Trade house
| Trade house |
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| See also |
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[1].
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[2]:
- 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[3]:
- 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.
Footnotes
References
- 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
