Chapter – 1

Trade and commerce

Definitions
1. Trade – the buying and selling of goods and services to earn a profit.
2. Goods – tangible products that have a physical presence and can be touched.
3. Services – intangible products with no physical identity. They cannot be
stored for later use and cannot be sensed through touch.
4. Profit – the amount of money that a business earns. It is calculated by
subtracting the money it has spent from the total income.
5. Bartering – the exchange of goods and services without money.
6. Commerce – supporting the exchange of goods and services and providing
services to make the process of exchange more efficient.
7. Home trade – the buying and selling of goods and services within the
boundaries of a country.
8. Currency – a country’s system of money used to buy and sell goods and
services.
9. Transport – the movement of goods, raw materials, equipment and people
from one place to another.
[Link] – the buying and selling of goods and services over the internet.
[Link] – a person or business that buys product in large quantities from
suppliers and sell them to retailers or other businesses in smaller quantities.
[Link] – a person or business who buys products from a manufacturer or
wholesaler to sell on to consumers.
[Link] channel – the path that the product takes from the initial
producer to the final consumer.
[Link] – the business who manufactures the product.
[Link] – the producer of the product.
[Link] – the final user of the product.
[Link] – a mobile salesperson who carrries the goods they sell using a cart
or the back of an animal.
[Link] – a mobile salesperson who carries the goods they sell door to door
on their own head or back.
[Link] – a small structure with one or more open sides from which items are
sold, such as newspapers, tickets or refreshments.
[Link] shop – a small outlet located within another building, such as school,
that sells a limited range of goods, such as refreshments.
[Link] auction website – where items are sold by auction over the internet.
Sellers present the goods for sale on the online auction website, and
individuals can bid the price for which they would purchase the product. The
product is usually sold to the person who offers the highest bid to buy.
[Link] media – online communication channels, such as facebook, that allow
users to create, share and exchange information, pictures and videos.
[Link] – the selling of goods and services over the telephone.
[Link] trade – the buying and selling of goods and services outside of
the home country to make a profit.
[Link] – a good or services produced in one country but bought by a
customer in another country.
[Link] – a good or service produced in one country and sold to a customer
based in another country.
[Link] – a business that imports goods and services.
[Link] – a business that exports goods and services.
[Link] barrier – a restriction imposed by the government of a country to
control international trade.
[Link] – the process of making a good or service.
[Link] to trade – commercial services that support trade.
[Link] – a type of promotion to consumers informing or persuading
them to buy a particular product, service or brand.
[Link] transfer – method of payment allowing the direct transfer of
money using electronic means without the need of paper based or face-to-
face transactions.
[Link] teller machine (ATM) – a machine that can be used to access
some banking services, such as withdrawing cash, using a bank card
changing a PIN.
[Link] – the money put into a business so that it can function.
[Link] – borrowing of a set amount of money to be paid back to the lender in
an agreed amount of time.
 [Link] – a type of loan used to buy land or property where the loan is
secured against the property.
[Link] – a way of spreading risk among a group of people or
organisations who contribute to a pool or common fund. People obtain
financial protection against losses that result from the occurrence of risks
such as fire.
[Link] liability insurance – insurance that protects a business against claims
made by members of the public.
[Link] – the functional area that plans and fulfils the efficient
transportation and storage of goods from the manufacturer/warehouse to the
customer.
[Link] chain – a network of businesses and/or people who support the
production of a product and delivering it to the consumer.
[Link] – a large building used to store raw materials or finished
products ready for distribution for sale.
[Link] – the buying and selling of goods and services using mobile
technology.
[Link] – the buying and selling of goods and services using social
media channels. The term is short for social commerce.
[Link] commerce – the buying and selling of goods and services at a
physical location.
Trade and commerce compared
Commerce focuses on supporting the exchange of goods and services. Commerce
is about providing services to make the exchange of goods and services more
efficient. These services improve the distribution of goods and services. They
enable the right goods to be in the right place, at the right time, at the right price.
Home trade
Home trade pertains to the buying and selling of goods and services within the
boundaries of one country. The buyer and seller are located in the same country
and the products are sold and purchased in local currency. For example – a seller
based in Florida sells goods to a customer in New York, the customer pays the
seller for the goods in US Dollar. This avoids the needs to exchange currency.
Home trade usually supports personal relations between the business and
customers as the owner is likely to have a good knowledge of the market. Methods
of transport are likely to be road, rail or occasionally air.
The growth of ecommerce has broken down the geographical restrictions that
prevented many businesses operating outside their local area. Ecommerce involves
the buying and selling of goods and services over the internet or through a website.
Wholesalers play an important role in the distribution channel for many products.
The distribution channel is the path that a product takes from the initial producer/
manufacturers to the final customer. The distribution channel varies according to
the product and manufacturer’s choices, however, wholesaler support the
distribution of many products. The wholesaler is the middle of the distribution
channel between the manufacturer and the final consumer.
Distribution channels focus on the path that the product takes from the initial
producer to the final consumer. The distribution channel could be simple as the
product passes straight from the producer to the consumer. However, some of the
distribution channels are more complex and involve different business such as
wholesalers and retailers which perform services to help the product reach the final
consumer. The distribution channel will form part of the supply chain for the
product.
A retailer buys products from the manufacturer or wholesaler to sell on to the
consumer. The retailer is therefore between the producer or wholesaler and
consumer in the chain of distribution.
Retailers sell products in different ways, including through:
 A physical shop
 Face-to-face methods that do not require a permanent physical building.
 A website
 An online auction website
 Social media
 Telesales
International trade
International trade involves the buying and selling of goods and services outside
the boundaries of the country to make a profit. The seller will be based in one
country and the buyer will be located in another country. The currency used by the
seller and buyer could be different and therefore international trade may be
affected by currency fluctuations. For example, a business in London sells goods to
a customer in New York. The customer has to exchange US Dollars to pound
sterling to pay the seller for the goods.
The method of transport may include road, rail air, sea and pipeline, depending on
the physical distance between the two countries.
They have no investment, i.e., branches, offices or factories, outside the home
country but buy and/or sell products to businesses based in other countries.
Most countries are unable to produce all of the products that they need and so
international trade is important.
A business may import raw materials that are then converted into products by its
operations in the home country. Alternatively, a business may purchase finished
products made in the overseas country, which it then sells to customers in the home
country.
Conversely, a business may sell raw materials and components to customers in
other countries which are then converted into finished products by the customer’s
operations. The business may also produce finished product in its home country
and then sell the complete product to customers in the overseas country.
As an international business has no operations in other countries, it is exposed to a
number of risks, such as trade barriers, that affect profitability. The international
business has no control over any of these factors. However they can influence the
profitability of its trading operations by increasing/ reducing the cost of trade and
the work required.
Increases in trade
Trade has increased greatly over the past 50 years. There are many reasons for the
increase in trade, including:
  Increased living standards. This has led to an increased demand for all
types of products.
 Improved communication, such as the launch of new digital
communication methods. People and businesses can now communicate
with others easily. Geographical boundaries are no longer an issue when
communicating with trade barriers, as it is just as easy to communicate
with people and businesses in other countries as it is with those based in the
home country.
 Improved transport links and transport methods. Goods can be delivered
quicker and in large quantities.
 Mass production and use of the latest technology. This has increased the
output of products, which increases the number of surplus products that a
business produces. The business may therefore seek to increase trade.
Production facilities in countries around the globe benefit from improved
production technology.
 Trade is promoted by many governments to boost the country’s economy.
Aids to trade
Aids to trade are commercial services that support trade. There are many aids to
trade:
1. Communications – communications are important to enable all of the parties
involved in trade to contact each other. Communications are important for
home and international trade, as the buyer and seller need to keep in touch.
The methods of communication may vary and include face-to-face
discussions, emails, SMS/text messages and more.
2. Transport – products need to move from one location to another. The
products may be finished goods, raw materials, components or partially
finished goods. People also need to travel to enable trade, example –
travelling to work. The method of transport can vary depending on the type
of trade but can include road, rail, air, sea and pipeline.
3. Warehousing – warehousing provides storage for goods so they are ready for
when the customer needs them. The goods include raw materials, part-
finished products and finished goods. Other resources, such as machinery or
vehicles, may also need to be stored.
 4. Advertising – advertising is part of marketing and is used to inform and
attract people to buy the product and services. People are less likely to know
about the product if it is not advertised and therefore would not be able to
buy it. There are lots of different advertising methods – both physical and
digital methods. Popular methods include television, radio, print, websites,
social media, vlogs/blogs and online banners.
5. Banking and finance – banking facilities are needed to make and receive
payments for the goods or services bought or sold. Banking facilities are
offered to personal customers and business customers. Payment services can
vary, including depositing notes, cheque payments, electronic transfers and
card payments. The buyer and seller can also access a range of other banking
services by visiting a physical branch, using ATM or using online and
telephone banking.
Banking services can support exchange of money into different currencies
and can offer business banking guidance.
Finance may also be needed to set up and expand trade operations. Finance
is the money put into a business so that it can function. Banks offer a range
of sources of finance including loans and mortgages.
6. Insurance – insurance is a way of spreading risk among a group of people or
organisations who contribute to a pool or common fund. Insurance services
are important to protect the parties against potential losses from trade risks.
The insurance services needed can vary according to the nature of trade but
include cargo insurance, public liability insurance and trade credit insurance.
The meaning of logistics
Logistics is the planning and coordinating of the transportation and storage of
goods throughout the supply chain. A supply chain is the complex logistics system
that includes all of the steps in getting the finished goods or service to the
customer.
Logistics is important in commerce as the seller wishes to deliver the order to the
customer in the most cost-effective way. The lower the cost the greater the
profitability.
The elements of logistics in a supply chain
Most supply chains focus on two stages – production and distribution/logistics. In
the production stage, the raw materials are produced into components or the
finished product by the manufacturer. The number of stages in the production
process depends on the complexity of making the product. Logistics focuses on
moving the product for the customer.
Transport
Transport is essential to all types of business. The supply chain relies on transport
to move goods and resources between the different stages of the supply chain. The
nature of the product or type of commerce will influence the appropriateness of
different types of transport.
Raw materials need to be transported from the point of extraction to the producer
to be converted into products or components. Transport is also used to transfer
components and finished goods from factories to warehouses.
Transport can be divided into three categories:
 Land – road, rail, pipeline
 Water – sea, rivers/canals
 Air
Land – Road is one of the most popular ways of transporting materials and finished
goods. The system of roads can vary greatly. In many countries, most main roads
connecting towns and cities are well maintained with a tarmac surface. However,
very remote rural areas and those with small populations may be connected by dirt
and sand tracks.
Rail is another important part of the transport system in most countries. In landlock
countries such as Switzerland and Bolivia, rail links are a key way of moving
goods from dry ports in other countries.
Pipelines may go over land, be buried underground or laid underwater. Pipelines
are often used to carry liquids, such as water and oil, plus gases and some solids,
such as sand, grain and sugar.
Water – Sea transport is important to transport goods between continents and
islands. Large containers are often used.
Waterways such as canals, rivers and lakes can also be used, especially in countries
such as Canada and the USA. The Nile river has been used to transport goods
through eastern Africa for several thousands of years. Barges, ferries and other
boats are used to transport products from a port at the mouth of a river along to the
location they will be processed or stored.
Air – Air is a swift way of transporting goods between countries and major cities
within a country. However, it is also relatively expensive. Air is used for
transporting specific types of goods, such as perishable goods with a short lifespan,
example – flower, or valuable goods of a small size (example – jewels and stamps).
Freight forwarders
A freight forwarder is a person or business who moves goods for a fee. They
provide the logistical service to support the movement of goods from the seller to
the buyer. These services may be within a country or around the world. There are
many freight forwarders including DHL, UPS and Sinotrans. Freight forwarders
are often used by businesses exporting large volumes of goods or high-value goods
by air or sea. However, some businesses prefer to use a courier if they are
exporting small values.
Freight forwarders typically offer the following services:
 Arranging transport
 Preparing, carrying and completing documentation, such as inspection
certificates.
 Arranging insurance
 Customs clearance
 Unloading of goods
 Arranging payment of freight
 Inventory management
 Packaging or labelling
 Warehousing
 Managing the security of goods
 Logistics – planning the best routes and arranging the tracking of goods
 Negotiating contracts with other organisations involved in the logistics of
the goods.
Warehousing
A warehouse is a large building used to store raw materials or finished products
ready for distribution for sale. They are often found on the edge of towns/ cities or
industrial parks. To support the efficient distribution of products to customers, they
are often near to goods transport links. Warehouses are sometimes called
distribution centers. The warehouse ensures that stock is stored safely and securely.
It protects the products from being damaged by severe weather conditions.
Modern warehouses rely on technology to support stock control and the efficient
movement of goods. Stock management systems support the automatic reordering
of stock, without human intervention. Every time an item leaves the warehouse, the
stock levels are immediately updated so that managers can instantly see what stock
is in the warehouse at any time. These stock management systems are linked to the
retailer so that customers receive accurate data about their orders.
Locating a product in a large warehouse can be challenging so the use of
technology, such as robots to pick the order, is essential.
Types of commerce
Commerce can be delivered via traditional physical or digital/methods. Digital
platforms include ecommerce, mcommerce and scommerce.
Traditional commerce
Traditional commerce is the buying and selling of goods and services at a physical
location.
Traditional ways of selling goods and services include:
 Shops, where the product is sold to customers through a physical shop, eg,
local independent shops, supermarkets or departmental stores.
 Face-to-face, when a salesperson interacts directly with the customer in a
range of possible locations, such as showroom, office, salon, market stall, at
the roadside, etc. services such as hairdressers and banking offer a face-to-
face service.
 Vending machines and other physical self-service facilities.
Physical or traditional ways of selling goods or services are expensive to operate as
the business often has to pay a monthly rent. This can be a very large expense for
the business to have to pay. There also needs to be certain number of employees
within the location at any one time to serve customers efficiently and safely.
Utilities, such as gas and electricity, are required to provide a comfortable selling
environment, which also adds the cost of operating.
A physical presence such as a shop front provides the business with instant
publicity via the signage and window display. Many shops are located on main
streets in towns and cities or in retail centres alongside other retailers, and so
benefit from passing trade in the area generally. Some customers prefer the
experience of traditional commerce as they can enjoy a day out with friends or
family while making their purchases. Many retail centers are developing activities
to enhance the experience, eg, the inclusion of tables and chairs, so people can
socialize while shopping, and street entertainment.
E-commerce
E-commerce involves the buying and selling of goods and services over the
internet or through websites. E-commerce is short for electronic commerce.
E-commerce can be compared with mobile and social commerce, and in this
context, e-commerce transactions take place on a desktop computer or laptop
rather than other devices. Most e-commerce transactions take place via a website
where customers can purchase goods through:
 The business own website (Samsung has an online shop on its own
website, and most banks allow customers to manage their accounts
online).
 A third party-website, such as Amazon, that sells the product on behalf of
the business.
Websites are often the first digital platform launched by a business. Most modern
businesses have a website. Websites can reach a large audience. The internet is
needed to access the website via a web browser. The website can normally be
accessed on a range of devices but a desktop computer or laptop often provides the
user with the best experience due to the amount of information and complexity of
many web pages. Most businesses have introduced other digital access options to
best suit other devices, such as mobile applications to target customers with a
mobile or a tablet.
Businesses can deliver a lot of content on a website, such as contact information,
latest news, product information and blogs, in addition to purchase option. E-
commerce is the term that focuses only on the buying and selling of goods and
services over the website.
M-Commerce
M-commerce is the buying and selling of goods and services through a mobile
device such as tablet or a smartphone. M-commerce is short for mobile commerce.
Many retailers have developed apps to enable customers to buy their goods and
services. For example, fashion retailer H&M operates an app that customers can
use to purchase clothing. M-Commerce is sometimes considered to be a
subcategory of e-commerce. However, its growth and popularity have led many to
consider it has a separate type of commerce. The percentage and share of digital
commerce transactions that take place on a mobile device are growing annually.
Part of this growth is due to the increased ownership of mobile devices.
App users benefit from a simple user-friendly interface. The app interface is
designed especially for the screen size of a mobile device, so using the app can be
easier to navigate than using a mobile browser to purchase goods and services from
the retailer’s website. Users also benefit from touch-enabled interface. An
accelerometer is a tool that tracks different motions, such as shaking, tilting or
rotating the device. Most app interfaces adapt to these changes in motion so that
the screen automatically changes accordingly to the device’s orientation. This
provides users with a pleasant experience.
M-commerce covers:
 In-app purchasing of goods and services
 Mobile banking, i.e., using a mobile device such as a smartphone to carry
out banking activities.
 Marketplace app, such as Amazon.
 Mobile ticketing
 Digital wallets, such as Apple Pay and Google Pay.
Apps are developed for different operating-system requirements, such as iOS and
Android, so that the app is compatible with a range of devices. Apps are not
accessible until they are installed, unlike a website, which is generally accessible to
anyone with an internet access and browser.
Features of apps
 Downloadable onto device – apps are downloaded onto the device. They do
not rely on browsers so can be quicker to use depending on the connection.
Many apps need an internet connection to access all functions.
 Enhanced security – apps can benefit from enhanced security so more
functions can be offered to customers. Example- banks often allow
customers access to additional services via mobile apps compared to those
offered via their websites. However, apps can take longer than a website for
the business to develop due to their complexity, as they require extra
programming. This can increase the cost of the business.
 Simple to upgrade – apps can be upgraded. Businesses push the updates to
users and users download the update at a convenient time.
 Access to downloads – apps can enable digital products to be purchased by
download directly onto the device, which is generally quicker than
downloading from a website. Download is the main way of selling a digital
product. The app can make the product available to customers as a digital
file to download either from its own app or website. The customer must
investigate that the download site is legitimate, as there are many illegal
download sites that can result in a computer virus or the customer being
hacked.
S Commerce
S Commerce is short for social commerce. S Commerce is the buying and selling
of goods and services using social media channels. Instagram shopping, which is
linked directly to a business’s Facebook Shop. The business can then sell products
to customers via their Instagram account. The whole process, from seeing the
product, researching its features and making the purchase, take place on social
media platforms.
Social media channels can normally be accessed through links found on a
share news and details of promotions via the social media account.
Potential customers may see products on their Instagram feed and can select the
‘shop now’ option to purchase. This enables customers to make a purchase without
leaving the app.
S Commerce allows sellers to target customers more specifically, as different
platforms tend to be used by different customer groups. S Commerce also allows
more social interaction than E Commerce. Social media users can contribute easily
by offering likes, reviews user ratings and referrals, and by sharing with other
users.
Multi – channel commerce
What is convenient for one customer to access may not be convenient for another,
so, many businesses offer customers a variety of ways (or multiple channels) to
purchase its products.
Each type of commerce has relative advantages and disadvantages, so by using
multiple channels the business is able to overcome any relative disadvantages.
They can also appeal to diverse types of customers as certain market segments are
likely to prefer each type.
Advantages and disadvantages of Traditional Commerce
Advantages
1. face-to-face contact builds customer trust.
2. Customers can see or try the product they are buying
3. Sales staff can demonstrate the features and of a product.
4. It can be a social experience.
Disadvantages
1. It can be more expensive than selling online, as, businesses have to pay
utilities, rent/mortgage and more staff wages.
2. Customers have to travel to a shop, which takes time and may cause
problems with parking.
3. Opening hours can be limited.
Advantages and disadvantages of E Commerce
Advantages
1. Reduces costs, such as rent, as businesses do not need physical premises.
2. Prices online may be lower due to the lower operating costs. Some retailers
offer cheaper prices for ecommerce customers compared to those buying
from a shop.
3. Customers can shop at any time of the day or night.
Disadvantages
1. The development costs of creating an ecommerce website could be high.
2. It is not as easy for the customer to speak directly to the business, e.g., if
they have any queries about the product or need to make a complaint.
3. Not all customers have access to the internet.
Advantages and disadvantages of M Commerce
Advantages
1. Reduces costs, such as rent, as businesses do not need physical premises.
2. The app can be upgraded easily to fix bugs and offer new services/features.
3. The app can be personalised to the customer.
Disadvantages
1. The development costs of creating an app can be high.
2. Mobile-technology changes rapidly so the business needs to regularly
upgrade its app.
3. Not all customers have access to a mobile device, or the app may not be
compatible with the device's operating system (especially if the customer has
an older model device).
Advantages and disadvantages of S Commerce
Advantages
1. There are fewer development costs than having to create a website or app.
2. A business can target specific market segments according to the social media
platform selected.
3. Users can share content and reviews (more user interaction).
Disadvantages
1. Customers may leave inaccurate/misleading reviews, which may go viral.
2. There is a large range of different social media platforms, so managing
scommerce may be challenging.
3. Not all customers use social media.
The relationship between production, trade and commerce
Production, trade and commerce are interdependent. This means that each one is
dependent on the others. Each element relies on services and functions from the
others in order to provide an efficient service for the customer. Production is the
process of making the good or service. Trade and commerce cannot take place until
the good or service is produced.
Commerce helps businesses operating in the supply chain before, during and
following production via the purchase of materials and the sale of the finished
goods. Payments must be made as the product flows through the supply chain.
Distribution is essential to ensure that the goods and services produced reach the
customer. Trade, i.e., the buying and selling of goods and/or services, supports all
the businesses in the supply chain. Key businesses provide the goods and services
for distribution, which enables trade and commerce to operate and develop.