Definition of aids to trade
Trade or exchange of goods involves several difficulties, which are removed by auxiliaries known as aids to trade.
It is the collection of all such activities which deal with the buying and selling of goods, the exchange of commodities, or distribution of the finished goods. Transportation of goods, the role of a trader, insurance companies, financial institutions, advertisement of goods, storage, and all such activities, which directly or indirectly help the exchange of goods are included in this range. For example, the production of the products is taken place somewhere else and the products are consumed somewhere else.
Transport helps in removing this problem of place. Generally, goods are produced in anticipation of demand and if people do not purchase them immediately, warehouses keep these goods safe. Hence, the role of this aids-to-trade in the exchange of goods and services becomes very crucial in smooth trade. Aids-to-trade includes all the activities, which directly or indirectly facilitate the smooth exchange of goods and services. These activities facilitate trade by removing various barriers in the buying and selling of goods. Aids-to-trade includes transportation, warehousing, banking and finance, insurance, advertising, communication, middlemen/mercantile agents, packaging, and trade promotion organizations. Auxiliaries ensure a smooth flow of goods from producers to consumers.
It is the framework for attaining certain objectives. The objectives of commerce are to provide a series of services or activities, which can facilitate the exchange of goods until they are reached the hands of the ultimate and proper consumer. Thus, the consumers can satisfy their wants and the producers can sell their goods to get profit. In organizing the activities in commerce, we go through the following elements, which are also known as aids or auxiliaries to trade.
Transport is the source or conveyance used for transferring goods and passengers from one place to another. It facilitates trade by transferring and distributing goods. Transport brings the goods from the place of production to all the far and distant places of consumption. It helps consumers in getting a wide variety of goods at reasonable prices. It overcomes the barrier of distance and creates place utility. Transport widens the market and helps to equalize and stabilize prices at different places. It results in the equitable distribution of goods in remote areas.
Transport helps in increasing the size and scale of business. Well-developed facilities of transport help industrial units to locate at the most economical places and grow to their optimum size. There are several kinds of transport such as air, water, and land transport. The geographical distance between producers and consumers is removed with the help of transport. Fast and economical means of transport such as railways, roadways, airways, and shipping widen the scope of trade.
Communication means the exchange of information from one person to another. It can be oral or in writing. It is necessary to communicate information from one party of trade to another to finalize and settle the terms of sales such as prices of goods, discount allowed, facility of credit, etc. Means of communication provide or convey commercial information to individuals, firms, and companies. These consist of people, institutions, and processes engaged in spreading the necessary business information between producers and consumers. Radio and television are general communication services but other channels of communication such as telephones, fax, telegrams, E-mail, and the Internet also plays an important role in establishing contact between businessman, producers, and consumers.
Usually, goods are produced in anticipation of consumers’ demand. It is, therefore, necessary to store the goods until they are sold. The activity related to warehousing consists of the storage of goods in enough quantities so that they can be supplied as and when there is demand. Thus, the hindrance of time is removed by warehousing. Many products such as wheat, sugar, rice, etc. are produced in a season but they are needed throughout the year. Proper storage arrangements must be made in order to make the goods available throughout the year. Besides, it is necessary to store commodities such as woolen garments and umbrellas to meet the desired seasonal demand. Warehousing also helps in stabilizing prices through equal distribution of surpluses over different time periods. Warehousing removes the hindrance of time and thereby creates time utility.
Business involves several types of risks such as possibilities of theft, price fluctuations, dishonesty of employees, bad debts, exchange rate fluctuations, loss of goods in transit, fire, floods, burglary deterioration, accident, breakage, etc. The activity of bearing possibilities of such type of risk to goods is linked with insurance. With the help of insurance, a businessman can protect himself from almost all types of risks. Insurance companies try to reduce these types of risks by spreading them out over a greater number of people called “pooling of risks”.
Many people who are subject to a particular risk contribute to a common fund, out of which compensation is paid to those few who suffer the loss. In this way, the amount of risk borne by an individual businessman is reduced by distributing the burden of loss among many persons. The rate of premium depends upon the type of risks and the period for which the risk is covered. Insurance creates a sense of security and freedom from anxiety for businessmen. Businessmen can carry on their business with confidence and peace of mind which results in the development and progress of trade.
Banking and Finance
There is usually a time gap between the production/purchase and sale of goods. During this period businessmen need funds to carry on their business. Usually, business transactions involve large amounts of payments and receipts which involve the risks of theft and burglary. Banks and other financial institutions provide the required credit in various forms. The activity of providing funds is linked with the banking and finance sector. Banks and other financial institutions provide loans for business transactions, collect money on behalf of customers, discount bills of exchange, and provide safe and quick means for the remittance of money to businessmen who ultimately remove the hindrance of risk and finance.
Advertising/publicity is the procedure of informing potential consumers/customers about the availability, features, and price of various products and services. Advertising is the most important media of mass communication for a business. The main purpose of advertising is to create and sustain demand. Advertising removes the hindrance of knowledge. It fills the knowledge gap and it solves the difficulty of information exchange among producers and consumers. There are various forms of advertising such as print media, electronic media, outdoor displays, radio, television, letters to customers, fairs, social media, exhibitions, and cinema, etc. Good marketing research can help businessmen to know and understand the requirements of consumers.
Middlemen perform the role of bridge between producers and consumers. They do not carry on business in their own name. Middlemen may be a distributor, traders, salesmen, mercantile agents, brokers, commission agents, auctioneers, underwriters, insurers, or of some other status like transporter or salesman, etc. Some middlemen are specialized in bringing buyers and sellers together for a transaction and they play an active and prominent role in the negotiations leading to purchase and sale. Middlemen receive their reward in the form of a commission. It removes the hindrance of person and place.
Trade Promotion Organizations
Sometimes, national and international trade promotion organizations help in promoting and developing business activities. The main objective of these organizations is to facilitate the promotion and development of trade. These organizations are established by the business community to protect and promote the interest of their members. They conduct market research work, act as a clearing house of information, put their grievances before the government, make representations, and help the business community in many ways. Examples include Chambers of Commerce, Export Promotion Councils, World Bank, IMF, WTO, etc.
Packing means putting goods in wrappers, containers, etc. The packing helps to protect the goods from damage during transport and warehousing. It also makes the goods attractive. The packing helps in the conveyance and handling of goods. It removes the hindrance of risk by keeping goods safe and free from spoilage. Trade and transport of goods have become easier and safer due to improvements in the art and methods of packaging. Read more
Leave a Comment