Trade house, also called trading house, is a business that specializes in transactions and can have different form, type or structure. That depends on its busiessenvironment, country and market where it is functioning and national statutes or law. Trade houses commonly provide services from business to business - B2B. However it is not the main feature, they mediate between a country where they were founded and foreign countries. They are dealing with an export, import and in addition international or even global buying and selling products from and to other businesses along with purchasing for its own account.
Having that in mind, company which is using trade house services can sell its products to the trade house directly or use that house as an intermediate to the final purchaser.
For illustration: Trade house bought coats from a wholesaler in China at the wholesaling price. Which can be done on trading house account, or on behalf of some retailer. Then trade house sell those coats to retailer in Norway still at the wholesaling price, but a little bit higher, so the difference in prices can cover trade houses costs and give a profit.
In this situation the Norway retailer is avoiding potential, importing problems and is simplifying delivery chains. He is cooperating with one or two trading houses to get his products, instead of collaborating with numerous, foreign wholesalers and also gaining access to direct loans and trade credits from trading house.
Another words retailers, who use a trade house services may have benefits from this cooperation. That's because trading houses has a lot more expertise, experience and insight dealing with purchases on international markets .
Advantages of Trading Houses
Nowadays, in response to international trade development, we can see a few features acting in favor of trade houses:
- Economy of Scale. Almost every trading house gathers a large range of customers, and with their notable buying capabilities it can receive discounts from manufacturers, wholesalers and suppliers. In addition to that trade house can also decrease delivery costs if it ships to customers large amounts of goods or combine goods purchased for different clients in one large shipment.
- International network. Trading house has a sizable network of contacts, on both national and foreign markets. That helps to secure favorable contracts, obtain new clients and strengthen collaboration with existing ones. Trading house is also able to delegate staff to the foreign offices to deal with business contractors together with resolving any legal issues, and by doing so, to uphold good operation of its businesses.
- Currency Management. Because of the long term importing and exporting activities, trade house gained required expertise in coping with currency risk. Therefore, it makes good use of risk management methods. To avoid getting into disadvantageous situations. For instance, when a trade house is obliged to do future payment in foreign exchange it can use an adequate contract to lock in the current exchange rate.
Services provided by trade houses
Having to work on the international markets requires services at the highest level. Below are listed instances of services offered by trade houses:
- Research and selection of markets.
Data bases together with market actions and observations are constantly used to scan for opportunities. By those actions it is possible to find unfulfilled demands, available finance sources, tactics of organizations and price trends. This is leading to the knowing of where and what products should be sell,
- Identification and evaluation of customers.
By studying customers, their acts and plans for the future trade house has access to information about customer potential, credit worthiness and reliability,
- Negotiations of cooperation terms.
hey have the experience and competence to execute all the work relating to negotiations of the terms relating to security of the orders, shipments arrangements, taking and giving payments from and to the customer, moreover market position often enables them to get better prices and other terms,
- Financial benefits.
Trade houses are even able to provide financial assistance by arranging deferred payments, financial guarantees which involves securing credits and ensuring payments,
- Risk management.
Trading houses have a lot of experience in many dangerous situations therefore they developed protections and scenarios of dealing with them so they can give protection and insurance against different risks,
- Creating distribution networks abroad.
Long-term involvement in markets and knowledge enables trade houses to carefully prepare and fulfill strategy for a product or a customer, even when that customer or product is only entering that market.
Examples of Trade house
- Maersk: Maersk is the world’s largest container shipping company, with a fleet of more than 600 vessels. It provides services in more than 130 countries, offering integrated solutions to its customers, including sea freight, air freight, rail and road transportation, as well as warehousing and logistics solutions.
- DHL: DHL is a global leader in express delivery services. It offers door-to-door, day-definite delivery services for a wide range of goods, from documents and parcels to pallets and full containers. It operates in more than 220 countries in Europe, the Middle East and Africa, the Americas, and the Asia-Pacific region.
- FedEx: FedEx is a global leader in the logistics and transportation industry, offering a broad range of services, including air and ground transportation, warehousing and logistics solutions. It operates in more than 220 countries, providing door-to-door delivery services for packages and freight.
- Cargill: Cargill is one of the largest privately-owned companies in the world. It is a global leader in the food, agriculture, and industrial sectors, offering a wide range of services, including food processing, agricultural inputs, risk management, and international trade.
Limitations of Trade house
Trade houses are a great tool for businesses to use when expanding their markets to international levels, but there are some limitations to consider. The following are some of the main limitations of trade houses:
- Trade houses are limited to the specific markets in which they are operating and may not cover as many markets as a company would like.
- Trade houses may not be able to offer the same level of customer service or after-sales support as the company itself, since they may not be as familiar with the company’s products and services.
- Trade houses are also subject to the regulations and laws of the countries in which they are operating, which may be different than those of the company’s home country.
- Trade houses may also be subject to taxes and other fees in the countries in which they are operating, which can add to the cost of doing business.
- Trade houses may also have limited resources and may not be able to handle large orders or provide a wide range of services.
- An important approach of the trade house is to offer services related to international trade, such as customs clearance, export and import documentation, international transportation and shipping, foreign exchange, and insurance.
- It also offers services related to research and development, production, and marketing of goods and services.
- It can also involve in the process of setting up a company in a foreign country, providing advice on legal and financial matters.
- Another approach is to provide assistance with setting up and managing a supply chain and logistics.
- Furthermore, trade houses can offer consulting services and can also provide information on government regulations and taxes.
In summary, trade houses provide services related to international trade, research and development, production and marketing, setting up a foreign company, supply chain management, and consulting. These services help companies to expand their business internationally and to achieve success in a global market.
- Gibbon P., (2014), Trading Houses during and since the Great Commodity Boom: Financialization, Productivization or…?, Danish Institute for International Studies, Copenhagen, p:6-23
- Kerr W., Perdikis N., (2014), A Guide to the Global Business Environment: The Economics of International Commerce , Edward Elgar Publishing, Northampton, p:169-202
- Kjellin J., Lawrence E., (2014), The Modern Role of Trading Companies, University of Gothenburg, p:8-10
Author: Artur Bućko