O-Level Commerce - Trade and Aids to Trade

Types of Trade
Home Trade is buying and selling of goods and services within international boundaries.
Foreign Trade is buying and selling of goods and services across the globe.

Aids to Trade
Services which are required to facilitate trade.
  1. Banking -- Provides Finance and Services.
  2. Transport -- Without means of transportation it is impossible to trade.
  3. Communication -- To transmit and receive information quickly.
  4. Insurance -- Absorbs some of the risks in production and trade.
  5. Warehousing -- Provides storage facilities.
  6. Advertisement -- Inform customers about products.



Comparison of Home Trade and Foreign Trade
Similarities between Home Trade and Foreign Trade
  1. Buying and selling of goods for making profit.
  2. Serve mankind by satisfying needs and wants.
  3. Requires aids to trade.
  4. Require surplus to be created.
  5. Work on the principle of specialization.
Dissimilarities between Home Trade and Foreign Trade
  1. Done within national boundaries.Done across the globe.
  2. Same currency is involved.Different currencies are involved.
  3. Same units of measurements.Different units of measurement.
  4. Same government policies.Different government policies.
  5. No taxes are involved.Import/Export taxes are involved.
  6. Simple Documents.Complex Documents.
  7. Same culture and languageDifferent culture and languages.
  8. Mode of Payment is cash, cheque etc.Mode of payment is online transfer, bill of exchange etc.
  9. Mode of transportation is through land or rail.Mode of transportation is through sea or air.
  10. Small and big quantities are involved.Only large quantities are involved.
Location of Production Units
Agricultural Unit
  1. Climate: A farmer must ensure that crop is planted to a area where climatic conditions allow the production of that crop for example temperature and rainfall.
  2. Nature of land: A farmer must select land which is flat and fertile.
  3. Access to markets: A farmer must have a farm near to the market or customers, because most of agricultural products are perishable (for example sugar cane). There should be efficient and cheap transportation system available.
  4. Labor: Without labor it would be very difficult to carry out the production.
  5. Government policy: Government may favour the production of a particular crop at particular area by providing cheap land and giving other incentives.
Manufacturing Unit
  1. Transport: Factory must be located where cheap and efficient transport facilities are available.
  2. Power source: Factories are set up where there is cheap and adequate supply of electrical power.
  3. Labor: Both skilled and unskilled labor should be present.
  4. Nearness to market: Factory should be near its customers to avoid high transportations cost.
  5. Government policies: Government may provide certain very attractive incentives for factories for example in rural areas to provide jobs to the people.
How are manufacturing and tertiary activities inter-related?
  • Manufacturing is concerned with producing goods from raw materials, tertiary activities are concerned with the distribution of finished goods from the factory to the final consumer.
  • Unless there were tertiary activities finished goods would not be sold because there would not be any advertising, no finance to build factories, no storage facility, no transport to the retailer/wholesaler and no communication between buyer and seller.
  • Manufacturing would not be able to take place as goods would be stockpiled and so it is dependent on tertiary activities to get the goods to the right person at the right time.
  • As manufacturing becomes more specialized, the manufacturer will become more dependent on others to provide tertiary services.
  • The manufacturer may set up some of the tertiary activities himself – advertise, have warehouses, have his own transport he may also have his own retail outlet, e.g. factory shop but usually he sells to wholesaler or retailer.
  • Tertiary activities are also concerned with trading in services, advertising and communicating these services and so is not entirely inter-related with manufacturing.
  • The manufacturer will need to insure the factory/its contents against risk, e.g. public liability, employer’s liability.
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