MODULE CODE 551/552MG32

Module name: Business Organization and Environment

Introduction to business organization

The human society requires different types of economic activities. Such economic activities are
performed to fulfill the needs and wants of individuals and families as well as to uplift their
living standards. The nature and volume of the economic activities largely depend on the
economic prosperity of the society. These economic activities should be performed in an
organized way and efficient manner for the optimum utilization of scarce resources. In order to
make optimum utilization of available resources, an appropriate form of business organization
with available resources should be selected. The development of the forms of business
organization is connected with the development of industry and commerce.

Meaning and definition

The term 'business' refers to all the economic activities, which are carried on by individuals and
organizations for generating incomes. It is concerned with the production and distribution of
goods and services for earning the profit. It is centered on the service and satisfaction of the
customers by fulfilling their needs and wants. It involves risk and uncertainty and committed to
fulfilling its responsibilities.The term 'organization' refers to the act of bringing necessary
resources for the production and distribution of goods and services and utilizing them in the best
possible manner for achieving the definite objectives. The production and distribution of goods
and services require a number of resources like men, materials, money, machine, and
management. The organization is a means for bringing cooperation among these resources for
continuous production and distribution of goods and services for fulfilling needs and wants of the
customers.The term 'business organization' is composed of two terms as 'business' and
'organization'. Hence, the term business organization refers to the act of bringing resources and
utilizing them in the best possible manner for the production and distribution of goods and
services in order to earn profit through the service and satisfaction of the customers. It is
concerned with the proper management of available resources for achieving the specified
objectives of the business. The resources can be managed either by an individual or by the
government. The following are some of the main definitions of business organization:
"Business organization is the act of bringing into effective cooperation the available resources
for production and distribution of goods with a view to earn the profit. " - Dr. A.N. Agarwala
"Business organization is a concern, company or enterprise which buys and sells, is owned by
one group or group of persons and is managed under a specific set of operating policies." –
Wheeler
Characteristics of a successful business.
1.      Have a clear vision

Of course the first important characteristic is to have a clear vision. If you don’t have a clear
vision of the business that you are trying to create, then how can you be successful in creating it?
First of all you need to figure out exactly the type of company you are looking to build. For
example, where do you see it l being in five years’ time? Do you have a goal for the number of
customers you’ll have? The number of employees? Having a clear vision of where you want
your business to go will help to contribute to its success.

2.      Have a business plan

As well as having a clear vision of what you want your business to achieve, you should also have
a plan detailing exactly how you will make your business successful. According to Entrepreneur,
writing out your business plan forces you to review everything at once; your marketing
assumptions, operations plan, financial plan and staffing plan, helping you to spot connections
you otherwise would have missed. Within your business plan you should identify what you want
to accomplish in the next twelve months to ensure you’re on the right path to achieving your
long-term goals for your business.

3.      Create short-term goals

As well as having a business plan for long-term goals, the most successful businesses are those
which have measurable short-term goals. Specifically, they identify what the company needs to
achieve in the next quarter, month and week to ensure that they meet their annual goals. Goal
setting is not a one-time event when formulating your business plan, but an ongoing process. It’s
important to remember that goal setting shouldn’t solely be about how much revenue you want
to generate. It could relate to your service offerings, business growth, or anything that is
important to enhancing the business.

4.      Skill development

As well as setting goals for the business, you should ensure that your skill development is
continuous. Success is the result of expanding your knowledge and developing those skills to the
best of your ability, providing investment in your brand and quality assurance. To be successful,
businesses should commit resources and time to training their employees to ensure that everyone
can work as effectively and efficiently for the business. With the changing nature of businesses,
you should provide continual training for your employees, something which you should include
within your business plan. You should implement frequent assessments of your training and
operations and, if you uncover a weak area, address it through revising your methods.

5.      Be a great marketer

Businesses usually receive the most success through their marketing efforts, so ensure that your
business has a clear marketing plan in place. Of course, if you’re providing a good service to
your customers you will benefit from word of mouth recommendation, but usually you want or
need your business to grow faster. The key to your marketing plan is to utilise as many
marketing channels as possible. For example, attracting customers through pay-per-click
advertising, newsletters and social media is likely to attract more customers than it would from
using just one of these channels.

6.      Get to know your customers

One of the best characteristics a successful business can have is knowing their customers and
providing what they are looking for. Being able to understand your customers’ needs should be
at the centre of every successful business, whether you sell directly to your customers, or to other
businesses. The more you know about your customers and their needs, the more effective your
marketing efforts will be. By talking to your customers you can learn a great deal from them.
Ask them why or why not they’re buying from you and what they would want to see more of or
differently in the future. This way you can have a valuable picture of what’s important to them
and can provide them with that product or service to help your business become successful, as
well as having a loyal customer base.

7.      Be willing to change

If you are committed to developing a successful business, it’s important for you to think on your
feet and to be willing to change if something isn’t working. With today’s changing and
competitive business scene, the ability to change and adapt when necessary is crucial. Effective
change is evidenced when you are regularly evaluating and adapting your business plan and
goals to ensure that you achieve the vision you set for your business.  

8.      Be financially prepared

Running a business can be a rather expensive venture and you’ll need to have the right financial
profile to make the leap. Many small businesses struggle in their first year, with unexpected
expenses needing payment.  Or perhaps you need to add more budget to your marketing plan to
get your name out there. According to Bplans, the reason many businesses fail isn’t because they
are unprofitable, but because they are unable to pay their debts as they fall due. With start-ups,
main focus is on cash flow and breaking even; for already established businesses who are
running profitably, it becomes less important. To ensure you can run a successful business it’s
important to be financially prepared for anything that might be thrown at you. By having
something such as a business cash advance you are able to put more budget into your business
plans, or even expand your business without having to worry.
9.      Never give up

Of course the life of a business owner isn’t ever going to be easy, particularly in the early days.
There’s likely to always be more work that can be done and there can be significant ups and
downs along the way. However, you should never give up, even when business looks bad. By
sticking to your business plan you can ensure that you attain the goals you set out and that your
business becomes successful.
10. Be passionate

Of course it’s impossible to have a successful business if you don’t yourself believe it will be
successful and are truly passionate about your work. If you’re passionate then you are likely to
be more productive with your business and help it to grow.

Features of Business
The common features of a business can be given below:
(a) Dealing in goods and services for value: Business provides goods and services to society. The
goods may be for consumption or for production. The first type of goods are called as consumer
goods, e.g., clothes, shoes, fans, sugar etc. and the second type of goods are called as capital
goods, e.g., plant and machinery. These goods and services are meant for sale. The goods and
services produced for personal consumption are not within the scope of business. So, when a
person repairs his own scooter, it is not business but when he opens a repair workshop that
becomes business.
(b) Recurring nature of transactions: A single transaction of sale or purchase or any dealing
casually does not amount to a business transaction though it might have resulted into profits. A
transaction comes under business only when it occurs at regular intervals or it is recurring in
nature. For example, where a person sells his scooter that is not business. But if he opens a
garage and keeps a stock of scooters for sale that would constitute business.
(c) To earn Profits: Business is a human activity directed towards earning wealth. Profit is
essential for the livelihood of the entrepreneur as well as survival and expansion of the business.
(d) Increase in Utility: Business activities create utility in one form or the other. Manufacturers
convert raw materials into finished products: whole salers, retailers and transporters etc. help in
their distribution. Thus each one of them increases the utility of goods.
(e) Risk element: Business is full of risks. Profits do not depend solely on efforts of entrepreneur.
Certain other forces may intervene over which a business man had no direct control. These
factors may be changes in consumer tastes and fashions; changes in technology, strikes; power
failures; loss by fire and theft etc. Some of these risks can be passed on to others by means of
insurance while some risks have to be borne by businessman. Most of the business decisions
relate to future and future is full of uncertainties. It is because of these uncertainties that business
is also called as an adventure.
Form of Business organization
Business can be established in various forms. It can be established and managed by an
individual, group, government and other parties. So, on the basis of ownership and management,
business organizations can be classified into the following forms:

1. Sole trading Concern

2. Partnership Organization
3. Joint Stock Company
 4. Public Enterprises
5. Co-operative Society
6. Multinational Company

Classification of business

Business activities are classified on the basis of size, ownership and function.

1. Activities on the Basis of Size

On the basis of size, business activities may be broadly grouped into two categories.
a. Small Scale
Small scale units require less capital. They employ small number of workers
and produce the goods on small scale. Example: Manufacturing textiles in
handlooms or power looms.
b. Large Scale
Large scale units require huge capital. They employ large number of workers
and produce the goods on large scale. Examples (i) Manufacturing Textiles
in a large Textile mill. Example. Raymonds

2. Activities on the Basis of Ownership

On the basis of ownership business activities may be broadly grouped into three
categories.

a. Private Enterprises: An enterprise is said to be a private enterprise where it is

owned, managed and controlled by persons other than Government.
(i) Sole proprietorship. Example - Sundar Stationeries
(ii) Partnership firms. Example - Ramesh Bros.

b. Public Enterprises: An enterprise is said to be a public enterprise where it is

owned, managed and controlled by Government or any of its agencies or both. Public
enterprises may be organized in several forms such as, (i) Departmental undertaking -
Public Works Department (PWD) (ii) Public Corporation - Oil and Natural Gas
Corporation (ONGC)

c. Joint Enterprises: An enterprise is said to be a joint enterprise where it is

owned, managed and controlled by Government and private entrepreneurs.

3. Activities on the Basis of Function: On the basis of functions, business activities may
be broadly grouped into two categories.

a. Industry: Industry includes all those business activities which are connected
with raising, producing or processing of consumer goods. Example - bread, butter,
cheese, shoes, or capital goods like machinery.
 b. Commerce: It establishes a link between the producers and consumers of
goods and maintains a smooth and uninterrupted flow of goods from producers to
consumers.

Classification of Business Activities -

Various business activities may be classified into two broad categories — industry and
commerce. Industry is Concerned with the production or processing of goods and materials.
Commerce includes all those activities groups of firms producing similar or related goods. For
example, cotton textile industry refers to all manufacturing units producing textile goods from
cotton. Similarly, electronic industry would include all firms producing electronic goods, and so
on. Further, in common, certain services like banking and insurance are also referred to as
industry, say banking industry, insurance industry etc.

An industry is a group of manufacturers or businesses that produce a particular kind of goods or

services.

Industries may be divided into three broad categories namely primary, secondary and tertiary.

1. Primary industries: This is also known as an extractive industries. It include activity

and connected with the production of wealth directly from natural resources. Such as like
water, air and land etc. all those activities, which are connected with the extraction and
production of natural resources and reproduction and development of living organisms,
plants etc. These industries may be further subdivided as follows:
 Extractive industries:These industries extract or draw out products from natural
sources. Extractive industries supply some basic raw materials that are mostly products of
the soil. Products of these industries are usually transformed into many other useful
goods by manufacturing industries. Important extractive industries include farming,
mining, lumbering, hunting and fishing operation.

 Genetic industries:It means parentage or heritary. These industries remain engaged in

breeding plants and animals for their use in further reproduction. For the breeding of
plants, the seeds and nursery companies are typical examples of genetic industries. In
addition, activities of cattle-breeding farms, poultry farms, and fish hatchery come under
the class of genetic industries.

2. Secondary industries:In this converting raw material in to finishing product. These are
concerned with using the materials, which have already been extracted at the primary
stage. These industries process such materials to produce goods for final consumption or
for further processing by other industrial units. For example, the mining of an iron ore is
a primary industry, but manufacturing of steel is a secondary industry. Secondary
industries may be further divided as follows:

 Manufacturing industries: they are concerned with the changing of the raw material
and semi finishing goods in to finished product. They turn out diverse finished products
that we consume, through the conversion of raw materials or partly finished materials in
their manufacturing operations. Manufacturing industries may be further divided into our
categories on the basis of method of operation for production.

 Synthetical industry: which combines various ingredients into a new

product, as in the case of cement.
 Analytical industries: involves successive stages for manufacturing
finished products, as in the case of sugar and paper.
 Assembling industry: which assembles different component parts to make
a new product, as in the case of television, car, computer, etc.

 Construction industries: These industries are involved in the construction of buildings,

dams, bridges, roads as well as tunnels and canals. Engineering and architectural skills
are an important part in construction industries.

3. Tertiary industries: These are concerned with providing support services to primary and
secondary industries as well as activities relating to trade. These industries provide
service facilities. As business activities these may be considered part of commerce
because as auxiliaries to trade they assist trade. Included in this category are transport,
banking, insurance, warehousing, communication, packaging and advertising.
4. Quaternary industry: This industry involves research and development industries e.g.
IT.
Commerce
Commerce relates to "the exchange of goods and services, especially on a large scale." It
includes legal, economic, political, social, cultural and technological systems that operate in a
country or in international trade.

Definition of Commerce

According to James Stephenson,

"Commerce is an organized system for the exchange of goods between the members of the
industrial world."

Commerce includes all the activities that help in facilitating the exchange of goods and services
from the manufacturer or the producer to the ultimate consumers. Majorly the activities are
transportation, banking, insurance, advertising, warehousing, etc. that act as an aide in the
successful completion of the exchange.

Once the products are manufactured these cannot reach directly to the customer, the same has to
pass through a series of activities. The first wholesaler will purchase the product, and with the
use of transportation, the goods will be made available to the stores and at the same banking and
insurance service will be availed by him to have protection against the loss of goods. The retailer
will then sell to the ultimate consumer. All these activities come under the commerce head.

In short, it can be said that commerce is the branch of business that helps to overcome all the
hindrances that arise in the facilitation of exchange. Its major function is to satisfy human wants
both basic and secondary by making the goods available to different parts of the country. No
matter where the goods have been manufactured the commerce has made it possible to reach the
world – wide.

Importance of Commerce

The importance of trade and commerce are mentioned in following points :-

1. Commerce tries to satisfy increasing human wants

Human wants are never ending. They can be classified as 'Basic wants' and 'Secondary wants'.
Commerce has made distribution and movement of goods possible from one part of the world to
the other. Today we can buy anything produced anywhere in the world.This has in turn enabled
man to satisfy his innumerable wants and thereby promoting social welfare.

2. Commerce helps to increase our standard of living

Standard of living refers to quality of life enjoyed by the members of a society. When man
consumes more products his standard of living improves. To consume a variety of goods he must
be able to secure them first. Commerce helps us to get what we want at right time, right place
and at right price and thus helps in improving our standard of living.
3. Commerce links producers and consumers
Production is meant for ultimate consumption. Commerce makes possible to link producers and
consumers through retailers and wholesalers and also through the aids to trade. Consumers get
information about different goods through advertisements and salesmanship. The manufacturers
are regularly informed about the likes and dislikes of the consumers through marketing research.
Thus commerce creates contact between the centers of production and consumption and links
them.

4. Commerce generates employment opportunities

The growth of commerce, industry and trade bring about the growth of agencies of trade such as
banking, transport, warehousing, advertising, etc. These agencies need people to look after their
functioning. Increase in production results in increasing demand, which further results in
boosting employment opportunities. Thus development of commerce generates more and more
employment opportunities for millions of people in a country.

5. Commerce increases national income and wealth

When production increases, national income also increases. In a developed country,
manufacturing industries and commerce together accounts for nearly 80% of total national
income. It also helps to earn foreign exchange by way of exports and duties levied on imports.
Thus, commerce increases the national income and wealth of a nation.

6. Commerce helps in expansion of aids to trade

With the growth in trade and commerce there is growing need for expansion and modernization
of aids to trade. Aids to trade such as banking, communication, adversatising and publicity,
transport, insurance, etc., are expanded and modernised for the smooth conduct of commerce.

7. Commerce helps in growth of industrial development

Commerce looks after the smooth distribution of goods and services made available by the
industry. Without commerce, industry will find it difficult to keep the pace of production. It
helps to increase demand for goods on one hand and on the other hand it helps industries by
getting them the necessary raw materials and other services. Hence, commerce helps in attaining
better division of labour and industrial progress.

8. Commerce encourages international trade

Through commerce we can secure a fair and equitable distribution of goods throughout the
world. With the help of transport and communication development, countries can exchange their
surplus commodities and earn foreign exchange, which is very useful for importing machinery
and sophisticated technology. It ensures faster economic growth of the country.

9. Commerce benefits underdeveloped countries

Underdeveloped countries can import skilled labour and technical know-how from developed
countries. While the advance countries can import raw materials from underdeveloped countries.
This helps in laying down the seeds of industrialization in the underdeveloped countries.
10. Commerce helps during emergencies
During emergencies like floods, earthquakes and wars, commerce helps in reaching the essential
requirements like foodstuff, medicines and relief measures to the affected areas.

Commerce: The process of buying and selling and all those activities which facilitate trade, such
as storing, grading, packaging, financing, insuring, transporting are called commerce. The
principle function of commerce is to remove the hindrances of person, place, time, exchange and
knowledge, in connection with distribution of commodities until they reach the consumers. By
removing these hindrances commerce ensures a free and smooth flow of goods from producers to
consumers. A brief description of these hindrances is given below:

Hindrances of persons: Buyers and sellers of goods and services are not always found at the
same place so that contact between them is hindered by distance. Commerce helps to remove this
hindrance between persons by means of trade. Trade as part of commerce therefore plays a major
role in establishing contact between sellers and buyers.

Hindrance of Exchange: With money as the medium of exchange, payment for goods and
services is made possible through institutions such as the banks. In this way, banks as part of
commerce act to remove the hindrance of exchange and enable buyers to procure goods,
especially by extending their own credit.

Hindrances of place: The goods may be produced at one place and the demand for them may be
greatest at a different place where they are not produced. This barrier of distance is removed by
commerce through the different means of transport and the goods are carried from one place to
another.

Added to direct movement of goods from the points of production to the points of consumption
are the services of insurance to cover the risk of loss and packing to protect goods against
damage and pilferage.

Hindrances of Time: Goods are often produced in anticipation of demand. They must therefore
be stored in a safe place to be released as and when demanded. The function of storing and
preservation is performed by warehouses. The warehouses remove the hindrances of time by
balancing the time lag between production and consumption, and so create time utility. Insurance
comes into play where goods are stored in warehouses and cover the risk of loss or damage
through theft or fire.

Hindrances of Information: Selling of products is today the most important problem that a
manufacturer has to solve. His product may be the best, but unless the prospective buyer knows
about them they remain unsold. Advertising and personal salesmanship help to remove this
hindrance of the lack of knowledge or information by bringing to the notice of the people the
advantages of buying the goods and services offered.

To sum up, commerce may be said to be that branch of business which facilitates exchange of
goods by removing the various hindrances, namely, those of persons through trade and of
exchange through banking; of place through transport, insurance and packing; of time through
warehousing and insurance; lack of knowledge or information through advertising and
salesmanship.

Commerce includes two types of activities, viz.,

1. trade
2. auxiliaries

Buying and selling of goods is termed as trade. But there are a lot of activities that are required to
facilitate the purchase and sale of goods. These are called services or auxiliaries to trade and they
include transport, banking, insurance, communication, advertisement, packaging and
warehousing. Commerce, therefore, includes both, buying and selling of goods i.e., trade as well
as auxiliaries such as transport, banking, etc. Commerce provides the necessary link between
producers and consumers. It embraces all those activities, which are necessary for maintaining a
free flow of goods and services. Thus, all activities involving the removal of hindrances in the
process of exchange are included in commerce. The hindrances may be in respect of persons,
place, time, risk, finance, etc. The hindrance of persons is removed by trade thereby making
goods available to the consumers from the producers. Transport removes the hindrances of place
by moving goods from the places of production to the markets for sale. Storage and warehousing
activities remove the hindrance of time by facilitating holding of stocks of goods to be sold as
and when required. Goods held in stock as well as goods in course of transport are subject to the
risk of loss or damage due to theft, fire, accidents, etc. Protection against these risks is provided
by insurance of goods. Capital required to undertake the above activities is provided by banking
and financing institutions. Advertising makes it possible for producers and traders to inform
consumers about the goods and services available in the market. Hence, commerce is said to
consist of activities of removing the hindrances of persons, place, time, risk, finance and
information in the process of exchange of goods and services.

Trade : Meaning, Importance, Forms & Aids Of Trade

Meaning Of Trade:

Trade is the buying and selling of goods and services. It involves the direct exchange of goods
and services for money or other goods, which is called barter. It is the transfer of goods and
services from one person or entity to another, following payment or exchange of goods. It is
sometimes called Commerce or Financial transaction or even barter. A network that allows trade
is called a market.

Trade is an important factor of production, because in its absence, the producer or manufacturer
will not do business, since every business is set up to make profit.

Importance Of Trade

1. Trade enhances production of goods and services.

2. It creates employment even for people who cannot read or write.

3. It gives room for variety of items to be produced.

4. It creates relationship between buyers and sellers.

5. It helps in growth of industries.

6. It brings people of diverse culture and languages closely.

7. It brings development to a country.

8. It enhances movement of people from one place to another.

9. It promotes communication.

10. It brings technology closer to people.

11. Through trade, resources (raw materials) are converted into finished products for people to
use.

12. It enhances the social well being of citizens by exposing them to variety of quality products
including luxury items.

Forms Of Trade

Trade is divided into two main parts: Home Trade And Foreign Trade.

A) Home or Internal Trade

This is the exchange of goods or the buying and selling of goods and services within a country. It
is also known as domestic or internal trade and has two sub-divisions, wholesale trade and retail
trade.

i. Wholesale Trade: This involves buying goods in large quantity from the
manufacturer/producer and selling in small quantities to the retailers. A person who does this is
known as a wholesaler.

The wholesaler is often times called the middleman because he is in between the producer and
the retailer.

ii. Retail Trade: In this form of home trade, goods are bought in small quantities from the
wholesalers or sometimes direct from the manufacturer and sold in units to the public or final
consumers.

A retailer is a person who buys goods from the wholesaler or directly from the manufacturer and
sells them in small quantities to the final consumers.
B) Foreign or external Trade:

This is the exchange, buying and selling of goods and services between two or more countries of
the world. It is also known as international trade or external trade. Like home trade, Foreign
trade is divided into three groups. They are Import trade, Export trade and Entrepôts trade.

i. Import Trade: This is the bringing in of goods and services, knowledge and technology into a
country from another country.

ii. Export Trade: This is the selling of a country’s home made goods and services to other
countries of the world.

iii. Entrepot: This type of trade involves the importing and re-exporting of goods, It is a trade of
buying goods from a country and the goods are not sold in the country of import, but rather
exported to other countries. For example, you import a goods into a country, then you also export
that goods to another country, that is “Entrepot…

Aids Of Trades

These are factors which enhance the production and Distribution of goods and services. They are
called “Aids” because they helps trade (buying and selling) to flourish.

What are the Aids To Trade in Commerce?

Trade or exchange of goods involves several difficulties, which are removed by auxiliaries
known as aids to trade. It refers to all those activities, which directly or indirectly facilitates
smooth exchange of goods and services.
Aids to trade includes Transport, Communication, Warehousing, Banking, Insurance,
Advertising, Salesmanship, Mercantile agents, Trade promotion organizations in a country and
Global organizations for international trade. Auxiliaries ensure smooth flow of goods from
producers to the consumers.

What are various Aids To Trade?

The importance of aids to trade in commerce is explained in following points:

1. Transport

In the modern times there is a vast distance between centers of production and the centers of
consumption. This difficulty is removed by an important aid to trade known as transport.
Transport creates place utility.

There are several types of transport such as air, water and land transport. The geographical
distance between producers and consumers is removed with the help of transport.

The three main modes of transport:

1. Land :
a. Road
b. Railway
2. Water :
a. River
b. Sea
c. Canals
3. Air :
a. Airway

2. Communication
Communication means transmitting or exchange of information from one person to another. It
can be oral or in writing. It is necessary to communicate information from one to another to
finalize and settle the terms of sales such as prices of goods, discount allowed, facility of credit,
etc.

Modern means of communication like telephone, telex, telegraph, email, teleconference, etc.,
plays an important role in establishing contact between businessmen, producers and consumers.

3. Warehousing

There is a time gap between production and consumption. In other words, goods, which are
produced at one time, are not consumed at the same time. Hence, it becomes necessary to make
arrangements for storage or warehousing. Agricultural commodities like wheat and rice are
seasonal in nature, but are consumed throughout the year, on the other hand, goods such as
umbrellas and woolen clothes are produced throughout the year but are demanded only during
particular seasons. Therefore, goods need to be stored in warehouses till they are demanded. So it
creates time utility by supplying the goods at the right time to the consumer.

4. Insurance

Insurance reduces the problem of risks. The business is subject to risks and uncertainties. These
are inevitable in the field of business. Risks may be due to fire, theft, accident or any other
natural calamity. Insurance companies who act as risk bearer cover risks. Insurance tries to
reduce many risks by spreading them out over a greater number of people. The rate of premium
depends upon the type of risks and the period for which the risk is covered.

5. Banking

Banking solves the problem of finance. Businessmen receives money and also pays money in
large amounts. It is risky to carry large amount of cash from one place to another. Here comes
Banking as a solution. Banking and financial institutions solves the problem of payment and
facilitate exchange between buyer and seller. The businessmen may also require short-term and
long-term funds. Banks provide such finance to businessmen. Banks also advances loans in the
form of overdraft, cash-credit and discounting of bills of exchange.

6. Advertising
Advertising fills the knowledge gap and it solves the difficulty of information. Exchange of
goods and services possible only if producers can bring the products to the consumers.
Advertising and publicity are important media of mass communication. Advertising helps the
consumers to know about the various brands manufactured by several manufacturers. The media
used to advertise products are Radio, Newspapers, Magazines, TV, Internet, etc.

7. Salesmanship

It facilitates personal selling. Many a times, sales force is required to book orders directly from
dealers or customers. Salesmanship is very much required in the sales of services and industrial
goods. Again the sales force plays an important role in direct marketing, especially in the case of
selling insurance policies

8. Mercantile Agents

It removes personal difficulties. Mercantile agents are the middlemen who form a link between
the buyers and the sellers. They do not carry on business in their own name. In the process of
distribution, producers and consumers are unable to have direct contact, as consumers are spread
over a vast area. Mercantile agents remove this difficulty of personal contact.

There are several types of mercantile agents such as brokers, commission agents, auctioneers,
underwriters, insurers, etc.

9. Trade Promotion Organizations in a Country

They attend to difficulties of promotion and development of trade at the national level. These are
the organizations established by the business community to protect and promote their interest.
They play promotional and developmental role for members. They do market research work, act
as a clearing house of information, put their grievances before the government, make
representations, and help the business community in many ways.

The examples include Chambers of Commerce, Export Promotion Councils, Indian Institute of
Packaging, etc.

10. Global Organizations for International Trade

They attend the promotion and development of trade at international level. The main objective of
global organizations is to promote International trade. It helps exporters and importer by
collecting information about international marketing trends.
The examples of such global organizations are World Bank, IMF, WTO, etc.

Difference Between Trade and Commerce (with Comparison Chart) - Key Differences

Business Activities are grouped into two broad categories, i.e. industry and commerce.
Commerce is concerned with facilitating the exchange of goods and services in the economy. It
is sub-classified as trade and auxiliaries to trade. Many think that trade and commerce are the
same terms and can be used interchangeably. But the fact is both the terms are different from
each other and carry different meanings. Trade simply means buying and selling of goods and
services in return for money or money’s worth.

The scope of commerce is wider than that of trade, which not only refers to the exchange of
goods and services but also includes all those activities that are vital for the completion of that
exchange. To further comprehend the understanding of these two terms the basic comparison is
given below:

Trade Vs Commerce

Comparison Chart

Basis for
Trade Commerce
Comparison
Commerce means exchange of goods and
Trade means the exchange of
services between the parties along with the
goods and services between two
Meaning activities such as insurance, transportation,
or more parties in consideration
warehousing, advertising etc that completes
of money or money’s worth.
that exchange.
Narrow Wide
Scope

Type of Social Activity Economic Activity

Activity

Frequency of Isolated Regular

Transactions

Employment No Yes
opportunities
Between buyer and seller Between producer and consumer
Link

Demand and Represents both Represents only the demand side

supply side
 Basis for
Trade Commerce
Comparison

Capital More Less

requirement

Key Differences between Trade and Commerce

Following are the major differences between trade and commerce:

1. Trade is selling and buying of goods and services between two or more parties in
consideration of cash and cash equivalents.Commerce includes the exchange of goods
and services along with activities viz. banking, insurance, advertising, transportation,
warehousing, etc. to complement the exchange.
2. Trade is a narrow term that merely includes the selling and buying whereas commerce is
a wider term that includes exchange as well as the several revenues generating activities
that complete the exchange.
3. Trade is generally done to satisfy the need of both the seller and the buyer which is more
of a social perspective. Whereas the commerce is more economical in nature because of
the involvement of several parties whose primary aim is to generate the revenue.
4. Trade is generally a single time transaction between the parties that may or may not
reoccur. Whereas in commerce the transactions are regular and occur again and again.
5. The trade involves two parties the seller and the buyer who facilitates the exchange
without employing anyone in between. Whereas in commerce exchange is done with the
support of several departments thereby giving them employment opportunities.
6. Trade provides a link between the seller and the buyer, the direct parties involved in the
exchange. Whereas the commerce provides a link between manufacturer and the ultimate
customer, who are not direct parties, with the help of several aides of distribution.
7. Trade represents both the side of demand and supply where both the parties know what is
demanded and what is to be supplied. Whereas in commerce only the demand side is
known i.e. what is demanded in the market and then making that available through
various channels of distribution.
8. Trade requires more capital because the stock has to be kept ready that is entitled to the
sale and also the cash has to be kept ready for the immediate payment. Whereas in
commerce the capital required is less because there are different parties involved who
have to manage their resources individually without imposing a burden on one.

Comparison between Industry, Commerce and Trade

INDUSTRY COMMERCE TRADE
1.Meaning:Extraction, Activities involving Purchase and sale of goods
reproduction, conversion, distribution of goods and and services
processing and construction services
of useful products
2. Scope: Consists of all Comprises trade auxiliaries to
activities involving trade Comprises exchange of goods
conversion of materials and and services
semi-finished products into
finished goods.
3. Capital: Generally large Need for capital is Small capital is needed to
amount of capital is required comparatively less maintain stock and to grant
credit
4. Risk: Risk involved is Relatively less risk is Relatively less risk is
usually high involved involved
5. Side: It represents supply It represents demand side of It represents both supply and
side of goods and services goods and services demand
6. Utility creation: It creates It creates place utility by It creates possession utility
form utility by changing the moving goods from producers through exchange
form or shape of materials to consumers