Trade involves the transfer of goods and services from one person to another person in exchange for money. Economics considers trade as a separate market in the corporate world. In the early years, about the mid-80s trade was the process of direct interchange of products and services from producer to consumer.
The process is, however, expanded and involves a number of people in this global era. Products and services are initially delivered to the wholesaler in huge quantities; from where they distribute to retailers and at last, reach the actual consumer of the product. Every person involved in this exchange charge differently and is responsible for delivering desired products to consumers on time.
Trade has become a necessary aspect of human life. Not only does it generate revenue, but also fulfills the needs and requirements of a product consumer. Trade is a cycle that makes an easy supply of different and innovative product ranges in every region of the world.
This is only because of trading that a person residing in the West can taste Asian spices and people of Asia enjoy the ease of technologies introduced by the West. Trade advances the living standards of humans and now humans are getting addicted to it.
What are the Main Types of Trade and Exchange?
Trade is broadly classified into two main types that further have sub-classification. These are:
- Internal or Domestic Trade
- External or Foreign Trade
We will look into the details of these types of trades and how the process goes on.
What is Internal or Domestic Trade?
Internal trade is home trade, also called domestic trade. Internal trade, as the name indicates, works by purchasing and selling products within a specified boundary of the nation. In other words, it is conducted between different regions and geographical locations of the same country. Internal or domestic trade helps to maintain a level of coordination and exchange of goods between every city of the state.
We can typically explain it as the goods bought from any local shop, products purchased from departmental stores or warehouses, and even door-to-door selling also falls in internal trade.
Internal Trade – Features and Characteristics
|Geographical Boundaries||The exchange of goods is within a country|
|Legal Formalities||Limited legal formalities as the goods are domestically exchanged. No custom payment is required.|
|Payments||Done through the national baking system – within the country|
|Involved People||The community involved includes manufacturers, customers, and intermediaries, i.e., distributors and wholesalers.|
|Distribution Channel||Includes middlemen and product distribution agencies|
Types of Internal Trade
It’s important to get a detailed understanding of the types of internal trade as this network of distribution keeps our country growing. Internal trade is further divided as:
- Wholesale Trade
- Retail Trade
It is the process of buying products of huge quality from manufacturers and then distributing them to retailers so that they sell them to consumers. Wholesalers are used to supplying the product to a retailer since manufacturing and production are happening. People who engage in the wholesale trading act as the middlemen between retailers and manufacturers, because companies can’t sell their products, direct to consumers. Some key features of wholesale trade are:
- It connects the producers to the retail market in internal trading
- The middlemen buy products from the manufacturer in bulk
- The major portion of product sales in wholesale trading goes to retailers
- The stock bought by wholesalers is usually kept in warehouses
- The person who is involved in wholesale trading is called a wholesaler
In this, retailers buy a small number of goods from wholesalers and sell them to the end consumers. Retail trade is typically the main source of establishing good relationships between wholesalers and consumers. Also, it is the last step to make the product available to customers for use. There are two types of retailers, including large and small retailers. These are free to sell their goods in any way, i.e., via online platforms, by communicating through phones, or through vending machines. Most of the functions of a retailer in this trading are mentioned below:
- Once the wholesaler provides goods to the particular retailer in the retail trade, it is his duty to arrange and sell those goods.
- Moreover, a retailer is responsible for providing a storage environment for the goods to be sold in the market.
- The profit or loss in selling the goods at the end of retail trading is solely to be borne by the retailer, so he should make ways to sell as many goods as he can.
- Collecting the correct information regarding the product and creating marketing strategies can help a retailer generate more sales, thus increasing the GDP of the internal trading system.
What is External or Foreign Trade?
External trade is the process of selling or buying products and services from one country to another. This trade type is also called foreign trade. It has no boundary, anyone from around the globe can buy and sell anything to any region and state of the world. It makes business global and makes the easy availability of every product for the whole world. There are some national and international limitations and laws for external trade which save traders from any fraud.
However, external trade is known by certain characteristics, that differentiate it from internal trade. These are mentioned in the table below:
External Trade – Features and Characteristics
|Geographical Aspect||The sellers and buyers are from all around the globe|
|Legal Formalities||Legal formalities are pursued the import and export|
|Foreign Currency||The exchange of goods is in foreign currency|
|Need of Middlemen||There’s a need for a long chain of middlemen due to the complexity of international trading, such as clearing agents, foreign exchange banks, etc.|
|Risk Element||More risk factors are involved due to global trading|
|Comparative Costs||Any country will always produce goods where it finds an advantage in cost|
|Government Influence||Foreign trading significantly involves approval from the respective Government|
Types of External Trade
External trade is done on a large scale, so is further divided as:
- Export Trade
- Import Trade
- Entrepot Trade
When trading occurs between the trader of one country and the trader of another country by selling any product, it is called export trade. For example, traders in America sell any product to the trader in Germany. The goods to be traded can be anything, i.e., services, finished goods, or raw materials.
Export trade is specifically done to earn foreign exchange, generate more revenue, stabilize the economy, increase market share, and similar objectives. If there is more demand for goods and services in an exporting country, its economy increases within months.
Top Export Countries as per 2021
Below is a table of the top ten export countries with their respective sales in 2021.
|Export Countries||Export Sales (USD)|
Import trade, on the other hand, refers to the purchase of goods and services from foreign countries for use in the importing country. In other words, when a trader of one country buys any goods from the trader of any other country, it is called import trade. For example, traders located in England buy any products from traders in America to sell them in its region.
The main purpose of importing the goods is to meet the needs of a country where the product is either not produced or is present in insufficient amounts. The economy of the respective country automatically increases when there are more sales of imported items.
Top Import Countries as per 2021
Below is a table of the top ten import countries with their respective import values for 2021.
|Import Countries||Import Values (USD)|
When a trader of one country purchases any product and goods from the trader of any other country and makes some changes and business integration in it for reselling this product to any other country is called entrepot trade.
For example, the trader in America purchases any spare parts, machinery, and raw material from Japan and Russia and then restructures them to make a new product and sell it to other countries.
Entrepot, commonly called a transshipment port, is a re-export trading system where products are imported, carefully stored, or traded, before being re-traded to the decided country. The country where transshipment is occurring acts as a middleman between the two main countries, facilitating trade between them. This system was helpful in the past as there were fewer means of transportation, especially Singapore and Hong Kong were active countries in such trading systems.
Although the main objective of this trade was to cut short long-distance transportation and ultimately the cost of imported and exported goods. However, this system is largely considered obsolete today as the world has progressed to a safe and efficient transportation system.
Trade has been an essential component of the global world, not only to stabilize the economy but also to maintain healthy relationships between countries. This process of buying and selling goods and services from one state to another is done on national and international levels. The country participating in this system helps its economy by lowering product prices, maintaining competition, fueling growth, eliminating inflation, and much more. Humans now find it easy to access advanced products and technologies as governments of different countries are enjoying healthy relationships. It is also seen to have a direct effect on GDP.
Lisa is a passionate travelers. She spends 3 months every year visiting different places worldwide. She has visited almost every famous place in the world. She herself is an affiliate blogger