BUSINESS TRADE READING MATERIALS

DIFFERENCE BETWEEN TRADE AND BUSINESS

The key difference between trade and business is that TRADE involves buying and selling
of goods, whereas BUSINESS involves all activities performed by a business entity
including, buying and selling, advertising, marketing, etc.

The two terms TRADE or BUSINESS generally include any activity an individual or a
group of individuals carry out for the generation of income from selling goods or
performing services. As you can see from the above key difference, TRADE is part of
business activity, and BUSINESS is a term we use for all the activities a business enterprise
performs.

WHAT IS BUSINESS?
A BUSINESS can be defined as “an organization or enterprising entity engaged in
commercial, industrial, or professional activities”. It can either refer to for-profit entities
or non-profit organizations that operate to fulfill a charitable mission or further a social
cause. It can also refer to organized activities of individuals to manufacture and sell goods
and services in order to gain profit. Moreover, the term business can include the business
of a sole proprietorship to an international corporation.

Every business needs a business plan. A business plan is a formal document detailing a
business’s goals and objectives, and its strategies to drive the goals and objectives. Business
plans are very important when borrowing capital to start operations.

Moreover, import and export are two important terms in trading. If a product is sold to the
global market, it is an export, and if a product is bought from the global market, it is an
import.

Trade does not only include goods; it can also involve services. Tourism, banking,
consulting and transportation are some examples of service trading.

The legal structure of the business is one of the key elements in a business. Depending on
the type of business, it may have various legal requirements such as securing permits,
adhering to registration requirements and obtaining licenses to legally operate. In many
countries, corporations are considered to be juridical persons. That means; business can
own property, take on debt, and face lawsuits.

WHAT IS THE RELATIONSHIP BETWEEN TRADE AND BUSINESS?

Trade is part of business activity, and business is a term that includes all the activities
performed by a business enterprise. The term trade or business generally includes any
activity an individual or a group of individuals carry out for the generation of income from
selling goods or performing services.

BUSINESS TRADE READING MATERIALS Page 1

WHAT IS THE DIFFERENCE BETWEEN TRADE AND BUSINESS?
Trade is basically buying and selling of goods and services, Business, on the other hand,
refers to all those activities conducted to make a profit. It includes business operations such
as producing and selling goods or provision of services, investing activities such as buying
or selling of long-term assets, and financing activities such as the issuance of shares or
bonds, repurchase of company stock, payment of dividends, advertising and marketing.
Therefore, trade is a component of business activity. And, this is the key difference between
trade and business. Moreover, trade always involves profit, whereas there are both for-
profit and non-profit businesses. So, this is also a major difference between trade and
business.

SUMMARY – TRADE VS BUSINESS

The key difference between trade and business is that trade is a component of business and
includes buying and selling of products and services, whereas business is a combination of
activities to earn profits.

WHAT IS A BUSINESS?
A business is defined as an organization or enterprising entity engaged in commercial,
industrial, or professional activities. Businesses can be for-profit entities or they can be
non-profit organizations that operate to fulfill a charitable mission or further a social
cause.

The term "business" also refers to the organized efforts and activities of individuals to
produce and sell goods and services for profit. Businesses range in scale from a sole
proprietorship to an international corporation. Several lines of theory are engaged with
understanding business administration including organizational behavior, organization
theory, and strategic management.

BUSINESS TRADE READING MATERIALS Page 2

KEY TAKEAWAYS
 A business is defined as an organization or enterprising entity engaged in
commercial, industrial, or professional activities.
 Businesses can be for-profit entities or non-profit organizations.
 There are various forms of a business, such as a limited liability company (LLC), a
sole proprietorship, a corporation, and a partnership.
 Businesses can range from small operations operating in one industry to large
operations operating in many industries around the world.

UNDERSTANDING A BUSINESS
Generally, a business begins with a business concept (the idea) and a name. Depending on
the nature of the business, extensive market research may be necessary to determine
whether turning the idea into a business is feasible and if the business can deliver value to
consumers. The business name can be one of the most valuable assets of a firm; careful
consideration should thus be given when choosing it. Businesses operating under fictitious
names must be registered with the state.

Businesses most often form after the development of a business plan, which is a formal
document detailing a business's goals and objectives, and its strategies of how it will
achieve the goals and objectives. Business plans are almost essential when borrowing
capital to begin operations.

It is also important to determine the legal structure of the business. Depending on the type
of business, it may need to secure permits, adhere to registration requirements, and obtain
licenses to legally operate. In many countries, corporations are considered to be juridical
persons, meaning that the business can own property, take on debt, and be sued in court.

BUSINESS STRUCTURES
Many businesses organize themselves around some sort of hierarchy or bureaucracy,
where positions in a company have established roles and responsibilities. The most
common structures include sole proprietorships, partnerships, corporations, and limited
liability companies (LLC), with sole proprietorships being the most prevalent.

A sole proprietorship, as its name suggests, is a business owned and operated by a single
natural person. There is no legal separation between the business and the owner; the tax
and legal liabilities of the business are thus that of the owner.

A partnership is a business relationship between two or more people who join to conduct
business. Each partner contributes resources and money to the business and shares in the
profits and losses of the business. The shared profits and losses are recorded on each
partner's tax return.

A corporation is a business in which a group of people acts together as a single entity; most
commonly, owners of a corporation are shareholders who exchange consideration for the
corporation's common stock. Incorporating a business releases owners of the financial

BUSINESS TRADE READING MATERIALS Page 3

liability of business obligations; however, a corporation has unfavorable taxation rules for
the owners of the business.

BUSINESS SIZES
Business sizes range from small owner-operated companies, such as family restaurants, to
multinational conglomerates such as General Electric. Larger businesses may issue
corporate stock to finance operations. In this case, the company is publicly traded and has
reporting and operating restrictions. Alternatively, smaller businesses may operate more
independently of regulators.

BUSINESS INDUSTRIES
A company may describe its business by communicating the industry in which it operates.
For example, the real estate business, advertising business, or mattress production business
are industries in which a business can exist. Because the term “business” can be
interchanged with day-to-day operations as well as the overall formation of a company, the
term is often used to indicate transactions regarding an underlying product or service. For
example, ExxonMobil transacts business by providing oil.

WHAT IS TRADE?
TRADE is a basic economic concept involving the buying and selling of goods and services.
In other words, this is the exchange of goods or services between parties or compensation a
buyer pays to a seller. It can happen within an economy between manufacturers and
consumers. Trade always involves a medium of exchange, such as cash. When goods and
services are exchanged for other goods and services without the use of money, we call this a
barter form of trade.

Basically, there are two types of trade: home (internal) trade and international trade.
INTERNAL TRADE is conducted within the country, usually in terms of wholesale and
retail. INTERNATIONAL TRADE, on the other hand, permits countries to share goods
and services and will help to expand markets. Moreover, International Trade creates
market competition and diversity. By the development of international trade, people can
buy any product from the market. If it is not available in the local market, they can even
buy from international markets, or even order online. For instance, an Indian consumer
can choose between a Japanese, German or Indian car. International Trade has introduced
greater competition to the market and therefore, more competitive prices, bringing
cheaper products to the consumer.

Moreover, import and export are two important terms in trading. If a product is sold to the
global market, it is an export, and if a product is bought from the global market, it is an
import.

Trade does not only include goods; it can also involve services. Tourism, banking,
consulting and transportation are some examples of service trading.

DOMESTIC TRADE

BUSINESS TRADE READING MATERIALS Page 4

Domestic trade, different from international trade, is the exchange of domestic goods
within the boundaries of a country. This may be sub-divided into two categories, wholesale
and retail. Wholesale trade is concerned with buying goods from manufacturers or dealers
or producers in large quantities and selling them in smaller quantities to others who may
be retailers or even consumers. Wholesale trade is undertaken by wholesale merchants or
wholesale commission agents.

Retail trade is concerned with the sale of goods in small quantities to consumers. This type
of trade is taken care of by retailers. In actual practice, however, manufacturers and
wholesalers may also undertake retail distribution of goods to bypass the intermediary
retailer, by which they earn higher profits.

IMPORTANCE AND ROLE..

The importance of domestic trade in a country is that it facilitates exchange of goods within
the country. By doing this it also makes sure that factors of production reach to the right
places so that the economy of the country can grow. By allowing all different types of goods
and services to reach to all parts of the country it improves the standard of living of the
residents of the country as well as the employment rate of the country. And it helps the
growth of an industry by ensuring the availability of raw materials.

Traders from outside the country will have to come in contact with internal traders,
because it is not easy to come directly into another country and get the required products.

WHOLESALE TRADE
Wholesalers play a major role in working of domestic trade. One could even say that it is
the backbone of the domestic market. A wholesaler is directly in contact with the
manufacturers but in indirect contact with the consumers. A wholesaler generally deals
with one type of industry. e.g. machinery, textile, stationery. A wholesaler is not only into
selling of products as it is also involved in packaging, advertising, grading, and market
research. They have their own go downs which saves the manufacturers from bothering

BUSINESS TRADE READING MATERIALS Page 5

about storage. They normally make cash payments from retailers and sometimes
consumers themselves and give advance payments which benefits the manufacturers. They
sell in smaller quantities to retailers, which refrains the retailers from requiring storage
space. They do allow credit facilities to retailers at times. For example as we see that Bhija
one of the great wholesalers usually get information documents from retailers.

RETAIL TRADE
A retailer is normally the final seller of a product. It makes its purchases made from
Wholesalers and sales are made to the customers directly. Retailers do not particularly
have to be from one industry i.e. they can trade in a variety of products at the same time. It
generally has purchases made by credit and sales made in cash. Sales as compared to
wholesalers are made in small quantities, retailers carry out their trade at places where
consumers live.

INTERNATIONAL TRADE
International trade is the exchange of capital, goods, and services across international
borders or territories because there is a need or want of goods or services.

In most countries, such trade represents a significant share of gross domestic product
(GDP). While international trade has existed throughout history (for example Uttarapatha,
Silk Road, Amber Road, scramble for Africa, Atlantic slave trade, salt roads), its economic,
social, and political importance has been on the rise in recent centuries.

Carrying out trade at an international level is a complex process when compared to

domestic trade. When trade takes place between two or more nations factors like currency,
government policies, economy, judicial system, laws, and markets influence trade.

To smoothen and justify the process of trade between countries of different economic
standing, some international economic organisations were formed, such as the World
Trade Organization. These organisations work towards the facilitation and growth of
international trade. Statistical services of intergovernmental and supranational
organisations and national statistical agencies publish official statistics on international
trade.

CHARACTERISTICS OF GLOBAL TRADE

A product that is transferred or sold from a party in one country to a party in another
country is an export from the originating country, and an import to the country receiving
that product. Imports and exports are accounted for in a country's current account in the
balance of payments.

Trading globally may give consumers and countries the opportunity to be exposed to new
markets and products. Almost every kind of product can be found in the international
market, for example: food, clothes, spare parts, oil, jewellery, wine, stocks, currencies, and
water. Services are also traded, such as in tourism, banking, consulting, and
transportation.

BUSINESS TRADE READING MATERIALS Page 6

Advanced technology (including transportation), globalisation, industrialisation,
outsourcing and multinational corporations have major impacts on the international trade
system.

Increasing international trade is crucial to the continuance of globalisation. Countries

would be limited to the goods and services produced within their own borders without
international trade. International trade benefits many countries in various aspects.

DIFFERENCES FROM DOMESTIC TRADE

International trade is, in principle, not different from domestic trade as the motivation and
the behavior of parties involved in a trade do not change fundamentally regardless of
whether trade is across a border or not.

However, in practical terms, carrying out trade at an international level is typically a more
complex process than domestic trade. The main difference is that international trade is
typically more costly than domestic trade. This is due to the fact that a border typically
imposes additional costs such as tariffs, time costs due to border delays, and costs
associated with country differences such as language, the legal system, or culture (non-
tariff barriers).

Another difference between domestic and international trade is that factors of production
such as capital and labor are often more mobile within a country than across countries.
Thus, international trade is mostly restricted to trade in goods and services, and only to a
lesser extent to trade in capital, labour, or other factors of production. Trade in goods and
services can serve as a substitute for trade in factors of production. Instead of importing a
factor of production, a country can import goods that make intensive use of that factor of
production and thus embody it. An example of this is the import of labor-intensive goods
by the United States from China. Instead of importing Chinese labor, the United States
imports goods that were produced with Chinese labor. One report in 2010, suggested that
international trade was increased when a country hosted a network of immigrants, but the
trade effect was weakened when the immigrants became assimilated into their new
country.

CONCEPTS OF INTERNATIONAL BUSINESS ENVIRONMENT

 When business operations are carried out in more than one country apart from the
home nation, then it is termed as International Business.
 A business firm is known as a multinational enterprise (MNE) when it carries out its
production or operations in more than one country. An MNE is also referred as a
multinational corporation (MNC) or transnational corporation (TNC).
 Environment refers to sum total of what is around someone which includes living
things and natural forces. It is also referred as “the conditions that affect the
behavior and development of a business enterprise.”

BUSINESS TRADE READING MATERIALS Page 7

  When we combine these two words International Business and Environment, it
refers to conditions or surroundings prevalent in foreign countries that affect the
functioning of a business firm and its activities.

MICRO AND MACRO ENVIRONMENT

Environmental factors are mostly external to a firm and are largely uncontrollable. The
business environment of a firm comprises of Micro and Macro environment.
 Micro Environment or Task Environment or Operating Environment consists of
those individuals or groups which are very close to business and with which the
organizations comes into frequent and direct contact in its business activities.
o It primarily consists of customers, suppliers, marketing intermediaries,
competitors, and public.
 Macro Environment or Remote Environment refers to factors which are external to
a business enterprise and are less controllable as compared to factors under micro
environment.
 The environment of each country varies from the other and if a business firm has to
operate in more than one country, then it should have a thorough understanding of
differences in environmental factors amongst nations.
 The strategies that work well in one country might not work in the other country
due to differences in cultural, political, legal and economic factors.

SIGNIFICANCE OF INTERNATIONAL BUSINESS ENVIRONMENT

 Whenever a business firm decides to conduct its operations internationally, it has to
take two major decisions:
1. The countries or markets suitable to enter and
2. The mode of entry for entering into these markets.
 Both these are strategic and important decisions for a firm and require in depth
analysis of environmental conditions and situations of these markets.
 A firm would enter into those countries or markets where there is enough market
potential and scope of growth and expansion.
 Once the firm has identified countries with market potential, it has to decide the
mode of entry. There are various modes of entry such as exporting, franchising,
licensing, joint venture or setting up wholly owned subsidiaries.
 A business firm makes this important decision only after analyzing the various
environmental factors.
 Since the environmental factors differ from nation to nation, a business firm cannot
be successful by replicating the domestic decisions and practices in other nations of
the world. A multinational firm needs to continuously monitor the changes in
political, legal, cultural, social and economic environment of foreign countries and
accordingly make strategic decisions in each country.

COMPONENTS OF INTERNATIONAL BUSINESS ENVIRONMENT

BUSINESS TRADE READING MATERIALS Page 8

  International environment comprises of economic, socio-cultural, geographic,
financial, political, legal and technological forces.
 It is not necessary that all the components of international environment are relevant
for every business firm operating globally. It depends upon the nature of firm and
its strategies.
 For example, a business firm interested in exporting its products to the other
nations needs to know about the economic policies and regulations of the foreign
nations.
 However, if a business firm is interested in setting up a manufacturing plant in a
foreign nation, then analysis of political, cultural, legal and geographic environment
would be equally important as economic environment.
ECONOMIC ENVIRONMENT
 ECONOMIC ENVIRONMENT is the most important component of international
business environment.
 Analysis of economic factors helps a business firm to make the most significant
decision whether to enter into a foreign market or not and to frame the strategies it
should implement to run its business operations successfully.
 Economic Environment includes three broad aspects:
a) Type of Economic Systems of a foreign country which can be capitalism,
socialism or mixed economy
b) Economic Conditions of a country comprising of GDP, per capita income,
employment, inflation, infrastructure, population, market, urbanization, foreign
exchange reserves, Balance of Payments etc.
c) Economic Policies comprising of fiscal, monetary, industrial, trade and foreign
investment policies of the country.

BUSINESS TRADE READING MATERIALS Page 9

  Various international organizations carry out research on economic indicators of
individual nations like United Nations, World Bank, World Economic Forum and
Transparency International etc.
 This helps the business firms to determine the economic viability of a country before
entering into such market for international business.
SOCIO-CULTURAL ENVIRONMENT

 International business means operating in a cross cultural environment. This makes

the business more complex because the business firm must appreciate how different
the foreign culture is from their own and how this difference is to be reflected in
their business strategies.
 Socio-cultural factors are another important element of business environment that
has a considerable impact on business operations especially on the international
business as social and cultural factors vary to a great extent from one country to
another.
 These factors considerably influence various aspects of human behavior like the
products they consume; colors, designs and symbols they like and the importance
they place on religion, work, family etc.
 There are various elements of Cultural Environment that managers of international
business must be aware of. These are:

a) Language:
 The world has more than 3000 languages which can pose problems for marketers in
designing advertising campaigns and product labels.
 Therefore, a global marketer must have in depth understanding of the language of
the country where it is going to operate.
b) Religion:

BUSINESS TRADE READING MATERIALS Page 10

  Religion influences the values and attitudes of individuals and societies. It has a
considerable impact on attitude of people towards wealth, way of dressing,
consumption habits and their way of living.
 There are various religions in the world, for example, Buddhism, Hinduism,
Christianity, Islam, Judaism etc.
 Each religion has its own value system and determines people’s code of conduct.
 A thorough understanding of the religions present in the foreign countries would
help the multinational firm in understanding the people’s attitude towards various
products and services.
c) Education:
 Education is an important part of culture which leads to development of new skills,
ideas, values and attitudes amongst the members of society.
 Education is termed as formal when it is taught in a particular type of environment
and can be informal when the knowledge is shared outside the classroom for
developing new ideas.
 It is an important factor as it helps in determination of availability of educated
manpower in a country.
 By analyzing the types of education in a nation, managers of international business
can determine the level of communication skills of its employees and the extent to
which they would require additional training for performing the job efficiently.
d) Aesthetics:
 Aesthetics usually implies to society’s sense of beauty related to colors, shapes,
sounds, number etc. and is reflected in the form of arts, music, drama and dance.
 They basically refer to the peoples‟ attitudes and responses towards particular
product, design, color or label.
 It is important for international marketers to be aware of these cultural differences
while creating advertising appeals and messages for their products so as to avoid
any major blunders.
 Sensitivity to the differences in aesthetics amongst nations can greatly help the
international business firm in correctly designing their products and messages for
each country.
e) Values and Attitudes:
 Values are a set of beliefs or way of thinking of individuals present in a society.
 Values are opinions which are reflected in an individual’s behavior.
 Attitude, on the other hand, implies tendency of an individual to behave in a
particular manner towards an object or event.
 Values differ between countries and these differences in values are reflected in
different behaviors relating to consumption level and risk taking.
 It is important for a business manager to understand the value system of a country
where it is going to operate and ascertain the attitude of people towards work,
achievement, education change, foreign goods, risk etc.
f) Customs and Practices:
 A global marketer must be familiar with long established practices and social codes
of conduct present in different countries in order to achieve desired objectives.

BUSINESS TRADE READING MATERIALS Page 11

 Customs and Practices are important as they influence the usage of products and
their packaging and labelling.
 Hence, a business firm dealing with people having varying cultures should be aware
of these differences while having business negotiations with them.
g) Social Groups:
 Social Groups are an important part of every culture and influence various aspects
of individual’s life.
 Social groups primarily consist of family and reference groups. These groups
influence the pattern of living of people and their interpersonal relationships with
others in society.
 Therefore, a manager of international business should conduct a study of social
groups which would help the business firm understand the way people organize
their activities.

POLITICAL-LEGAL ENVIRONMENT
 A business firm can operate in a foreign country only as per the rules and policies of
government of their country. The government of a nation decides the manner in
which a business firm can operate in their country.
 Political environment has the following elements:
a) Type of Government and Political Party:
b) Political Ideology: 
c) Political Stability:

A) TYPE OF GOVERNMENT AND POLITICAL PARTY:

 Forms of government in a nation can be Parliamentary structure, elected
monarchy or absolute monarchy.
 Parliamentary form of government is formed from people’s representatives
whereas in an absolutist government, policy making is conferred in few hands.
B) POLITICAL IDEOLOGY:
 It is important for a business manager to know and assess the government
attitudes towards foreign goods, capital and investment where it is going to
operate.
 The ideologies of the political parties may differ from nation to nation and it is
significant to be aware of these ideologies before negotiating business terms with
foreign countries.
C) POLITICAL STABILITY:
 Political Stability is a major concern for a multinational firm. The investments
made by a firm in a host nation are huge and involve lot of capital and
investment.
 Therefore, a business firm would like to enter only into politically stable
economies of the world.
 Frequent changes in government or change in government policies can have
serious consequences for an outside firm present in their country.
 Apart from political factors, it is important that an international business firm is
aware of laws prevalent in foreign nations as every business has to work within
the legal framework.
BUSINESS TRADE READING MATERIALS Page 12
  Each country has its own rules and regulations related to marketing of products,
location of plant, and employment of people, fund raising from people, taxation
policies and intellectual property.
 A business firm must have a thorough understanding of these laws before they
decide to enter into international business with a foreign country.

ECOLOGICAL ENVIRONMENT
 Ecological Environment is related to people, plants, animals and surrounding
environment. Every country has some rules and legislations concerning the
preservation of natural resources and protection of environment.

 In today’s competitive environment, a business firm is assessed not only in financial

parameters but also on its efforts towards conservation of natural resources and
overall reduction in pollution levels.

GEOGRAPHIC ENVIRONMENT
 Geographic Environment is concerned with a country’s climatic conditions,
topography and natural resources. Every business firm entering into international
business must be aware of geographic features of a foreign nation.
 These factors influence the consumption patterns of people and lead to demand for
different categories of products. People of different nations vary in their various
needs due to different climatic conditions.
 Geographic conditions influence a business firm’s decision on plant location as it
prefers to set up a manufacturing plant in those countries where climatic conditions
are favorable and has easy availability of cheap raw materials and labor.
 A business firm’s distributions strategies also depend largely on the geographic
conditions of foreign markets.

REGIONAL ASSOCIATIONS IN INTERNATIONAL ENVIRONMENT

 The world is divided into various regions which have different cultures, geography
and history. Some nations are fully industrialized whereas others are at varied
stages of development.
 If we look at the world closely, the major regions can be categorized as Africa, Latin
America, Middle East, Asia, Central and Eastern Europe, Western Europe and
North America.
 Regional Economic Cooperation has gained importance in today’s international
environment as it eliminates restrictions on international trade, factor mobility and
payments between two or more nations. It helps two or more countries to
economically unite into a region.
 Regional cooperation amongst the nations can be through different forms like free
trade area, customs union, common market, economic union and political union.
 The benefits of regional associations are numerous as listed below in table 2.

BUSINESS TRADE READING MATERIALS Page 13

FOLLOWING ARE FEW EXAMPLES OF REGIONAL ASSOCIATIONS:
1. The European Union (EU) is a political and economic arrangement between 28
member countries in Europe. Its members are: Austria, Belgium, Bulgaria, Croatia,
Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany,
Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta,
Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the
UK.
2. EFTA (European Free Trade Association) is another example of regional trade
association in Europe. Its members are Iceland, Liechtenstein, Norway and
Switzerland.
3. The North American Free Trade Agreement (NAFTA) was formed on January 1,
1994 between United States of America, Canada and Mexico.
4. ASEAN (Association of Southeast Asian Nations) was formed in 1967 by five
member nations i.e. Indonesia, Malaysia, Philippines, Singapore and Thailand. The
countries which joined ASEAN later on were Brunei, Cambodia, Laos, Myanmar
and Vietnam.
5. The other example of regional association in Asia Pacific region is APEC (Asia-
Pacific Economic Cooperation). It was formed in 1989 with an objective to
accelerate economic growth, prosperity and overall development of Asia-Pacific
region. It consists of 21 member countries which together account for around 40
percent of the world’s population and 54 percent of the world’s GDP.

BUSINESS TRADE READING MATERIALS Page 14

BUSINESS TRADE READING MATERIALS Page 15