CHAPTER 7: TRADE

7.1 PURPOSE AND BRANCHES OF TRADE

• Purpose: To make goods accessible to consumers, distribute wealth, and facilitate consumption.
• Branches: Home Trade (Internal, within a country) and Foreign Trade (External, between countries).

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7.2 (a) HOME TRADE

(i) Retail Trade – Functions and Factors to Consider in Starting

• Functions of the Retailer: Breaking bulk (selling in small units), granting credit, offering after-sales service, providing market feedback, displaying goods.
• Factors to Consider: Location (proximity to customers, traffic), Capital available, Source of Supply, Nature of Goods (perishable, durable), and Legal Requirements (licences).

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(ii) SMALL-SCALE AND LARGE-SCALE RETAILING

Types of Retail Outlets and Their Main Characteristics

Retail outlets can be grouped based on their scale of operation (small-scale or large-scale).
Below is a clear arrangement of each type and its characteristics.

1. Small-Scale Retail Outlets

a. Hawker / Kiosk

Scale: Small
Characteristics:

• Requires small capital
• Personalized service
• Often mobile (hawkers)
• Limited variety of goods
• High personal risk (weather, theft, accidents)

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2. Large-Scale Retail Outlets

a. Departmental Store

Scale: Large
Characteristics:

• Sells unrelated goods grouped into separate departments
• Centralized control and management
• Attractive, well-spaced layout
• High operating/overhead costs
• One-stop shopping for customers

b. Chain Stores / Multiple Shops

Scale: Large
Characteristics:

• Many branches located in different places
• All branches sell the same (identical) goods
• Centralized buying and management
• Standardized appearance and layout
• Prices are usually fixed and uniform across branches

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c. Supermarket

Scale: Large
Characteristics:

• Self-service method
• Sells mainly groceries and household items
• Prices clearly displayed
• Low profit margin but high sales volume
• Customers use baskets or trolleys to pick items
• Little or no personal selling

d. Mail Order House

Scale: Large
Characteristics:

• Sells goods through catalogs, brochures, or online lists
• Orders are placed via mail, telephone, or internet
• No personal contact between buyer and seller
• Goods delivered by post or courier service
• Relies heavily on advertising
• No need for expensive retail premises

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(iii) Trends in Retailing

• Branding: Using distinct names/symbols to differentiate products.
• After-Sales Service: Providing installation, warranty, maintenance post-sale.
• Self-Service: Allowing customers to select goods themselves.
• Vending Machines: Automated, 24/7 retailing of small items.
• Luncheon and Fuel Vouchers: Credit instruments used by companies to provide benefits to employees.

(iv) Wholesale Trade – Functions and Types of Wholesalers

• Functions of the Wholesaler: See 3.2 Functions of the Wholesaler (Provides storage, breaks bulk, finances retailer, bears risk, provides information to producer).
• Types of Wholesalers:
  • Merchant Wholesaler: Takes title/ownership of the goods, bears risk, and sells at a mark-up.
  • Agent Wholesaler (e.g., Broker, Commission Agent): Does not take title/ownership, merely arranges the sale between buyer and seller for a commission.

(v) Warehousing – Importance, Functions and Types of Warehouses

• Importance: Stabilizes prices, reduces risk for producers, enables smooth flow of goods.
• Functions: Storage, financing (issuing warrant receipts), conditioning and grading.
• Types: Private, Public, and Bonded Warehouse (stores dutiable goods; customs duty is only paid upon withdrawal).

(vi) Forces Making for the Elimination and Survival of the Middleman

• Elimination Forces: E-Commerce (direct producer-to-consumer sales), Large Retailers buying directly from manufacturers (bypassing the wholesaler), and the use of Factory Outlets.
• Survival Forces: Middlemen still provide credit to retailers, break bulk efficiently, absorb risk, and facilitate distribution in remote areas.

(vii) Channels of Distribution

• Channels: Producer → Consumer (Direct); Producer → Retailer → Consumer; Producer → Wholesaler → Retailer → Consumer.
• Factors for Choice: Perishability (shorter channel needed), Complexity (direct sales needed), Market Size, Unit Value of the product, and Capital available to the producer.

7.3 (b) FOREIGN TRADE

(i) Basic Concepts in International Trade

• Terms of Trade (TOT): Ratio of a country’s export prices to its import prices.
• Balance of Trade (BOT): Visible Exports – Visible Imports. (Favorable: Exports > Imports).
• Balance of Payment (BOP): Comprehensive record of all economic transactions (visible, invisible, and capital flows) with the rest of the world.
• Counter Trade: Exchange of goods or services for other goods or services, rather than for money (a modern form of barter).

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(ii) Export, Import and Entrepot – Procedures and Documents

• Export: Selling goods abroad. Import: Buying goods from abroad. Entrepôt: Importing for the purpose of re-exporting.
• Visible Trade: Exchange of tangible goods (e.g., cars, oil). Invisible Trade: Exchange of services (e.g., shipping, banking, tourism).
• Documents: Indent (importer’s order), Letter of Credit (L/C) (bank guarantee of payment), Bill of Lading (receipt, contract, title for sea transport), Airway Bill (receipt for air transport), Certificate of Origin.

(iii) Barriers to International Trade

• Tariffs (Customs Duties): Taxes on imports/exports to make foreign goods expensive.
• Quotas: A physical limit on the quantity of a good that can be imported.
• Embargo/Total Ban: Complete prohibition on trade with a country or on a product.
• Exchange Control: Government restriction on the use and conversion of foreign currencies.

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(iv) Functions of Ports Authority, Customs and Excise, and Agents

• Ports Authority: Manages, maintains, and develops seaports and airports, providing docking and loading facilities.
• Customs, Excise and Preventive Services: Collects customs duties (on imports) and excise duties (on locally manufactured goods); enforces trade restrictions (e.g., combating smuggling).
• Shipping, Clearing and Forwarding Agents: Specialized firms that handle the documentation, customs clearance, and logistical movement of goods on behalf of the importer/exporter.
• Export Promotion Council: Government agency that provides incentives, information, and support to domestic exporters.