INTRODUCTION TO COMMERCE

MEANING OF COMMERCE

Commerce can simply be defined as all the activities involved in the distribution and exchange of goods and services. In other words, commerce is a branch of production which is concerned with the distribution, exchange of goods and services and all activities which assist or facilitate trade, e.g. banking, insurance, transportation, communication, tourism etc. It is the process of buying, selling and distributing goods and services.

The process of living involves three major activities which are production, consumption and exchange. The central focus of commerce is exchange. In a commercial sense, exchange would concentrate on the transfer of goods and services from their producers to the customers. Commerce is therefore concerned with trade and activities which assist trade. These include the distribution of raw materials to manufacturers and finished products from the factory to the consumers. Commerce involves time, place and utilities. Commerce developed as a result of specialisation.

 

SCOPE OF COMMERCE

The scope of commerce may be seen as embracing the totality of all activities which ensure the distribution and exchange of goods and services for the satisfaction of the people. In all ramifications, commerce embraces trade and the ancillaries or aids to trade.

The scope of commerce can easily be illustrated by a diagram in Fig. 1.1.

 

It can therefore be said that the different activities engaged in by people in commercial occupation include:

1. Trading.
2. Transporting.
3. Warehousing.
4. Banking.
5. Insurance.
6. Advertising.
7. Communication.
8. Tourism.

 

TRADE

Trade is one of the two main divisions of commerce. It is the most important aspect of commerce. Trade is the act of buying and selling of goods and services.

 

Differences between Trade and Commerce

Trade is simply the buying and selling of goods and services while commerce is involved in all those activities in the distribution and exchange of goods and services.

 

Divisions of Trade

Trade is divided or classified into two major groups.

These are Home trade and Foreign trade.

 

• Home Trade

Home trade is a branch of commerce which comprises wholesaling (wholesale trade) and retailing (retail trade). Home trade is the act of buying and selling of goods and services within a geographical area of a nation. It can be referred to as domestic or internal trade. Goods are sold within the country, hence the same currency is used.

1. Wholesaling: Wholesaling is the process of buying goods in large quantity or bulk from the producers and making them available to the retailer in small quantities. The wholesaler, therefore serves as the intermediary between the producer and retailer.
2. Retailing: Retailing is concerned mainly with the buying of goods in small quantities from the wholesalers and making it available in units to the consumers.Retail trade is the business activity of selling goods and services to the final consumer. The retailer is the final link in the chain of distribution.

 

• Foreign Trade

Foreign trade is the buying and selling of goods and services beyond the geographical boundaries of a country or between one country and the other.

Foreign trade which is also referred to as international trade, can be bilateral or multilateral. It involves the use of different currencies. International trade is divided into export, import and entrepot.

1. Export: Export is the sale of goods (raw materials and finished goods) to other countries. The goods or services are paid for in foreign currencies. Export trade can be visible or invisible, e.g. in Nigeria, cocoa and palm oil represent visible trade while invisible trade include banking, aviation etc.
2. Import: This is the act of buying of goods and services from other countries. Goods are imported either in response to direct orders or on consignment. Import can be visible or invisible. Examples of imported goods in Nigeria include electronics, automobiles, etc.
3. Entrepot: Entrepot is the process of importing goods and services for re-exporting to other countries. It is also referred to as re-export trade.

 

Differences between Home Trade and Foreign Trade

Foreign Trade 

1. Goods are moved beyond geographical boundaries.
2. Different currencies are used in foreign trade.
3. There is language barrier in foreign trade.
4. More complex documentation is required in foreign trade.
5. Different weights and measures are in use.
6. Different social standards. rules and regulations are in use.
7. Transport cost is higher in foreign trade.
8. Foreign trade is subject to restrictions.

 

Home Trade

1. Trade are moved within same country.
2. One currency is used.
3. There is no language in home trade.
4. Less documentation is required in home trade.
5. The same weight and measures are in use.
6. The same social standard rules and regulations are in use.
7. Transport cost is lower in home trade.
8. Goods move freely within a country.

 

AIDS TO TRADE

Aids to trade are the ancillaries to trade. They are commercial activities which facilitate trade (buying and selling) i.e ., they make trade possible. They are so fundamental to trade that trading activities cannot progress without them. Aids to trade are banking, insurance, transport, advertising, warehousing, communication and tourism.

1. Banking: This makes trading possible by making funds available. The banks are financial institutions which make funds available to assist people in their daily purchases and capital for embarking on industrial activities. They make funds available in the form of loans and overdrafts. Banks also accept savings from the people. Examples of banks are commercial, merchant, mortgage banks, etc.
2. Transportation: Transportation provides the means of carrying raw materials, finished goods and people from one place to another either by road, sea, rail, pipe or air. Improved means of transportation have brought about a speedy or faster diffusion of ideas and expansion of the industrial areas.
3. Advertising: Advertising is the process of creating awareness in the minds of the public about the existence of a product. Advertising may be used to stimulate demand so as to increase sales. It ensures that customers are aware of the existence and availability of a particular product and they are persuaded to buy it. Advertising can take many forms viz: press, catalogues, free samples, trade fair, exhibition, window display, television, radio, etc.
4. Warehousing: Warehousing is a process which ensures that goods produced are stored until they are needed. Warehousing as an important aspect of commerce aimed at seeing that there is a regular and steady supply of goods. Since a manufacturer produces goods in advance, they need warehouse to store the goods ahead of demand. It ensures that there is no fluctuation in the price of goods. Warehouses can be ordinary, bonded, public, etc.
5. Communication: Communication is the means of sending and receiving information from one place to another. Suppliers and customers can be easily linked together through communication services, e.g. telephone, telex, internet/e-mail, etc. The development of telecommunication systems has also eased and hastened contacts between people within commercial centres and all over the world.
6. Insurance: Insurance is a security made against loss. It is the protection against loss or liabilities suffered in the day-to-day business operation. In return for premiums, individuals and corporate organisations are compensated for losses arising from fire, flood, accident, etc. Insurance is an essential element in local and international trade. The traders who suffer losses are restored to their former position or status through compensation.
7. Tourism: Tourism aids trade by providing tourists trading opportunities at tourist centres. Many people from different countries can converge. in a country because of its tourist attraction. This will definitely increase trading activities.

 

FUNCTIONS OF COMMERCE

1. Mass Production of goods and Services: Commerce facilitates mass production and thus people all over the world can enjoy goods and services produced both within and outside their countries.
2. Raising of Capital: It facilitates the raising of capital for individual needs and investment through the services of banks and other financial institutions.
3. Employment Opportunities: It offers employment opportunities to a large number of people such as traders, bankers, insurance brokers, etc.
4. Transport: It assists in moving people, raw materials and finished goods from production points to consumption points through transport.
5. Warehousing Functions: It facilitates the storage of goods until they are needed, thus bridging the gap between demand and supply in the market.
6. Unity Among Nations: It fosters unity among nations thus, nations become interdependent as they engage in trading activities.
7. Improvement in Standard of Living: The availability of variety of goods and services leads to improvement in standard of living and quality of life of people.
8. Risk bearing: The availability of insurance companies encourages entrepreneurs to venture into various business activities.
9. Exchange of Goods and Services: It facilitates the exchange of goods and services. Commerce facilitates the exchange of goods and services through transportation (road, rail, sea, air) and telecommunication services.
10. Creation of Public Awareness: It makes the public aware of the availability of goods and services through advertising.
11. Linkage of Buyers to Sellers: Commerce through communication links buyers and sellers together to do business without physical contacts.
12. Creation of Wealth for Nations: Commerce helps to create wealth for nations, as duties are charged on goods and services either exported or imported.