chapter 1/ commerce
What is commerce?
Commerce is study related to distribution of products from the producer (point of production) to the consumer (point of consumption).
Products, Production, Producer and Consumers
Products are the goods and services produced by a company, to satisfy needs and wants of customers.
Production is any activity which serves to satisfy human needs and wants.
Producer is a person or company who produces products to satisfy need and wants.
Consumers are the ultimate users of goods and services produced.
Creation of Utility
Utility of form: Any activity that changes the form of a product so that it becomes more useful to the consumer for example conversion of wood into more useful furniture.
Utility of place: Any activity that transfers the goods or services to a location which is within easier assess to the consumer, for example transfer of goods from far off factories to nearby retail shops.
Utility of time: Any activity that causes the availability of a product on time when it is needed, for example availability of wheat throughout the year.
Needs and Wants
Needs are the things necessary for living, that is food, shelter and clothing.
Wants are those goods and services which are not compulsory for living but makes life easier. Specialization/Division of Labour
Specialization or Division of Labour is breaking down of a productive activity into simpler tasks so that a person specialist in that task can perform it.
Advantages of Specialization
Concentration on work increases. Increased out put per worke, Less time , Mechanization can occur. Saving of tools and equipment. Mass production ,Economy of scale can be achieved (low average cost of product).
Disadvantages of Specialization Work becomes boring. Interdependency increases, Demotivated staff.,Standardized output, choice of customers decreases. Machinery replaces labor.
Forms of Specialization
Specialization at country level occurs when a certain country devotes itself mainly to produce certain products which it exports to other countries.
Specialization at region level occurs when a particular region in a country devotes its self in producing certain types of products, which is used by all the country.
Specialization at town level occurs when a particular city in a country devotes its self in producing certain types of products, which is used by all the country.
Specialization at firm level occurs when a firm is divided into departments and within departments individual workers have their own specialized duty.
Branches of production
Branches of Production
Note: Production is completed only when goods reach point of consumption
First Stage of production. Primary production is obtaining raw materials or food from nature.
Includes Extractive Industries for example mining, quarrying.
Includes Genetic Industries for example farming, forestry and fishing.
Products are in unusable state, so they are moved to secondary stage of production.
Secondary Production Second Stage of Production. Secondary production is making goods from raw materials.Includes Manufacturing, Processing and Constructing.
Direct Personal Services
Provision of personal services directly to the consumer without anyone else involved
Tertiary Production -Third (last) Stage of Production. It assists industry to function, by providing commercial services and direc personal services.
All services which are related to distribution of goods and services from producers to customers for example communication, finance, insurance, retailers and wholesalers.
Location of Production Units/ commerce
Location of Production Units
Climate: A farmer must ensure that crop is planted to a area where climatic conditions allow the production of that crop for example temperature and rainfall.
Nature of land: A farmer must select land which is flat and fertile.
Access to markets: A farmer must have a farm near to the market or customers, because most of agricultural products are perishable (for example sugar cane). There should be efficient and cheap transportation system available.
Labor: Without labor it would be very difficult to carry out the production.
Transport: Factory must be located where cheap and efficient transport facilities are avPower source: Factories are set up where there is cheap and adequate supply of electrical power.available.
Labor: Both skilled and unskilled labor should be present.
Government policies: Government may provide certain very attractive incentives for factories for example in rural areas to provide jobs to the people.earness to market: Factory should be near its customers to avoid high
How are manufacturing and tertiary activities inte
Unless there were tertiary activities finished goods would not be sold because there would not be any advertising, no finance to build factories, no storage facility, no transport to the retailer/wholesaler and no communication between buyer and seller.
Manufacturing is concerned with producing goods from raw materials, tertiary activities are concerned with the distribution of finished goods from the factory to the final consumer.
Manufacturing would not be able to take place as goods would be stockpiled and so it is dependent on tertiary activities to get the goods to the right person at the right time.
As manufacturing becomes more specialized, the manufacturer will become more dependent on others to provide tertiary services.
The manufacturer may set up some of the tertiary activities himself – advertise, have warehouses, have his own transport he may also have his own retail outlet, e.g. factory shop but usually he sells to wholesaler or retailer.
Tertiary activities are also concerned with trading in services, advertising and communicating these services and so is not entirely inter-related with manufacturing.
The manufacturer will need to insure the factory/its contents against risk, e.g. public liability, employer’s liability
TYpese of trade/ commerce
Types of Trade
Home Trade is buying and selling of goods and services within international boundaries. Foreign Trade is buying and selling of goods and services across the globe.
Aids to Trade
Services which are required to facilitate trade.
Banking Provides Finance and Services.
Transport Without means of transportation it is impossible to trade.
Communication To transmit and receive information quickly.
Insurance Absorbs some of the risks in production and trade.
Warehousing Provides storage facilities
Comparison of Home Trade and Foreign Trade/commerc
Buying and selling of goods for making profit.
Serve mankind by satisfying needs and wants. Requires aids to trade.
Require surplus to be created.
Dissimilarities between Home Trade and Foreign Tra
Done within national boundaries
Same currency is involved. No taxes are involved. Same culture and language. Mode of Payment is cash, cheque etc
Done across the globe, Different currencies are involved. Different government policies.
import/Export taxes are involved ,Mode of payment is online transfer, bill of exchange etc
The Retail Trade/ commerce
Home trade consists of buying and selling of goods with the aim of making profit among people of the same country. Home trade can be divided into wholesale trade and retail trade.
Wholesale trade deals with the bulk buying of goods from various manufacturers and the breaking down of this bulk into smaller quantities which is then sold to the retailer. Wholesaler is a intermediary distributer.
Retail trade deals with the buying of goods in small quantities from the wholesaler and selling of goods in yet smaller quantities to the final consumer. A Retailer is a intermediary distributer.
Channel of Distribution
This is the way in which goods are delivered from the producer to the customer.
Channel of distribution ends when goods are delivered to the point of consumption
Ends when the form of good is changed
Different Channels of Distribution
Producer to the consumer
Expensive, technical, perishable, exclusively made for one customer.
Producer to retailer to consumer
Large scale retailer, producer’s own outlet, suitable for perishable items for example bakery.
Producer to wholesaler to retailer to consumer
Standardized, consumer items, low value and high shelf life, suitable when demand of products are seasonal or the production is seasonal.
Producer to agent to wholesaler to retailer to consumer
Only incase of international trade. Overseas producer appoints a agent in home market. For example imported cars and cosmetics
Factors affecting choice of Channel of Distributions
Can producer open his own retail outlets?
Exclusive distribution (distribution at certain shops) Extensive distribution (distribution at every shop)
Type of customer
Own use: from retailer Business use: from produce
Size of order Small: from retailer Large: from producer,/Nature of product Perishable: small channel Long shelf life: long channel/
Value of product Expensive: small channel Cheap: long channel
Size of market Small: small channel Large: long channel/ Nature of market Home or International
Functions of Retailer
Always looking for good source of supply.
eals with complaints from customers.
Offers variety of goods from different producers.
Further bulk breaking, and selling in smaller quantities.
Large Scale Retailers
Purchase from the producer in bulk
involve a lot of capital.
Arrange transportation from the producer.
Employ specialist staff.
Types of Large Scale Retailers
Multiple Shops -Same product line is sold through all the shops./Losses in one store may be offset by profits in another.Stock is bought centrally / Prices are clearly marked./ Goods are usually on open display
Department Store- Many departments or specialist shops in one building, located in the centre of the city./ Each department specializes in particular line of goods/ Main aim is to provide complete range of goods under one roof/ Prices are clearly marked..
Variety chain store- Contains features of both multiple shops and department store./Offers variety of goods, with similar looking outlets spread all over the country./
Sells by self-service, goods openly displayed and prices clearly marked.
Super market- Big department store, specialized in selling kitchen related and daily household goods. Offers self-service.High Rate of turnover.
Hyper Market-Are very large supermarket/ Sited outsides large towns/ Offers low prices, as they buy in bulk.
Mail order business sells under money back guarantee. / Goods are ordered by mail, e-mail or telephone/ Orders accepted either by C.O.D.(cash on delivery) or C.W.O. (cash with order)by credit card./ It can make use of inexpensive premises e.g. warehouse rather than use shop premises in a busy street.