Lecture 1

Understanding Business,
Commerce, & Trade
MIB 502: Foundation of International Trade and
Business

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Three Terms – Three Concepts

Business Commerce Trade

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What is a business?

Business is defined as an organised economic activity, wherein the exchange of goods and
services takes place, for adequate consideration. It is nothing but a method of making money,
from commercial transactions. It includes all those activities whose sole aim is to make
available the desired goods and services to the society, in an effective manner.

It is a systematic attempt of the businesspersons to produce goods and services, and sell them
at the market, to reap the reward, by way of profit.

Profit plays a pivotal role, as all the business activities are directed towards it, because it works
an incentive to the entrepreneurs, for their efforts, and thus, necessary for every business.

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 Characteristics
of Business

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 A business is defined as an organization or
enterprising entity engaged in commercial, industrial,
or professional activities.

Businesses can be for-profit entities or non-profit

organizations.

Understanding
Business Business types range from limited liability companies
to sole proprietorships, corporations, and
partnerships.

Some businesses run as small operations in a single

industry while others are large operations that spread
across many industries around the world.

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 Trade is the voluntary exchange of goods or services
between different economic actors. Since the parties
are under no obligation to trade, a transaction will
only occur if both parties consider it beneficial to their
interests.
What Is
Trade? In macroeconomics, trade usually refers to
international trade, the system of exports and imports
that connects the global economy. A product sold to
the global market is an export, and a product bought
from the global market is an import. Exports can
account for a significant source of wealth for well-
connected economies.

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 Types of Trade
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 Wholesale Trade
• Wholesaler is a link between producers and retailer.
The wholesaler buys the products in large quantities
from Manufacturers and sale to retailer and retailer
Home or sell to the consumers. Wholesaler act as an
intermediary between producers and retailers.

Domestic Retail Trade

Trade • Retail trader is a link between Wholesaler and

consumers. Retailer buys the products in less
quantity from the wholesalers and sells the
products to the consumers as per their needs. The
Retailer is the person who brings the products to
consumers. Small-scale retailers include hawkers,
pedlars, general shops, etc..

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 Import Trade
• Import Trade means when the home country obtains
or purchase the goods from another country that is
called import trade. In import, a trader of any country
International buys the products from another country’s trader.

Export Trade
Trade/Foreign • Export Trade means when a country sells their
Trade products to another country that is called export trade.

Entrepot Trade
• Entrepot Trade means when one country import
products from one country and then re-exported to
another country after adding some values.

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 Trade is a basic economic activity that involves buying and selling
different goods and services between two or more parties involved in
the transaction.

Business is an economic activity that involves the exchange,

Difference purchase, sale or production of goods and services with a motive to

earn profits and satisfy the needs of customers.

Between International business means all monetary dealings between two or

more nations, while international trade only refers to the exchange of

Business
goods and services between two or more nations.

Trade suggests only the final transaction in which a seller provides a

and Trade finished product and a consumer pays for it, while commerce is the
process of connecting a manufacturer with an end-user.

Trade happens between two parties, i.e., a buyer and a seller,

whereas commerce connects a manufacturer to the end-user.

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 Commerce is the exchange of goods or services
for money or something of equal value.

What Is
Commerce? Commerce includes all the activities that help in
facilitating the exchange of goods and services
from the manufacturer or the producer to the
ultimate consumers. Majorly the activities are
transportation, banking, insurance, advertising,
warehousing, etc. that act as an aide in the
successful completion of the exchange.

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 Commerce is the exchange of goods or
services among two or more parties. It is the
subset of business that focuses on the sale
of finished or unfinished products rather than
their sourcing, manufacturing,
transportation, or marketing.
Commerce
Governments are tasked with managing the
commerce of their nations in a way that
meets the needs of their citizens by providing
jobs and producing beneficial goods and
services.

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 When properly managed, commercial activity enhances the
standard of living of a nation's citizens and increases its standing in
the world. However, when commerce is allowed to run unregulated,
large businesses can become too powerful and impose negative
externalities on citizens for the benefit of the business owners.

Most nations have established government agencies responsible for

Regulating promoting and managing commerce.

Commerce
Large multinational organizations regulate commerce across
borders. For example, the World Trade Organization (WTO) and its
predecessor, the General Agreement on Tariffs and Trade (GATT),
established rules for tariffs relating to the import and export of goods
between countries. The rules are meant to facilitate commerce and
establish a level playing field for member countries.

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Difference between Trade and Commerce

BASIS FOR
TRADE COMMERCE
COMPARISON
Meaning Trade means the exchange of goods and services between Commerce means exchange of goods and services between the
two or more parties in consideration of money or money’s parties along with the activities such as insurance,
worth. transportation, warehousing, advertising etc that completes that
exchange.
Scope Narrow Wide
Type of Activity Social Activity Economic Activity
Frequency of Isolated Regular
Transactions
Employment No Yes
opportunities
Link Between buyer and seller Between producer and consumer
Demand and supply Represents both Represents only the demand side
side
Capital requirement More Less

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Business vs. Commerce
Aspect Business Commerce
Business refers to the organized efforts and Commerce is a subset of business that
Definition activities of individuals to produce and sell focuses specifically on the exchange of goods
goods and services for profit. and services between parties.
Encompasses a broad range of activities Mainly involves the buying and selling of
Scope including production, marketing, and goods, and activities like banking, insurance,
management. and advertising.
Focuses on the creation of products and Concentrates on the distribution of goods and
Focus
services and their delivery to customers. services and facilitating trade.
Includes planning, execution, and Primarily involves trading activities, which are
Activities Involved
management of various business operations. a part of the business.
A business degree covers a wide range of A commerce degree often focuses on subjects
Educational Path topics like project management, human like economics, trade routes, and commercial
resource management, and business law. law.
Running a company, manufacturing products, Selling products in a market, electronic
Examples
or providing services. commerce, and international trade.
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 Business Vs
Commerce
Vs Trade

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 Commerce
Business Commerce refers specifically to the exchange of
products or services between two or more
When you fill up your petrol tank of parties.
your car at a service station, you • You engaged in commerce when you paid to
are completing a process that fill up your gas tank, It is commerce.
started with an oil exploration • The crude oil was sold in bulk to one or
company locating an oil deposit, more oil companies. That was a commercial
transaction.
continued with a drilling company
extracting crude oil, and then went
through many stages of
transportation, refining, and Trade
distribution before it got to your gas Trade suggests only the final transaction in
tank. A number of people which a seller provides a finished product and a
conducted business to get it there. consumer pays for it.
The last stage of the commercial process is the
sale of a finished product to its consumer.
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 For companies, it enables:
• Streamlining operations and boosting productivity

Significance • Structuring effective teams with specialized roles

• Making optimal investment and diversification
of decisions
• Developing targeted growth strategies
Recognizing For professionals, it provides:
the • Clarity regarding capabilities needed for specific
roles
Distinctions • Understanding of career development pathways
in each domain
• Insights for making informed education and skills
training choices
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 International Business
• International Business is primarily referred to all the
commercial dealings that take place between two or
more nations. Any type of commercial transaction
between two or more nations (at an individual, company,
or government level) would come under the category of
international business. It is the direct result of growing

Definitions financial globalization and easing of barriers (economical

and political) between countries.

International Trade
• International Trade refer to all sorts of transactions that
involve the exchange of goods and services between two
or more nations. Such a trade helps nations to expand
their markets. Moreover, it also gives countries access to
goods and services that is not available domestically or is
available at a higher price.

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International
Business Vs
International
Trade

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What Is International Commerce?
• International commerce encompasses exchanging goods, services, capital,
technology, and intellectual property across borders between companies,
organizations, and governments in different countries. It comprises activities like
exporting and importing products or services overseas, foreign direct investment by
companies establishing operations abroad, cross-border transportation and
logistics services, trade financing offered by global banks, and international
licensing of intellectual properties like patents and trademarks. Essentially, any
business transaction crossing national boundaries is considered part of
international commerce.

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 • Import and export of products and services:
Companies directly buying and selling goods,
software, media, designs, R&D, consulting, or
professional services outside their home
country. With faster transport and internet
connectivity, even small businesses easily
Understanding access overseas providers and customers for
import and export.
International • Foreign direct investment (FDI): Foreign direct
investment involves an investor company buying
Commerce up a significant, lasting position in a foreign
business. Multinational companies may
establish foreign subsidiaries, joint ventures,
offices, or factories abroad to leverage talent,
resources, or new markets overseas using
substantial capital investments. It enables
deeper market penetration globally.

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 • Cross-border logistics and transportation:
Providers of sea, air, and road freight ferry goods
across continents using vast fleets of container
ships, aircraft, and railroad, and delivery trucks.
Understanding Express couriers like DHL and FedEx rapidly
transport packages worldwide.
International • Trade finance: Global banks fund exporters and
Commerce importers conducting international trade
through loans, credit guarantees, and insurance
to mitigate risks like currency fluctuations and
payment default. New financial technologies
also increasingly facilitate global commerce.

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 • Licensing intellectual property: Companies
license patents, trademarks, franchises, media
rights, and proprietary knowledge like industrial
processes to overseas partners to
Understanding commercialize intellectual property (IP) in
foreign markets for licensing fees without
International undertaking full FDI.
Commerce • Contract manufacturing: Hiring overseas third-
party factories to produce branded merchandise
through licensing agreements helps companies
cost-effectively serve foreign markets without
directly operating abroad.

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International Commerce vs. International
Trade
While often used interchangeably, international trade is just one component of international
commerce.

International trade refers to importing and exporting goods and services between countries. It
involves transactions where products, software, media, intellectual property like trademarks or
patents, designs, or professional services are sold by a company in one country to a business or
entity in another.

International commerce encompasses international trade of goods and services, as well as other
cross-border business activities like FDI, logistics, trade finance, outsourcing, licensing, and even
tourism

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