Commerce: What It Is, How It Differs From Business and Trade

https://www.investopedia.com/terms/c/commerce.asp

By JAMES CHEN Updated August 14, 2022

Reviewed by MICHAEL J BOYLE

Fact checked by AMANDA JACKSON

What Is Commerce?

Commerce is the exchange of goods or services among two or more parties. It is the subset of business that focuses
on the sale of finished or unfinished products rather than their sourcing, manufacturing, transportation, or
marketing.

Generally, commerce can refer to an exchange of goods or services for money or something of equal value.

From the broadest perspective, governments are tasked with managing the commerce of their nations in a way that
meets the needs of their citizens by providing jobs and producing beneficial goods and services.

KEY TAKEAWAYS

Commerce began when prehistoric humans started exchanging goods and services for mutual benefit.

Today, commerce commonly refers to the large-scale purchases and sales of goods and services.

Commerce is a subset of business that focuses on the distribution of goods.

Selling a single item is a transaction. All transactions are collectively called commerce.

E-commerce is a variation of commerce that entails selling goods and services electronically via the Internet.

Understanding Commerce

Commerce has existed from the moment humans started exchanging goods and services with one another. From the
early days of bartering to the creation of currencies and the establishment of trade routes, humans have sought
ways to facilitate the exchange of goods and services by building a distribution process to bring together sellers and
buyers.
Today, the term commerce normally refers to large-scale purchases and sales. The sale or purchase of a single item
by a consumer is defined as a transaction, while commerce may refer to all transactions related to the purchase and
sale of that item.

Most commerce in modern times is conducted internationally and represents the buying and selling of goods
between nations.

Commerce is not synonymous with business but is a subset of it. Commerce does not relate to the sourcing,
manufacturing, or production processes but only to the distribution of goods and services. That alone encompasses a
number of roles, such as logistical, political, regulatory, legal, social, and economic.

Commerce vs. Business vs. Trade

These words are often used interchangeably but they are not the same.

Business

Business is any endeavour undertaken for the purpose of making a profit.

It includes selling goods and services, but everyone else involved in the process of creating the product and getting it
to a consumer is engaged in business activity.

When you fill up your gas tank at a service station, you are completing a process that started with an oil exploration
company locating an oil deposit, continued with a drilling company extracting crude oil, and then went through
many stages of transportation, refining, and distribution before it got to your gas tank. A number of people
conducted business to get it there.

Commerce

Commerce refers specifically to the exchange of products or services between two or more parties. In the above
example, you engaged in commerce when you paid to fill up your gas tank.

Along the way, there were other examples of commercial activity. For example, the crude oil was sold in bulk to one
or more oil companies. That was a commercial transaction as well.

Trade

The distinction between commerce and trade is pretty fine. Both are the direct exchange of goods and services for
something of value between two parties. (In modern times, "something of value" means money.)

However, there are some differences in their usage:

Commerce, as in the above example, implies a series of commercial transactions for the purpose of producing a
product. The last stage of the commercial process is the sale of a finished product to its consumer.

Trade suggests only the final transaction in which a seller provides a finished product and a consumer pays for it. In
this sense, trade is a subset of commerce as commerce is a subset of business.

Regulating Commerce

When properly managed, commercial activity enhances the standard of living of a nation's citizens and increases its
standing in the world. However, when commerce is allowed to run unregulated, large businesses can become too
powerful and impose negative externalities on citizens for the benefit of the business owners.

Most nations have established government agencies responsible for promoting and managing commerce, such as
the Department of Commerce in the United States.

Large multinational organizations regulate commerce across borders. For example, the World Trade Organization
(WTO) and its predecessor, the General Agreement on Tariffs and Trade (GATT), established rules for tariffs relating
to the import and export of goods between countries. The rules are meant to facilitate commerce and establish a
level playing field for member countries.
The Rise of E-commerce

The idea of commerce has expanded to include electronic commerce in the 21st century. Electronic commerce, or e-
commerce, is defined as any business or commercial transaction that includes the transfer of financial information
over the Internet.

E-commerce changed how commerce is conducted. In the past, imports and exports posed logistical hurdles for both
the buyer and the seller. Only larger companies with scale in their favour could benefit from export customers.

With the rise of e-commerce, small business owners have a chance to market to international customers and fulfill
their orders.

Export management companies help domestic small businesses with the logistics of selling internationally. Export
trading companies help small businesses by identifying international buyers and domestic sourcing companies that
can fulfill the demand. Import/export merchants purchase goods directly from a domestic or foreign manufacturer,
and then they package the goods and resell them on their own as an individual entity, assuming the risk but taking
higher profits.

Is Commerce the Same As Business?

The word commerce is not interchangeable with business, but is rather a subset of business. Business includes
sourcing, manufacturing, production, and marketing whereas commerce pertains to the distribution side of the
business, specifically the distribution of goods and services.

What Are the Different Types of E-commerce?

There are three distinct types of e-commerce:

Business-to-business (B2B) is the direct sale of goods and services between businesses.

Retail is the sale of goods and services directly to consumers.

Consumer to consumer is the sale of goods and services between individuals, as on eBay or Facebook Marketplace.

What Is E-commerce?

E-commerce is any sale of goods and services that is finalized in a transaction on the Internet.

E-commerce is an alternative to transactions that take place in brick-and-mortar stores. Today, many companies
offer their customers the choice of online or in-store purchasing.