Notes - Trade
Category :
Trade
It refers to buying and selling of goods and services with the object of earning profit. It involves the efforts of mankind in some way or the other. It bridges the gap between the producer and the consumer. The importance of trade in modern times has increased as new products are being developed everyday and are being made available for consumption throughout the world. Trade can broadly be classified into two categories: internal trade and external trade. Trade which takes place within a country is called internal trade and the trade which is taken place between two or more countries is called external trade.
5.1 internal Trade
Internal trade means movement of goods within the boundaries of the nation or country. In such trade all payments are received and made in the national currency. Internal trade aims at equitable distribution of goods within a nations speedily and at reasonable cost.
Documents Used in Internal Trade
Important documents of internal trade are listed below
Classification of Internal Trade
Internal trade can be classified into two broad categories viz. wholesale and retail trade.
(i) Wholesale Trade: It refers to purchasing goods and services in large quantity from manufacturers and reselling them to retailers, who then sells them to the ultimate consumers.
Chain of Wholesale Trade
\[Manufacturers\to Wholesalers\to Retailers\to Consumers.\]
(ii) Retail Trade: It refers to purchasing relatively small quantity of goods from wholesalers and selling them to ultimate consumers.
Chain of Retail Trade
\[Wholesalers\to Retailers\to Consumers\]
5.1.1 Wholesaler
Wholesale trade is performed by wholesalers. They serve as an important link between manufacturers and retailers. They purchase goods in large quantity from manufactures and resale them to retailers.
Wholesalers provide various services to the manufacturers as well as to the retailers, that are mentioned below
Services to Manufacturers
Major services offered by wholesalers to the manufactures are as follow
Services to Retailers
Following services are offered to retailers by wholesalers
5.1.2 Retailer
Services to Manufacturers and Wholesalers
Following services are offered to manufacturers and wholesalers
Services to Consumers
Some of the important services of retailers from the point of view of consumers are as follow
5.2 Emerging Modes of Business
5.2.1 e-Business
Electronic business or e-business refers to conduct of industry, trade and commerce using the computer networks. It offers the convenience of \[24\text{ }hours\times 7\]days a week and 365 days a year business.
According to the European Union website, “e-business is a general concept covering any form of business transactions or information exchange that is made by using information and communication technology.”
Scope of e-Business
On the basis of the parties involved in firm’s electronic transactions, the scope of e-business extends to the transactions between two business firms transactions between a firm and its customers and the transactions carried within a firm itself.
These transactions take place between two business firms. Hence, the name B2B (business-to-business).
A business to interact with a number of other business firms which may be suppliers or vendors of diverse inputs or else they may be a part of the channel through which a firm distributes its products to the consumers.
Business to Employee (B2E) Commerce
Firms are resorting to personnel recruitment, interviewing and selection, training, development and education via e-commerce.
Also, employees can use electronic catalogues and ordering forms and access inventory information for better interaction with the customers.
Benefits of e-Business
Following are the benefits of e-business
Limitations of e-Business
Following are the limitations of e-business
Some e-Business Applications e-procurement: It involves internet-based sales transactions between business firms, including both, ‘reverse auctions’ that facilitate online trade, between a single business purchaser and many sellers and digital marketplaces that facilitate online trading between multiple buyers and sellers.
e-bidding /e-auction: Most shopping sites have ‘Quote your price’ whereby you can bid for the goods and services (such as airline tickets!). It also includes e-tendering whereby one may submit tender quotations online.
e-communication /e-promotion: Right from e-mail, it includes publications of online catalogues displaying images of goods, advertisement through banners, pop-ups, opinion poles and customer surveys etc. Meeting and conferences may be held by the means of video conferencing.
e-delivery: It includes electronic delivery of computer software, photographs, videos, books (e-books) and journals (e-journals) and other multimedia content to the user’s computer. It also includes rendering of legal, accounting, medical and other consulting services electronically. In fact, internet provides the firms with the opportunities for outsourcing of a host of Information Technology Enabled Services (ITES) that we will be discussing under business process outsourcing. Now, it is even possible to print the airlines and railway tickets at home.
e-trading: It involves securities trading, that is online buying and selling of shares and other financial instruments. |
5.2.2 Outsourcing
The term outsourcing means having an external vendor, who provides services on regular basis that would normally be performed within the organisation. It involves delegation of one or more business processes to an external provider who then manages the selected business process based on defined measures of performance.
Features of Outsourcing
Following are the features of outsourcing
5.2.3 Franchising
Salient Features of Franchise
Some salient features of franchise are as follow
5.3 International Trade
The exchange of goods or services along international borders is termed as international trade. This type of trade allows greater competition and more competitive pricing in the market. It results in giving more affordable products for the consumer. The procedure of exchange of goods also affects the economy of the world. It facilitates the products to the consumers globally. It is also known as foreign trade or external trade.
5.3.1 Characteristics of International Trade
Following are the characteristics of international trade
5.3.2 Advantages of International Trade
Following are the advantages of international trade
5.3.3 Disadvantages of International Trade
Following are the disadvantages of international trade
5.4 Types/scope of International Trade
International trade can be of the following types or the scope of international trade extends to the following.
5.4.1 Export Trade
It is a mode of international trade in which goods produced in the domestic country are sold to the residents of another country.
Following are the objectives of export trade
Documents Used in Export Transactions
Following documents are used in export transactions
Export Procedure
A number of steps are required to be taken to complete export transaction. These are
Step I Receipt of Enquiry and Sending Quotations
Step II Receipt of Order or Indent
Step III Assessing Importer’s Creditworthiness and Securing a Guarantee for Payments
Step IV Obtaining Export Licence
Step V Obtaining Pre-shipment Finance
Step VI Production or Procurement of Goods
Step VII Pre-shipment Inspection
Step VIII Excise Clearance
Step IX Obtaining Certificate of Origin
Step X Reservation of Shipping Space
Step XI Packing and Forwarding
Step XII Insurance of Goods
Step XIII Customs Clearance
Step XIV Obtaining Mate’s Receipt
Step XV Payment of Freight and Issuance of Bill of Lading
Step XVI Preparation of Invoice
Step XVII Securing Payment
Step XVIII Bill of Exchange
5.4.2 Import Trade
It is a mode of international trade in which the residents of a domestic country purchases goods from a foreign country.
Following are the objectives of import trade
Documents Used in an Import Transaction
Following documents are used in import transaction
Import Procedure
Step are to be following to import goods from a foreign country.
Step I Trade Enquiry
Step II Procurement of Import Licence
Step III Obtaining Foreign Exchange
Step IV Placing Order or Indent
Step V Obtaining Letter of Credit
Step VI Arranging for Finance
Step VII Receipt of Shipment Advice
Step VIII Retirement of Import Documents
Step IX Arrival of Goods
Step X Customs Clearance and Release of Goods
5.6 Export Processing Zone (EPZ)
5.7 Special Economic Zone (SEZ)
5.8 World Trade Organisation
WTO is one of the youngest global international organisation that deals with the rules and regulations of trade between different nations. It operates with the purpose of liberalising trade and flow of goods and services in the international market. It provides a framework for negotiating and formalising trade agreements. At present, 159 countries are the members of WTO.
5.8.1 Objectives of WTO
WTO has some basic objectives similar to GATT.
These are
5.8.2 Functions of WTO
Following are the main functions of WTO.
(i) Promoting an environment that encourages its members to come forward to WTO in mitigating their grievances.
(ii) Laying down a commonly accepted code of conduct with a view to reduce trade barriers.
(iii) Acting as a dispute settlement body.
(iv) Ensuring that all the rules prescribed in the act are duly followed by the member countries for settlement of disputes.
(v) Holding consultations with IMF and IBRD so as to bring better understanding and cooperation in global economic policy making.
5.8.3 WTO Agreements
Major WTO agreements are discussed below
This agreement was evolved under WTO to phase out the quota restrictions as imposed by the developed countries on exports of textiles and clothing from the developing countries.
It is an agreement to ensure free and fair trade in agriculture.
GATS is regarded as a landmark achievement of the Uruguay Round as it extends the multilateral rules and disciplines to services.
The agreement sets out the minimum standards of protection to be adopted by the parties in respect of seven intellectual properties, viz copy rights and related rights, trade marks, geographical indication, industrial designs, patents, layout design of integrated circuits and undisclosed information (trade secrets).
5.9 International Monetary Fund
It came into existence in 1945 and its headquarters are located in Washington DC. The major idea of setting up of IMF is to evolve an orderly international monetary system.
5.9.1 Objectives of IMF
The major objectives of IMF are:
(i) To facilitate expansion of balanced growth of international trade and to promote high levels of employment and real income.
(ii) To promote exchange stability in order to maintain orderly exchange arrangements among member countries.
(iii) To assist in the establishment of a multilateral system of payments in respect of current transactions between members.
5.9.2 Functions of IMF
Various functions performed by IMF are:
(i) Acting as a short-term credit institution.
(ii) Providing machinery for the orderly adjustment of exchange rates.
(iii) Acting as a lending institution of foreign currency and current transaction.
(iv) Providing machinery for international consultations.
5.10 World Bank
World Bank was set-up in 1944 under Bretton Woods Conference, along with IMF, hence these two are known as sister institutions or Bretton woods twins. Its headquarters are at Washington DC and has 188 members.
The World Bank focuses on making loans to government in order to rebuild railroads, highways, and other infrastructure i.e. the areas where private sector do not take interest.
5.10.1 Objectives of World Bank
The main objectives of World Bank are as follows:
(i) To help reconstruction of member countries damages after the Second World War.
(ii) To facilitate the investment of foreign capital for productive purpose.
(iii) To maintain balance growth of international trade and to attain equilibrium in BoP account.
(iv) Spur governments to act on preventing climate change, controlling communicable diseases, managing international financial crises and promoting free trade.
5.10.2 Functions of World Bank
World Bank performs the following functions:
(i) Granting reconstruction loans to war devastated countries.
(ii) Granting developmental loans to underdeveloped countries.
(iii) Providing loans to governments for agriculture, irrigation, power, transport, water supply, educations, health, etc.
(iv) Providing loans to private concerns for specified projects.
(v) Promoting foreign investment by guaranteeing loans provided by other organisations.
(vi) Providing technical, economic and monetary advice to member countries for specific projects.
(vii) Encouraging industrial development of underdeveloped by promoting economic reforms.
5.11 The United Nations Conference on Trade and Development (UNCTAD)
5.11.1 Objectives of UNCTAD
The objective of UNCTAD is (a) to reduce and eventually eliminate the trade gap between the developed and developing countries, and (b) and to accelerate the rate of economic growth of the developing world.
5.11.2 Functions of UNCTAD
The main Functions of the UNCTAD are:
(i) To promote international trade between developed and developing countries with a view to accelerate economic development.
(ii) To formulate principles and policies on international trade and related problems of economic development.
(iii) To make proposals for putting its principles and policies into effect, (iv) To negotiate trade agreements.
(iv) To review and facilitate the coordination of activities of the other U.N. institutions in the field of international trade
(v) To function as a centre for a harmonious trade and related documents in development policies of governments.
You need to login to perform this action.
You will be redirected in
3 sec