What is Internal Trade?
Internal Trade, commonly recognized as Domestic Trade or Home Trade, is the purchasing and selling of goods and services, within the geographical borders of a country.
For instance: Goods purchased from the nearby market, retail store, mall, fair, exhibition, door-to-door salesman, or online via Amazon, Flipkart, Grofers, etc.
Characteristics of Internal Trade
- Geographical Boundaries: Goods and services are bought and sold, across the country only. This means that the transaction may take place between buyer and seller of the same area, city, village, or two different states, of the same country.
- Payment: Money is to be paid and received in the home country, and that too in the country’s legal tender. Hence, the consideration for such purchase is to be made in the national currency or through the national banking system.
- Legal Formalities: No to few legal formalities are to be complied with by the businessman and traders. This is because it does not require payment of customs duty as goods are manufactured and sold, domestically. As well as it does not attract foreign exchange and regulatory measures.
- Transaction: It entails transactions among the producers, consumers, and intermediaries, i.e. wholesalers, distributors, retailers etcetera.
- Distribution network: It comprises a proper distribution network, which includes middlemen and agencies, who are involved in the business of exchange of goods and services.
Classification of Internal Trade
Based on the scale of operations, internal trade is broadly classified into two major categories:
The business of purchasing goods in bulk quantities from producers or manufacturers and selling the same in comparatively smaller lots to other traders or say, retailers, is called Wholesale trade. The goods are sold at a lower price than the usual price by the wholesaler, at a profit.
The wholesalers serve as a connecting joint between the manufacturers and the retailers. Further, they deal in specific products only.
To start a wholesale trade, a huge amount of capital is required, as they purchase goods in large quantities for which they need to give advance to the manufacturers. Apart from this, they need a proper warehouse to store the goods.
Functions of Wholesaler
In the process of distribution of goods there are a number of significant functions performed by the wholesalers:
- Warehousing or storing
- Financing to retailers
- Risk Bearing
Types of Wholesaler
Basically, there are three types of wholesalers:
- Manufacturer Wholesaler: Such wholesalers, perform the task of manufacturing goods as well as selling the same on a wholesale basis.
- Retail Wholesaler: A retail wholesaler is one who purchases goods from producers and sells them directly to the final consumer instead of other traders. Super Bazar is one of the classic examples of it.
- Merchant Wholesaler: These are pure wholesalers, who do not undertake any other business than the wholesale one. So, they act as a link between producers and retailers.
This is the kind of trade we deal with, on a day-to-day basis. Retail trade involves buying goods from the wholesaler or producer in large quantities and selling goods in small quantities, as per their need, to the ultimate consumers, for their own consumption and not for the purpose of reselling. It is the last stage in the supply chain management, wherein the goods reach the hands of the final consumer.
To start a retail business a small amount of capital is required. They focus more on the location and decoration of the shop, so as to attract more and more customers.
The retailer caters to the requirements of the localities and also maintains personal contact with the consumers.
Functions of Retailer
- Ready and Continuous supply of stock
- Keeping different varieties of products
- Transporting goods from producers or wholesalers
- Risk bearing
- Knowledge of new products
- Home delivery of goods
- Selling goods on credit to customers
Types of Retailers
Based on whether or not the retailer possesses a fixed place of business they are divided into two groups:
Itinerant Retailers: Itinerant Retailers are small traders, who do not possess a specific place for trading. So, they tend to move their vendibles from street to street to reach the customers. Such retailer often deals in products that are used on a regular basis like fruits, vegetables, toiletries, etc. It includes:
- Peddlers and Hawkers
- Market traders
- Street traders
- Cheap Jacks
Fixed Shop Retailers: Fixed shop retailers have a permanent or say specific place of doing business. Hence, they need not move their merchandise from one street to another. They have a larger pool of resources and so the business is carried out on a greater scale. The offerings may also be different, which include consumer goods as well as capital goods. Further, they are subdivided into:
- Small Scale Fixed Shop Retailing
- General Stores
- Speciality Shops
- Single Line Store
- Street stallholders
- Second-hand goods shop
- Large Scale Fixed Shop Retailing
- Departmental stores
- Chain stores or multiple shops
- Mail order Retailing
- Consumer Cooperative stores
- Super Markets
- Vending Machines
In Internal Trade, the movement of goods throughout the country is almost free, except when goods are transported from one state to another.