal or domestic trade) and Foreign Trade (international or external trade).

1. Home Trade

Home trade refers to the buying and selling of goods and services within the boundaries of a specific country. It is conducted in the local currency and is divided into Retail Trade and Wholesale Trade.

1.1 Retail Trade

Retailing is the final stage of distribution, involving the sale of goods and services directly to final consumers for personal, non-business use.

Types of Retailers

• Small-Scale Retailers: These require small capital and have no fixed business premises (e.g., hawkers, mobile shops, peddlers) or operate from small fixed locations (e.g., kiosks, single-line shops, market traders).
• Large-Scale Retailers: These operate on a massive scale, requiring huge capital, specialized management, and large premises. They include:
  • Supermarkets: Large self-service stores selling food, beverages, and household goods.
  • Department Stores: Large establishments divided into separate departments, each selling a specific line of goods under one roof and central management.
  • Chain/Multiple Stores: Multiple retail outlets operating under a unified name, ownership, and central management, selling similar lines of merchandise (e.g., Mr. Biggs, Shoprite).
  • Mail-Order Businesses: Retail businesses that transact with customers entirely via post, catalogs, and online orders.
  • Discount Houses: Retail outlets that sell goods at lower prices than standard retail prices by operating on low margins and high volume.

Functions of Retailers

• To Consumers: Providing a wide variety of goods in small, convenient quantities; offering credit facilities to trustworthy buyers; providing advice and guidance on product usage; delivery of goods to consumers' doorsteps.
• To Wholesalers/Manufacturers: Passing consumer feedback, complaints, and preferences back up the channel; holding stock so producers don't have to; helping in the distribution of goods to rural and remote areas.

Factors to be Considered in Setting Up a Retail Trade

• Capital: The amount of funds available determines the size and scale of the retail business.
• Location: Access to customers, transport links, cost of rent, and proximity to competitors.
• Type of Goods: Fast-moving consumer goods (FMCG) vs. specialty/durable goods.
• Source of Supply: Proximity and reliability of wholesalers and manufacturers.
• Competition: The density of other retailers offering similar products.

Modern Trends in Retailing

• Branding: Products are distinctively packaged and labeled to build customer loyalty.
• Self-Service: Allowing customers to select goods themselves from open shelves (e.g., in supermarkets), reducing labor costs and encouraging impulse buying.
• Vending Machines: Automated machines that dispense goods (snacks, drinks) upon insertion of money or cards.
• Vouchers/Tokens: The use of luncheon vouchers, fuel vouchers, and gift cards as alternative payment methods.
• E-Commerce: Retailing through online platforms, websites, and social media platforms.

Advantages and Disadvantages of Retailing

• Advantages: Easy to start (especially small-scale); personal contact with consumers; offers employment opportunities; highly flexible.
• Disadvantages: High risk of bad debts (when credit is extended); high rate of failure due to poor management; lack of economies of scale for small-scale retailers.

1.2 Wholesale Trade

Wholesaling is the business of buying goods in bulk from manufacturers and selling them in smaller quantities to retailers.

Types of Wholesalers

• Merchant Wholesalers: Wholesalers who take legal title (ownership) to the goods they purchase. They can be general-line wholesalers or specialty wholesalers.
• Agent Wholesalers: Intermediaries who do not take title to the goods but facilitate buying and selling for a commission (e.g., Brokers, Factors, Del Credere agents).
• General Wholesalers: Those who deal in a wide variety of unrelated merchandise.

Functions of Wholesalers

• To Manufacturers: Buying in bulk (enabling continuous production); warehousing and storing goods; providing advance payments or financing; giving market information on consumer trends.
• To Retailers: Breaking bulk (selling in smaller lots); providing transport and prompt delivery; offering credit facilities; stabilizing prices by managing supply.

The Middleman Debate (Elimination of Wholesalers)

• Arguments for Elimination: Middlemen increase the final retail price of goods; direct marketing is easier due to modern technology; large-scale retailers can buy directly from manufacturers.
• Arguments against Elimination: Wholesalers perform essential functions (storage, transport, credit) that manufacturers and small retailers cannot easily or cheaply absorb.

2. Foreign Trade

Foreign trade (international trade) is the exchange of goods and services across national borders. It is divided into Import (buying goods from other countries), Export (selling goods to other countries), and Entrepot (importing goods with the sole purpose of re-exporting them to another country after processing or repackaging).

2.1 Basic Issues in Foreign Trade

• Balance of Trade: The difference between the value of a nation's visible exports (tangible goods) and visible imports over a given period. It can be favorable (exports > imports) or unfavorable (imports > exports).
• Balance of Payments: A systematic record of all economic transactions (both visible and invisible, such as shipping, insurance, tourism, and capital movements) between residents of a country and the rest of the world.
• Counter Trade: A system of international trade where goods are bartered or exchanged for other goods rather than paid for with hard currency.

2.2 Procedures and Documents in Foreign Trade

International trade involves complex legal procedures and specialized documentation:

• Bill of Lading: A document issued by a shipping company acknowledging receipt of goods for shipment. It serves as a contract of carriage, a receipt for goods, and a document of title.
• Consular Invoice: An invoice signed by a consul of the importing country residing in the exporting country, used to prevent under-invoicing and simplify customs assessment.
• Certificate of Origin: A document declaring the country in which the goods were manufactured, used to determine tariff rates and trade agreements.
• Indent: An order to buy goods, placed through an agent or exporter in another country.
• Dock Warrant: A receipt issued by a dock owner acknowledging custody of goods deposited at the warehouse.
• Bill of Exchange: A financial instrument used to facilitate international payment; a written order demanding payment.
• Letter of Credit: A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount.

2.3 Barriers to International Trade

• Tariffs (Customs Duties): Taxes imposed on imported goods to raise government revenue or protect domestic industries.
• Import Quotas: Physical limits placed on the quantity of a specific good that can be imported during a given period.
• Embargoes: Total bans on the import or export of certain goods or trade with specific nations.
• Exchange Control: Government limits on the amount of foreign currency available to importers.
• Administrative Barriers: Strict technical, safety, or health standards designed to make importation difficult.

2.4 Role of Government Agencies in Foreign Trade

• Customs and Excise Authority: Responsible for collecting import duties, preventing smuggling, enforcing import prohibitions, compiling trade statistics, and inspecting cargo.
• Ports Authority: Manages port facilities, provides berthing and cargo-handling services, and maintains shipping channels to facilitate safe maritime trade.