LECTURE ONE

BASIC CONCEPTS RELATED TO COMMERCIAL KNOWLEDGE

1.1 What is Commerce?
Commerce refers to the exchange of goods, services or something of value, between businesses
or entities. Commerce include the logistics of getting the raw materials to the firm and of
distributing the finished product to their customers.
1.2 Branches of Commerce
Commerce has two branches which are
i. Trade
ii. Aids to Trade

1.2.1 Trade
Trade Involves the transfer of goods or services from one person or entity to another, often in
exchange for money.
An early form of trade, barter, saw the direct exchange of goods and services for other goods and
services. Barter involves trading things without the use of money. Later, one bartering party
started to involve precious metals, which gained symbolic as well as practical importance.
Modern traders generally negotiate through a medium of exchange, such as money.

Forms of Trade
Trade is divided in two forms
 Trade within national border (domestic trade)
 Trade across national border (International Trade)

1.2.2 Aids to Trade

In order for trade to occur there are several auxiliaries which are involved, these are also known
as Aids to Trade.
Aids to Trade 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. These activities facilitate trade by removing various
barriers in the buying and selling of goods.
 i. Transport
Transport refers to the conveyance of goods and passengers from one place to another. It facilitates
trade by assembling and distributing goods. Goods are produced at one place and consumed at another
place.

Transport has three main modes which are:

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

ii. 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
and so forth.

Quick and reliable means of communication are essential for efficient operation of commercials
acclivities

iii. Warehousing

Generally goods are produced in anticipation of demand. It is, therefore, necessary to store the
goods until they are sold. Many products such as wheat, sugar, rice and the like are produced in a
particular season but they are needed throughout the year. Proper storage arrangements must be
made in order to make the goods available throughout the year.

There are three types of Warehousing, namely; private, public and bonded.

 Private warehouses as the name suggest they are owned by merchants and producers for
their own private usage.
 Public Warehouses are used to store goods for different business.
 Bonded warehouses are set up by customs authorities to store goods which are liable to
custom duty

iv. Insurance
Insurance reduces the problem of risks. Businesses are subjected to risks and uncertainties which
are inevitable in the field of business. Risks may be due to fire, theft, accident or any other
natural calamity.

Insurance companies which 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. Premium is the amount of money that a
business must pay to an insurance company to obtain the insurance.

v. Banking and Finance

Bank and other financial institutions provide funds and credit to businessmen, they as well
facilitate payment between buyers and sellers.

vi. Advertising

Advertising brings goods and services to the knowledge of prospective buyers. It helps to
highlight the distinctive features and utility of different products. With the help of such
knowledge, consumers can obtain better value for their money. Marketing research helps to
know and understand the requirements of consumers.

vii. Salesmanship

Salesmanship facilitates personal selling. Sometimes 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. Sales force plays an important role in direct marketing, especially in the
case of selling insurance policies.

viii. Mercantile

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.

ix. 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.

Example: Tanzania Private Sector Foundation (TPSF)

x. 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.

Example: World Trade Organization (WTO)

1.3 Benefits of Aids to Trade in Business

The following are the benefits results from each component of Aids to Trade.
i. Transport

 Transport brings the goods from the place of production to all the far and distant places of
consumption.
 It helps the consumers in getting a wide variety of goods at reasonable prices.
 It promotes specialization of business activities.

ii. Communication

Facilitate the flow of information from one point to another

iii. Warehousing
 Allow proper storage of goods
 Facilitate availability of goods all the time as per market requirement

iv. Insurance
 It helps businessmen to develop sense of security and freedom from anxiety.
 Businessmen can carry on their business with confidence and peace of mind.
 Insurance facilitates expansion of trade by providing security against heavy risks.

v. Banking and Finance

 Provide loans to business owners

 It reduces risks: It is risky to carry large amount of cash from one place to another. Here
comes Banking as a solution.
 Facilitate payments transactions between buyers and sellers

vi. Advertising

 Create awareness to the prospective customers about the availability of products

 Persuade customers to buy products

vii. Salesmanship

 Sales people facilitate selling of companies’ products through persuading customers to

buy products, take their order and deliver goods to customers.
 Some products such as machines can be complicated and there for require a presence of a
sales man to explain how to use the product.

viii. Mercantile Agents

 They facilitate interaction between buyer and sellers
 Helps firms to reach wider market
 Helps firms to sell products in unfamiliar markets

ix. Trade Promotion Organizations in a Country

 They do market research and provide relevant information to business firm

 They help business to find market for their products within and across country’s border

x. Global Organizations for International Trade

  They promote firms product internationally
 They facilitate buying and selling of products in international markets through market
research, persuade nations to remove trade barriers.

References:
Dayton, G. (2014). Trade Mindfully. Wiley
Bellafiore, M. (2014). An Inside Look of How to Think Like a Professional Trader. T Press