CHAPTER-9

INTERNAL TRADE
 INTERNAL TRADE

Buying and selling of goods and services within the boundaries of a

nation are referred to as internal trade. Both buyer and seller belong to
the same country.

Examples of Internal trade:

When products are purchased from a neighbourhood shop in a locality or a
central market or a departmental store etc.
No custom duty or import duty is levied on such trade as goods are part of
domestic production and are meant for domestic consumption.
 Types of Internal Trade
Internal trade can be classified into two broad categories
viz., (i) wholesale trade and (ii) retail trade.
 I. Wholesale trade

Purchase and sale of goods and services in large quantities is referred to as

wholesale trade. A wholesaler buys goods of specific lines in huge quantities
from the manufacturers, stores it in the large godowns and sells them in
small quantities to the retailers.
• Wholesalers serve as an important link between manufacturers and
retailers.
• They undertake various activities such as grading of products, packing
into smaller lots, storage, transportation, promotion of goods, collection
of market information, collection of small and scattered orders of
retailers and distribution of supplies to them.
 II. Retail trade
Purchase and sale of goods in relatively small quantities, generally to the
ultimate consumers, is referred to as retail trade.
A retailer is a business enterprise that is engaged in the sale of goods and
services directly to the ultimate consumers.
The retailer normally buys goods in large quantities from the wholesalers and
sells them in small quantities to the ultimate consumers.
 Differentiate between Wholesalers and Retailers.
Basis Wholesaler Retailer

1. Scale of Operations Deals in large quantities and on a Deals in small quantities and
large scale. on a small scale.
2. Number of items Handles a large number of
Handles a small number of items.
items.

First outlet in the chain of The second outlet in the chain

3. Trade Channel
distribution of distribution

Sells to retailers and industrial Sells directly to customers for

4. Customers
users. final consumption.

Receives goods from

Receives goods from
5. Supplies wholesalers and sometimes,
manufacturers/producers.
from the manufacturers.

Wholesalers serve as an Retailers serve as an important

6. Link important link between link between wholesalers and
manufacturers and retailers ultimate consumers.
 Services Rendered by a Wholesaler
Wholesalers provide various services to manufacturers as well as
retailers and provide immense help in the distribution of goods and services.
I. Services to Manufacturers
Major services offered by wholesalers to the producers of goods and services are given as
below:
[Link] large scale production: Wholesalers collect small orders from a number of
retailers and pass on the pool of such orders to the manufacturers and make purchases in
bulk quantities. This enables the producers to undertake production on a large scale and take
advantage of the economies of scale.

[Link] risk: Wholesalers deal in goods in their own name, take delivery of the goods and
keep the goods purchased in large lots in their warehouses. In the process, they bear variety
of risks such as the risk of fall in prices, theft, pilferage, spoilage, fire, etc.
 [Link] assistance: The wholesalers provide financial assistance to the manufacturers in
the sense that they generally make cash payment for the goods purchased by them. Sometimes
they also advance money to the producers for bulk orders placed by them.

4. Expert advice: Wholesalers advice the manufacturers about customers’ tastes and
preferences, market conditions, competitive activities and the features preferred by the buyers.
5. Help in marketing function: The wholesalers take care of the distribution of goods to a
number of retailers who, in turn, sell these goods to a large number of customers spread over
a large geographical area. This relieves the manufacturers from many of the marketing
activities and enable them to concentrate on the production activity

6. Facilitate production continuity: The wholesalers facilitate continuity of production

activity throughout the year by purchasing the goods as and when these are produced and
storing them till the time these are demanded by retailers or consumers in the market.

7. Storage: Wholesalers take delivery of goods when these are produced in factory and keep
them in their godowns/warehouses. This reduces the burden of manufacturers of providing for
storage facilities for the finished products. They thus provide time utility.
 [Link] to Retailers
The important services offered by manufacturers to the retailers are described as
below:
1. Availability of goods: The wholesalers make the products of various manufacturers
readily available to the retailers. This relieves the retailers of the work of collecting goods
from several producers and keeping big inventory of the same.

2. Marketing support: The wholesalers perform various marketing functions and provide
support to the retailers. They undertake advertising and other sales promotional activities
to induce customers to purchase the goods. The retailers are benefited as it helps them in
increasing the demand for various new products.

3. Grant of credit: The wholesalers generally extend credit facilities to their regular
retailers. This enables the retailers to manage their business with relatively small
amount of working capital.
4. Specialised knowledge: The wholesalers pass on the benefit of their specialised
knowledge to the retailers. They inform the retailers about the new products,
their uses, quality, prices, etc. They may also advise them on the decor of the
retail outlet, allocation of shelf space and demonstration of certain products.

5. Risk sharing: The wholesalers purchase in bulk and sell in relatively small
quantities to the retailers. Being able to purchase merchandise in smaller
quantities, retailers are in a position to avoid the risk of storage, pilferage,
obsolescence, reduction in prices and demand fluctuations.
 Services of Retailers
Retailers serve as an important link between the producers and final consumers in the
distribution of products and services. They provide useful services to the consumers,
wholesalers and manufacturers. Some of the important services of retailers are described as
:
I. Services to Manufacturers and Wholesalers-
The invaluable services that the retailers render to the wholesalers and producers are given
as here under:
1. Help in distribution of goods: A retailer's most important service to the wholesalers and
manufacturers is to provide help in the distribution of their products by making these
available to the final consumers, who may be scattered over a large geographic area. They
provide place utility.

2. Personal selling: By undertaking personal selling efforts, the retailers relieve the
producers of this activity and greatly help them in the process of actualising the sale of the
products.
3. Enabling large-scale operations: On account of retailer's services, the
manufacturers and wholesalers are freed from the trouble of making individual sales
to consumers in small quantities. This enables them to operate on, at relatively large
scale, and thereby fully concentrate on their other activities.

4. Collecting market information: As retailers remain in direct and constant touch

with the buyers, they serve as an important source of collecting market information
about the tastes, preferences and attitudes of customers

5. Help in promotion: From time-to-time, manufacturers and distributors have to

carry on various promotional activities in order to increase the sale of their
products. For example, they have to advertise their products and offer short-term
incentives in the form of coupons, free gifts, sales contests, and so on. Retailers
participate in these activities in various ways and, thereby, help in promoting the
sale of the products.
 II. Services to Consumers

Some of the important services of retailers from the point of view of consumers are as
follows:
1. Regular availability of products: The most important service of a retailer to consumers
is to maintain regular availability of various products produced by different manufacturers.
This enables the buyers to buy products as and when needed.

[Link] products information: By arranging for effective display of products and through
their personal selling efforts, retailers provide important information about the arrival,
special features, etc., of new products to the customers.

3. Convenience in buying: Retailers generally buy goods in large quantities and sell these
in small quantities, according to the requirements of their customers. Also, they are
normally situated very near to the residential areas and remain open for long hours. This
offers great convenience to the customers in buying products of their requirements.
4. Wide selection: Retailers generally keep stock of a variety of products of different
manufacturers. This enables the consumers to make their choice out of a wide selection of
goods.

5. After-sales services: Retailers provide important after-sales services in the form of home
delivery, supply of spare parts and attending to customers.

6. Provide credit facilities: The retailers sometimes provide credit facilities to their regular
buyers.
 TYPES OF
RETAILING
TRADE

(I) Itinerant (II) Fixed shop

Retailers retailers
 I. Itinerant Retailers
Itinerant Retailers are those traders who keep on moving from place to place to
sell their goods. They do not have a fixed place of business to operate from.
Main features of Itinerant Retailers are:
● They are small traders operating with limited resources.
● They normally deal in consumer products of daily use.
● They mostly sell goods on a cash basis.
● They operate with a very small amount of capital.
● They generally sell goods at prices lower than charged by fixed shop
retailers.
● They provide greater service to customers by making the products available
to their doorsteps.
Eg:
* Hawkers & Peddlers * Market Traders
* Street Traders * Cheap Jacks
 II. Fixed Shop Retailers
•These are retail shops who maintain permanent establishment to sell their
merchandise.
•They, therefore, do not move from place to place to serve their customers.

1) Small shop-keepers 2) Large retailers

• General stores • Departmental stores

• Speciality shops • Chain Stores / Multiple
• Street stall holders Shops

• Secondhand goods shop

 1) Fixed shop — Small Stores

Small scale fixed retailers are the most common form of retailers. They are mostly
situated in localities to fulfill the needs of people residing in local areas.

• General stores
• Speciality shops
• Street stall holders
• Second hand goods shop
 2) Fixed shop — Large stores

Large scale fixed retailers operate on large scale as they maintain large stock
of goods and purchase of goods in bulk.

i) ii)
Departmental Chain Stores OR
Stores Multiple Shops
 i) Departmental Stores

•A departmental store is a large establishment offering a wide variety of

products, aimed at satisfying every customer’s need under one roof.
(‘needle to an aeroplane’)

•It has a number of departments, each one confining its activities to one
kind of product.

•For example, there may be separate departments for toiletries,

medicines, furniture, groceries, electronics, clothing and dress material.
* Ex: Shoppers Stop, Lifestyle, D-Mart,
 Features
1) Facilities: A modern departmental store may provide all facilities such as restaurant, travel
and information bureau, telephone booth, restrooms, etc.
2) Higher class of customers: They try to provide maximum service to higher class of
customers for whom price is of secondary importance.
3) Central place: These stores are generally located at a central place in the heart of a city,
which caters to a large number of customers.
4) Formation: As the size of these stores is very large, they are generally formed as a joint
stock company managed by a board of directors.
5) Eliminates Middlemen: A departmental store combines both the functions of retailing as
well as warehousing. They purchase directly from manufacturers and operate separate
warehouses. That way they help in eliminating undesirable middlemen between the
producers and the customers.
6) Centralised Purchasing BUT Decentralised Selling: They have centralised purchasing
arrangements. All the purchases in a department store are made centrally by the purchase
department of the store, whereas sales are decentralised in different Departments.
 2. Chain Stores or Multiple Shops

•Chain stores or multiple shops are networks of retail shops that are
owned and operated by manufacturers or intermediaries.

•A number of shops with similar appearance are established in

localities, spread over different parts of the country.

•These shops normally deal in standardised and branded consumer

products.
•Eg: Titan, Domino's and McDonald's, Bata
 Features
1) Location: These shops are located in fairly populous localities, where sufficient number of
customers can be approached.
2) Centralised purchasing or manufacturing: There is centralised purchasing or
manufacturing of merchandise for all the retail units at the head office, from where the goods
are despatched to each of these shops according to their requirements. (savings in the cost)
3) Supervision: Each retail shop is under the direct supervision of a Branch Manager, who is
held responsible for its day to-day management.
4) Controlled by the Head Office: All the branches are controlled by the head office, which is
concerned with formulating the policies and getting them implemented;
5) Fixed Prices & Cash Sales: The prices of goods are fixed and all sales are made on cash
basis. The cash realised is deposited daily into a local bank account on behalf of the head
office.
6) Inspection: The head office normally appoints inspectors, who are concerned with day-to-day
supervision of the shops, in respect of quality of customer service provided, adherence to the
policies.
 Departmental stores Multiple shops

1. Location: located at a central place, located at a number of places for

where a large number of approaching a large number of
customers can be attracted to customers.
it.

2. Range of satisfying all the needs of satisfy the requirements of

products: customers under one roof. As customers relating to a specified
such, they have to carry a range of their products only.
variety of products of different
types.

3. Services maximum service to their provide very limited service

offered: customers. Some of the confined to guarantees and repairs
services, provided by them if the sold out goods turn out to be
include alteration of garments, defective.
restaurant and so on.
 Departmental stores Multiple shops

4. Pricing: do not have uniform pricing sell goods at fixed prices and
policy for all the departments; maintain uniform pricing policies for
rather they have to occasionally all the shops.
offer discounts on certain
products and varieties to clear
their stock.

5. Class of cater to the needs of relatively cater to different types of customers,

customers: high income group of customers including those belonging to the lower
who care more for the services income groups, who are interested in
provided rather than the prices of buying quality goods at reasonable
the product. prices.
 Departmental stores Multiple shops

6. Credit the departmental stores may All sales in the multiple shops are
facilities: provide credit facilities to some of made strictly on cash basis.
their regular customers.

7. Flexibility: As the departmental stores deal there is not much scope for flexibility
in a wide variety of products, in the chain stores, which deal only in
they have certain flexibility in limited line of products.
respect of the line of goods
marketed.
 Mail Order Houses
- Mail order houses are the retail outlets that sell their merchandise through mail.
- There is generally no direct personal contact between the buyers and the sellers
in this type of trading.
- For obtaining orders, potential customers are approached through
advertisements in newspapers or Magazines and price lists sent to them by post.
- On receiving the orders, the items are carefully scrutinised with respect to the
specifications asked for by the buyers and are complied with through the post
office.

Alternatives for receiving payments.

1) The customers may be asked to make full payment in advance.
2) The goods may be sent by Value Payable Post (VPP)- the goods are sent
through post and are delivered to the customers only on making full payment for
the same.
3) The goods may be sent through a bank, which is instructed to deliver the articles
to the customers.
Suitability
(i) graded and standardised,
(ii) easily transported at low cost,
(iii) have ready demand in the market,
(iv) are available in large quantity throughout the year,
(v) involve least possible competition in the market and
(vi) can be described through pictures etc.

Not suitable
Goods that are perishable in nature or are bulky and cannot be easily handled, are
not recommended for mail-house trading.
 Goods and Services Tax

● ‘One Nation and One Tax’

● Country implemented the Goods and Services Tax (GST) from July 1, 2017.
● GST is a destination-based single tax on the supply of goods and services from
the manufacturer to the consumer,
● With the implementation of GST, luxury goods have become costlier, while items
of mass consumption have become cheaper.
● GST is not taxation at source. It is a destination tax or rather it’s a consumption
tax.
● Exports and supplies to SEZ are zero-rated.
● Chairperson: Finance Minister.
● There are various modes of payment of tax available to the tax payer, including
internet banking, debit/credit card and National Electronic Funds Transfer
(NEFT) or Real Time Gross Settlement (RTGS)