Trade and Commerce
The buying and selling of goods and
services is called trade. Trade can be
classified into home trade (the buying and selling of goods between two countries).
Home trade includes wholesale (= vendita all’ingrosso) and retail trade (= vendita al dettaglio), whereas foreign trade is split into export and import.
The term ‘trade’ can also be used to indicate the people or organisations that do
business in the same kind of product, for example ‘the car trade’, ‘the book trade’, etc.
Commerce is a more general term: it is used to describe trade and all the other business activities and services which make trade possible, e.g. banking,
insurance, transport and advertising.
The channels of distribution
The traditional channel of distribution
describes how a product passes from the manufacturer to the consumer.
The Distribution Channel
Chain of intermediaries, each passing the product down the chain to the next organization, before it finally reaches the consumer or end-user.
This process is known as the 'distribution chain' or the 'channel.' Each of the elements in these
chains will have their own specific needs, which the producer must take into account, along with those of the all-important end-user.
manufacturer
A manufacturer takes the materials
extracted or produced by a producer (raw materials) and transforms them into semi- finished or finished products.
wholesaler
A wholesaler buys in large quantities from manufacturers and sells them in smaller quantities to retailers.
retailer
A retailer sells goods in small quantities to individual consumers. Examples of
retailers are shop, supermarkets,
department stores or discount stores.
However, nowadays the Internet and e-
commerce applications and technologies offer companies new and challenging
distribution channels.
Through the Internet, suppliers can
advertise and promote their products and service, give all information necessary for a transaction like prices, method of
payment, delivery etc., and enable
customers to get what they want from their computer.
Levels of distribution
This is the traditional channel of distribution:
manufacturer wholesaler retailer consumer
However, different channels are in existence:
manufacturer wholesaler
consumer
manufacturer retailer
consumer
manufacturer consumer
business transaction
Definition (Business Dictionary. com)
Economic activity or event that initiates the accounting process of recording it in the
firm’s accounting system.
The business transaction
For a business transaction to take place, the buyer and the seller must agree on a
contract of sale.
The seller undertakes to supply a certain number of goods or services at an agreed quality and price and within a specified
time.
These are the basic factors or sales terms governing a contract of sale, but the two
parties must agree on sales terms such as means of transport, means of payment,
package, insurance, delivery and documentation.
Stages of a business transaction
On the following slides you will find the
various stages in a business transaction.
It can be started by either the buyer or seller.
Buyer ENQUIRY
Seller REPLY TO
ENQUIRY
Seller
UNSOLICITED OFFER
Buyer REPLY TO
OFFER Buyer
ORDER OF GOODS
Seller
CONFIRMATION OF
ORDER AND DISPATCH OF GOODS
Buyer PAYMENT
Stage One
Buyer ENQUIRY
The buyer contacts a seller to see if they can supply the type of goods they are
interested in. They can ask for information about the products, details of prices,
discounts, means of payment required, delivery times etc.
Stage One
Seller UNSOLICITED OFFER
Sometimes the seller initiates the
transaction. They may want to promote a particular product, or contact new
customers, in which case they offer them goods at interesting terms.
Stage two
Seller REPLY TO ENQUIRY
The seller replies to an enquiry giving the information requested.
Stage two
Buyer REPLY TO OFFER
If a buyer is interested in an offer made by a seller, they ask for further information like the ones in an enquiry.
Alternatively, they can refuse the offer.
Stage three
Buyer ORDER OF GOODS
Once the buyer has examined and accepted the sales terms, they place their order. The order contains basic information such as the quantity and description of the goods (colour, size,
article number), their price, the delivery time, the means of payment and the type of
transport. They can also include special
instructions referring to packing, insurance and documentation.
Stage four
Seller CONFIRMATION OF ORDER AND DISPATCH OF GOODS
The seller confirms the order received and dispatches the goods following the buyer’s instructions. They send the buyer an
invoice for the due amount.
Stage five
Buyer PAYMENT
The buyer pays for the goods they have received.
However, some problems may arise during the various stages of a business
transaction:
Buyer: COMPLAINT
After the order is placed or the goods are
received, the buyer can make a complaint for several reasons:
Goods not delivered on time.
Seller supplies a wrong type/quality of goods.
Goods are damaged.
The buyer usually offers a suggestion as to how he would like the problem to be solved.
Seller: REPLY TO COMPLAINT
When the seller has investigated the cause of the problem, they contact the buyer,
apologise and explain how the mistake happened.
They usually agree to rectify the problem.
Seller: REMINDER
When the goods have been supplied, if the time has expired for the buyer to pay for the goods, the seller sends a reminder (gently) requesting prompt payment.
If the buyer continues not to settle their account, they will be sent subsequent reminders which become ever more insistent.
Finally, the seller may threaten legal action in order to receive payment.
Buyer: REPLY TO REMINDER
If the buyer is able to pay the account, they reply saying that arrangements for
payment have been made and apologies for the delay.
They usually offer an excuse for the delay.
If they are unable to pay, they explain the reason why and ask for an extension of credit or give the dates of their settlement.
Economic system
An economic system is loosely defined as country’s plan for its services, goods
produced, and the exact way in which its economic plan is carried out.
In general, there are three major types of economic systems prevailing around the world.
Type of Economic Systems
Three types of economic systems exist, each with their own drawbacks and benefits;
the Market Economy, the Planned Economy, the Mixed Economy.
Market economy
In a market economy, national and state governments play a minor role.
Instead, consumers and their buying decisions drive the economy.
In this type of economic system, the assumptions of the market play a major role in deciding the
right path for a country’s economic development.
Market economies aim to reduce or
eliminate entirely subsidies for a particular industry, the pre-determination of prices
for different commodities, and the amount of regulation controlling different industrial sectors.
The absence of central planning is one of the major features of this economic system.
Market decisions are mainly dominated by supply and demand.
The role of the government in a market economy is to simply make sure that the market is stable enough to carry out its economic activities
properly.
A planned economy
A planned economy is also sometimes called a command economy
The most important aspect of this type of
economy is that all major decisions related to the production, distribution, commodity and service prices, are all made by the
government.
The planned economy is government directed, and market forces have very little say in such an
economy.
This type of economy lacks the kind of flexibility that is present in a market economy, and because of this, the planned economy reacts slower to changes in
consumer needs and fluctuating patterns of supply and demand.
On the other hand, a planned economy aims at using all available resources for
developing production instead of allotting the resources for advertising or marketing.
Mixed economy
A mixed economy combines elements of both the planned and the market
economies in one cohesive system.
This means that certain features from both market and planned economic systems are taken to form this type of economy.
This system prevails in many countries where neither the government nor the business
entities control the economic activities of that
country – both sectors play an important role in the economic decision-making of the country.
In a mixed economy there is flexibility in some areas and government control in others.
Mixed economies include both capitalist and
socialist economic policies and often arise in societies that seek to balance a wide range of political and economic views.
Types of economy
There are basically three types of economic systems in the world at the moment:
1. Centrally planned
2. Free market
3. Mixed
The centrally planned economy
The government decides:
What goods and services are needed Arranges all production and distribution
But….
this type of economy can
Lack competition – which in turn:
Lead to bad management Inferior production
Supply problems.
Examples:
Cuba China
North Korea
The free market economy
AKA: the capitalist system.
Price and availability of goods and
services governed by supply and demand.
Private companies compete freely in the market place.
Market decides which products or services to buy and from whom.
Minimal state intervention – but may intervene when necessary.
Examples:
Singapore
(south east Asia)
The mixed economy
Most economies combine elements of both free market and centrally planned principles.
These elements vary from country to country.
Examples:
UK Italy
Sweden
