Class 11 Business Studies Notes Chapter 10 (Internal Trade) – Business Studies Book

Detailed Notes with MCQs of Chapter 10: Internal Trade. This is a crucial chapter, not just for your Class 11 exams, but also frequently tested in various government exams where general commerce knowledge is required. Pay close attention to the definitions, types, and functions involved.

Chapter 10: Internal Trade - Detailed Notes

1. Meaning of Internal Trade:

• Internal trade refers to the buying and selling of goods and services within the geographical boundaries of a country.
• It is also known as domestic trade or home trade.
• Payment for transactions is made in the national currency.
• It involves minimal trade formalities compared to international trade.
• The primary aim is the equitable distribution of goods and services across the nation.

2. Types of Internal Trade:

Internal trade can be broadly classified into two categories based on the scale of operations:

• (A) Wholesale Trade: Buying goods in large quantities from producers/manufacturers and selling them in smaller quantities to retailers or industrial users.
• (B) Retail Trade: Buying goods in smaller quantities from wholesalers (or sometimes directly from manufacturers) and selling them in very small quantities (often single units) directly to the final consumers.

3. Wholesale Trade:

• Meaning: Trade activity where goods are purchased in bulk from manufacturers and sold in relatively smaller lots to retailers and other merchants, or industrial, institutional, and commercial users. Wholesalers act as a crucial link between manufacturers and retailers.
• Features of Wholesalers:
  • Act as an intermediary between manufacturers and retailers.
  • Deal in large quantities of goods.
  • Usually specialize in a specific line of products.
  • Require significant capital investment.
  • Do not generally sell directly to the ultimate consumers.
  • Operate with lower profit margins compared to retailers but handle large volumes.
• Services of Wholesalers:
  • To Manufacturers:
    • Facilitating Large-Scale Production: By placing bulk orders, they enable manufacturers to produce on a large scale and gain economies of scale.
    • Bearing Risk: They buy in bulk and hold stocks, thus bearing risks related to price fluctuations, spoilage, theft, obsolescence, etc.
    • Financial Assistance: Often provide advance payments to manufacturers, supporting their production activities.
    • Expert Advice: Provide valuable market information (consumer preferences, competitor activities) to manufacturers.
    • Help in Marketing Function: Take responsibility for distribution, reducing the manufacturer's burden. Their sales force contacts retailers over a wide area.
    • Facilitate Production Continuity: Place orders consistently, allowing manufacturers to maintain production flow.
    • Storage: Provide warehousing facilities, reducing the storage burden on manufacturers.
  • To Retailers:
    • Availability of Goods: Ensure a steady supply of goods from various manufacturers, allowing retailers to maintain adequate stock.
    • Marketing Support: Provide promotional support, sometimes undertaking advertising that benefits retailers.
    • Grant of Credit: Often sell goods to retailers on credit, reducing the retailers' working capital requirements.
    • Specialised Knowledge: Offer information about new products, their features, uses, and prices.
    • Risk Sharing: By selling in smaller quantities, they allow retailers to avoid stocking large quantities and associated risks.

4. Retail Trade:

• Meaning: The segment of internal trade involving the sale of goods and services directly to the final consumers for their personal, non-business use. Retailers are the final link in the distribution chain.
• Features of Retailers:
  • Act as the final link between wholesalers/manufacturers and consumers.
  • Purchase goods in smaller quantities from wholesalers and sell in very small (unit) quantities to consumers.
  • Deal in a wide variety of goods to meet diverse consumer needs.
  • Generally operate in local markets, close to consumers.
  • Maintain personal contact with customers.
  • Capital requirement varies significantly based on the type and scale of the retail business.
• Services of Retailers:
  • To Manufacturers and Wholesalers:
    • Help in Distribution of Goods: Provide a ready channel for distributing products to widely scattered consumers.
    • Personal Selling: Undertake personal selling efforts, persuading customers and promoting products.
    • Enabling Large-Scale Operations: By clearing stocks from wholesalers, they indirectly support large-scale production and wholesale operations.
    • Collecting Market Information: Provide valuable feedback to wholesalers/manufacturers regarding consumer tastes, preferences, and complaints.
    • Help in Promotion: Participate in promotional activities, display products, and distribute sales literature.
  • To Consumers:
    • Regular Availability of Products: Maintain stocks of various goods, ensuring consumers can buy them as and when needed.
    • New Products Information: Inform consumers about new product arrivals, features, and uses.
    • Convenience in Buying: Located near residential areas, offering convenient shopping hours.
    • Wide Selection: Offer a variety of products from different manufacturers, allowing consumers to choose.
    • After-Sales Services: Provide services like home delivery, repairs, spare parts availability (especially for durable goods).
    • Provide Credit Facilities: Some retailers offer credit, allowing consumers to 'buy now and pay later'.

5. Types of Retailers:

Retailers can be classified based on various factors, primarily their method of operation (fixed shop vs. mobile) and scale of operation.

• (A) Itinerant Retailers:

  • Retailers who do not have a fixed place of business.
  • They move from place to place (streets, colonies, exhibitions, weekly markets) to sell their goods.
  • Characteristics: Small scale operations, limited capital, deal mainly in low-priced consumer products, provide doorstep service, limited stocks.
  • Types:
    • Pedlars and Hawkers: Move on foot, bicycles, carts, carrying goods (vegetables, fruits, toys, utensils) in residential areas. Hawkers shout out names of goods, Pedlars often don't.
    • Market Traders: Sell goods in weekly markets ('haats') that are held on fixed days in different localities. Deal in low-priced consumer items.
    • Street Traders (Pavement Traders): Display goods on busy street pavements or near public places (bus stands, railway stations). Sell items like newspapers, magazines, eatables.
    • Cheap Jacks: Have temporary shops (often hired) and shift locations frequently depending on potential customers. Deal in a variety of goods, often consumer non-durables or household articles.

• (B) Fixed Shop Retailers:

  • Retailers who operate from a permanent, fixed location.
  • They command greater consumer trust and have larger resources compared to itinerants.
  • Can be further divided based on the scale of operations:

    • i. Fixed Shop Small Retailers:

      • General Stores: Found in residential areas, stock a wide variety of daily need products (groceries, stationery, toiletries). Offer convenience and often credit to regular customers.
      • Specialty Stores: Specialize in a specific line of products (e.g., children's garments, men's wear, electronic goods, books). Offer a wide variety within that specific line.
      • Street Stall Holders: Operate from small stalls or kiosks on street crossings or main roads. Deal in items like cigarettes, soft drinks, snacks. Smaller scale than general stores.
      • Second-hand Goods Shops: Deal in used goods like books, clothes, furniture, automobiles. Cater to price-sensitive customers.
      • Single Line Stores: Deal in a single product line, such as watches, shoes, or readymade garments, but offer various sizes, designs, and brands within that line. (Different from specialty stores which might focus on a narrower segment within a line, e.g., 'ladies shoes' vs a general 'shoe store').

    • ii. Fixed Shop Large Retailers:

      • Departmental Stores:
        • Large retail establishment offering a wide variety of products classified into well-defined departments (e.g., clothing, cosmetics, groceries, electronics) under one roof.
        • Features: Central location, wide product range, provide services (restrooms, restaurants, delivery), cater mainly to affluent urban customers, high operating costs, professionally managed, centralized purchasing and decentralized selling within departments. Example: Shoppers Stop, Lifestyle.
      • Chain Stores or Multiple Shops:
        • Networks of retail shops owned and operated by a single organization (manufacturer or intermediary), spread across various localities or cities.
        • Features: Similar appearance (layout, display), deal in standardized, branded products (usually one line, e.g., shoes, fast food), centralized purchasing and policy-making, decentralized selling, cash sales basis, elimination of middlemen, focus on volume sales at lower prices. Example: Bata, McDonald's, Reliance Fresh.
      • Mail Order Houses:
        • Retailers who sell goods through mail (post). No direct personal contact with buyers.
        • Features: Reach customers via advertisements (newspapers, magazines), catalogues; orders received and goods dispatched by post (often VPP - Value Payable Post); no need for shop premises, low overheads; suitable for goods that can be graded, standardized, easily transported, and described pictorially; requires large promotional expenses; no credit facilities.
      • Consumer Cooperative Stores:
        • Retail stores owned, managed, and controlled by consumers themselves on cooperative principles.
        • Features: Voluntary association, democratic management (one member, one vote), aim to eliminate middlemen and provide goods at reasonable prices, purchase in bulk directly from manufacturers/wholesalers, limited capital contribution, often sell on cash basis, profits distributed among members as dividend. Example: Kendriya Bhandar, Sahakari Bhandar.
      • Supermarkets:
        • Large-scale retail stores selling a wide variety of consumer goods (mainly food and groceries) on a self-service basis.
        • Features: Low prices, self-service (reduces labour costs), cash sales only, located centrally, wide variety and choice, high volume sales, pre-packaged goods with clear price marking. Example: Big Bazaar (partially), Spencer's Retail.
      • Vending Machines:
        • Automated machines used to sell low-priced, pre-packed, uniform-sized items like beverages, snacks, platform tickets.
        • Features: Useful for selling specific items, available 24/7, requires initial investment and regular maintenance, ensures freshness (for consumables), coins or tokens operated.

6. Role of Chambers of Commerce and Industry in Promotion of Internal Trade:

• Associations formed by business and industrial houses to protect and promote their common interests.
• Functions:
  • Lobbying with the government on policies affecting trade (taxation, infrastructure).
  • Collecting and disseminating statistical and other information relevant to trade, commerce, and industry.
  • Providing a platform for discussion and consensus building on trade-related issues.
  • Arranging education and training for members.
  • Facilitating interstate movement of goods (e.g., standardizing documentation, addressing transport bottlenecks).
  • Providing infrastructure support (e.g., organizing trade fairs, exhibitions).
  • Offering arbitration facilities for resolving commercial disputes.
  • Issuing Certificates of Origin (though more relevant for international trade, sometimes needed domestically).

7. Goods and Services Tax (GST):

• A significant recent development impacting internal trade.
• GST is a comprehensive, multi-stage, destination-based indirect tax.
• It has replaced multiple indirect taxes levied by the central and state governments (like VAT, Service Tax, Excise Duty, Octroi, Entry Tax).
• Aims to create a unified national market by simplifying the tax structure, reducing cascading effects (tax on tax), and facilitating easier movement of goods across states.
• Impact on Internal Trade: Streamlined taxation, potentially reduced logistics costs, easier compliance (theoretically), uniform prices across states (for the same tax slab).

Multiple Choice Questions (MCQs) for Practice:

1. Buying and selling goods and services within the boundaries of a nation is known as:
   a) Foreign Trade
   b) External Trade
   c) Internal Trade
   d) Entrepot Trade

2. Which intermediary typically buys goods in large quantities from manufacturers and sells in smaller lots to retailers?
   a) Retailer
   b) Agent
   c) Wholesaler
   d) Consumer

3. Which of the following is a service provided by wholesalers to manufacturers?
   a) Granting credit to consumers
   b) Providing goods near consumer's residence
   c) Facilitating large-scale production
   d) Providing after-sales service

4. Retailers who do not have a fixed place of business are called:
   a) General Stores
   b) Itinerant Retailers
   c) Specialty Stores
   d) Departmental Stores

5. A large retail outlet, centrally located, offering a wide variety of products organised into different departments under one roof is a:
   a) Supermarket
   b) Chain Store
   c) Departmental Store
   d) Mail Order House

6. Which type of retail store operates on the principle of self-service and primarily sells groceries and food items?
   a) General Store
   b) Supermarket
   c) Specialty Store
   d) Vending Machine

7. A key feature of Chain Stores (Multiple Shops) is:
   a) Wide variety of product lines
   b) Granting extensive credit facilities
   c) Centralized purchasing and decentralized selling
   d) Operation through postal services

8. Which type of retailer eliminates middlemen and aims to provide goods to its members at reasonable prices?
   a) Departmental Store
   b) Mail Order House
   c) Consumer Cooperative Store
   d) Cheap Jack

9. Selling goods through automated machines operated by coins or tokens is done by:
   a) Hawkers
   b) Market Traders
   c) Vending Machines
   d) Street Stall Holders

10. Which organisation plays a key role in lobbying with the government, providing trade information, and facilitating dispute resolution to promote internal trade?
    a) Wholesaler Association
    b) Retailer Union
    c) Chamber of Commerce and Industry
    d) Consumer Forum

Answer Key for MCQs:

1. c) Internal Trade
2. c) Wholesaler
3. c) Facilitating large-scale production
4. b) Itinerant Retailers
5. c) Departmental Store
6. b) Supermarket
7. c) Centralized purchasing and decentralized selling
8. c) Consumer Cooperative Store
9. c) Vending Machines
10. c) Chamber of Commerce and Industry

Make sure you revise these notes thoroughly. Understand the distinctions between different types of traders and their functions. Good luck with your preparation!