Notes On Commerce - The Importance Of Commerce And Its Functions PDF

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TOPIC ONE 1. SCOPE OF COMMERCE 1.1 Definition of commerce Commerce is a branch of business. It is concerned with the exchange of goods and services. It includes all those activities, which directly or indirectly facilitate that exchange. Nearly every business transaction is a form of commerce: purchasing food at a restaurant, buying goods and selling goods in a store, drilling for oil, etc. Importance of Commerce The importance of commerce are mentioned in following points:1. Commerce tries to satisfy increasing human wants Human wants are never ending. They can be classified as 'Basic wants' and 'Secondary wants'. Commerce has made distribution and movement of goods possible from one part of the world to the other. Today we can buy anything produced anywhere in the world. This has in turn enabled man to satisfy his innumerable wants and thereby promoting social welfare. 2. Commerce helps to increase our standard of living Standard of living refers to quality of life enjoyed by the members of a society. When man consumes more products his standard of living improves. To consume a variety of goods he must be able to secure them first. Commerce helps us to get what we want at right time, right place and at right price and thus helps in improving our standard of living. 3. Commerce links producers and consumers Production is meant for ultimate consumption. Commerce makes possible to link producers and consumers through retailers and wholesalers and also through the aids to trade. Consumers get information about different goods through advertisements and salesmanship. The manufacturers are regularly informed about the likes and dislikes of the consumers through marketing research. Thus commerce creates contact between the centers of production and consumption and links them. 4. Commerce generates employment opportunities The growth of commerce, industry and trade bring about the growth of agencies of trade such as banking, transport, warehousing, advertising, etc. These agencies need people to look after their functioning. Increase in production results in increasing demand, which further results in boosting employment opportunities. Thus development of commerce generates more and more employment opportunities for millions of people in a country. 5. Commerce increases national income and wealth When production increases, national income also increases. In a developed country, manufacturing industries and commerce together accounts for nearly 80% of total national income. It also helps to earn foreign exchange by way of exports and duties levied on imports. Thus, commerce increases the national income and wealth of a nation.

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6. Commerce helps in expansion of aids to trade With the growth in trade and commerce there is growing need for expansion and modernization of aids to trade. Aids to trade such as banking, communication, advertising and publicity, transport, insurance, etc., are expanded and modernised for the smooth conduct of commerce. 7. Commerce helps in growth of industrial development Commerce looks after the smooth distribution of goods and services made available by the industry. Without commerce, industry will find it difficult to keep the pace of production. It helps to increase demand for goods on one hand and on the other hand it helps industries by getting them the necessary raw materials and other services. Hence, commerce helps in attaining better division of labour and industrial progress. 8. Commerce encourages international trade Through commerce we can secure a fair and equitable distribution of goods throughout the world. With the help of transport and communication development, countries can exchange their surplus commodities and earn foreign exchange, which is very useful for importing machinery and sophisticated technology. It ensures faster economic growth of the country. 9. Commerce benefits underdeveloped countries Underdeveloped countries can import skilled labour and technical know-how from developed countries. While the advance countries can import raw materials from underdeveloped countries. This helps in laying down the seeds of industrialization in the underdeveloped countries. 10. Commerce helps during emergencies During emergencies like floods, earthquakes and wars, commerce helps in reaching the essential requirements like foodstuff, medicines and relief measures to the affected areas.

1.2 Structure of commerce 1. Retail The word ‘Retailer’ had been derived from the French word ‘Re-tailer’ which means ‘to-cut again’. Obviously then, retailing means to cut in small portions from large lumps of goods. A retailer is last middlemen in the chain of distribution of goods to consumers. He is a link between the wholesalers and the consumer. 2. Wholesale A person or firm that buys large quantity of goods from various producers or vendors, warehouses them, and resells to retailers. Wholesalers who carry only non-competing goods or lines are called distributors.

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1.3 Branches of commerce There are various human activities as shown below

Since commerce embraces all those activities of taking goods and services from the production centre to the consumption, a great deal of obstacles are crossed. In between these two ends the obstacles faced are difficulties of trade, transportation, distribution, finance, storage, insurance and publicity. The above mentioned difficulties are removed by the various branches of commerce. These branches are: Trade: The channel through which goods are passed from the producer to the consumer is termed as trade. It is the agency which facilitate proper flow of goods. Trade involves buying and selling of goods. Transport: Goods produced at the end of the producer are passed to the consumer with the help of transport facilities. The goods are transported from the place of low demand to the place of greater demand. Transport helps in the creation of place utility for the products. The growth of commerce largely vest on proper modes of transport like road, rail, sea and air. Distribution: It is not possible on part of the producers to make direct contact with the consumers which are millions in numbers. A chain of middlemen like wholesalers, retailers, brokers and other agents help in the process of distribution of goods. The hindrances of persons is being removed with the help of different middlemen. Insurance: A great deal of risks are involved during the course of transportation of goods. The risks in connection with goods are risks of fire or theft. These risks develop a state of fear of losses and these losses are covered by the help of insurance.

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Advertisement: Since the consumers are scattered over distant places, they may not be aware of the availability of goods. Absence of knowledge of product puts a lot of hindrances on purchase of goods and this hindrance of knowledge is removed by advertisement and publicity. Banking: There is a time lag between the production and sale of goods and during this period, the need of finance exert a great deal of influences. The commercial banks and the other schedule banks play a vital role in mitigating these financial crises. Banks also facilitate in international trade by providing long-term financial assistances. Warehousing: The production of goods takes place in the anticipation of demand and goods are produced during the period of less demand. There is a growing need to store the goods in a warehouse so that those can be utilized during the period of more demand. The facility of warehouse removes the hindrances of time. The need for warehouse is greater in foreign trade because there is more time gap between production and consumption. Communication: The buyers and sellers are intimated through various communicating agencies. The producer intimate the buyer about the production of goods, and the buyer sends orders for supply of goods. The post office, telephone, telex and fax helps in communication between the producer and consumers.

1.4 Factors of production in the context of commerce An economic term to describe the inputs that are used in the production of goods or services in the attempt to make an economic profit. The factors of production include land, labor, capital and entrepreneurship. Natural Resources - sometimes called land - consists of all the gifts of nature. This includes mineral deposits, water, arable land, vegetation, natural forests, marine resources, the atmosphere, sunshine and animal life. They are a fixed supply. If we want more of them, their availability cannot be increased. It is possible to exploit some of the resources, for example, minerals. Once the minerals are used, they cannot be replaced. Labour - is defined as the exercise of human mental and physical effort in the production of goods and services, where humans are rewarded in the form of an income. The quality of labour is depends on the size of the population and the portion that is able and willing to work. The quality of labour, which is described by the skill, knowledge and health of the workers, is important. Capital - is made up of manufactured resources, such as machines, tools and buildings which are used in the production of other goods and services. It is those tangible things that are used to produce other things. These resources do not have an unlimited life. Entrepreneurship - is the availability of natural resources, labour and capital is not sufficient to ensure economic success. These factors of production have to be organised by people who see opportunity and are willing to take risks to producing the goods, believing that they will be sold. These people are called entrepreneurs. They are the driving force behind the production. They 4

are the innovators, the initiators, who take initiative. They believe that their ideas will make a profit.

1.5 Chain of distribution The path through which goods and services travel from the vendor to the consumer or payments for those products travel from the consumer to the vendor. A distribution channel can be as short as a direct transaction from the vendor to the consumer, or may include several interconnected intermediaries along the way such as wholesalers, distributers, agents and retailers. Each intermediary receives the item at one pricing point and movies it to the next higher pricing point until it reaches the final buyer. Coffee does not reach the consumer before first going through a channel involving the farmer, exporter, importer, distributor and the retailer.

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TOPIC TWO 2. RETAIL TRADE 2.1 Who is a retailer? Retail is the process of selling consumer goods and/or services to customers through many channels of distribution to get a profit. Demand is created through diverse target markets and promotional tactics, satisfying consumers' wants and needs through a lean supply chain. A business or person that sells goods to the consumer, as opposed to a wholesaler or supplier, who normally sell their goods to another business. 2.2 Retailing and retailer The word retailer has been derived from the French word “Retail” which means to sell in small quantities, rather than in gross. A retailer is a person who purchases a variety of goods in small quantities from different wholesalers and sell them to the ultimate consumer. He is the last link in the chain of distribution from the producer to the consumer.

     

Characteristics The followings are some of the essential characteristics of a retailer: He is regarded as the last link in the chain of distribution. He purchases goods in large quantities from the wholesaler and sell in small quantity to the consumer. He deals in general products or a variety of merchandise. He develops personal contact with the consumer. He aims at providing maximum satisfaction to the consumer. He has a limited sphere in the market. 2.3 Functions of retailer Retailers perform a number of functions. These are:

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The retailer buys a variety of products from the wholesaler or a number of wholesalers. He thus performs two functions like buying of goods and assembling of goods. The retailer performs storing function by stocking the goods for a consumer. He develops personal contact with the consumers and gives them goods on credit. He bears the risks in connection with Physical Spoilage of goods and fall in price. Besides he bears risks on account of fire, theft, deterioration in the quality and spoilage of goods. He resorts to standardization and grading of goods in such a way that these are accepted by the customers. He makes arrangement for delivery of goods and supply valuable market information to both wholesaler and the consumer.

2.4 Need for retailer A retailer provides a number of services to the customer and to the wholesaler. To Customers:

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1. 2. 3. 4. 5. 6. 7.

He provides ready stock of goods and as such he sells and quantity of goods desired by the customers. He keeps a large variety of goods produced by different producers and thereby ensures a wide variety of choice to the customers. He relives the consumers of maintaining large quantity of goods for future period because he himself holds large stock of goods. He develops personal relationship with the customers by giving them credit. he provides free-home delivery service to the customers. He informs the new product to the customers. he makes arrangement for replacement of goods when he receive complaints. To Wholesaler:

1. 2. 3. 4. 5.

He gives valuable market information with regard to taste, fashion and demand for the goods to the wholesaler. The retailer maintains direct contact with the customers and so he relieves the wholesaler with regard to maintenance of direct contact. He helps the wholesaler in getting their goods distributed to the consumer. He is regarded as an important link between the wholesaler and the consumer. He creates demand for the products by displaying the goods to the consumers.

2.6 Types of retailers Retailers are mainly classified into Small-scale and Large-scale retailers. Small scale retailers constitute of second-hand goods dealers, street stall-holders. General shops, Special shops and united stores. The Large-scale retailers constitute the Departmental stores. Mail-Order Houses, Co-operative Stores, Multiple Shops, Chain Stores, Hire Purchase Shops, Super Markets and Fixed-price Shops. 1. Small Scale Retail 2. Large Scale Retail 2.7 Small-scale retail Features 1.

They

normally

of run

Small as

a

sole

– proprietorship

scale (sole

trader)

retailing or

a

partnership

2. The capital is usually small and it is raised from personal saving, borrowed from friends or family or loan from banks 3. Small retailers obtain a great variety of goods in small quantities from wholesaler 4. The sole proprietorship (sole trader) normally serves his customers with the help of some assistants. Therefore, he has the opportunity to get know his regular customers well

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Reasons why Small retailers buy from the Wholesaler 1. Small Capital The small retailer has only a small capital and cannot afford to buy  in bulk from the manufacturer therefore he can only make small orders at a particular time 2. Limited market The small retailers has mainly a regular customers therefore the  markets is only limited to the people living in the area near their shop 3. Small turnover The total sales per month is small. If they buy in bulk, the goods will be laying around and have to pay the rental for storing the goods Furthermore they can go bad in the case of foodstuff or may go out of fashion in the case of goods like clothing and furniture. That why they only needs to pay in small amounts for a great variety of goods produced by the manufacturers. This is exactly what the wholesaler does for them. 4. Need for credit Trade credit is one of the greatest sources of funds for a small retailer. Manufactures are often unwilling to give credit but the wholesalers are willing to give trade to small retailer in order to secure business 5. Variety of goods A wholesaler stocks a great variety of brands of a particulars goods like Lux, Palmolive, Imperial Leather Soap And they also stocks a wide range of related goods, for example, foodstuff and household items

2.8 Large scale retailer The retail trade is conducted now on a large scale. The mass production of goods and the concentration of population in urban centres has necessitated the establishment of large-scale retail trading houses. There are many advantages of retailing on a large scale. However, in spite of the economies of large scale retailing, the small-scale units could not be eliminated because of the various special advantages possessed by them.Some of the more prominent large-scale retail organisations are as follows:  Departmental Stores.  Multiple Shops or Chain Stores.  mail Order Houses.  Super Markets.  Consumer Co-Operative Stores.  Hire-Purchase Trading Houses.  Vending Machines.  One Price Shops.

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1. Departmental Stores A departmental store is a large-scale retail organisation having a number of departments under one roof. Each department specializes in one particular kind of trade. All these departments are centrally organized and are under one united management and control. A departmental store is an organisation of several retail stores carried on in one building and under united controlled management. The basic objective of a departmental store is to provide a large variety or merchandise from a pin to an aero plane at one place. 2. Multiple Shops or Chain Stores A multiple shop system is a network of branch shops, situated at different localities in the city or in different parts of the country, under a centralized management and dealing in similar lines of goods. Such multiple shops are very common and popular in the West and are known as Chain Stores. According to J.L. Fri, Chain stores is a group of stores handling similar lines of merchandise with single ownership and centralized Location.” The Federal Trade commission defined a chain store as “an organisation owing a controlling interest in two or more establishments which sell substantially similar merchandise at retail prices.” 3. Mail Order Sale Houses mail order sale is a retail business where orders are placed by post or mail and goods are received either by registered parcel or V.P.P. i.e., Value Payable Post. Under such a type of selling, the seller advertises his products in the leading dailies and magazines of the area and the intending buyers respond to such advertisements by requesting for catalogues and price lists from the seller. The buyers do not inspect the goods before purchasing but place orders on the basis of the advertisements which they see in the newspapers and magazines. After orders are received from customers, the goods are dispatched by V.P.P. or registered mail. The postman of the buyer’s locality delivers the goods to him and takes the payment for the same. Thus the post office plays a vital role in such a type of sale, and it is because of this type of sale is also sometimes referred to as “Shopping by Post”. 4. Super Markets The super market is a large-scale retail institution specializing in necessaries and convenience goods. They have huge premises and generally deal in food and non-food articles. In the words of M. M. ZIMMERMAN, “A super market is a departmentalized retail establishment having four basic departments viz, self-service grocery, meat produce diary products plus other household departments, doing a maximum business. It may be entirely owner- operated or have some of the departments leased out on a concession basis.” Super markets came into existence in the USA during the Great Depression of the thirties. However, the original super markets were established by independent merchants who dealt mainly in food products. 5. Consumer Co-Operative Stores A consumer co-operative is a retail business which is owned by the consumers the...