Why Internal Trading is encouraged
Internal Trading (a.k.a Domestic Trading), by definition, is the trade of domestic goods within the confines of the geographical boundaries of a nation. So the buying and selling of either goods or services done within a country is the internal trade.
In such cases of internal trade, there is no levying of import/export taxes or customs duties. Only local government taxes will apply. These are goods domestically produced for domestic consumption only. Now there are two broad categories of internal trade, namely wholesale trade and retail trade. Here we will be focussing on the intricacies of wholesale trade.
Wholesale trade is one of the main categories of domestic trade. In this form of trade goods are generally bought in huge quantities from the manufacturer. These goods are then warehoused and finally sold to retailers, middlemen, merchants etc. The goods in wholesale trade are not sold to the final consume directly. So all the customers of a wholesaler are commercial users or other intermediaries, not the ultimate customers.
Wholesalers are an important link in the trade cycle of a country. They help link the manufacturers with the retailers. Since wholesaler deal on the pre-consumer level, they do not have to offer large varieties. They generally trade in only one type or one category of goods.
But they order in bulk and warehouse these products. So the manufacturer does not have to worry about storage and the retailer can buy according to his needs. In return for this, a wholesaler will enjoy the economies of scale.
Importance of Wholesalers
The functions that wholesalers perform actually benefit both the manufacturer and the retailer. They undertake various activities to lessen the burden of them both. This is why even in the modern system of trade, with departmental stores and direct retail outlets, wholesalers still play a very important role in the trade cycle and the economy as a whole. Let us take a look.
Wholesalers Services to Manufacturers
- Allows for Large Scale Production: Generally, manufacturers produce their goods in large quantities. This helps them keep costs low and enjoy economies of the scale. But they are only able to do so because wholesalers order in bulk. Wholesalers will round up all the small orders from various retailers and place an order in rather larger quantities with the manufacturers. This allows them to scale their production of goods, without worrying about warehousing or spoilage.
- Risk Bearing: Once the wholesaler acquires the goods from the manufacturer, he also acquires of all the risks. This includes the risk of theft, fire, spoilage, change in demand, any many more such risks. He will even bear the cost of the insurance. In the absence of the wholesaler, such risks would remain with the producers until the goods were sold.
- Financial Cooperation: Wholesalers actually provide a form of financial assistance to the producers. They more often than not make cash payments for their purchases. They at times even make advance payment if the purchase order is rather large. This allows the producers not only to avoid bad debts but also frees up their working capital.
- Distribution Function: Distribution is one of the most important functions of marketing. It allows the producers to remove the barrier of place, by making the goods available in place of need. But it is actually wholesalers who perform this function for the manufacturers. They distribute the goods over a large geographical area by selling them to various widespread retailers.
- Warehousing: Another important function of marketing. The wholesaler buys bulk quantities from the manufacturers and stores these goods in their own warehouses and godowns. This reduces the storage headaches of the manufacturers to a large extent.
Wholesalers Services to Retailers
- Availability of Goods: Retailers must always keep their customers satisfied, so it is very important that the goods in demand always be available to them. The wholesalers make this possible. The retailers cannot order directly from the manufacturers and face a wait of inordinate time. Wholesale trade facilitates them with the ready availability of their products.
- Expert Advice: Wholesaler also advice retailers on a variety of matters like special features of a product, correct displaying tactics, new products in the market etc. This ensures that retailers are always up to the mark and can provide their customers with the best products and services available in the market.
- Credit Facilities: While wholesalers themselves do not generally buy goods on credit, they tend to make this facility available to the retailers. This will allow retailers to expand their scale of operations as well even if they sometimes lack liquidity or have limited resources.