Module 3

Classification of Business Activities

Industry and Commerce
• There is two major classification of business activities, i.e. industry and commerce. The industry is
all about the production of goods, whereas commerce focuses on their distribution of goods and
services.
• Industry implies all the activities that are concerned with the conversion of raw materials into
finished goods. Conversely, commerce aims at providing goods at the right place, in proper
quantity, in the right condition and at right time.
Industry
The term ‘industry’ is used to denote those activities which involve the use of mechanical
appliances and technical skills, i.e. activities with the manufacturing, production, and processing
of products.
The activities covered under industry are as under:
• Extraction of materials such as coal, petroleum etc.
• Conversion of raw materials into useful goods like soaps, fans, cement, etc.
• Construction of buildings, dams, roads etc.
It covers the supply aspect of the business.
The Different types of Industries are:
Primary Industry: Industry concerned with obtaining and providing natural raw materials like
mining, agriculture or forestry.
Secondary Industry: Industry engaged in conversion activities, i.e. converting raw material provided
by primary industry, into finished products.
Tertiary Industry: Industry that provides support services to the primary and secondary industry.
Commerce
The term ‘commerce’ means a business activity that involves buying and selling of goods or
services for value (cash or kind) and that too, on a large scale, between businesses or entities,
from one place to another.
When there is a purchase or sale of a particular item, it is known as a transaction, but commerce
refers to all t
It covers the distribution aspect of the business.
It is broadly classified into two activities:
Trade: The process of buying and selling of goods and services for money.
Auxiliaries to trade: All the activities which assist trade directly or indirectly are auxiliaries to trade.
It includes transportation, warehousing, banking & finance, advertising, insurance and so on.
Auxiliaries to trade are part of Commerce. Transportation and communication are components of
auxiliaries of trade and are very important components, as they allows better flow of goods and
information.
Internal Trade
External Trade
Types of External Trade
Types of External Trade is Classified on the basis of sales and purchase of the goods and services
1. Export Trade
2. Import Trade
3. Entrepot Trade: Also known as transshipment, Entrepot Trade is where goods are imported
into a country and then re-exported out, without being distributed within the importing
country. For example, if metal is imported from India to Singapore, processed and then re-
exported to China, it is entrepot trade.

Advantages and Disadvantages of of External trade:

Internal Trade External Trade

Definition
Internal trade is trade that involves buying and selling External trade is referred to as a trade that involves buying
taking place between two parties which are located within and selling of goods between two parties located in
the political and geographical boundaries of a country different countries or between two different countries

Countries Involved
Internal trade takes place between the country borders, External trade involves the transactions between two or
therefore only one country is involved more countries.

Currency involved
Domestic currency will be used as the medium of payment Payments for external trade transactions are received in a
for all the transactions currency that is mutually agreed by the two parties
involved in the trade

Risk Involved
Internal trade has less risk as compared to external trade External trade will be having more risk which can be due to
currency fluctuations, economic state of countries, etc

Impact on Foreign Reserve

No impact on foreign reserve as transactions take place Foreign trade helps in adding to the foreign reserve of the
within the country country

Restrictions
Internal trade has less restrictions External trade is subjected to many restrictions as it is
between two countries, which involve different laws
Types of Traders
• 1. Itinerant Traders/Retailers:
• These retailers do not have the fixed places to carry their trade and
generally move from one place to another in order to sell goods. They
can be usually seen along the road sides, streets, railway compartments,
bus stands, and fairs etc.
• They usually possess that stock which can be conveniently sold during
the day. They need limited funds to carry their business. These types of
retailers deal in daily need articles like vegetables, fruits, milk, eggs and
fishes etc.
Itinerant traders
A brief explanation of this type of retailers is given as under:
(a) Hawkers and peddlers:
• These are the petty retailers who carry their products on their heads or on wheeled
vehicles from door to door. They usually sell seasonal goods like fruits, vegetables and
eatables and also sell certain other goods like pens, toys and utensils, etc.
(b) Cheap jacks:
• They hire shops in different residential localities wherein they display their products for
sale. They hire small shops or display goods in tents in residential colonies. They do not
stick to one place; rather keep moving from one locality to another. They usually deal in
household articles.
(c) Market traders:
• They sell their products at periodical markets on ‘market days’. The markets may be weekly
or fortnightly. They also sell their wares at different fairs and gatherings.
(d) Street Traders:
• These traders are found on the pavements of crowded streets or markets of the cities. They
are also known as “pavement retailers” In big cities like Kolkata, Delhi, Mumbai and
Chennai etc., these traders are usually found selling their goods in different markets.
2. Fixed Shops:
• These shops are of two type’s viz. (A) Small scale and (B) Large scale.
(a)Small Scale:
• There are different types of small retailers which are explained as under:
(i) Street stalls holders:
• These retailers carry their business on a very small scale basis in busy and crowded
streets. They purchase goods in large quantities from the wholesalers and local
suppliers for reselling to the ultimate consumers.
• usually deal in household articles and products of daily need. These stall holders are
usually sole proprietors of their shops i.e. carrying every activity right from buying
till final disbursement of goods to the consumers.
(ii) Second Hand Goods Sellers:
• These dealers deal in second hand or used articles. They purchase these articles from
public or private auctions and private households. These articles usually include used
garments, furniture, books etc. These dealers meet the needs of the poor people who
cannot afford new articles.
(iii) General Shops:
• They deal in different variety of goods and are known as general merchants. The goods
are meant for daily use or household purposes. They carry their business in permanent
shops. They manage the shops themselves and are most often assisted by sales
assistants.
• Usually goods are sold on credit by these merchants to their permanent customers. They
also provide free home delivery service and facility of exchange of rejected goods to the
customers.
(iv) Speciality Shops:
• These retailers deal in one particular line of goods e.g. books, utensils, shoes and
medicines etc. These shops can be operated on small scale basis and managed by the
owners themselves assisted by salesmen.
(B) Large Scale Traders/Retailers:
• The second type of retailers under fixed shops is large scale retailers.
The large scale production and rapid urbanization are responsible for
the establishment of large scale retailing organizations.
• Example- Retail stores
Itinerant and Non- Itinerant traders – Difference