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Commerce
Commerce provides the important links between the producer and consumer. Commerce can be
divided into two distinct areas: trade and services to trade.
manufacturer wholesaler retailer individual customers
Trade is the process of changing ownership.
The trade place may be in home country, or foreign country.
Home trade involves wholesalers and retailers. Foreign trade involves importer (who buy goods from
other countries) and exporters (who sell goods to other countries).
Services to trade are the commercial activities that assist trade:
1. Banking: providing short-term finance and providing facilities for easy payment transfer
2. Finance: providing long-term finance for industry
3. Insurance: reduce the trade risk
4. Transport: It enables movement of commodities from one place to another.
5. Communications: post (keep in touch), telecommunication (keep in touch), advertise
(provides potential customers with information about goods and services available)
Producer
a person or organization that produces goods or services for sale.
Wholesale trade
Wholesalers bridge the gap between producers and retailers by buying in large quantities and
selling in smaller.
Retail Trade
The retailer is the last stage in the goods way from the producer to the consumer. Retail trade refers
to the supply of goods to the individual consumers, buying from the wholesaler and selling to the
public.
Chain stores (Multiples)
a number of shops in common ownership, under a single name of common ownership
Supermarkets
They are considered to be a supermarket when they have more than 2000 square feet of
shopping area and 3 or more check-out points.
Hypermarkets
They are a very large form of supermarket with a shopping area in excess of 50000 square feet.
on the outskirts of towns where sites are cheaper
big shopping area, self-service, a wide range of goods, long opening hours, often
night&day
parts of the hypermarket complex may be rented out to other traders: independent shops
good parking facilities
Specialist stores
specialise in narrow kinds of commodities
quality and personal service
e.g. jewellery, mens wear, ladies wear, shoes, sports goods, books, drapery and textiles,
stationery, household utensils, electronic goods etc.
Vending machines
food, drink, sweets, tickets, stamps etc.
24-hour opening, fast service, no need for staff
problems: lack of coins, out of order, vandalism
economic Indicators
inflation: inflation is a sustained increase in the general price level of goods and services in
an economy over a period of time. If the inflation is higher, the price of goods and services price
increasing.
unemployment rate:
Balance of trade: Balance of Trade is simply the difference between the value of exports and value
of imports.
Gross Domestic Product (GDP): is a measure of the size of an economy, The total market value of
all final goods and services produced in a country in a given year
consumer price index(CPI): this is a special inflation rate.
2. International Trade
Trade is the exchange of goods and services for other goods and services or for money.
International trade is the exchange of goods and services between countries. It includes:
exports: the selling of goods and services abroad, resulting in an inflow of money (funds)
imports: the buying of goods and services from abroad, resulting in an outflow of funds
The balance of trade shows the difference between the value of goods a country imports and exports.
The balance of payments shows the difference between the value of goods and services a country imports
and exports. It shows whether the country is making a profit or a loss in its dealings with other countries.
Balances can be:
favourable when exports exceed imports and a surplus is created
adverse when imports exceed exports and a deficit is created.
Free trade is when no trade barriers are imposed, there is a free flow of goods and services between countries
Protectionism means the restriction of the free flow of goods and services between countries.
There are a number of reasons why countries often impose barriers to trade:
Trade barriers are regulations that make trade between two countries more difficult and expensive. They can
be:
tariffs: a tax or custom duty imposed on imported goods to raise the price of foreign goods to the
home consumer and thus to protect the home market
quotas: a limit on the quantity of the product that can be brought into the country during a year
embargo: a government ban on trading between one country and another
subsidies: a government finance towards the cost of the home-produced product so that it can be
sold at a lower price
International organisations
1. The World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital
programs. The World Bank's official goal is the reduction of poverty. It was establish in 1944 in Bretton
Woods..
3. General Agreement on Tariffs and Trade (GATT) and the World Trade
Organisation(WTO)
GATT began in 1947 with 23 member countries.
The main objective was to liberalise international trade (try to reduce international trade cost, creating a basic
set of rules.
The World Trade Organisation came into being in 1995. One of the youngest of the international organisations,
the WTO is the successor to the GATT.
The WTOs overriding objective is to help trade flow smoothly, freely, fairly and predictably.
3. Marketing
Marketing is the management process.
Marketers have to identify or anticipate consumer needs, develop products or services
Marketers can design particular features, attractive packaging, and effective advertising that
will influence consumers' wants.
Marketers need to take into the account the factors of supply and demand.
Supply refers to the quantity of a product that a firm or industry is willing to produce at a
specified price.
Demand refers to the quantity of a product that buyers are willing to buy at a specified price.
The marketing mix: the various elements of a marketing programme. The best known
classification of these elements is the `4 Ps' : product, place, promotion and price.
Market leader: This is the highest market share company which retains its position by trying
to expand the total market or its market penetration, for example through an aggressive
advertising campaign.
Market challenger: One or more non-market leaders which aggressively attack for
additional market share.
Market follower: These are low share competitors without the resources to challenge or
seriously contend for market leadership.
The promotion mix/marketing communications
1. Advertising informs consumers about the existence and benefits of products and
services, and attempts to persuade them to buy them.
2. Sales promotion such as free samples, coupons, price reductions, competitions,
and so on are temporary tactics designed to stimulate the sales of the product.
3. Public Relations (PR) is concerned with maintaining, improving or protecting the
image of a company or product.
4. Personal selling is said to be quite expensive. Sales people spread information
about the companys products and services and assist customers with possible
technical problems.
Branding:Branded goods are marked with a distinctive name and/or design. A brand is a
name, term, sign, symbol, or design, or a combination of these to identify the goods or
services of one seller, or a group of sellers. One of the most important functions of branding
is to differentiate the given products or services from those of competitors
Globalisation
Globalisation is the tendency for the world to work as one unit, led by large international
companies doing business all over the world. Things that have led to globalisation include:
EU
The European Union (EU) is a supranational and intergovernmental union of 27 democratic
member states. It was established under that name in 1992 by the Maastricht Treaty.
The single currency
the eurozone have to meet certain requirements: the Maastricht criteria:
Price stability: inflation must be under the average of the three countries with the lowest inflation,
plus 1.5%.
The long-term interest rates should be within 2% of the average of the three countries with the
lowest inflation.
The public deficit shouldn't exceed 3 % of GDP
The national debt shouldn't exceed 60 % of GDP
3. The Environment
During the last century our earth changed more rapidly than at any other time in history,
primarily because of our careless interaction with its resources. The ecological crisis has
gone global.
Air pollution
People all over the world breathe smog, sulphur dioxide, acid rain, carbon monoxide, and
other toxic pollutants every day as a result of industrial activity and the excessive use of
cars, which emit exhaust gases. The accumulation of gases in the atmosphere leads to the
greenhouse effect and the depletion of the ozone layer. Predictions include climatic changes
leading to natural disasters, drought, floods, changes in agricultural patterns and skin
cancer.
Deforestation
The gradual reduction of forests in size is resulting in erosion, flooding, desertification and
global warming. Rain forests, which generate large amounts of oxygen, are being destroyed
to harvest hardwood and to gain space for growing plants and breeding animals.
Water pollution
10 percent of rivers worldwide are polluted and the oceans collect 6.5 million tonnes of litter
per year. Less than 1 percent of all the water on earth is suitable for drinking, bathing, or
growing plants.
Soil pollution
Agricultural activity contributes to the pollution of soil by using chemicals (fertilisers and
pesti-cides) to boost yields.
Overpopulation
If the current growth rate continues, world population will double over the next couple of
decades. This process accelerates the exhaustion of natural resources. In 2000 there were
6.3 billion people on the earth. It is an important task to exploit renewable energy sources.
Waste accumulation
Huge amounts of hazardous waste are produced by the developed part of the world every
year, part of which is exported to the Third World. Households and industries also create
piles of non-recyclable waste which are not able to decompose in landfill sites.
Oil shortage
With the increase in worldwide demand for oil, the price of oil products (e.g. petrol) is rising,
posing serious difficulties for oil-dependent economies. In fact, most of the feedstock (e.g.
corn) for biofuels such as biodiesel and ethanol is grown using the high-tech, oil-powered
industrial methods of agriculture.
work permit. In countries which have fully opened their labour market, there is a large
number of people who have chosen to work there for the sake of better job opportunities
and career prospects. The new member countries are increasingly suffering from a brain
drain i.e. the loss of highly-qualified workers.
7. Recruitment, looking for a job
Companies may choose to outsource some functions to freelancers, however, many
organizations look for ways of having in-house staff, for example:
Offering full-time jobs. Employees work at least 36 hours a week.
Employing temporary workers who only work for short periods when they are needed,
either on a temporary contract with a company, or through a temp agency.
Employing part-time workers who work less than a full working week.
Job sharing is an option as well, where two people share a particular job, each of them
working part-time.
When letting people go, companies only have to give them notice, and redundancy
payments depending on the employment contract and on the length of time employees
spent working for the company. The government pays unemployment benefits (the money
paid to people without jobs) for a fixed period of time depending on the countrys labour law.
When a company needs to recruit or employ new people, it may decide to advertise the job
or position in the appointments section of a newspaper or on the internet. People who are
interested can then apply for the job by sending in a letter of application or covering letter
(US cover letter) and a curriculum vitae or CV (US resume) containing details of their
education and experience.
8. Careers in business
Accounting: Accountants engage in a wide variety of activities besides preparing financial
statements and recording business transactions including computing costs and efficiency
gains from new technologies, participating in strategies for mergers and acquisitions, quality
management, developing and using information systems to track financial performance, tax
strategy, and health care benefits management.
Branch Manager (commercial bank) : You would be responsible for overseeing all activities
at your branch including opening new accounts, loan origination, solving customer
problems, foreign exchange and safe deposit boxes. Most importantly, you are responsible
for establishing relations with customers.
Loan Officer (banking): This is a highly desirable job in banking which involves making
loans to businesses and consumers. Being a loan officer requires that you have good
selling skills, an ability to understand a business and a solid understanding of how banking
works.
4. Companies
1. Starting a company
If you decide to form a company you need two basic documents. These are the
Memorandum of Association and the Articles of Association. They have to be drawn up
and signed by the members who found the business. The founding members have to send
these documents to the Registrar of Companies and have to pay a certain amount of
registration fee for this. After the documents are filed with the registrar, a certificate of
registration or incorporation is given out, which allows the company to trade
2. Legal form of companies
2.1 The sole proprietor
A sole proprietorship is the most simlest way to start business. All profits and all losses
accrue to the owner (subject to taxation). All assets of the business are owned by the
proprietor and all debts of the business are his debts and he must pay them from his
personal resources.
Advantages
The sole trader has:
Freedom
Flexibility.
Personal control over the business.
Personal contact with staff and
customers.
He does not have to share the profit.
Disadvantages
Sources of finance are limited (it is
difficult to borrow money).
Therefore growth is restricted.
There is limited scope for economies of
scale.
He has to take full responsibility.
Disadvantages
Each partner is jointly liable for the
debts incurred by other partners except
for limited partners.
The withdrawal of any one partner or
an additional partner causes the
automatic termination of the partnership.
Disadvantages
Shares cannot be offered to the public.
Accounts are not private.
It can prove to be difficult to raise
capital. Plc.: advantages and
disadvantages
Charitable trust: A trust for relieving poverty, for the advancement of education or religion
or for the good of the public in other ways. They have to be registered, but normally they are
not required to pay income tax.
Public sector organisations: Governments have traditionally been involved in providing
goods and services that cannot be sensibly provided by market forces, for example,
defence, education, basic health services.
9. Banking
The Hungarian two-tier banking system is made up of the National Bank of Hungary and the
com-mercial banks. The National Bank of Hungary acts as banker to other banks. It is the
lender of last resort when there is no other source to borrow from. It is an independent
financial institution responsible for the country's monetary policy. Its primary target is
achieving and maintaining price stability.
The central bank of the UK is the Bank of England. The Federal Reserve System is a
decentralised insti-tution performing central banking functions in the United States. Some of
the functions of a central bank are to:
issue banknotes
set the long-term interest rate
make open market transactions (e.g. issues treasury bills)
regulate the exchange rate of the national currency
regulate the amount of money in circulation
guard the gold reserves and foreign currency reserves of the country
maintain contact with international institutions
maintain the capital adequacy ratio
Commercial banks either separate the commercial function from the investment function
(Anglo-Saxon model) or handle both (universal banking). The most important requirements
for banks are liquid-ity and solvency. They provide a wide range of services for private
individuals and corporate clients for which they charge a handling fee. Their major source of
profit is the interest margin.
Commercial banks perform the following services:
extend loans in the national and foreign currencies
manage current accounts: meet standing orders, issue credit cards and debit cards, make
transfers, operate cash dispensers, send monthly statements of credits and debits
manage deposit/savings accounts
offer insurance services
provide factoring and leasing services
deal with project financing
exchange foreign currency
trade in securities
provide safe boxes and night safe
provide private banking services
offer Internet banking, SMS banking and telebanking services
Unit trusts (UK) and mutual funds (US) use investors' money to purchase a variety of
financial instruments. Investors' earnings are based on the interest or dividends received by
these investment companies. Investors in US money market funds (a service offered by
mutual funds) are also allowed to write a limited number of cheques on their interest-bearing
accounts.
Merchant banks (UK), also known as issuing houses or accepting houses, cater for the
corporate client. Their aim is to meet all the financing needs of small and big companies.
They also give them advice in all aspects of finance and management; manage pension
funds and unit trusts; deal in foreign exchange, gold bullion and securities; and raise money
for governments.
performing companies regarded as safe investments. The Hungarian index, the BUX
contains the liquid shares of companies with the biggest capital value. Fluctuations in the
volume and the price of securities traded on the stock exchange are important indicators of
the state of the economy.
Securities
A company can issue shares to institutional investors or the general public. Buying a share
through a specialist company or a broker gives its holder a stake in the company. Shares
generally entitle their owners to vote at the company's Annual General Meeting and to
receive a dividend in proportion to their investment. Ordinary shareholders with equities only
get a dividend if there is enough profit. Preference shareholders are entitled to get their
fixed dividends before ordinary shareholders.
Bonds represent a loan for a fixed period with a fixed interest rate. They can be either held
till maturity or sold before maturity. Treasury bills are issued by the state and represent a
safe investment with a state guarantee. If a company wants to raise money, it issues
corporate bonds.
Portfolio
This is a set of investments made by an investor. A portfolio consisting mainly of bonds is
regarded as a low risk-level investment. The addition of shares to a portfolio of government
and corporate bonds increases the risk-level of the investment, but at the same time returns
can be higher.
Bulls and bears
Bulls are speculators who -anticipating a price rise (on a bullish market) -buy shares in large
quantities in order to sell them at a higher price later. Speculators who sell their securities in
the belief that prices are about to fall (on a bearish market) are called bears.