Trade and Commerce

The buying and selling of goods and

services is called trade. Trade can be
classified into home trade (the buying and
selling of goods between two countries).
Home trade includes wholesale (= vendita
all’ingrosso) and retail trade (= vendita al
dettaglio), whereas foreign trade is split
into export and import.
The term ‘trade’ can also be used to indicate
the people or organisations that do
business in the same kind of product, for
example ‘the car trade’, ‘the book trade’,
etc.
Commerce is a more general term: it is
used to describe trade and all the other
business activities and services which
make trade possible, e.g. banking,
insurance, transport and advertising.
 The channels of distribution
The traditional channel of distribution
describes how a product passes from the
manufacturer to the consumer.
 The Distribution Channel
Chain of intermediaries, each passing the product
down the chain to the next organization, before it
finally reaches the consumer or end-user.

This process is known as the 'distribution chain' or

the 'channel.' Each of the elements in these
chains will have their own specific needs, which
the producer must take into account, along with
those of the all-important end-user.
 manufacturer
A manufacturer takes the materials
extracted or produced by a producer (raw
materials) and transforms them into semi-
finished or finished products.
 wholesaler
A wholesaler buys in large quantities from
manufacturers and sells them in smaller
quantities to retailers.
 retailer
A retailer sells goods in small quantities to
individual consumers. Examples of
retailers are shop, supermarkets,
department stores or discount stores.
However, nowadays the Internet and e-
commerce applications and technologies
offer companies new and challenging
distribution channels.
Through the Internet, suppliers can
advertise and promote their products and
service, give all information necessary for
a transaction like prices, method of
payment, delivery etc., and enable
customers to get what they want from their
computer.
 Levels of distribution
This is the traditional channel of distribution:

manufacturer wholesaler

retailer consumer
However, different channels are in
existence:
manufacturer wholesaler

consumer
manufacturer retailer

consumer
manufacturer consumer
 business transaction
Definition (Business Dictionary. com)
Economic activity or event that initiates the
accounting process of recording it in the
firm’s accounting system.
 The business transaction
For a business transaction to take place, the
buyer and the seller must agree on a
contract of sale.
The seller undertakes to supply a certain
number of goods or services at an agreed
quality and price and within a specified
time.
These are the basic factors or sales terms
governing a contract of sale, but the two
parties must agree on sales terms such as
means of transport, means of payment,
package, insurance, delivery and
documentation.
 Stages of a business transaction
On the following slides you will find the
various stages in a business transaction.
It can be started by either the buyer or seller.
 Seller
Buyer
UNSOLICITED
ENQUIRY
OFFER

Seller Buyer
REPLY TO REPLY TO
ENQUIRY OFFER

Buyer
ORDER OF
GOODS

Seller
CONFIRMATION OF
ORDER AND DISPATCH OF GOODS

Buyer
PAYMENT
 Stage One
Buyer ENQUIRY
The buyer contacts a seller to see if they
can supply the type of goods they are
interested in. They can ask for information
about the products, details of prices,
discounts, means of payment required,
delivery times etc.
 Stage One
Seller UNSOLICITED OFFER
Sometimes the seller initiates the
transaction. They may want to promote a
particular product, or contact new
customers, in which case they offer them
goods at interesting terms.
 Stage two
Seller REPLY TO ENQUIRY
The seller replies to an enquiry giving the
information requested.
 Stage two
Buyer REPLY TO OFFER
If a buyer is interested in an offer made by a
seller, they ask for further information like
the ones in an enquiry.
Alternatively, they can refuse the offer.
 Stage three
Buyer ORDER OF GOODS
Once the buyer has examined and accepted the
sales terms, they place their order. The order
contains basic information such as the quantity
and description of the goods (colour, size,
article number), their price, the delivery time,
the means of payment and the type of
transport. They can also include special
instructions referring to packing, insurance and
documentation.
 Stage four
Seller CONFIRMATION OF ORDER AND
DISPATCH OF GOODS
The seller confirms the order received and
dispatches the goods following the buyer’s
instructions. They send the buyer an
invoice for the due amount.
 Stage five
Buyer PAYMENT
The buyer pays for the goods they have
received.
However, some problems may arise during
the various stages of a business
transaction:
 Buyer: COMPLAINT
After the order is placed or the goods are
received, the buyer can make a complaint for
several reasons:
Goods not delivered on time.
Seller supplies a wrong type/quality of goods.
Goods are damaged.
The buyer usually offers a suggestion as to how
he would like the problem to be solved.
Seller: REPLY TO COMPLAINT
When the seller has investigated the cause
of the problem, they contact the buyer,
apologise and explain how the mistake
happened.
They usually agree to rectify the problem.
 Seller: REMINDER
When the goods have been supplied, if the time
has expired for the buyer to pay for the goods,
the seller sends a reminder (gently) requesting
prompt payment.
If the buyer continues not to settle their account,
they will be sent subsequent reminders which
become ever more insistent.
Finally, the seller may threaten legal action in
order to receive payment.
 Buyer: REPLY TO REMINDER
If the buyer is able to pay the account, they
reply saying that arrangements for
payment have been made and apologies
for the delay.
They usually offer an excuse for the delay.
If they are unable to pay, they explain the
reason why and ask for an extension of
credit or give the dates of their settlement.
 Economic system
An economic system is loosely defined as
country’s plan for its services, goods
produced, and the exact way in which its
economic plan is carried out.
In general, there are three major types of
economic systems prevailing around the
world.
 Type of Economic Systems
Three types of economic systems exist, each
with their own drawbacks and benefits;
the Market Economy,
the Planned Economy,
the Mixed Economy.
 Market economy
In a market economy, national and state
governments play a minor role.
Instead, consumers and their buying decisions
drive the economy.
In this type of economic system, the assumptions
of the market play a major role in deciding the
right path for a country’s economic development.
Market economies aim to reduce or
eliminate entirely subsidies for a particular
industry, the pre-determination of prices
for different commodities, and the amount
of regulation controlling different industrial
sectors.
The absence of central planning is one of the
major features of this economic system.
Market decisions are mainly dominated by
supply and demand.
The role of the government in a market economy
is to simply make sure that the market is stable
enough to carry out its economic activities
properly.
 A planned economy
A planned economy is also sometimes
called a command economy
The most important aspect of this type of
economy is that all major decisions related
to the production, distribution, commodity
and service prices, are all made by the
government.
The planned economy is government directed, and
market forces have very little say in such an
economy.
This type of economy lacks the kind of flexibility that is
present in a market economy, and because of this, the
planned economy reacts slower to changes in
consumer needs and fluctuating patterns of supply
and demand.
On the other hand, a planned economy aims
at using all available resources for
developing production instead of allotting
the resources for advertising or marketing.
 Mixed economy
A mixed economy combines elements of
both the planned and the market
economies in one cohesive system.
This means that certain features from both
market and planned economic systems
are taken to form this type of economy.
This system prevails in many countries where
neither the government nor the business
entities control the economic activities of that
country – both sectors play an important role
in the economic decision-making of the country.
In a mixed economy there is flexibility in some
areas and government control in others.
Mixed economies include both capitalist and
socialist economic policies and often arise in
societies that seek to balance a wide range of
political and economic views.
 Types of economy
There are basically three types of economic
systems in the world at the moment:

1. Centrally planned
2. Free market
3. Mixed
The centrally planned economy
The government decides:
What goods and services are needed
Arranges all production and distribution
 But….
this type of economy can
Lack competition – which in turn:
Lead to bad management
Inferior production
Supply problems.

Examples:
Cuba
China
North Korea
 The free market economy
AKA: the capitalist system.
Price and availability of goods and
services governed by supply and demand.
Private companies compete freely in the
market place.
Market decides which products or services
to buy and from whom.
 Minimal state intervention – but may
intervene when necessary.

Examples:
Singapore
(south east Asia)
 The mixed economy
Most economies combine elements of both free
market and centrally planned principles.
These elements vary from country to country.

Examples:
UK
Italy
Sweden