CHAP 1: INTRODUCTION TO COMMERCE

Meaning of commerce
Commerce means trade and all services that make trade possible. It is concerned with the distribution of goods and services in order to
satisfy human needs and wants.

What are human needs and wants?

Needs are things that we need in order to survive, we cannot live without them, they are the basic necessities of life.
E.g.
 food, - shelter - health care
 clothing, - water
Wants are things that we need to make our lives more enjoyable but we can survive without them.
E.g.
 cell phones - radio -entertainment
 TV’s - bed - pen

The needs and wants are actually goods and services.

Goods are the physical or tangible things that we can see, touch, and measure e.g., cell phones, food, radios, clothes etc.
Services are intangible things i.e. work done by other people which helps us but which is invisible e.g. transport, advertising,
education, security, health care etc.

PRODUCTION
Production refers to all the activities which bring about goods and services [1] to satisfy human needs and wants [1]
It includes;
-the extraction of natural resources/ raw materials
-changing of raw materials into more useful goods
-transferring finished goods from factory to the consumer

TYPES OF PRODUCTION
1. Direct production; production of goods for one’s own use or family consumption.
e.g.
 A man building his own house
 A farmer growing only enough crops for his family consumption.

2. Indirect production; production of goods for sale.

e.g a farmer growing crops for sale

STAGES OF PRODUCTION
a) Primary production
b) Secondary production
c) Tertiary production

a. PRIMARY PRODUCTION
This is the first stage of production were natural resources are the extraction from nature. The resources are extracted either by:
 Mining
 farming
 fishing
 quarrying
 forestry.

b. SECONDARY PRODUCTION
This is the second stage of production where raw materials are transformed into finished goods or semi-finished goods. It consists of
manufacturing and construction industries. E.g.
 making of shoes
 Baking bread
 milling
 building of houses
 construction of roads and bridges.

c. TERTIARY PRODUCTION
This is the last stage of production which involves the provision of services which help in the transfer of the finished products from
the factory to the consumer. It consists of :

i. Commercial Services- services that help in the buying and selling of products.
These services are transport, advertising, banking finance, warehousing, insurance, communication

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ii) Direct Services- these are intangible services that people directly provide as a contribution to production rather than to the actual
making of an item
E.g. services of doctors, nurses and surgeons make people healthy, strong and ready to work. They directly help them to work more
productively.

CHAIN OF PRODUCTION
It refers to how the various processes are involved in the making of a product are linked up.
E.g. chain of Production of bread

Ploughing and processing making dough, baking advertising, warehousing banking

Harvesting wheat into branding and and transporting of profits
of wheat flour. packaging of bread bread for sale

FACTORS OF PRODUCTION: These are the resources needed for the production of any goods or services.
These are: land
Labour
Capital
Enterprise

a) Land –refers to all the resources provided by nature such as soil, fields, vegetation, animals, minerals, rocks etc, it includes the
earth and oceans and everything that lives or grows in them.
Nothing can be produced without land.
 a fisherman needs the water from which to catch the fish
 a miner extracts minerals from below the surface of the land
 a manufacturing industry needs land to build the factory
Reward for land is rent

b) Labour- is the human effort or energy used in the production of goods and services. It can be physical or mental energy. It includes
services provided by such people as domestic workers, doctors, teachers etc
Reward for labour is wages/salaries

c) Capital- consists of money and all the man made assets used in the production of goods and services. Money is needed to pay
workers, bills and buying machinery.
Reward for capital is interest

d) Entrepreneur – a person who makes the decision and bearing the risks of bringing resources together to produce goods and
services with an aim of making profit e.g. a fruit farmer will use his expertise to combine his land, capital and labour to produce fruits
he will be able to sell.
Reward is profit

STRUCTURE OF COMMERCE

COMMERCE

TRADE AIDS TO TRADE

HOME TRADE FOREIGN TRADE W A B T I C

WHOLESALE RETAIL
TRADE TRADE

EXPORT IMPORT
TRADE TRADE

KEY: W- WAREHOUSING
A- ADVERTISING
B- BANKING
T- TRANSPORT
I- INSURANCE
C- COMMUNICATION

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1. TRADE: it is the buying and selling of goods and services with the aim of making profit.

TYPES OF TRADE

a. Home trade: it is the buying and selling of goods within the country. It consists of retail trade and wholesale trade
 Retail trade; selling of goods in small quantities
 Wholesale trade; selling of goods in large quantities.

b. Foreign trade: the buying and selling of goods between countries. It consists of import trade and export trade
 Import trade: buying of goods from outside the country
 Export trade: selling of goods to someone outside the country.

2. AIDS TO TRADE/ COMMERCIAL SERVICES: these are services that help to make the buying and selling of goods/services
possible. They are
 Warehousing
 Advertising
 Banking
 Transport
 Insurance
 Communication

IMPORTANCE OF COMMERCIAL SERVICES TO COMMERCE & INDUSTRY

WAREHOUSING
 Provides the place for the safe keeping of raw materials, equipment and finished goods to protect them from harsh weather
condition.
 It helps to ensure that there is steady supply of raw materials for production to go on smoothly so as to keep stock ready to
meet customer demands.
 It allows the business to buy stock/raw materials in large quantise hence enjoy trade discounts.

ADVERTISING
 Helps businesses to inform and remind customers about the availability of goods/ services so as to come and buy.
 Helps businesses in persuading customers to buy more of their products hence increase in sales.
 Helps businesses to obtain information regarding raw materials supply sources and other inputs so able to compare prices
and quality and choose the best supplier.

BANKING
 Helps by providing finance (loans & overdrafts) required to set up a factory and running the business.
 Provides safe place for businesses to keep their money so as to avoid losses to due to thieves.
 Provides the use of current account to enable the business to receive payment from customers and also to make payments.

TRANSPORT
 Helps to move the equipments and raw-materials to the factory for processing well on time
 Helps move workers to and from the factory so as to start production well on time.
 To move products to the consumers for sale when ready.

INSURANCE
 Facilitates production and trade by absorbing some of the risks involved in businesses e.g. fire, motor accident, theft,
accidental damage.
 It creates an atmosphere of confidence to the producer so that s/he can freely invest her money, produce and sell the goods.

COMMUNICATION
 Enable businesses to contact both the suppliers of raw materials and customers through telephone, letters, E-mail and can
place order through faxes.
 Helps businesses to widen his/her market by contacting foreign customers by phones and internet (e-mail)

CHAIN OF DISTRIBUTION

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This is the process that shows the different routes which goods pass through before reaching the final consumer. In the process the
goods are handled by various people and organisations.

Route 1: PRODUCER—WHOLESALER—RETAILER--CONSUMER
Wholesalers buy goods in bulk from producers and sell them to retailers in small quantities and the retailers sell to the consumers in
suitable quantities.

Route 2: PRODUCER—CASH N CARRY WHOLESALER--CONSUMER

Large cash and carry wholesalers who have large warehouses buy good in bulk from producers and sell them directly to the consumer

Route 3: PRODUCER—LARGE SCALE RETAILERS—CONSUMER

Large scale retailers such as Choppies supermarkets buy directly from the producer in bulk and sell directly to the final consumer in
small quantities.
This route is used mostly by manufactures of consumer durables such as furniture, cars, TV sets.

Route 4: PRODUCER—FACTORY SHOPS--CONSUMER

Producers sell their products straight to the consumers through their own retail outlets known as factory shops. Perishable goods like
vegetables, fruits and bread pass through this route.

Route 5: PRODUCER—MAIL ORDER FIRM--CONSUMER

This route is used for manufactured goods of high value and low volume such as golden products. Here part time agents market the
products directly to the consumer and or mail order companies advertise their products in catalogues and call for orders by post or
phone.

Route 6: PRODUCER—MARKETIG BOARDS—WHOLESALERS—RETAILERS--CONSUMER

Organisations owned and run by the government like BAMB buy the products of primary industries especially agricultural products
and sell them to the consumers through wholesalers, and retailers.

SPECIALISATION

DEF: Specialisation is a process whereby a company/person concentrates on producing only one product or doing only one task.

DIVISION OF LABOUR
It is the breaking down of work into individual tasks for individual workers to specialise.
E.g. in a car assembly plant, each worker performs a single task along the production line. One person may install the engine, one
may fit the wheels and one put on window glasses.

FORMS/LEVELS OF SPECIALISATION

Specialisation by individual. -When individuals become professionals such as teachers, dentist, accountants.
Specialisation by product- When a company specialises in manufacturing a certain products e.g., Toyota manufactures cars,
Specialisation by process- It is the division of labour whereby a group of people producing a certain product are divided on
individual jobs which make up part of the work involved in making the final product.
Specialisation by region-Occurs when a particular region concentrate in producing a few major products/ services because of the
richness of natural resources in that region.
Specialisation by nation- Occurs when a certain country concentrate in producing certain products which it exports to other
countries. E.g. Botswana produces diamond and beef for export.

DISCUSS THE ADVATAGES SPECIALISATION/ DIVISION OF LABOUR

 If workers keep on doing the same task/job each and every time their skills and speed increase (1) therefore more goods are
produced (1) but this can be boring to workers leading to fewer goods produced.(1)
 Time is saved (1) because workers do not have to move from one operation to another. (1) but production may be stopped
if one worker is absent or sick (1)
 Specialisation allows the use of machinery (1) which leads to further savings in efforts and time (1) but machines are
expensive to buy.

DISADVANTAGES OF SPECIALISATION/ DIVISION OF LABOUR

 Doing the same work everyday becomes boring and it leads to low productivity.
 Use of machines leads to loss of individual crafts and skills.
 Production may be disturbed if one worker falls sick or if the other section is not working.
 Products are all the same so this means consumer’s choice of goods becomes limited.

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 CHAPTER 2: RETAIL TRADE

RETAIL TRADE: it is the selling of goods in smaller quantities.

RETAILER: A person of organisation who buys goods in bulk and sells them to consumers in small quantities.

FUNCTIONS OF RETAILERS
 Provide variety of goods to consumers
 Provides goods at convenient times
 Some offer credit to the consumers
 Offer delivery for some goods
 Offer after sales and pre sales service.

TYPES OF RETAILERS
1. Small scale retailers
2. large scale retailers

DIFFERENCE BETWEEN SMALL SCALE AND LARGE SCALE RETAILERS

SMALL SCALE RETAILERS LARGE SCALE RETAILERS

 offer limited range of goods  offer wide variety of goods
 most do not have fixed premises for operating  operate from fixed premises
 need small amount of capital to operate  need large amount of capital to operate
 offer personal service to customers  most offer self service
 have lower operational costs  higher operational costs

TYPES OF SMALL SCALE RETAILERS

 HAWKER: a licensed trader who sell goods by walking from one house to another.
 MOBILE SHOPS: traders who sell their goods by moving from door to door using a mode of transport, either a van or a
bicycle.
 STREET/ROADSIDE TRADERS: Unlicensed traders who sell their goods sitting under a tree along the road.
 ITINERANT TRADER: Unlicensed traders who walk from house to house carrying a handful of things for sale.
 MARKET STALL TRADERS: Traders who sell their goods from stall areas provided by town councils usually in busy
areas like bus ranks.
 INDEPENDENT RETAILERS: A licensed retailer who operates from a fixed shop on a small scale. They are commonly
known as general dealers.

PROBLEMS FACED BY SMALL SCALE RETAILERS -- [HAWKER/MOBILE SHOP/STREET MARKET/ITENERANT

TRADER]

 Affected by bad weather conditions like rain [1] which can disturb them from selling hence low sales[1]
 Can be attacked by thieves [1] who could take all their money and goods leading to loss [1]
 Face competition from large retailers who offer variety of goods at cheaper prices [1] therefore lose customers [1]

HOW A SMALL RETAILER CAN MAKE HIS/HER BUSINESS SUCCESSFUL i.e. how to increase sales

 Offering quality goods [1] so as to attract more customers [1]

 Regular advertising [1] to persuade customers to buy [1]
 Lowering prices [1] so that more customers buy [1]
 Providing good customer service [1] so as to appeal to more customers [1]

WHY THE NUMBER OF SMALL SCALE RETAILERS HAS DECLINED

 Competition from large scale retailers who offer goods at lower prices [1] therefore lose customers [1]
 Offer limited range of goods and services [1] so customers rarely buy there [1]
 Lack of advertising [1] which lead to low sales [1]
 Poor management [1] as some traders take the business money for personal use.
 Poor locations [1] most are located on the outskirts of towns where there are few customers. [1]

WHY SOME SMALL SCALE RETAILERS ARE STILL SURVIVING/ CONTINUE TO TRADE SUCCESFULLY

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  They offer a wider range of goods and services [1] so this attracts customers to buy in large numbers [1]
 They offer delivery and credit services [1] which makes customers enjoy to buy from them [1]
 They open for long hours [1] which caters for late shoppers hence increase in sales [1]
 They offer good customer service [1] which appeals to more customers [1]
 They offer quality goods at competitive prices [1] which makes customers to be loyal [1]

LARGE SCALE RETAILERS

These are retailers that operate on a large scale offering a wide range of goods and services to the customers.

TYPES OF LARGE SCALE RETAILERS

1. Supermarkets
2. hypermarkets
3. multiple chain stores
4. department sores
5. mail order firms
6. retail cooperative societies

1. SUPERMARKET
These are large self service stores with about 200 sq metres of selling space and have trhee or more cash tills at the exit
E.G. - Choppies supermarket
-Spar
- Pick n Pay

FEATURES OF SUPERMARKETS
 Sell mainly groceries and house hold items
 Use self service method of selling
 Have a trading space of about 200 sq metres.
 They sell branded and pre-packaged goods.

ADVANTAGES OF SUPERMARKETS TO THE RETAILER

 Fewer workers are hired because of self service method [1] hence low wage bill [1] however shoplifting is common which
reduces profits [1]
 Buy in bulk and get trade discounts [1] therefore able to charge low prices which attract customers [1] however lack of
personal attention may chase away some customers especially those who ca not read and write. [1]
 Clever display of goods by trader leads to impulse buying [1] which increases sales and may be profits [1] however they
require a large trading space which can be expensive as they are usually located in city centres where rent is expensive [1]

DISADVANTAGES TO THE RETAILER

 Shoplifting is common which lead to additional costs of hiring security guards.
 Large trading space is needed which can be expensive
 Shopping baskets and trolleys are sometimes stolen

ADVANTAGES OF SUPERMARKETS TO THE CUSTOMER

 Wide range of goods is offered [1] so customers enjoy one stop shopping [1] however impulse buying is likely which may
tempt customers to overspend and end up with financial difficulties [1]
 Saves customer time [1] as goods are easy to find so they can serve themselves quickly [1] however lack of personal
attention can be a problem to illiterate customers [1]
 Customers enjoy cheaper prices [1] so they can be able to buy more goods to satisfy their needs [1] however delivery and
credit are not provided. [1]

DISADVANTAGES TO THE CUSTOMER

 Impulse buying is more likely which may lead to financial difficulties
 Most goods are pre-packaged so can not be inspected before buying
 Credit and delivery are usually not provided.

2. HYPERMARKETS
This is a large self service store whith a trading space of over 500 sq meters, selling groceries, household items, furniture and other
items

FEATURES OF HYPERMARKETS
 Have a selling space of over 500 square metres
 Use self service method of selling
 Usually charge lower prices
 Goods are sold on cash and carry basis except furniture which is sold on credit
 Offer wider range of goods than supermarkets

ADVANTAGES OF HYPERMARKETS TO THE RETAILER/OWNER

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  Buy stock direct from producers at factory prices [1] therefore able to charge lower prices [1] which attract customers
hence increase in sales [1] however lack of personal attention may lesd to some customers not buying [1]

 Self service is used[1]which lead to low wage bills as few shop assistants are needed hence more profits [1] however
shoplifting more likely which may reduce profits [1]

 Impulse buying is more likely [1] which increases sales and possibly profits [1] however they are to expensive to set up
and need much land which may lower profits [1]

DISADVANTAGES
 Expensive to set up and need too much which may lower profits
 Shoplifting is common

ADVATAGES OF HYPERMARKETS TO THE CONSUMER

 Wide range of goods offered at lower prices [1] consumer enjoy one stop shopping [1] however the shops are too big with
many goods which makes it difficult for customers to find some goods [1]

 Self service is provided [1] which makes customer to shop at their own paced without being rushed [1] however impuse
buying is more likely which may lead to financial difficulties [1]

 Usually provide long opening hours [1] enabling late shoppers to buy [1] however they are destroying small local shops
which are conveniently located closer to consumers. [1]

DISADVANTAGES
 Too big to find some items
 Too large and impersonal
 Destroying small local shops conveniently located near customers

3. MULTIPLE CHAIN STORES

These are a group of shops owned by same company with branches all over the country and in other countries selling identical and
usually limited range of goods under centralised ownership and control

TYPES OF CHAIN STORES

 VARIETY CHAIN STORE: stores that sell a variety of goods usually a combination of clothing and food. E.G
Woolworths
 SPECIALIST CHAIN STORE: Stores that specialise on selling a limited range of goods.
E.G OK furniture and furniture mart sell furniture,
CB stores and Jet sell clothing

FEATURES
 Consist of number of branches scattered all over the country and in other countries
 Stock can be moved between branches
 All branches sell the same line of goods, use the same name and have similar shop fronts
 Branches are controlled from the head office
 Each branch is headed by a branch manager

ADVATAGES OF MULTIPLE/CHAIN STORE TO THE RETAILER/SHOP OWNER

 The uniformity of the sores save on architectural costs [1] as the same building plan will be when a new branch is being built
[1] however large capital is needed to set up and run the business [1]
 Able to employ highly qualified workers[1] which brings greater efficiency and help reduce costs [1]however the qualified
workers may need to be paid high wages which increases wage bill [1]
 The advertising, accounting and purchasing are done from the head office [1] which saves overheads and lead to low costs per
branch [1] however centralised control from head office leaves the branch manager with no power to change anything to
suit the local needs of the area leading to low sales [1]

ADVANTAGES TO THE CONSUMER

 Goods bought at one branch may be returned at any nearest branch [1] this saves consumers time and transport costs [1]
however
 Some offer credit [1] which gives many consumers the opportunity to buy more goods [1] however they sell limited range of
goods so no one stop shopping [1]
 Shops are identical [1] so can be easily recognised by customers [1]however they are controlled from the head office which
makes it difficult for the branch manager to cater for the needs of the local community. [1]

REASONS WHY MULTIPLE STORES OFTEN HAVE A LARGER SHARE OF THE MARKET

 Sell on credit and offer delivery [1] which attract many customers to buy [1]
 Have branches all over the country [1] so have easily accessible to many consumers [1]

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  Carry out national advertising [1] which can persuade many customers to buy [1]
 Offer competitive prices [1] which attracts many customers to buy [1]

4. DEPARTMENT STORES

These are stores divided into a number of independent departments each stocking only one kind of good.
e.g Game Stores

FEATURES OF THE DEPARTMENT STORES

 Payments of goods is by cash, and budget account
 They are usually located in towns or central shopping areas
 Each department is controlled by a Department Manager who reports to the General Manager
 They offer a wide range of goods through their different departments

ADVANTAGES OF DEPARTMENT STORES TO THE CUSTOMER

 They are located in central locations in towns [1] hence is convenient for customers[1] however consumers from rural
areas have to travel long distances [1]
 Credit and delivery services are provided [1] which makes more customer to afford to buy even if they don’t have money
[1] however they are often more expensive than other stores [1]
 Wide range of goods available [1] hence customers enjoy one stop shopping [1] however may lead to overspending
through impulse buying [1]

ADVANTAGES OF DEPARTMENT STORES TO THE RETAILER

 Each department advertises [1] the others since customers pass through other departments hence attracts more customers
[1] however costs of providing amenities reduce profits [1]
 Open for long hours [1] which attract more customers hence more sales [1] however workers have to be paid overtime
wages [1]
 Losses in one department can be absorbed [1] as long as other department make profits however it requires more labour [1]
leading to higher operation costs [1]

5. MAIL ORDER FIRMS

These are stores which sell their goods through the post office. It is suitable for selling high value, light and low volume goods such as
jewellery, household utensils and clothes.
E.G. Home Choice, Tupperware

FEATURES OF MAIL ORDER FIRM

 They advertise their goods mainly through catalogues, journals, magazines

 They have no shops but only have warehouses and offices through which they process orders
 They rely on post office to deliver goods to the customers
 They also sell through part-time agents who work for commission

ADVANTAGES OF MAIL ORDER FIRMS TO THE CUSTOMER

 Customer enjoy shopping from home [1] since goods are delivered to customer’s door which is convenient [1] however it
is difficult to assess the quality of goods [1]
 Offer credit facilities [1] which help many who would not afford the goods to buy [1] however customers may burden
themselves with debts and suffer with installments for a long time. [1]
 Unsatisfactory goods are returnable [1] hence gives customers satisfaction of proper goods of their choice [1] however
goods are returned at the customer’s expense [1]

ADVANTAGES OF MAIL ORDER FIRMS TO THE RETAILER

 Does not need premises/shops [1] hence save on rental costs [1] however there is no personal contact with the customers
 They need few shop assistants only for packaging [1] hence save on labour costs [1] however they need to pay
commissions to agents as well as post offices which increase operational costs [1]
 Enjoy economies of scale for buying in bulk [1] this reduces operational costs [1] however holding large stocks increases
insurance and storage costs [1]

6. RETAIL COOPERTIONS SOCIETY

These are stores formed and run by a group of consumers on the cooperative principle of ownership, cooperation and distribution of
profits.

FEATURES
 The members/owners are people who hold shares in the society and are also the main customers.
 Profits are divided as dividends in relation to the amount of goods the member bought from the store.

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  They offer special benefits such as scholarships, funeral benefits to the community
 They are run by a committee elected by the members

ADVANTAGES OF RETAIL COOPERATIVES TO THE CONSUMER

 Enjoy low prices [1] hence able to buy more goods [1] however their choice of shops is restricted in fear of losing benefits
of membership [1]
 Wide range of goods available [1] hence customers needs/choice are met [1] however may lead to overspending through
impulse buying [1]
 Enjoy amenities like scholarships, funeral benefits [1] hence improved standard of living [1] however there is poor
management which may lead [1]

ADVANTAGES OF RETAIL COOPERATIVES TO THE RETAILER

 Reap benefits of economies of scale [1] hence offer lower prices to consumers which in turn attracts many customers [1]
however societies are poorly managed leading to closure [1]
 Payment of dividends encourage members to buy more from the society[1] hence increase sales [1] however issuing of
stamps is a slow process hence become inefficient [1]
 They may have their own brand [1]which encourage customer loyalty [1] however packaging and branding is expensive
[1]