What is internal trade? Advantages & Disadvantages of Internal Trade
Internal Trade: Pros & Cons
Internal trade also termed as Domestic trade or Home trade is a trade where buying and selling transactions are done in between buyers and sellers of same locality, town, village, cities or from different states but within the same country that means such trade takes place within the geographical boundaries of a countries. It involves buying and selling of goods or services within the same country and not outside the country. . All payments are processed only in currency of home country. Internal trade is of 2 types: Wholesale trade and Retail trade. Whole trade involves buying goods in bulk from producer and selling them in smaller quantities to intermediaries. Whereas, Retail trade involves distributing goods directly to consumers in small quantities.
Pros of Internal Trade
1. Provides Economical Goods
Internal trade provides goods at cheaper cost to peoples within the country. when goods are produced domestically, they are free from exchange duties and several other taxes which brings down overall cost of product.
2. Less Competition
Foreign businesses are not allowed to enter into the domestic market. Market competition exists only in between the local brands of country thereby prevents the exploitation of domestic firms by foreign firms.
3. No Trade Barriers
Internal trade are bound to follow very few formalities as compared to foreign trade and is free from trade barriers. There is no restriction imposed and trade can be conducted freely in any part within the country.
4. Low Transportation Cost
Expenses incurred on transportation facilities in Internal trade are very less. Since Goods need not to be carried through a longer distance which reduces the transportation risk and overall cost.
5. Vast employment Opportunities
Internal trade generates a large no. of employment opportunities within the country. There are large people associated in various activities of firms operating internally. With the rise in number of domestic firms, need for manpower also rises thereby creating new employment opportunities.
6. Mobility of Factors
It enjoys the advantage of mobility of factors of production. All factors like land, labor and capital can be easily moved around within the country unlike foreign trade that faces several restrictions.
7. Enhances economic independence
Internal trade promotes a sense of self-reliance and self-sufficiency within the country. When a nation is producing everything for fulfilling its needs internally, it does not need to depend on other nations for meeting its needs that makes it an independent economy
8. Improves standard of living
Internal trade makes available wide variety of goods and services to domestic consumers. This in turn improves their living standard.
Cons of Internal Trade
1. Limited Choice
One of the Major drawback with internal trade is that limited products are available for consumption since goods are manufactured domestically. It restricts the entry of variety of advanced imported products due to which consumer is left with limited options available.
2. Negligible Sharing of Resources
Countries relying on internal trade lack the chance of sharing resources from foreign countries.In case of foreign trade, scarcity of resources can be easily met by importing such resources from foreign land, but this is not possible in case of internal trade.
3. Absence of Professional Management
Domestic firms operating within the country may lack professional management due to shortage of funds or unavailability of competent workforce. Skilled and qualified workforce can be easily acquired in foreign trade whereas internal trade faces restriction on such movement of labor internationally. Workforce is to be taken from domestic country only.
4. Difficulties in Times of Emergency
Countries which practice internal trade faces difficulties in times of emergencies like famine, flood, war and scarcity. They face difficulty in supply of essential items like food, medicine and clothes from abroad due to restrictions imposed by them on international movement of goods.
5. No Foreign Earning
Internal trade do not provide any source of foreign currency earning to the nation. All transactions in between the buyers and sellers are settled in domestic currency only because the trade takes place within the geographical boundaries of the country.
6. Reduced Innovation
In Internal trade, business houses face less competition .As far as international trade and competition is absent here, the technological advancements and innovations are stifle within the country.