Unit 4.

Trading

Entrepreneurs engage in various activities -- some big, some small, and others in
between. Their activities could be trading, manufacturing, or service business. They are
SUpported by either the family members or members ofthe community as employees.
Entrepreneurs cater to the people not only in big cities but in small towns as well.

Tvpes of Businesses

There are three types ofentrepreneurial businesses. They are trading, manufacturing,
and service.

Trading or merchandising is the buying ofgoods and selling the same without change
in form. When goods are sold in small quantities, it is called retailing. When goods are sold
in big quantities or in volume, it is called wholesaling. The process ofbuying and selling is
also called trading or merchandising. A common example ofretailing is the "sari-sari" store.
Most retailing is done in retail stores. A retail store may be a:
1. self-service retailer — example: supermarket
2. limited service retailer — example: dress store
3. full SeiVice retailer — example: cellphone store
4. specialtÿ store — example: Wise Old Owl Bookstore Inc.
5. department store — example : Robinsons
6. supemiatket — example: Waltermart
7. convenience store — example: 7-Eleven
8. superstore — example: SM
9. combination store — example: Mercury Drug
1 0, hypermart — example: SM Hypermart
I l . discount store -- example: P99 Store
12. factory outlet — example: Surplus Shop
13. price clubs — example: Makro
14, door-to-door seller or direct marketer — example: AVON
15, vending machine — example: Coca-Cola
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 16. seller by mail or telephone or TV

COSMETICS

1. Trading. The most popular non-store trading is direct marketing. Many individuals
start their taste ofbusiness by direct selling. The seller builds a personal and
continuous relationship with buyers. Many times, the buyers are friends or relatives
ofthe seller. The buyers find it difficult to refuse the offer ofa friend or relative. The
seller knows the need, capacity, and the temperament ofthe buyer. The seller knows
to whom, when, and where to make the offer. Direct selling activities usually start
as a sideline which may eventually mature to full timejobs and open up to other
opportunities.

2, Manufacturing is the process ofconverting raw materials into finished products.

The manufacturer buys the raw materials. He makes the raw materials to
finished products by applying direct labor and factory overhead.
Raw materials are what you see in the completed product. For example: in
shoes and handbags, the leather is the raw material. Paper is the raw material
for books. Wood is the raw materials for fumiture.
Direct labor is the work on the raw materials as it is converted into finished
product. Direct labor is the work of the carpenter on the wood to convert
wood to furniture. Direct labor is the work of the sewer when leather is made
into handbags.
Factory overhead is the resources needed or costs that need to be paid for in
making products other than raw materials and direct labor. To manufacture
handbags, some examples offactory overhead are the Meralco bills or
electricity, the salary ofthe supervisors, the PLDT or phone bill, the rental
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 offactory space, and the water bill. Factory overhead refers to all costs in
manufacturing other than raw materials and direct labor.
3. Service business is doing work for others. Examples ofservice businesses are
beauty parlors, spas, barber shops, laundry shops, and repair shops. Medical,
dental accounting, legal, and other services ofprofessionals are also examples of
service businesses.

The number one reason for doing business is to make profit. Profit is what is left
after subtracting costs and expenses from the selling price. Profit is the excess of revenues
over costs and expenses. However, when costs and expenses are higher than selling price,
the result is a loss instead ofaprofit. To make a profit, the seller sets a selling price that is
more than the total of cost and overhead. This is called mark-up. Cost is what is paid for the
product purchased which is intended for resale or for manufacturing into another product.
Overhead consists ofall costs ofbusiness operations other than direct costs. Direct costs for
retailing is the cost ofthe product purchased, for manufacturing, they are the cost of direct
materials and direct labor, and in a service, they are the direct costs ofrendering the services.

Retailing is the selling ofgoods and services directly to the final consumers or
users. The final consumer may be an individual person or a business unit. For example,
National Bookstore sells bond paper to students. It also sells bond paper to San Miguel
Corporation. Both the students and San Miguel Corporation are end-users. Meralco sells
electric power to the Cruz family and also to the University ofthe East. The Cruz family and
the University ofthe East are end-users. Therefore, National Bookstore and Meralco are
traders in the examples given. The sari-sari store in the street corner, the vendors offish and
vegetables in the wet market, and the Nestle ice cream peddler are also examples oftraders.
It is also possible that a trader is both retailer and wholesaler at the same time. When
National Bookstore sells bond paper to Don Bosco Book and Supplies Store, National
Bookstore is called a wholesaler.

Trading may be done through retail stores or through mail, TV, telephone, door-
todoor, vending machines, or electronic means, Store retailing is the more common fon Of
retailing. The store retailing may be self-service like in a department store or supermarke t, or
limited service like cellphone shop.

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 Figure 4-1. Kinds ofRetailers

l. Department Store carries a wide variety of product line, usually clothing, shoes, bags,
beauty products, home furnishings and household goods.
2 Supermarkets sell a variety of food and household products.
3. Specialty stores carry a variety of models for one kind or limited product line.
For example, a cellphone store carries brands like Nokia, Motorola, Samsung
with different models of each brand.
4. Convenience stores are stores that carw high turn-over goods, twenty-four hours
a day and seven days a week. Examples of convenience stores are 7-Eleven and
MiniStop. The retail prices of convenience stores are usually higher than those
of supermarkets.
5. Superstores which are larger than supermarkets and department stores have
emerged. Examples of superstores are Uniwide, Makro, PriceSmart and
PureGold.
6. Factory outlets of different manufacturers are grouped together in one factory
outlet mall. The outlets are located in places far from the cities. When the
customer goes to the factory-outlet mall, he will have varied choices.
7. Direct selling is one-on-one selling. One seller approaches a buyer. Many times
the buyers are friends or relatives of the seller.
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 In addition to the list above, there are also the market vendors who sell in
clusters (tumpok), the ice cream vendor, the taho vendor, the market stall sellers, the
carinderia, and many others.
Different Types of Trading Business

The different types oftrading business are store trading and non-store trading. Stor
ü•ading is classified by:

A. amount of service
l . self-service
2. limited service
3. full service D. control outlets
B. product line 1. chain store
l . specialty store 2. retailer cooperative
2. department store 3. franchise
3. supermarket 4. merchandising conglomerat
4. convenience store E. type of store cluster
5. superstore l . central business district
6. combination store 2. shopping center
7. hypermarket
8. service business
C. retail prices
l . discount store
2. off-price retailer
3. factory outlet
4. independent off-price retailer
5. warehouse club
6. catalogue showroom

Non-store retailing includes:

A. direct marketing
l . door-to-door retailing
2. automatic vending
B. direct mail marketing
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C. catalogue marketing D. telemarketing
E. television marketing
F. electronic marketing
Effccts of Trading in Business

Trading cannot be avoided. Wherever you go, even in rich countries, pcople buy
in retail. In retail business. turnover of goods is fast, thus. money inflow is also fast.
Imagine products on the shclvcs that have bccn standing thcrc for about a week. Such
products arc occupying space and ifyour establishment is air-conditioned, you are, in
effect. spending for the cooling ofsuch pmducts. Compare thcsc with those products that
stood only for a couple ofhours on the shelves and then will need It mcans
shel fcost is very limited and your cash drawer has plenty of cash.

What is the Impact of Trading to Business?

Trading is the path where inflow ofcash from the buyers to the company passes. It is
very important, considering the diagam below:

PRODUCTION SALES

• procurement of new • retail

materials • wholesale
• investment on tools and equipment
Figure 4-2. Production and Sales Relationship

Products produced are sold either by retail or wholesale. rom the sales revenue,
the bUSinessman procures raw materials again for his next production cycle and

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perhaps buy additional tools and equipment for the expansion. Thus, more products are
produced and sold. If his products cannot be absorbed by one store only, he offers his
products to other stores, thus operations expand and grow.
In n nutshell, the fol lowing arc the bcncfits of retailing:

1. Retailing allows the fast movement of products. Product price is diSCounted if the
buyer will buy several or in combination with other products to enCOUrage
customers to buy.

2. It encouragespeople to buy more by giving preferential benefit to customers and

by increasing the number of quantities at the same price with such customers
promotions like "buy one, takc one"

3. Enhances buyer-owner relationship. This is because some sellers are very friendly,
thus, encouraging pcoplc to buy from them every time.

4. Low budgetfamilies would be able to buy products in small quantities. For

example, I /2 kilo of sugar instead ofone kilo.

5. Retailing is the answer to small buyers whose need is only for a couple of days for
a small family. For example, a family of four will not buy five kilos ofbananas for

their one week consumption.

6. Retailing is a business strategy. In grocery stores, slow moving products are
packed with a toy to make the product saleable. Another strategy is the offering
of credit cards to be able to move / sell more goods or services.

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 1
OFFER
HOURS
50%
1

SAVE OPEN
g.

Importancc of Selling in thc Economy

Selling is the transfer of goods and services from the producer to thc customers and
the transfer ofmoney from the customer to the producer, as shown in the diagram below:

MONEY

PRODUCER/ CUSTOMER/
SELLER BUYER

GOODS AND SERVICES

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 Figure 4-3. Producer and Customer Relationship

Without the process ofexchange ofgoods and services, the economy will not move.
The figure above can be expanded as shown on the next page to indicate how the economy
operates.

Technically, labor means "selling" one's services to the business firms. Thus, your
parents or relatives work for a company or operate their own business. In return, the business
firms pav them for their effort in the form of salaries or, wages or profits if they the business.
From the money that they receive, their households buy goods and services from business
firms and pay by cash or credit cards.

Some ofthe income received by your parents and es are deposited in the banks. These
are invested by the banks in business activities to earn interest.

The government is the regulatory body of the economy. Goverruuent funds spent for
services come from taxes paid by households and business firms.

Thus, selling is the primary factor that moves the economy. If people do not buy,
Products will not move. The business firms not have an income from sales, no business tax,
no government service, and so on.

Aside from spending. saving is also equally important. Ifyou save in banks, yout
moncv is invested bv the bank on profitable projects. Business firms can expand operations
to providc more goods and services. But ifvou drop coins in your "piggy bank", you are, in
effect. moncv from circulation. Such act is called hoarding and is detrimental to
economic dc8Qlopmcnt.

Notice that the movement of money through the process of exchange is a "one.
wav traffic". Thus, for every inflow there is an outflow.

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Figure 4-4. Circular Flow ofExchange

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