The Three Main Types of Trade and Their Importance
It is true that trade in all its forms is nothing but exchange operations, products for money or money in exchange for products or they may be products in exchange for products or services in exchange for products and vice versa, but this does not negate the idea of the multiplicity of types, patterns and forms of trade.
The development of societies and the evolution of life in every society and the emergence of regulations and laws that govern the functioning of individuals members of these societies, caused the emergence of many types of trade and various economic activities to facilitate the lives of individuals and make them more flexible and fluid.
Here we will learn about the three main types of trade and learn about each type of it, how it works, and what it includes from the activities of each of these types.
Types of trade
Domestic trade (Local Trade)
Internal trade is also known as local trade, which includes all forms of sale, purchase and commercial exchange of products and services that take place within the borders of one country, and this is what distinguishes it from foreign trade, which we will get to know shortly. Of course, it includes both wholesale and retail trade.
Wholesale trade is one of the two main divisions of internal trade (Local Trade). In this form of trade, products and goods are purchased in large quantities directly from manufacturers, while the party that buys these quantities is wholesalers, meaning that in this type of trade the products are not sold directly to consumers, but rather to wholesalers and they in turn sell them to dealers. Retail.
I mean, retailers get goods from the factory at specific prices, and then they transfer them from industrial areas and production plants to residential cities where consumers are and there they are sold to retailers, who in turn sell them to the last consumer.
We conclude from this that retailers play the role of link between manufacturers and retailers, and therefore their role is concentrated in the upper stages of the commercial process and they do not deal with the consumer directly. Usually wholesalers specialize in one field or class of products and goods, so you will find, for example, wholesalers in the field of clothing, wholesalers in the electrical field, and others in food.
The importance of wholesale trade
The wholesale trade would contribute to reducing the costs of production, storage and transportation, as wholesalers collect small orders from retailers and then order large quantities from the factory, and this helps manufacturers to benefit from the economy of large size without worrying about matters of transport, storage and spoilage.
Wholesale trade contributes to mitigating risks for manufacturers who are mainly responsible for many risks in terms of manufacturing products, as once goods are sold to wholesalers, all transportation and storage risks are transferred to the wholesaler.
Wholesale trade often includes some kind of financial and commercial cooperation. In many cases, wholesalers pay the price of products in advance, which provides liquidity to manufacturers and helps them liberate working capital.
Distribution is one of the vital functions in the wholesale trade, as wholesalers deliver products to places of consumption, which relieves a lot of the burden on both manufacturers and retailers.
Storage is also one of the other benefits of wholesaling, as retailers have their own storage space, which helps relieve storage burdens for both the manufacturer and the retailer.
For retailers, wholesalers provide them with a great service, which is to make products always available, retailers must always be satisfied with their customers by providing products all the time, and this cannot be achieved by ordering products at any time from the factory, but thanks to the wholesalers this is possible.
The wholesaler plays the role of the mediator between the manufacturer and the retailer, as the wholesaler provides the manufacturer with advice and advice about products and goods and methods of presenting them to customers to ensure that the best form of services is provided to consumers.
Often wholesalers provide retailers with some type of financial credit by offering them goods now and deferring payment for them to a later time, and this allows retailers the type of liquidity that may allow them to expand their sales and business activities or at least continue their business when they encounter liquidity problems.
Retail trade (business)
Retail trade is the process in which products, goods and services are sold to the final consumer, to individuals who buy these products for their personal use directly and not to other merchants or people for the purpose of reselling them. Usually this process takes place with small quantities of goods and products and not as it is with the wholesale trade, which deals with large quantities.
Retail trade is the last stage of every internal trade process, in which retailers buy products from wholesalers and sell them directly to consumers.
In some cases, it is possible that the retailer will purchase products directly from the factory, bypassing the wholesaler entirely. It is from this that the retailer earns a certain profit margin.
Retail trade may take many forms and is not limited to only displaying products in a small store after purchasing from a wholesaler, selling in retail trade can take place over the phone, via e-mail, over the Internet, for example, through personal interviews, or via recommendations.
But despite all these forms, the constant thing about retail trade is that the sale is directly to the consumer, so it is called retail trade because the sale is to the consumer and in small quantities, often per piece.
The importance of Retail trade (business)
The most important thing that can be mentioned with regard to retail trade is the role of merchants at this stage, as they play the role of a link between wholesalers and consumers, in addition to that wholesalers as well as manufacturers cannot cover very wide areas and provide products to consumers in them, so retailers do this task.
Selling directly to the consumer requires a special kind of skills that neither manufacturers nor wholesalers have either, as it requires direct communication with the consumer and dealing with him to convince him to buy, which is something that neither wholesalers nor manufacturers are good at.
Benefiting from economies of scale, as manufacturers produce goods in large quantities, and wholesalers buy in large quantities, but retailers, although they buy in large quantities as well, but they sell in retail and often in one piece, allowing all parties to benefit from what the economy of size.
The fact that retailers are the only ones in the internal trade process who are in direct contact with consumers, and thus provide manufacturers with valuable feedback from these consumers about the product, complaints and problems, and if there are any suggestions for improving it.
It helps retailers in the promotional and marketing activities of different products, especially as they are closest to consumers, customers and people who use those products.
Retailers play an important role in overcoming the place barrier, as consumers do not have to worry about making products available in the local market near them.
This is all about internal trade or local trade, as it is sometimes called, with both types of wholesale and retail trade, and let us know now about another type of trade, which is International trade.
Or international trade is called, and simply it can be defined as the exchange of products, goods and services between countries, or between institutions, companies or merchants from different countries, and not as internal trade is defined within the borders of one country, here in international trade the commercial process can be between countries from continents Different.
International trade allows societies to enjoy and benefit from services and products that are not available in their country or that society itself is not able to manufacture, and therefore they can import them from other countries.
As an example, you can now enjoy driving a Japanese-made car, using a computer imported from the US, and sampling Brazilian coffee, all thanks to international trade.
International trade would give the economies of countries more benefit and activity, and increase competition in the local markets, and the role that this has in the prices and quality of products and their availability to consumers at all times and the options available as a result of all this.
Foreign trade work mechanism
As with internal trade, in foreign or international trade, merchants from one country import goods and products from manufacturers in second countries, and the merchants in the first country and they are called importers in this case, may import directly from the manufacturer or producer, or the import may be Through an intermediary, it may be a company specialized in import and export, or an exporter merchant in the second country, especially since the importers in the first country may not have sufficient experience to import from other countries, which makes them resort to an intermediary.
Importers in a country are in different categories, some of them import raw materials only and re-manufacture them in their country, and some import consumer materials manufactured so that they are ready for sale to the consumer directly, and importers are always wholesalers who import in large quantities.
In some cases, the importer may be a governmental entity such as ministries and public sector institutions, which import the raw materials that they need and are not available in the local market, or other materials that the state needs such as agricultural materials, oil derivatives, industrial materials and other things that are not available within the country.
In all cases, and whatever the type of importer, in international trade, products and goods are always imported in bulk and in large quantities. Of course, the same applies to cases of export when companies, institutions and producers export their goods abroad.
The importance of International (Foreign) trade
Import and export operations create more jobs and boost economic growth
Foreign trade helps to give companies, suppliers and exporters more experience in the market, whether in exporting products and goods with local industry and marketing methods for them abroad, or in import.
Competition increases in the markets, and hence the competitive advantages in the products, and the consequent benefit to the consumer, prices, purchasing movement and the market in general.
Thanks to International (foreign) trade, the needs of the deficiency that may be attached to the local market can be met, whether as a result of poor production, the lack of sufficient capabilities to produce what consumers need, or as a result of the inability to provide the necessary raw materials for this, and thus can be compensated by import.
International trade (Foreign) also helps in the disposal of surplus products and goods from various industries by exporting them outside the country.
These are some of the most important advantages of international or foreign trade and what it can provide to societies and economies of countries. There is a third type of trade which, despite its recentness, is no less important than the previous two types, but is expected to surpass them in the next few years, namely e-commerce.
Electronic trade (e-commerce)
Or Internet trade is the latest type of trade at all, which only appeared with the advent of the Internet, and this type of trade includes all commercial operations from buying, selling and exchanging that take place over the Internet.
E-commerce operations include various commercial activities such as the trade of services, products, merchandise, and even goods that have a physical presence. Like regular commerce, e-commerce can include wholesale or retail business activities.
How e-commerce works
E-commerce depends on a number of factors and elements necessary to complete any e-commerce process, such as the Internet, the seller and the buyer, the means of shipping goods and products, and the electronic payment methods.
Each of these elements must be present within a specific stage of the electronic business process.
But in general, any of the e-commerce activities often take place within platforms specializing in this type of trade, for example, forex trading takes place in specialized platforms, and currency and metal trading as well, and there are stores specializing in goods and products such as Chinese stores that sell retail and wholesale in the same Time.
Such platforms are the ones that handle tasks such as securing payment processes through electronic payment gateways that enable users to pay money and transfer it to anywhere in the world, as well as the means of shipping that take place through international shipping companies and can transport goods and products to and from anywhere.
The importance of e-commerce
E-commerce operations are characterized by being more flexible and streamlined than trade in its traditional form. It does not need many requirements necessary in traditional commerce, as all business is done electronically via the Internet.
Traditional commerce requires a lot of requirements and thus a lot of costs, which can be bypassed in e-commerce and you can start projects with little capital.
In e-commerce, you will not have to pay many taxes and commissions that you must adhere to in traditional commerce.
You can practice your commercial activities anywhere and without the need to be bound by a place or time. E-commerce takes place over the Internet and is on an international level without being bound by one country or place.
You will not find many of the disadvantages of traditional commerce in electronic commerce, such as monopoly, corruption and deception, as e-commerce platforms guarantee the rights of all parties.
These are some of the features in e-commerce that differ from commerce in its traditional form. To be so, we got acquainted with the main types of trade represented in domestic and foreign trade or international trade and e-commerce, and we learned about each of these types and how it works.