What is Commerce? Meaning, Natures, and Functions

What is Commerce?

Commerce consists of all activities related to the purchase and sale of commodities. Commodities can be tangible or intangible. Tangible commodities are called goods, and intangible commodities are services. Commercial activities facilitate the transfer of goods and services from producers to consumers. It aims to ensure the supply of goods and services at the right place, in the right quantity, and at the right time. It assures free and smooth exchange by removing various hindrances or obstacles—hindrances may be of persons, place, time, risk, finance, and information.

Nature of Commerce

Commerce is considered a part of business. It is the activity of business related to the exchange of goods and services. Some people feel that commerce and business are interchangeable. The following points state the diverse nature of commerce:

• Economic activities
• Exchange of goods and services
• Earning motive
• Creation of utility
• Regularity of transaction

1. Economic activities: Economic activities are undertaken with the motive of earning profits. Commerce only deals with those activities that are undertaken for profit. It is the motive that is important, not the activity.

Some activities may be both economic and non-economic. A trader buys goods to sell them again and earn a profit, while a consumer buys goods for consumption. In the first case, the motive is to make a profit, while in the second situation, the motive of profit is absent. For a trader, buying goods is an economic activity and a part of commerce, while the purchase of goods by a consumer is a non-economic activity, hence out of the purview of commerce.

2. Exchange of goods and services: Commerce involves the exchange of goods and services for profit. The goods are produced at a place that procures different resources. The purpose of the purchase of goods should be to resell them. It points out that goods are purchased for trading purposes in commerce.

3. Earning motive: The motive for undertaking trading activities is to gain profit. Profit is an incentive or reward for undertaking commercial activities. Any activity that does not have the incentive of profit will not be part of commerce. If a trader gives some goods as charity, then it will not be part of commerce because the profit motive is missing. But if the same trader sells goods to customers, it will form part of commerce because the profit motive is present. So an earning motive must be present in activities or transactions.

4. Creation of utility: Commerce creates place and time utility in goods. The goods may not be used at the place of production. These may be needed at different places. The goods are taken to the places where they are needed. Transportation facilities help create a place of utility for goods. The goods are also needed at different times.

It may not be possible to produce goods whenever they are demanded. The producers keep producing goods as per their capacity. The goods are stored until they are needed. Once the production is done, consumers get them as per their needs. The storage facilities create time and utility for goods. Both place and time utilities help increase the volume of trade.

5. Regularity of transactions: The transactions should be regular. No isolated transaction will be part of commerce. The sale of old furniture to replace it with new is not part of commerce. However, the sale of furniture items by a furniture trader is commerce since the transactions are regular.

Functions or Scope of Commerce

Commerce has a significant role in business. The goods produced by the industry should reach the customers in time. Commerce plays an important role in the exchange of goods and services. There are several hindrances to the transfer of goods from producers to customers. The functions of commerce help to remove various hindrances, such as:

• Hindrance of persons
• Hindrance of place
• Hindrance to exchange
• Hindrance of time
• Hindrance of risk
• Hindrance of knowledge

1. Hindrance of persons: Numerous individuals known as producers work together to create goods and services. Goods and services are always required by various sections of society called consumers. The producers can’t come into direct contact with consumers. Commerce helps to remove many hindrances by bringing people closer through the chain of traders. There is a chain of middlemen between producers and consumers, and hindrances are removed.
2. Hindrance of place: The goods are produced in selected places as consumers are scattered in various corners of the country. There is a need to take goods from places of production to places of consumption. The transportation segment of commerce helps remove the hindrance of place. The goods are transported to places where they are needed.
3. Hindrance to exchange: The goods and services are exchanged with the help of money. Banks help buyers and sellers in exchange for the money involved in various transactions. The money can be transmitted with the help of checks and drafts. Banks also assist producers and traders by providing them with loans and credit facilities. Banking facilities help increase the volume of trade, both internal and external.
4. Hindrance of time: Some goods may be produced seasonally but are required throughout the year. For example, wheat, rice, pulses, etc. are available seasonally but are required at all times. Similarly, some goods may be available throughout the year but may be needed seasonally. There is a gap between production and consumption. The goods need to be stored safely and supplied when required. This function is taken up by warehousing. The goods are stored properly when not required and supplied when needed. The hindrance of time is removed with the help of the warehousing function of commerce.
5. Hindrance of risk: There is a need to ensure the safety of goods during transit, storage, fire, damage, etc. The volume of trade increases only when various risks are insured and owners are hopeful of getting compensation in the event of a loss. The insurance branch of commerce covers the hindrance of risk and helps in the growth of trade.
6. Hindrance of knowledge: There is a need to bring to the attention of customers the arrival of new products on the market. There is no direct link between producers and consumers. It is with the help of advertising that new products and services are brought to the attention of consumers and others. The advertising branch of commerce helps remove the hindrance of knowledge by spreading awareness about new products and their utility.