Internal trade and wholesalers

Internal trade is buying and selling within a country's boundaries. Since the goods do not cross a border, no customs duty is charged on it. Internal trade is of two kinds: wholesale and retail.

A manufacturer with a factory in one city cannot sell a few pens at a time to buyers all over India. So wholesale trade steps in: buying and selling goods in large quantities, for resale or for intermediate use by other businesses. A shopkeeper who orders ten thousand pens from a factory is buying wholesale.

Wholesalers take title to the goods (they become the owners), bear the risk of holding them, and grade, pack, store and transport them. They also give credit to retailers. By storing goods and moving them to where they are needed, they create time and place utility. They usually work on a thin profit margin per item, because they sell in bulk.

Services to manufacturers:

• Large scale production: the manufacturer gets big orders from a few wholesalers instead of many small orders.
• Bearing risk: the wholesaler bears the risks of holding the goods.
• Financial assistance: wholesalers often pay in cash or in advance.
• Expert advice about customers' tastes and market conditions.
• Help in marketing: the wholesaler finds the retailers.
• Continuity of production, since wholesalers keep buying.
• Storage, freeing the manufacturer from keeping big stocks.

Services to retailers:

• Availability of goods: a retailer can get many products from one place, quickly.
• Marketing support, such as advertising.
• Grant of credit.
• Specialised knowledge of products and their demand.
• Risk sharing: the retailer buys small amounts and need not hold big stocks.

Could we do without wholesalers? A manufacturer could sell straight to retailers, but someone would still have to store, transport and finance the goods. Most of these functions cannot be removed; they can only be shifted to someone else.