PUC 1ST YEAR

BUSINESS STUDIES NOTES

10. INTERNAL TRADE

Trade refers to buying and selling of goods and services with the objective of
earning profit.

On the basis of geographical location of buyers and sellers, trade can

broadly be classified into two categories:

1. Internal Trade: Trade which takes place within a country

2. External Trade: Trade between two or more countries

Internal Trade:

Buying and selling of goods and services within the boundaries of a

nation are referred to as internal trade.

Features of Internal Trade:

1. Trade within the Geographical boundaries of a nation.
2. Free from custom duty or import duty.
3. Aims at equitable distribution of goods within nation.
4. Payment made in the legal currency of the country.

Internal trade can be classified into two broad categories:

1. Wholesale trade
2. Retail trade
Purchase and sale of goods and services in large quantities for the purpose of
resale or intermediate use is referred to as wholesale trade.

Features of Wholesale Trade:

1. Purchase goods in bigger lots.
2. Usually specialize in one particular live in goods.
3. Sells in small lots to retailers.
4. Wholesaler bears the business risks by buying and selling goods in his
own name.

Purchase and sale of goods in relatively small quantities, generally to the

ultimate consumers, is referred to as retail trade.

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 Features of Retail Trade:
1. Buys variety of goods from wholesalers.
2. Deals in large variety of goods.
3. Sells goods in small quantity to consumers.
4. Last link in the distribution chain.

Traders dealing in wholesale trade are called wholesale traders and those
dealing in retail trade are called retailers.

Wholesale Trade: Wholesale trade refers to buying and selling of goods

and services in large quantities for the purpose of resale or intermediate
use. Wholesalers serve as an important link between manufacturers and
retailers.

Wholesaler is a trader who buys goods in large quantities from

manufacturers and sells them in small quantities to retailers.

How do wholesalers help in facilitating large scale production?

Wholesalers collect small orders from a number of retailers and pass on
the pool of such orders to the manufacturers and make purchases in bulk
quantities. This enables the producers to undertake production on a large scale
and take advantage of the economies of scale.

Services of Wholesalers: The various services of wholesalers to different

sections are discussed below:
1. Services of wholesalers to Manufacturers: Major services offered by
wholesalers to the producers of goods and services are given below:
i. Facilitating large scale production: By collecting small orders
from a number of retailers and placing bulk orders with the
manufacturers, the wholesaler enables the manufacturers to carry
on his production on a large scale and enjoy the benefits of large
scale production.
ii. Bearing Risk: By purchasing and holding large stock of goods,
wholesaler relieves the manufacturer from the trouble of bearing of
risks such as the risk of fall in prices, fire, theft and so on.

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 iii. Financial Assistance: By purchasing goods for cash and
sometimes even by giving advance money to producer, wholesaler
enables the producer to carry on his production with less capital.
iv. Expert advice: The wholesaler collects market information
regarding the tastes and preferences of the customers’, market
conditions and competitive activities and passes it on to the
manufacturer. This enables the manufacturer to produce goods
according to the requirements of the consumers.
v. Help in marketing function: Wholesaler relieves the
manufacturer from the trouble of distribution of goods to a number
of retailers and thereby enables them to concentrate on the
production activity. They also undertake advertising and sales
promotion on behalf of the manufacturer.
vi. Facilitate production continuity: The wholesalers facilitate
continuity of production activity throughout the year by purchasing
the goods as and when these are produced and storing them till the
time these are demanded by retailers or consumers in the market.
vii. Storage: Wholesaler reduces the burder of manufacturers to
provide storage facilities for the finished products, by taking
delivery of goods when they are produced.

Services to Retailers: The important services offered by manufacturers to the

retailers are described as below:
i. Availability of goods: By providing ready supply of goods, wholesaler
relieves the retailers from the trouble, expense and risk of holding large
stock of goods.
ii. Marketing support: Wholesaler undertakes various marketing functions
including advertising and sales promotion activities which help the
retailers to sell the products easily.
iii. Grant of credit or Financial assistance: The wholesaler often sells
goods on credit to retailers. This enables retailers to carry on their
business with less working capital.
iv. Specialised knowledge: The wholesalers specialise in one line of
products and pass on the benefit of their specialised knowledge to the
retailers. They inform the retailers about the new products, their uses,
quality, prices etc.

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 v. Risk sharing: Retailers are in a position to avoid the risk of storage,
obsolescence, reduction in prices etc., because wholesalers help retailers
to purchase merchandise in smaller quantities.

Retail Trade: means sale of goods in relatively small quantities, generally to

the ultimate consumers. Retailers acts as a link between wholesalers and
consumers.
Who is a retailer?
A retailer is a trader who buys goods in large quantities from the
wholesalers and sells them in small quantities to the ultimate consumers.

Services of Retailers: Some of the important services of retailers are described

as below:

Services to Manufacturers and Wholesalers:

i. Help in distribution of goods: A retailer’s provides help to the

manufacturers and wholesalers in the distribution of their products to the
final consumers.
ii. Personal selling: In the process of sale of most consumer goods, some
amount of personal selling effort is necessary.
iii. Enabling large-scale operations: On account of retailer’s services, the
manufacturers and wholesalers are freed from the trouble of making
individual sales to consumers in small quantities. This enables them to
operate on, at relatively large scale and thereby fully concentrate on their
other activities.
iv. Collecting market information: As retailers remain in direct and
constant touch with the buyers, they serve as an important source of
collecting market information about the tastes, preferences and attitudes
of customers.
v. Help in promotion: Retailers help manufacturers by participating in their
promotional activities such as offer in the form of free gifts, coupons and
so on.

Services to Consumers:

i. Regular availability of products: The most important service of a

retailer to consumers is to maintain regular availability of various

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 products produced by different manufacturers. This enables the buyers
to buy products as and when needed.
ii. New products information: By arranging for effective display of
products and through their personal selling efforts, retailers provide
important information about the arrival, special features, etc., of new
products to the customers.
iii. Convenience in buying: Retailers normally establish their ships near
the residential areas and remain open for long hours. This offers great
convenience to the consumers in buying products of their
requirements at any time.
iv. Wide selection: Retailers generally keep stock of a variety of goods
and guides consumers in making their selection from such goods.
v. After-sales services: Retailers provide important after-sales services
in the form of home delivery, supply of spare parts and attending to
customers in case of articles like computer, washing machines, T.V.
etc.
vi. Provide credit facilities: The retailers sometimes provide credit
facilities to their regular buyers.

Types of Retailing Trade: There are two categories of retailers:

a) Itinerant retailers
b) Fixed shop retailers

a) Itinerant Retailers: are traders who do not have a fixed place of business
to operate from. They keep on moving with their wares from street to
street or place to place, in search of customers.
Characteristics:
 They are small traders operating with limited resources.
 They normally deal in consumer products of daily use such as toiletry
products, fruits and vegetables and so on.
 They provide greater customer service by making the products available
at the very doorstep of the customers.
 They keep limited inventory of merchandise either at home or at some
other place.

Some of the most common types of itinerant retailers operating in India

are as below:

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 1. Peddlers and Hawkers: are small traders who carry the products such as
toys, vegetables and fruits on a bicycle, a hand cart, a cycle-rickshaw or
on their heads, and move from place to place to sell their merchandise at
the doorstep of the customers.

2. Market Traders: Market traders are the small retailers who open their
shops at different places on fixed days or dates. They may deal in fabrics
or readymade garments or toy or other low priced items.

3. Street traders (pavement vendors):

 Street traders are the small retailers who are commonly found at
places where huge floating population gathers.
 For example, near railway stations and bus stands, and sell
consumer items of common use, such as stationery items, eatables,
ready-made garments, newspapers and magazines.
4. Cheap jacks:
 Cheap jacks are petty retailers who have independent shops of a
temporary nature in a business locality.
 They deal in consumer items as well as services such as repair of
watches, shoes etc.

b) Fixed shop Retailers: are retail shops who maintain permanent

establishment (fixed place) to sell their merchandise.

Characteristics:
 They have greater resources and operate on a relatively large scale.
However, there are different size groups of fixed shop retailers,
varying from very small to very large.
 These retailers may be dealing in different products, including
consumer durables as well as non-durables.
 This category of retailers has greater credibility in the minds of
customers.
 They are in a position to provide greater service to the customers
such as home delivery, guarantees, repairs, credit facilities,
availability of spares, etc.
Types of Fixed-shop retailers: Classified into two distinct types on the basis of
the size of their operations. These are:
a) Small shop-keepers
b) Large retailers
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 a) Fixed Shop Small Retailers:
i. General Stores:
 General stores are most commonly found in a local market
and residential areas.
 These shops carry stock of a variety of products such as
soaps, tooth paste, hair oil, etc., required to satisfy the day-
to-day needs of the consumers residing in nearby localities.
 Such stores remain open for long hours at convenient
timings.
ii. Speciality shops:
 These retail stores specialise in the sale of specific line of
products. For example, shops selling children’s garments,
men’s wear, ladies shoes, toys and gifts, school uniforms,
college books or consumer electronic goods, etc.
 The speciality shops are generally located in a central place
where a large number of customers can be attracted.

iii. Street stall holders:

 These small vendors are commonly found at street crossings
or other places where flow of traffic is heavy.
 They attract floating customers and deal mainly in goods of
cheap variety like toys, cigarettes, soft drinks, etc.

iv. Second-hand goods shop:

 These shops deal in second-hand or used goods, like books,
clothes, automobiles, furniture and other household goods.
 They may also sell objects of historical value and antique
items.
 They may be located at street crossing or in busy streets.

b) Fixed shop – Large stores:

1. Departmental stores: A departmental store is a large fixed
shop which sells a wide variety of products in different
departments under one roof. For example, there may be
separate departments for toiletries, medicines, furniture,
groceries, electronics, clothing and dress material within a
store.

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Features of Departmental Stores:
 A modern departmental store may provide all facilities such as restaurant,
travel and information bureau, telephone booth, rest-rooms etc.
 These stores are generally located at a central place in the heart of a city,
which caters to a large number of customers.
 These stores are generally formed as a joint stock company managed by a
board of directors. There is a managing director assisted by a general
manager and several department managers.
 A departmental store combines both the functions of retailing as well as
warehousing.
 They have centralised purchasing arrangements. But sales are
decentralised in different departments.
Advantages of Retailing through Departmental stores:
i. Attract large number of customers: Due to central location, they
attract a large number of customers.
ii. Convenience in buying: By offering large variety of goods under
one roof, the departmental stores provide great convenience to
customers in buying almost all goods at one place.
iii. Attractive service: A departmental store aims at providing
maximum services to the customers in the form of home delivery
of goods, execution of telephone orders, grant of credit facilities
and provision for rest-rooms, telephone booths, restaurants, saloons
etc.
iv. Economy of large-scale operations: The benefits of large-scale
operations are available to them.
v. Promotion of sales: The departmental stores undertake advertising
and other promotional activities which help in boosting their sales.

Limitations of Retailing through Departmental stores:

i. Lack of personal attention: Because of the large-scale operations, it is
very difficult to provide adequate personal attention to the customers in
these stores.
ii. High operating cost: The operating costs of departmental stores will be
high. This results in increased prices of the goods supplied by them.
iii. High possibility of loss: As a result of high operating costs and large-
scale operations, the chances of incurring losses in a departmental store
are high.
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iv. Inconvenient location: As a departmental store is generally situated at a
central location, it is not convenient for the purchase of goods that are
needed at short notice.

2. Chain stores or Multiple Shops: Chain stores or multiple

shops are networks of retail shops that are owned and
operated by manufacturers or intermediaries dealing in
standardized and branded consumer products.
Example: Bata shoe stores.

Features of Chain stores or Multiple Shops:

1. These shops are located in fairly populous localities, where sufficient
number of customers can approached.
2. The manufacturing/ procurement of merchandise for all the retail units is
centralised at the head office, from where the goods are despatched to
each of these shops according to their requirements.
3. Each retail shop is under the direct supervision of a Branch Manager. The
branch manager sends daily reports to the head office in respect of the
sales, cash deposits and the requirements of the stock.
4. All the branches are controlled by the head office.
5. The prices of goods in such shops are fixed and all sales are made on cash
basis.
6. The head office normally appoints inspectors, who are concerned with
day-to-day supervision of the shops.

Advantages of Chain stores or Multiple Shops:

i. Economic of scale: As there is central procurement, the multiple shop
organisation enjoys the economies of scale.
ii. Elimination of middlemen: By selling directly to the customers, they
eliminate unnecessary middlemen in the sale of goods and services.
iii. No bad debts: Since all the sales in these shops are made on cash basis,
there are no losses on account of bad debts.
iv. Transfer of goods: The goods not in demand in particular locality may
be transferred to another locality where it is in demand. This reduces the
chances of dead stock in these shops.
v. Diffusion of risk: The losses incurred by one shop may be covered by
profits in other shops, reducing the total risk of an organisation.

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vi. Low Cost: Because of centralised purchasing, elimination of middle-
men, centralised promotion of sales and increased sales, the multiple
shops have lower cost of business.
vii. Flexibility: Under this system, if a shop is not operating at a profit, the
management may decide to close it or shift it to some other better place.

Disadvantages of Chain stores or Multiple Shops:

i. Limited selection of goods: Some of the multiple shops deal only in
limited range of products. This is especially the problem with the chain
stores which are owned and operated by manufactures.
ii. Lack of initiative: The personnel managing the multiple shops have to
obey the instructions received from the head office. This takes away the
initiative from them to use their creative skills to satisfy the customers.
iii. Lack of personal touch: lack of personal touch among the employees.
iv. Difficult to change demand: If the demand for the merchandise change
rapidly, the management may have to sustain huge losses.

Difference between Departmental stores and Multiple shops:

Basis of distinction Departmental stores Multiple shops/chain
stores
Location Located at a central place Located at a number of
places.
Range of products They carry a variety of They carry only a
products of different specified range of their
types products.
Services offered Provide maximum Provide very limited
services to their service to their
customers. Example: customers.
alteration of garments,
restaurant and so on.
Pricing Do not have uniform Sell goods at fixed prices
pricing policy i.e and maintain uniform
discount pricing policies
Class of customers Cater to the needs of Cater to the needs of
relatively high income different types of
group of customers. customers
Credit facilities Provide credit facilities All sales are made
to some their regular strictly on cash basis
customers
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 Flexibility Deal in a wide variety of Here, there is not much
products, they have scope for flexibility,
certain flexibility respect deals only in limited line
of the line of goods of products.
marketed

Mail Order Houses: Mail order houses are the retail outlets that sell their
merchandise through mail. They receive orders and supply goods through post
office.

 How do mail order houses do retailing business?

Mail order houses approach potential customers through
advertisement and price list is seat to them by post. On receiving the orders,
goods are sent to the buyers through the post office.
Thus, they receive orders and supply goods through post office. They
receive payment in advance or through post office or through bank.

 State alternatives available for customers to make payments in mail

order business?
There can be different alternatives for receiving payments:
1. Make full payment in advance.
2. Making full payment to the post office while taking delivery of
goods (sent through value payable post)
3. Making full payment to the bank (through which goods are sent)
while taking delivery of goods.

Type of products suitable for mail order houses:

1. Graded and standardised
2. Easily transported at low cost
3. Have read demand in the market
4. Available in large quantity throughout the year
5. Involve least possible competition in the market
6. Described through pictures etc., are suitable for this type of trading.

Advantages:
i. Limited capital requirement: Mail order business does not require
heavy expenditure on building and other infrastructural facilities.
Therefore, it can be started with relatively low amount of capital.

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 ii. Elimination of middle men: Mail order business eliminates unnecessary
middlemen between the buyers and sellers which results in lot of savings
both to the buyers and to the sellers.
iii. Absence of bad debt: Mail order business runs on cash basis. So, there
are no chances of bad debts.
iv. Wide reach: Under this system the goods can be sent to all the places
having postal services. This opens wide scope for business.
v. Convenience: Under this system goods are delivered at the doorstep of
the customers. This result in great convenience to the customers in buying
these products.

Limitations:
i. Lack of personal contact: As there is no personal contact between the
buyers and the sellers, there are greater possibilities of misunderstanding
and mistrust between the two. The buyers are not in a position to examine
the products before buying and the sellers cannot pay personal attention
to the likes and dislikes of the buyers and cannot clear all their doubts
through catalogues and advertisements.
ii. High promotion cost: Mail order business incurs heavy expenditure on
promotion of the products through advertisement and other methods of
promotion.
iii. No after sales services: There is absence of after sales services in mail
order selling.
iv. No credit facilities: The mail order houses do not provide credit facilities
to the buyers.
v. Delayed delivery: There is not immediate delivery of goods to the
customers, as receipt and execution of order through mail takes its own
time.

vi. Possibility of abuse: This type of business provides greater possibility of

abuse to dishonest traders to cheat the customers by making false claims
about the products or not honouring the commitments made through hand
bills or advertisements.

vii. High dependence on postal services: The success of mail order business
depends heavily on the availability of efficient postal services at a place.

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Consumer cooperative Store: A consumer cooperative store is an organisation
owned, managed and controlled by consumer themselves. They are formed for
the purpose of supplying good quality products at reasonable prices to the
consumers. They generally buy in large quantity, directly from manufacturers or
wholesalers and sell them to the consumers at reasonable prices.

How consumer cooperative stores can be started?

To start a consumer cooperative store, a minimum of 10 persons must
come together and form a voluntary association and get it registered under the
Cooperative Societies Act. The capital is collected by the issue of shares to
members.

Advantages:
1. Ease information: It is easy to form a consumer cooperative society.
Any ten people can come together to form a voluntary association and get
themselves registered with the Registrar of Cooperative Societies by
completing certain formalities.
2. Limited liability: The liability of the members in a cooperative store is
limited to the extent of the capital contributed by them.
3. Democratic management: Cooperative societies are democratically
managed through management committees which are elected by the
members of the store having one vote each.
4. Lower prices: Elimination of middlemen results in lower prices for the
consumer goods to the members.
5. Cash sales: The consumer cooperative stores normally sell goods on cash
basis. As a result, the requirement for working capital is reduced.
6. Convenient location: The consumer cooperative stores are generally
opened at convenient public places where the members and others can
easily buy the product as per their requirements.

Limitations:
1. Lack of initiative: As the cooperative stores are managed by people who
work on honorary basis, there is lack of sufficient initiative and
motivation amongst them to work more effectively.
2. Shortage of funds: The stores generally face shortage of funds as the
funds are collected from the limited members with limited means.

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 3. Lack of patronage: The members of the cooperative stores generally do
not patronise them regularly.
4. Lack of business training: The people entrusted with the management
of cooperative stores, lack expertise as they are not trained in running the
stores efficiently.

Super Markets: A Super market is a large retailing business unit selling wide
variety of consumer goods under one roof. They are organized on departmental
basis where customers can buy various types of goods under one roof.
Example: Food World, More, Reliance Fresh etc.

Some of the important characteristics of a super market are as follows:

1. A super market generally carries a complete line of food items and

groceries, in addition to non-food convenience goods.
2. The buyers can purchase different products under one roof.
3. A super market operates on the principle of self-service. Therefore, the
distribution cost is lower.
4. The prices of the products are generally lower than other types of retail
stores because of bulk purchasing, lower operational cost, and low profit
margins.
5. The super markets are generally located at central place.
6. The goods are sold on cash basis only.
Advantages:
1. One roof, low cost: Super markets offer a wide variety of products at low
cost under one roof. These outlets are, therefore, not only convenient but
also economical to the buyers for making their purchases.
2. Central locations: The super markets are generally located in the heart
of the city and are easily accessible to large number of consumers.
[

3. Wide selection: Super markets keep a wide variety of goods which

enables the buyers to make better selection.
4. No bad debts: As generally the sales are made on cash basis, there are
any bad debts in super markets.
5. Benefits of being large scale: A super market is a large scale retailing
store. It enjoys all the benefits of large scale buying and selling because
of which its operating costs are lower.

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Disadvantages:
1. No credit: No credit facilities are made available to the buyers.
2. No personal attention: Super markets work on the principle of self-
service. The customers, therefore, do not get any personal attention.
3. Mishandling of goods: Some customers handle the goods kept in the
shelf carelessly.
4. High overhead expenses: Super market incur high overhead expenses.
5. Huge capital requirements: Establishing and running a super market
requires huge investment.

Vending Machines:
 Vending machines are the newest revolution in marketing methods.
 Coin operated vending machines are proving useful in selling several
products such as hot beverages, milk, soft drinks, chocolates, newspaper,
etc., in countries.
 Vending machines can be useful for selling pre-packed brands of low
priced products which have high turnover and which are uniform in size
and weight.
 However, the initial cost of installing a vending machine and the
expenditure on regular maintenance and repair are quite high.
 The machines have to be made reliable in their operations.
 Vending machines have promising future in retail sales of high turnover
and low priced consumer products.

Goods and Services Tax:

The government of India, following the credo of ‘One Nation and One
Tax’. and wanting a unified market in order to ensure the smooth flow of goods
across the country implemented the Goods and Services tax (GST) from July 1,
2017.
GST is a destination – based single tax on the supply of goods and
services from the manufacturer to the consumer, and has replaced multiple
indirect taxes levied by the Central and the state governments, thereby,
converting the country into a unified market.
GST comprises Central GST (CGST) and the State GST (SGST),
subsuming levies previously charged by the Central and State governments
respectively. The last dealer in the supply chain passes on the added GST to the
consumer, making GST a destination – based, consumption tax.

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Key Features of GST:
1. The territorial spread of GST in the whole country, including Jammu and
Kashmir.
2. GST is applicable on the ‘supply’ of goods or services as against the
present concept of tax on the manufacture or sale of goods or on the
provision of services.
3. It is based on the principle of destination – based consumption tax against
the present principle of origin – base taxation.
4. Import of goods and services is treated as inter – State supplies and would
be subject to IGST in addition to the applicable customs duties.
5. CGST, SGST and IGST are levied at rates mutually agreed upon by the
centre and the States under the aegis of the GST council.
6. There are four tax slabs namely 5%, 12%, 18% and 28% for all goods or
services.
7. Exports and supplies to SEZ are Zero rated.
8. There are various modes of payment of tax available to the taxpayer,
including Internet banking, debit / Credit card and national Electronic
Funds Transfer (NEFT) Real time Gross Settlement (RTGS).

Role Of Commerce And Industry Associations Is In Promotion Of Internal

Trade:
Commerce and industry associations such as ASSOCHAM, CII and
FICCI have been playing an important role in strengthening internal trade. The
role of these associations are:

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The interventions are mainly in the following areas:

i. Interstate movement of goods: The chambers of commerce and industry

help in many activities concerning interstate movement of goods which
include registration of vehicles, surface transport policies, construction of
highways and roads.
ii. Octroi and other local levies: The chambers of commerce and industry
try to ensure that the imposition of octroi and other local taxes is not at
the cost of smooth transportation and local trade.
iii. Harmonisation of sales tax structure and Value Added Tax: The
Chambers of Commerce and Industry play an important role in
interacting with the government to harmonise the sales tax structure in
different states.
iv. Marketing of agro products and related issues: They play an important
role in the marketing of agro products. They intervene and interact on the
areas like streamlining of local subsidies and marketing policies.
v. Weights and measures and prevention of duplication brands: They
interact with the government to formulate laws relating to weights and
measures and protection of brands.
vi. Excise duty: They need to interact with the government to ensure
streamlining of excise duties.
vii. Promoting sound infrastructure: They hold discussions with the
government agencies to provide sound infrastructure like road, railways,
port, electricity etc. which play an important role in promoting trade.
viii. Labour legislations: They interact with the government on issues like
labour laws, retrenchment etc.

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