(a) What is channel of distribution? (b) With the aid of diagrams, show four examples of channel of distribution. (c) Explain five advantages of home trade ...

Answer Details

(a) Meaning of channel of distribution

A channel of distribution is the route or path through which a product moves from the manufacturer or producer to the final consumer or industrial user. It may involve intermediaries such as agents, wholesalers and retailers.

(b) Four examples of channels of distribution

(c) Five advantages of home trade over foreign trade

1. Use of local currency: Payment is made in the national currency. Therefore, there is no need to exchange currencies or face foreign-exchange difficulties.
2. Less documentation: Home trade does not usually involve import and export documents and the formalities required when goods cross national borders.
3. Shorter distance and lower transport cost: Buyers and sellers are generally closer together within one country. Goods can reach the buyer more quickly and transport costs are usually lower.
4. Common language and fewer cultural differences: Traders commonly use the same official language and are more familiar with local customs, making communication and bargaining easier.
5. Greater knowledge of the market and lower risk: Local traders usually know domestic customers, laws, business practices and market conditions better than foreign markets. This makes trading decisions easier and reduces risks such as loss, delay or misunderstanding.

Examination reminder: For each advantage, state the feature of home trade and then explain how it makes trading easier, cheaper, quicker or less risky than foreign trade.