Trade companies are offering the availability of a certain product at a certain time. With this, they are similar to service companies.

A traditional trade company usually does not produce its own goods. Examples for huge trade companies or Univar (chemical industry), Amazon ( internet) or Ebay (internet).

However, more recently some of the worlds biggest trade companies started to produce their own products. Aldi, Wal-Mart and Tesco just to mention some examples from the groceries industry.

Some advantages of this company type are:

• Easy controlling possibilities

Some disadvantages include:

• Cost of goods in stock (working capital risk)
• Market price risk
• Low entry barriers for competitors (except for specialities)

The way trade companies earn money is rather simple. Their margin is the difference between the purchasing price to the selling price of a good.

Companies pay a trader because they do not want to handle a purchase on their own. This might be for various reason with time saving probably being the most important one.

The next article in the series “strategy in seven steps” will focus on the processes within a company. For comments and feedback please email me to jonas@believeinvisions.com.

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