Introduction to business theory

Production, trade and commerce
Man has needs or “wants” which he seeks to satisfy. It may be a loaf of bread or it may be a television set. Nature has provided us with a vast amount of resources which are gradually transformed from their natural state into things useful to mankind.

First we have the work performed by nature, which provides natural wealth. The role of man in manufacturing is called labour. These two requisites – nature and labour – are the two primary factors in manufacturing.

Today the wants of modern man as a consumer of goods are satisfied by means of a vast. He wears clothes made from wool imported from lands thousands of miles away. He eats oranges from south Africa, bananas from the West Indies, bacon from Denmark. The consumer tries to trace the origins of all the activities which provide him with his food.

Production is the process which transforms raw materials into goods or services available to the consumer. Production may be direct or indirect. Production can be divided into three principal branches: primary production is concerned with extractive industries; secondary production is concerned with manufacturing industries; tertiary production includes service industries which are not involved directly in production but sell services or goods.

In the old days the exchange of goods was effected by bartering. To facilitate exchange, bartering was replaced by a system of sale and purchase. Many objects have been tried as money. For hundreds of years gold performed the function of a “currency” only to be replaced by paper money.

Trade and Commerce
The term commerce is used to cover a broad field of activities, in the marketing, buying, selling and transport of goods. Commerce and trade are terms used to describe the exchange of merchandise. The word commerce is generally used in a broader sense for example Chamber of Commerce, History of Commerce, the word trade refers generally to a particular branch or line of business, such has Home Trade, Import Trade, etc. Trade can be classified in various ways – home trade and foreign trade.
A) Home Trade is the buying and selling of goods. It may be either wholesale or retail. 1) Wholesale trade is the buying and selling of goods in large quantities. 2) Retail trade is the direct sale of goods in small quantities.
B) Foreign Trade is the exchange of goods between different nations and can be divided into import and export. 1) Import trade is concerned with the purchase of goods from abroad. 2) Export trade is concerned with the sale of goods to other countries.

Buying and Selling
The manufacturer buys raw materials and the services and sells is finished articles to the wholesaler. The wholesaler buys from the manufacturer and sells to the retailer. Goods may be classified as producer goods and consumer goods.

Distribution
Distribution is the process by which goods from the manufactured are brought to the consumer through a network of various types of traders. A large number of distribution tasks are carried out by intermediaries such as wholesalers and retailers.

Wholesalers buy goods in large quantities, from manufacturers. Wholesalers earn profits by then selling the goods in smaller quantities and at higher prices to retailers. Wholesalers can be considered business intermediaries between producers and retailers. But the traditional wholesaler is becoming a rarity because many retailers now buy directly from the manufacturer.

Retailers are the last link between the producer and the consumer. But since prices are higher than in larger shops the small shopkeeper cannot buy in bulk. Many small retail shops have been forced to close down or to change business activities.

Types of retailers
Chain stores are chains of shops with a single name. They are usually located on the main streets or shopping areas of towns
Supermarkets are self-service stores usually located in the town centre. They offer a wide range of goods that customers can choose, place in trolleys and pay for at checkouts.
Department stores are large multi – line outlets, usually located in the centres of towns and cities. They offer a wide range of products and are divided into departments which selling some particular articles. Most department store offer other service to their customers, such as restaurants or cafeterias.
Shopping centres there are famous department stores which offer almost everything from fashion to stereo systems. They are located on the outskirts of towns and have parking lots for thousands of cars. Shopping centres make shopping comfortable, convenient and above all enjoyable.

Direct Selling
Factory outlet. Some manufactures have factory shops where consumers can go and purchase products directly.
Door–to–Door-agents from the factory visit customers at home and show them the goods.
Mail order. This type of selling is based on catalogues from which customers choose the items they want.

Trading documents
The most common documents connected with the buying and selling of goods.

The Inquiry most business transactions begin with an inquiry. Inquiries usually ask whether a certain type of goods can be supplied and at what price and under what conditions of delivery, terms of payment, and so on.

The Quotation is also known as an offer. If a quotation is considered favourable it is followed by the despatch of an order.

The Order is a written instruction given by the buyer to the seller asking for the supply of certain goods. Orders are sometimes given verbally but should always sent with a covering letter.

The Pro-forma Invoice is a particular form of invoice. It is not a real invoice even though it is a particular form of invoice. It is not a real invoice even though it has the same characteristics as an ordinary invoice.

The Invoice is an important document which describes the goods sold, their quality, nature and price. The invoice is sent by the seller to the buyer and should be forwarded with the goods. The invoice is usually a printed form with columns for quantities and quality of the goods, selling prices, discounts and total amounts.

The Advice of dispatch. This is sent by the seller to the buyer to inform him that the goods have been despatched and when he can expect delivery.

The Statement of account (S/A). This is used with regular customers and show the goods supplied and the sums received during a fixed period of time, usually one month. A credit note is issued when the buyer has paid more then he owed or to given him a refund, a debit note when he has paid less.