Short Notes & Important Questions - Internal Trade

Internal Trade 

Trade involves the buying and selling of goods and services with the aim of making a profit. When this trade occurs between people within the same country, it is called internal trade. Internal trade refers to the buying and selling of goods and services within the geographical boundaries of a nation or country. 

 Internal trade can be broadly classified into two categories: 

(i) Wholesale trade 
​(ii) Retail trade

Wholesale Trade 

Wholesale trade involves the buying and selling of goods and services in large quantities, typically for the purpose of resale or intermediate use. Wholesalers play a crucial role in the supply chain by acting as a link between manufacturers and retailers. They purchase goods in bulk from producers and sell them in smaller lots to retailers. This process helps to streamline the distribution of products from manufacturers to end consumers. 

 Services of Wholesalers to Manufacturers 

1. Bulk Purchases for Large-Scale Production: Wholesalers buy goods in large quantities from manufacturers, enabling them to produce on a large scale. 
2. Risk Management: Wholesalers take on various risks by dealing in goods under their own name, including risks related to price drops, theft, spoilage, and damage from fire. 
3. Financial Assistance: Wholesalers provide financial support to manufacturers by making cash payments for purchased goods. 
4. Market Insights: Wholesalers offer valuable information to manufacturers about customer preferences and market conditions. 
5. Marketing Support: Wholesalers assist manufacturers in marketing by purchasing goods and selling them to retailers. 
6. Storage Facilities: Wholesalers provide storage facilities by holding goods in their warehouses or godowns. 

 Services of Wholesalers to Retailers 

1. Goods Availability: Wholesalers ensure that goods are accessible to retailers, who in turn make these products available to the final consumers. 
2. Marketing Support: Wholesalers assist retailers in marketing the goods by taking on advertising and other sales promotional activities. 
3. Credit Facilities: Wholesalers provide credit facilities to retailers, helping them manage their cash flow. 
4. Risk Mitigation: Wholesalers sell goods to retailers in smaller quantities, reducing the risks associated with storage, theft, and price fluctuations. 
5. Specialized Knowledge: Wholesalers possess specialized knowledge and inform retailers about new products, their uses, and quality, aiding them in making informed decisions. 

Retail Trade 

Retail trade involves purchasing goods in large quantities from wholesalers and selling them in smaller quantities to end consumers. Retailers play a crucial role in connecting producers with final consumers in the distribution of products and services. 

Services of Retailers to Manufacturers and Wholesalers

1. Distribution Assistance: Retailers aid manufacturers and wholesalers by distributing their goods and services to end consumers. 
2. Promotion Support: Retailers assist in promoting the goods and services of manufacturers and wholesalers. 
3. Personal Selling: Retailers engage in personal selling efforts, facilitating the actual sale of products for manufacturers and wholesalers. 
4. Market Information: Retailers gather and provide market information regarding consumer tastes, preferences, and attitudes to producers. 
5. Sales Burden Relief: Retailers relieve manufacturers and wholesalers from the burden of making individual sales, allowing them to focus on large-scale production. 

Services of Retailers to Consumers

1. Tailored Goods: Retailers offer goods to consumers based on their specific requirements. 
2. Product Variety: Retailers stock a wide range of products from different manufacturers, providing consumers with a broad selection. 
3. Product Information: Retailers inform consumers about new products available in the market. 
4. After-Sales Services: Retailers provide after-sales services such as home delivery, supplying spare parts, and attending to customer inquiries. 
5. Credit Facilities: Some retailers offer goods on credit, enhancing consumers' purchasing capacity and living standards. 
6. Regular Availability: Retailers ensure a consistent supply of various goods to customers. 

 Types of Retailing Trade 

 Retail trade can be categorized into two types based on whether retailers have a fixed place of business or not. 

(i) Itinerant Retailers

(ii) Fixed Shop Retailers

 1. Itinerant Retailers 

Definition: Itinerant retailers are those who do not have a permanent place of business. They move from one location to another with their goods in search of customers. 

Characteristics:

•  Small traders with limited resources. 
•  Deal with consumer products of daily use. 
•  Focus on providing better customer service. 
•  Do not have a fixed operating location. 

 Types of Itinerant Retailers 

1. Peddler and Hawkers:

•  Small producers sell non-standardized and low-value products like fruits, vegetables, and toys. 
•  Carry products on bicycles, handcarts, cycle rickshaws, or on their heads. 
•  Sell products at customers' doorsteps. 

2. Market Traders:

•  Small retailers set up shops at different locations on fixed days (e.g., every Saturday or Tuesday). 
•  Specialize in a single line of goods such as toys, readymade garments, or crockery. 

3. Street Traders (Pavement Vendors):

•  Found in high-traffic areas like railway stations and bus stands. 
•  Sell common consumer items such as stationery, newspapers, and toys. 
•  Do not frequently change their place of business. 

4. Cheap Jacks:

•  Small retailers with temporary shops in business localities. 
•  Change business locations, but not very frequently. 
•  Deal in consumer items such as watch and shoe repairs, and household goods like buckets. 

2. Fixed Shop Retailers

 Retailers who have a permanent establishment to sell their goods are known as fixed-shop retailers. Here are the main characteristics of fixed-shop retailers: 

• Greater Resources: Compared to itinerant traders, fixed shop retailers possess greater resources. 
• Range of Goods: They deal in both durable and non-durable goods. 
• Size Variation: Fixed shop retailers come in different size groups, ranging from very small to very large. 
• Customer Services: They offer greater services to customers, such as home delivery, repairs, credit facilities, etc. 

Types of Fixed Shop Retailers

 Fixed shop retailers can be classified into two types: 

(a) Small Shop Keepers: These are small-scale retailers who operate fixed shops. 

(b) Large Retailers: These are larger-scale retailers with more extensive operations. 

Fixed Shop Small Retailers

• General Stores: These shops offer a variety of products to meet the daily needs of consumers, including stationery and grocery items. 
• Speciality Shops: These retailers focus on a specific line of products, such as ladies' shoes, children's clothing, men's wear, or toys. They are usually located in central areas to attract a large number of customers. 
• Street Stall Holders: Small retailers found in high-traffic areas, such as street corners or main roads, selling inexpensive items like soft drinks, cigarettes, and toys. 
• Second-Hand Goods Shops: These shops sell used items like books, clothes, furniture, and automobiles. They are typically located at street crossings or busy streets, often in the form of stalls or temporary structures. 

Fixed Shop Large Store or Large Retailers

 Fixed shop large stores comprise various types of retailers, with a focus on departmental stores. 

Departmental Stores

•  A departmental store is a large retail outlet that offers a wide range of products, organized into specific departments, all under one roof. 
•  Each department specializes in a particular type of product, such as toiletries, medicines, furniture, groceries, etc. 

Features of a Departmental Store:

• Central Location: Departmental stores are typically located in central areas to ensure maximum accessibility for customers. 
• Facilities: These stores offer various facilities, including restaurants, travel and information bureaus, telephone booths, and restrooms, to enhance the shopping experience. 
• Size and Management: Due to their large size, departmental stores are usually established as joint stock companies managed by a board of directors. 
• Centralized Purchasing: All purchases for a departmental store are made centrally by the store's purchase department. 
• Retailing and Warehousing: Departmental stores combine the functions of retailing and warehousing, allowing them to store and sell a wide variety of products efficiently. 

 Advantages of Departmental Stores 

• Central Location: Departmental stores are typically situated in central areas, making them easily accessible and attracting a large number of customers. 
• Convenience: These stores offer the convenience of purchasing a wide variety of goods under one roof, saving customers time and effort. 
• Attractive Services: Departmental stores provide various customer services such as home delivery, credit facilities, and amenities like restrooms, enhancing the shopping experience. 
• Promotional Activities: They engage in various promotional activities to create awareness about their products, helping customers discover new items. 
• Large-Scale Operations: Being organized on a large scale allows departmental stores to benefit from economies of scale, reducing costs and offering competitive prices. 

 Limitations of Departmental Stores 

• Lack of Personal Attention: The large-scale operation of departmental stores can lead to a lack of personalized attention for customers, making it less suitable for those seeking individual assistance. 
• Increased Operating Costs: The various services offered, such as home delivery and restrooms, contribute to higher operating costs, which may be passed on to customers through increased prices. 
• Convenience for Sudden Needs: While centrally located, departmental stores may not be the most convenient option for customers in need of sudden or urgent items, as they may not offer the immediacy of smaller stores. 
• Risk of Loss: Operating on a large scale also entails a higher risk of loss, as the volume of goods and transactions increases the potential for errors and unsold inventory. 

Chain Stores or Multiple Shops 

 Chain stores, also known as multiple shops, refer to a network of retail outlets owned and operated by the same organization, spread across various locations in a country. Examples include companies like Bata Shoe Co. and McDonald's.

 Features of Chain Stores 

1. Location: Chain stores are strategically situated in popular localities to maximize customer accessibility. 
2. Centralized Procurement: Goods are manufactured or procured centrally at the head office and then dispatched to each store. 
3. Branch Management: Each store is supervised by a branch manager responsible for daily operations, including sales reporting and stock requirements. 
4. Central Control: All branches are under the control of the head office. 
5. Pricing and Sales: Prices are fixed, and sales are conducted on a cash basis. 

 Advantages of Chain Stores 

1. Cash Sales: Selling on a cash basis eliminates losses from bad debts. 
2. Direct Sales: Chain stores eliminate middlemen by selling goods and services directly to customers. 
3. Economies of Scale: Centralized procurement or manufacturing allows organizations to benefit from economies of scale. 
4. Risk Reduction: The overall risk is reduced as losses in one shop can be offset by profits in another. 
5. Stock Management: Goods that are not in demand in one location can be transferred to another location where they are in demand, minimizing dead stock. 
6. Flexibility: If a shop is not profitable, it can be closed or relocated without impacting the overall profitability of the organization. 

 Limitations of Chain Stores 

• Limited Product Range: Chain stores exclusively sell goods produced by their organization, which restricts the variety of products available to customers. 
• Lack of Autonomy: Personnel managing chain stores must follow the directives of the head office, preventing them from taking individual initiatives to meet customer needs. 
• Risk of Unsold Stock: If the demand for products handled by multiple shops changes, it can lead to significant losses due to unsold stock remaining at the central office. 

 Mail Order Houses 

 Mail-order houses are retail outlets that sell goods through mail, without any personal contact between buyers and sellers. This type of trading involves the trader contacting customers through advertisements in newspapers or magazines, circulars, catalogues, and price lists sent by post. 

How Mail Order Houses Work:

• Advertisement: Information about products, including price, features, delivery terms, and payment conditions, is provided in the advertisement. 
• Payment: Customers may be required to make full payment in advance or goods may be sent by VPP (Value Payable Post). With VPP, goods are delivered to the customer only upon full payment. 
• Delivery through Bank: In some cases, goods may be sent through a bank, which delivers them to the customer only after full payment is made. 

 Advantages of Mail Order Houses 

1. Low Capital Requirement: Mail-order houses can be initiated with a minimal amount of capital since they do not need to invest in buildings or other infrastructural facilities. 

2. Elimination of Middlemen: These businesses do not require the services of middlemen, thereby eliminating additional costs and intermediaries. 

3. No Credit Risk: Mail-order houses do not extend credit facilities to customers, reducing the risk of bad debts. 

4. Wide Reach: They can serve customers in any location where postal services are available, making their reach extensive. 

5. Convenience of Delivery: Goods are delivered directly to the customer's doorstep, providing great convenience and ease of purchase. 

Vending Machines

• Vending machines are coin-operated devices used to sell various products like milk, soft drinks, chocolates, and platform tickets in many countries. 
• Automated Teller Machines (ATMs) are a recent application of this concept in banking, allowing people to withdraw money without visiting a bank branch. 
•  Vending machines are suitable for selling prepackaged brands of low-priced products that have a high turnover and are uniform in size and weight. 
•  However, the installation cost and ongoing expenses for regular maintenance and repair of these machines are quite high. 
•  Additionally, consumers cannot see the product before purchasing it, nor can they return unwanted items. 

Main Documents Used In Internal Trade

 The following are the main documents used in the Internal trade. 

1. Invoice

•  An invoice is a document provided by the seller to the buyer in case of credit purchases. 
•  It includes details such as quantity, quality, rate, total value, sales tax, and trade discount. 
•  The invoice informs the buyer of the amount they need to pay to the seller. 
•  It is also known as a bill or memo. 

2. Pro-Forma Invoice

•  A pro forma invoice is a document that contains details of goods consigned from a consigner to a consignee. 
•  It includes information about quantity, quality, price, and expenses incurred on the goods. 
•  The consignee is an agent of the consigner who sells the goods on their behalf. 
•  The pro forma invoice is for the consignee's information and is also known as an interim invoice. 

3. Debit Note

•  A debit note is a document sent by the buyer to the seller indicating that the seller's account has been debited by a specified amount due to returned goods. 
•  It includes details such as quantity, rate, value, and reasons for the return of goods. 

4. Credit Note

•  A credit note is a document sent by the seller to the buyer stating that the buyer's account has been credited by a specified amount due to accepted claims about returned goods. 

5. Lorry Receipt

•  A lorry receipt is a document issued by a transport company for goods accepted for transportation from one place to another. 
•  It is also known as a transport receipt (TR) or bilty. 

6. Railway Receipt

•  A railway receipt is a document issued by the railways for goods accepted for transportation from one station to another. 

Terms of Trade  

The following are the main terms used in the trade.  

1. Cash on delivery (COD): It refers to a type of transaction in which payment for goods or services is made at the time of delivery. If the buyer is unable to make payment when the goods or services are delivered, then it will be returned to the seller.  

2. Free on Board or Free on Rail (FoB or FOR): It refers to a contract between the seller and the buyer in which all the expenses up to the point of delivery to a carrier (it may be a ship, rail, lorry, etc.) are to be borne by the seller.  

3. Cost, Insurance and Freight (CIF): It is the price of goods which includes not only the cost of goods but also the insurance and freight charges payable on goods.  

4.E&OE (Errors and Omissions Excepted):  It refers to the term which is used in trade documents to say that mistakes and things that have been forgotten should be taken into account. This term is used in an attempt to reduce legal liability for incorrect or incomplete information supplied in a document such as a price list, invoice, cash memo, quotation etc.  

Role of Chambers of Commerce and Industry in the Promotion of Internal Trade

Chambers of Commerce and Industry are organizations made up of business people from various trades and industries. These chambers aim to promote the overall business interests of their members and support the growth of commerce and industry in a specific area, region, or country. Anyone engaged in business, including professionals like chartered accountants and financiers, can become a member. 

 Here are some important functions of Chambers of Commerce and Industry: 

•  Conducting research and gathering statistics about the business and economic landscape. 
•  Providing members with technical, legal, and other useful information and advice. 
•  Publishing books, magazines, and journals that focus on business topics. 
•  Organizing educational and training programs for members, including commercial examinations and diploma awards. 
•  Arranging industrial exhibitions and trade fairs to promote trade. 
•  Advising the government on matters related to industrial and economic development in the region. 
•  Issuing certificates of origin to exporters. 
•  Representing business interests and grievances before the government. 
•  Providing a platform for discussing common issues faced by the business community. 
•  Acting as arbitrators to resolve disputes among members. 

Very Short Answer Type Questions (carrying 1 mark each)  

1. ​Define Trade.  
2. List the two broad categories of trade.  
3. Give an example of a chain store.  
4. How do mail-order houses provide convenience to customers?  
5. What are Vending Machines?  
6. Write the full form of ATM.  
7. Give the full form of CII.  
8. Write the meaning of a Debit Note.  
9. What is a Proforma Invoice?  
10. What do you understand by E.&O.E.?  

Short Answer Type Questions (carrying 3/4 marks each)  

1. Enumerate the main features of wholesale trade.  
2. What are the services offered by retailers to the consumers?  
3. Mention differences between departmental and multiple shops.  
4. Give advantages and limitations of mail order business.  
5. Explain the concept of vending machines.  

Long Answer Type Questions ( Carrying 5/6 marks each)  

1. Differentiate between wholesale trade and retail trade.  
2. What is a Super Bazar? Explain their advantages and limitations.  
3. Describe the role and functions of chambers of Commerce.  
4. Explain the main types of Itinerant Retailers.  
5. Explain the advantages of consumer cooperative stores.