What is Trade?
Trade means the transfer of goods or services from one person or organization to another, often this transaction happens in exchange for money. Economists refer this system or network to that which allows trade as a market.
Trades are of many forms one is - Domestic trade or the Internal Trade which is different from international trade, this is the exchange of domestic goods within the boundaries of the country. Another is wholesaling trade, which is a subdivision of Internal Trade, this is the distributing or sale of goods or merchandise to the retailers. In our upcoming section we will learn in detail about this Internal and Wholesale Trade.
Note: An early form of trade was the barter system where the direct exchange of goods and services for other goods and services existed.
Internal Trade
Buying and selling of goods and services or trading with these goods and services which happens within the boundaries of a nation are called internal trade.
Internal Trade takes place between the buyers and the sellers in the same locality, may it be a village, town or even a city.
This may also occur between two or more different states known as interstate trade, but this happens definitely within the same country.
The other name for Internal trade is called the domestic trade or the home trade.
Internal Trade starts from an individual or establishment within a country and also the trade ends within the country itself by consumption by the local consumers of the nation. This trade facilitates domestic consumption only. The payment for this trade is to be made with the legal tender of the country.
Internal trade can be classified as:
Wholesale Trade and,
1. Wholesale Trade
Wholesale trade refers to the buying and selling of goods and services in large quantities for the purpose of resale to the end users.
Wholesaling is connected with the activities of those persons or establishments who sell the bulk of goods to the retailers and other merchants who in turn sell it to the consumers.
The wholesale trade does not sell goods to the end users in smaller quantities.
Wholesalers act as an important link between the manufacturers and the retailers.
They give access to the producers not only to reach a large number of buyers who are spread over a wide geographical area (through retailers), but also to perform a variety of other functions in the process of distribution of these goods and services.
They generally take the title of the goods and bear the business risks involved in purchasing and selling the goods in their own name. They purchase in bulk from the producers and sell in small lots to the retailers or to other industrial users. They undertake various other activities to facilitate the sale which the producers are made free from doing the same.
Features of Internal Trade
The features of Internal Trade are explained in points, in the section down below –
Trade within a nation:
The buying and selling of goods happen within the boundaries of the nation, and is subject to rules and regulation of the country.
Free exchange of goods:
There is no restriction on the exchange of goods and services between the buyer and seller such that they need to follow the norms of the nation while transacting.
Single currency:
Goods and services are exchanged for a single and common currency. Like in India, Indian Rupees are used as a medium of exchange for buying and selling of goods and services.
Simplified trade procedure:
In home trade, there is a simplified trade procedure of buyer who places an order and the seller executes the order and receives his payment.
Difference between Wholesale Trade and Retail Trade
FAQs on Internal Trade vs. Wholesale Trade: Key Differences
1. What is internal trade?
Internal trade, also known as domestic trade, involves the buying and selling of goods and services within the geographical boundaries of a single country. All transactions are conducted using the national currency, and trade is subject to the laws and regulations of that nation. It encompasses all commercial activities from the producer to the final consumer within the country.
2. What is wholesale trade as per the CBSE Class 11 syllabus?
As per the CBSE syllabus, wholesale trade is defined as the purchase of goods in large quantities directly from manufacturers or producers and their subsequent sale in smaller lots to retailers or other businesses. Wholesalers act as a crucial intermediary in the distribution channel, connecting producers to the retail market.
3. What is the key difference in scope between internal trade and wholesale trade?
The key difference is not one of comparison but of hierarchy and scope. Internal trade is the broad framework that includes all commerce within a country. Wholesale trade is a specific component or stage within that framework. Therefore, wholesale trade is a type of internal trade, not a separate parallel concept. The distinction is between the entire system (internal trade) and one of its major functions (wholesaling).
4. What are the two main types of internal trade?
Internal trade is primarily classified into two main types based on the quantity of goods and the nature of the transaction:
- Wholesale Trade: Involves buying goods in bulk from producers and selling them in smaller quantities to retailers.
- Retail Trade: Involves buying goods from wholesalers or distributors and selling them directly to the final consumers in very small quantities.
5. What are the primary services a wholesaler provides to manufacturers in internal trade?
A wholesaler provides several crucial services to manufacturers, which include:
- Facilitating large-scale production: By placing bulk orders, wholesalers enable manufacturers to produce on a large scale.
- Bearing risk: Wholesalers take ownership of goods, bearing the risk of price fluctuation, spoilage, and theft.
- Providing financial assistance: They often make cash payments for goods or provide advances, which helps the manufacturer's cash flow.
- Expert advice: Wholesalers provide valuable information to manufacturers about market conditions and customer preferences.
- Storage: They hold large stocks of goods in warehouses, relieving manufacturers of storage burdens.
6. How does internal trade fundamentally differ from international trade?
Internal and international trade differ fundamentally across several aspects:
- Geography: Internal trade occurs within a country's borders, while international trade crosses national frontiers.
- Currency: Internal trade uses the home country's currency. International trade involves the exchange of foreign currencies.
- Regulations: Internal trade is subject to the laws of one country. International trade must comply with the laws, tariffs, and customs regulations of multiple countries.
- Risk: The risks associated with transport, currency fluctuation, and political instability are significantly lower in internal trade compared to international trade.
7. Can you provide a real-world example of the internal trade channel involving a wholesaler?
Certainly. Imagine a large biscuit manufacturer in Maharashtra (the producer). They sell truckloads of biscuits to a wholesaler in Uttar Pradesh. This wholesaler stores the biscuits in a large warehouse and then sells them by the carton to numerous local grocery stores and supermarkets (the retailers) across various cities in UP. Finally, a student (the consumer) buys a single packet of biscuits from one of these grocery stores. This entire chain from Maharashtra to the student in UP is an example of internal trade.
8. Why is wholesale trade considered the backbone of internal trade?
Wholesale trade is considered the backbone of internal trade because it creates a vital link that makes the entire distribution system efficient. Without wholesalers, manufacturers would have to deal with thousands of individual retailers, which would be logistically impossible and financially inefficient. Similarly, retailers would struggle to source goods from countless manufacturers. Wholesalers absorb risk, provide finance, manage storage, and break down bulk, allowing both producers and retailers to focus on their core functions, thus enabling the smooth flow of commerce across the country.
