Commerce

Definition: Commerce refers to the well organized set up of large-scale interchange of products, service or something of value, for money or money’s worth, among the economic agents. It covers all the activities which directly or indirectly assist in the process of exchange.

Basically, it is concerned with the distribution aspect of the business. It relies on the fact that everything that is produced, must be consumed. In this way, ‘commerce’ comes into the picture, to facilitate effective and uninterrupted buying and selling of goods and services.

Characteristics of Commerce

Commerce is a subset of business and not a synonym. Come let’s talk about its characteristics:

  • Commerce provides the necessary link amidst the producers of goods and consumers of goods.
  • It is known for the exchange of goods and services for adequate consideration.
  • Commerce covers the services delivered by various organizations, to facilitate the free flow of goods and services.
  • It removes all the barriers, as to person, place, time, risk, knowledge, finance, etc. in the process of exchange.
  • Profit acts as an incentive for carrying out commercial activity.
  • It tends to create utility.

Classification of Commerce

Commerce can be classified into two categories:classification-of-commerce

  1. Trade: As we all know that trade is the sale, transfer or exchange of goods and services, for mutual benefit. The person engaged in the trade of goods is termed as a trader, who acts as the middleman between the producer and consumer of goods. It is further subdivided into two categories:
    • Internal Trade: When buying and selling of goods and services is undertaken within the geographical boundaries of the country, as well as the consideration is paid in the country’s legal currency or by way of banks and the transportation system of the country is used, for supplying the goods and services.
      • Wholesale: In wholesale trade, the goods are bought in large quantities from the producers and the sold to a number of retailers.
      • Retail: In retail trade, the retailer purchases goods from the wholesaler for the purpose of reselling them to the consumers in small lots, for a profit.
    • External Trade: When the purchase and sale of goods and services take place between two countries, it is called as external trade. It can be classified into three categories:
      • Import: When goods are purchased from a foreign country, it is called as an import.
      • Export: When goods are sold to a foreign country, it is called export.
      • Entrepot: Entrepot trade means re-export, i.e. goods imported from a foreign country, not for domestic consumption but for selling it further to another country.
  2. Auxiliaries to Trade: Auxiliaries to trade covers all those activities which help in the efficient flow of commercial activities. There are various hindrances in undertaking trade. Auxiliaries to trade help in eliminating those hindrances:
    • Transportation: Transportation activities facilitate in the removal of the hindrance of place, as goods are produced in a specific location only, while they are demanded in varied locations. Hence, these goods need to be moved from their place of origin to the place of consumption.
    • Warehousing: Warehousing involves safe storage of the goods, which facilitates the removal of the hindrance of time.

      There are a number of goods which are produced in specific seasons, for instance, cotton, juice, sugar etc. However, they are needed throughout the year, on a daily basis for different purposes and then there are some goods which are needed season-wise such as woollen clothes, umbrellas, etc.

      Hence, warehousing provides proper storage for such produce.

    • Banking: Banking helps in providing financial assistance to the enterprise, i.e. it removes the hindrance of finance.

      We all know that goods are not purchased at the same time when they are produced, and so there is a time-gap between the production and consumption of goods. And during this period, the entrepreneurs require funds to finance production. Therefore, banks help in raising funds.

    • Insurance: We all know that there is always a risk involved in the transportation of goods and services from one place to another. With the insurance, the risk of theft or fire can be removed and the organization can be free from the fear of loss during transit.
    • Advertising: Until and unless firms advertise their goods and services in the market, customers may not be aware of the goods available. Hence, advertising facilitates the removal of the hindrance of information/knowledge.

      Advertisement is the best tool for making people aware of the goods and services, with just one message, that communicates its features and usefulness, through various channels, such as radio, television, internet, newspaper, etc.

    • Communication: The goods and services provided by different organizations are required to be communicated among the buyers. In the same way, goods and services needed or desired by the buyers have to be conveyed to the sellers, by way of orders.

In layman terms, commerce is not just about the exchange of goods and services, rather it includes all such activities which are essential to bringing goods and services from the point of origin to the point of consumption.

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