What are the Crucial Differences between Trade and Commerce?

difference-between-trade-and-commerce

Business is a commercial activity to earn profit by supplying goods or services. Business activities are classified into two categories and that is “commerce” and “industry”. Industry is about manufacturing of goods whereas commerce is about distribution of those goods.

If you are running a business, you might know the importance of industry and commerce. They are the building blocks of any business.

Commerce is termed as the exchange of products/items or services. Further it is then to be sub classified as trade. So, trade is a subset of commerce. Trade is termed as the buying and selling products or services in exchange for currency. There is a common misconception among people that trade and commerce are the same. But the fact of the matter is that both these terms are not the same.

The best example of trading is when you own a business with an online ecommerce website  and behave as a connecting medium between the customers and the manufacturer.

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When a customer places an order on the website, you pass that purchase order details to the manufacturer, which is known to be trading. Once the order is ready, you supply the order to the customer using various shipping methods, which is considered to be commerce. Hence it is the best example of trading and commerce.

Online sellers must obtain gst number if they want to deal in many categories and you must check out the documents required for gst registration process to start an initial process.

Now, let us take a dive into what actually is industry, trade and commerce.

What is Industry?

Industry is all about the activities related to acquisition, extraction of raw materials, conversion of those raw materials into a final product. The amount of capital during product development is not fixed.

Industries are classified into three types:

  1. Primary: This industry works solely on providing raw materials.
  2. Secondary: The materials which are obtained from the primary industry are processed further to provide a finished product.
  3. Tertiary: Tertiary industry provides assistance to the primary and secondary industry.

What is Trade?

In basic terms, trade means buying and selling goods or services in compensation for money from one person to another or from one entity to another. A system which allows trade is termed as market.

In ancient times, the barter system was followed in trading. It involved exchange of goods or services in return for other goods or services without involving money. But it was tough to evaluate the exact worth as the same mediums were not used to exchange the commodities. Further when precious metals were exchanged, money started to become the medium of exchange. So when money came into the business, trading became easier for buyers as well as the sellers.

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Trade involving two traders is known as bilateral trade whereas the one involving multiple traders is known as multilateral trade. 

Trades can prevail at county level as well as at the international level. Domestic trade involves trading within the country where as foreign trade involves trading outside the country.

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Domestic trade is further divided into Wholesale trade and Retail Trade. Retail trade occurs at fixed positions such as malls, provision stores, online etc. where consumption is in small range. Wholesale trade deals in trading of goods to retailers, commercial, industrial or to other business professionals.

Foreign trade is divided into Export trade, Import trade and Entrepot trade.

What is Commerce?

Commerce facilitates the transfer of goods, warehousing, advertising and all the other activities that completes a trade right from the manufacturer to the customer.  In brief, commerce involves all the process that support the exchange of products or items from the manufacturer to the end customer.

Once the goods are manufactured, there are various things to be taken care of such as the activities involving transportation, warehousing, logistics, warranty offers, advertising, insurance etc. which helps to achieve the trade successfully. It is all done to reach to the ultimate consumers.

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Commerce is mainly concerned for the below points:

  1. Bridging between the customer and the manufacturer.
  2. Provide assistance to the buyers and sellers in payments and provide credit options.
  3. Provide insurance and warranty on the products in order to ensure against damage and risk.
  4. To develop the awareness about the items or products.

In brief commerce helps to transfer goods without any hindrance from any parts of the country or the world.

Top differences between Trade and Commerce:

1. Definition: Trade means buying and selling of products/items or services in compensation for money. Commerce involves all the activities that support the exchange of products/items from the manufacturer to the end customer.

2. Scope:The scope of trade is limited to selling and buying whereas the scope of commerce is wider as it involves all the major activities and helps to achieve the exchange without any disturbance.

3. Purpose: The purpose of trade is to satisfy the social perspective of the buyer and the seller. While commerce is economical as it involves revenue generation. Also the national and global economy is affected through the commercial transactions.

4. Activites: Trade is often a single time deal between the buyer and the seller. While in commerce there are multiple activities, it is possible that few activities have to be repeated in the process.

5. Capital: Trade requires more capital as compared to commerce because after a deal is finalised, instant cash has to be given along with the stock. Whereas in commerce there are various parties involved and they can manage resources accordingly.

6. Bridging: In trade, the connectivity is between the buyer and seller alone. However in commerce, it is between the manufacturer and the end customer.

7. Employment Opportunities: The employment opportunities are more in commerce as compared to trade, because more activities are involved in commerce which requires more number of people.

8. Commerce represents only the demand side whereas trade represents both the demand as well as supply side.

9. Trade is generally an isolated activity whereas commerce is a regular activity.

10. More human capital/resources are required in commerce as compared to trade as the number of activities is more in commerce.

Conclusion

Hence trade and commerce are the most important segments for the economy.Trade is the branch of commerce which deals only in exchange of goods and services while commerce is the broader activity which enhances the exchange and generates profits and revenues. Thus commerce is considered to be the important aspect which keeps everything binded in the place and successfully completes the distribution of goods. 

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