BRANCHES OF COMMERCE

1. Commerce includes all the activities which contribute to the transfer of surplus
goods from the original producer to the final consumer at the right time, at the
right place, in the right quantity and at the right price.
2. To affect this transfer efficiently, both trade and aids to trade are required.
3 Trade means the actual buying and selling of goods with a view to making a
profit. It involves satisfying directly or indirectly the wants of consumers by
transporting the 'right' goods, both final and intermediate, from the producers to
the consumers.
4. There are two main types of trade:
(a) Home trade is carried out among the people of the country itself. It may be
wholesale or retail. A wholesaler buys from the producer and sells to the retailer
who in turn resells to the final consumer.
(b) Foreign trade is trade between the people of one country and the rest of
the world. It may be import trade or export trade, both of which are normally
wholesale in nature.
5. Trade cannot be carried on without aids to trade. So aids to trade are the
various activities carried on to help carry out trade. The aids to trade include
banking, transport, and communications, warehousing, advertising and insurance.

6. Everyone, whether in the capacity of a final consumer or a producer such as a

farmer, a manufacturer, a trader or even a doctor, requires the services of
commerce, i.e. trade and aids to trade.
7. Commerce is needed in the production process, before and after the production

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of raw materials and finished goods.

PRODUCTION

Production is the process by which raw materials are transformed into finished
goods to satisfy the requirements of consumers or other organizations. In addition
to being in the right form, the goods must be in the right place at the right time
before the process of production is complete.

Branches or stages of Production:

Primary Production
This is the first stage of production and is called the extractive stage. In this
stage, raw materials are extracted from the surface of the earth or from the sea.
Workers are employed in mining, fishing, quarrying, forestry and farming. In this
stage the raw materials are unusable and have to be sent to the manufacturing
industries to be changed in to goods
that can be used.

Secondary Production
In this stage, the raw materials are transformed into semi-finished or
finished products. The goods are made ready for sale to the final consumers in
this stage. Textile industry, building and construction industry, chemical industry,
etc, are examples of the manufacturing work carried out in this stage.

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 Production

Tertiary Production
The transfer of goods from the factories to the final consumers is the work
that is carried out in the tertiary stage. In this stage there are many activities which
are broadly divided in to two:
- Commercial Services: This includes workers in communications,
finance, insurance, wholesaling and retailing. These workers are
involved in getting the goods to the final consumer.
- Direct Services: People in this group work to provide a direct
service rather than delivering goods to the consumers. Teachers,
doctors, nurses, lawyers, civil servants, policemen, etc, are
examples of people providing direct services.

Chain of Production:

Primary, secondary and tertiary industries are the stages in the chain of
production, which is the process by which raw materials reach the consumer as
finished goods or services. Each stage of production, value is increased. For
example, consider a chain of production for a wooden table. In the primary stage
trees are cut down and sawn into planks. In this stage planks (raw materials) are
very cheap. In the secondary stage the wood is shaped into a table. In the
production process of wooden table, manufacturer uses labours, machines, raw
materials and other materials needed to finish the product. Overhead costs such
as rent, fuel and power, insurance, telephone charges etc. are also incurred in the
production process. Therefore at the end of the secondary stage, the value of the
table will be much higher compared to the primary stage. When selling the tables
to the wholesalers, manufacturer also adds a profit margin. In the tertiary stage,
the wholesalers and retailers will add profit margin when selling the tables.
Therefore, value increases at each stage of production until it reaches the final
consumers.

The chain of production for a wooden table would be as follows:

Primary- a tree is cut down and sawn into planks.

Secondary- the wood is shaped into a table.

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Tertiary- the table is transported and sold by a retailer.

Another way of classifying production is as follows:

• Direct Production: This is producing goods and services for the

producer’s own use. For example, when a man grows food crops for his
own use or a man builds his own house or makes his own furniture, it is
called direct production.
• Indirect Production: This involves specialization in a particular type of
work. For example, a man specializes in ensuring that the quality of a
product is standardized. There is division of labour, which leads to
specialization.

DIVISION OF LABOUR
In an industry there are many firms and each firm has many departments. In
each department there are many workers. Each worker has his own specialized
job. This is the principle of division of labour. For example, in the finance
industry there are many banks. Each bank has a number of departments like the
accounts department, the clearing department, the payments and receipt
department, etc. Within each department there are many workers and each
worker has his own job. In the receipts and payments department, some workers
deal with cheques, while others deal with the computers and clerical work.

Division of labour at Individual Level

This is breaking down of a productive activity into tasks so that each
person performs a particular task that he is most skilled in. For example a person
may be solely responsible for only cutting the fish in a fish-canning factory.

Division of Labour at Regional Level

This happens when a particular region in a country is involved in producing a
particular product. This may be due to the availability of natural resources in that
particular region. For example, Feevah, an island in the Maldives is specialized in
farming because the soil is very favourable for cultivation.

Division of Labour at National Level

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Sometimes a country may specialize in producing one line of goods. This is

also due to the availability of resources or favourable climatic conditions in that
particular country. For example, Malaysia specializes in producing rubber;
Maldives specializes in fish, Cuba in sugar, and Brazil in coffee.

Advantages of Specialization

• Individual workers can concentrate on the work that they are most suited
for.
• Practice makes perfect. Workers doing the same work hundreds of times a
day will become perfect in their work.
• Division of labour allows a great saving of tools and equipment.
• When there is division of labour, there are chances of new techniques and
ideas being developed.
• Division of labour leads to an increase in the output per worker.
• Increase in output results in lower costs for the consumers.
• This also results in the need to exchange the surplus in one area with that
of another area.
• Specialization leads to less breakages and damages resulting in less
wastage.

Disadvantages of Specialization:

• Each department depends on the other departments. If there is a break

down in one department, then the whole industry may get affected.
• There are chances of boredom as the workers are doing the same work
hundreds of times a day.
• As machinery becomes more elaborate it replaces labour causing
unemployment.
• Division of labour normally leads to a decline in craftsmanship.
• As machinery takes over, the choice of goods available to consumers is
reduced.

Explain the ways in which industry, commerce and direct services are inter-
related and interdependent.

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All human beings have unlimited wants. Human wants can be satisfied by
production. Production takes place in industries. Industries produce goods and
services to satisfy human wants. All goods and services produced should reach
the final consumers. Here commerce assists a lot. Commerce includes trade and
aids to trade. Commerce does see that all those goods and services being
produced should reach the final consumers. In this regard, banking, insurance,
communications, warehousing and transport assist the industries so as to reach
the goods and services to the final consumers.
Direct services are those services which are performed directly to the
people who receive them. This is concerned with the provision of personal
services. Direct services are not concerned with the distribution of goods. They
enable the private individuals to make use of health facilities (eg, using doctors)
and obtaining knowledge and skills (eg, using teachers) as well as relying on the
maintenance of law and order and other personal services (eg, hair dressing,
journalist). Direct services help the firms’ employees to be better educated and
healthier and therefore they will be more productive.
Direct services like education, health services, professional services assist
industries in such a way that both skilled and unskilled workers are available for
those industries. Clerical staff offers their services for a smooth running of both
trade and commercial activities. Thus, commerce, industries and direct services
are interdependent to each other.

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