What is a Trade Association?
A trade association is a voluntary organization of independent business units in the same branch of industry, which conducts cooperatively activities aimed at improving the welfare of the group, which does not deprive its members of the power to make essential managerial decisions.
How are Trade associations formed?
Trade associations are formed by businesses which are engaged in same or similar trade. They are organized on a non-profit basis. Trade associations are formed for the protection and promotion of business interests of its members. The meetings of the trade associations generally discuss issues relating to the common interest of the members. Issues may relate to:
- Taxation (tax rates and taxation procedures)
- Raw material prices or shortages
- Infrastructural issues (roads, power, telecom, ports etc.)
- Labor issues and labor legislation
- Legislation affecting the interests of the members
- Unfair competition.
- Import and export issues
- Emerging opportunities in business, trade and commerce.
Features of trade associations
1. Voluntary association: It is a voluntary association of member units. Members are free to exit at any time.
2. Non-profit motive: Trade associations are non-profit earning associations. They are not promoted with a commercial motive.
3. Name: The associations are generally named after the nature of the trade or industry conducted by its members.
4. Identity: Members continue to retain their individual identity
5. Independence: Members units can remain completely independent. There is no interference by the association on the business affairs of its members.
6. Objective: The objective of trade associations is to promote the business interests of the members, exchange views, serve as a platform for discussions and to represent the interests of its members.
Functions of Trade Associations
The main functions of a trade association are:
- Educating members so as to improve efficiency.
- Preventing cut-throat or unfair competition.
- Promoting and extending trade through ‘legislative work’.
The following are the other functions of trade associations:
1. To provide market information to members with regard to customer preferences, expectations, market opportunities etc.
2. Providing information relating to emerging business opportunities.
3. Rendering advice on technical matters and legal issues.
4. To secure cooperation and coordination among members.
5. To serve as a forum where members can settle their disputes.
6. Ensuring that members do not indulge in unfair trade practices.
7. Providing references with regard to the reputation and credit worthiness of members.
8. Undertaking advertisements to promote the industry.
9. To prescribe code of ethics with a view to promote ethical behavior.
10. To represent members grievances to the government and seek redressal.
11. Conduct seminars or workshops on new legislation, the budget, international business developments etc.,
12. To conduct market research and provide information to members.
13. To send representatives to serve on various committees and boards set up by the government.
Advantages of Trade Associations
The following are the advantages of trade associations:
1. It protects and promotes the interests of its members. It can take up issues relating to the respective authorities for redressal and corrective action. For e.g. it can take up issues such as:
- insufficient infrastructural facilities,
- high inputs costs,
- problem of cheap imports which affects the survival of local firms with the government and request it to take suitable remedial measures.
2. The association serves as a forum for members to interact with each other. Members can discuss key issues, share knowledge about industry trends, consumer preferences, best practices followed etc. This kind of knowledge sharing enables companies to implement appropriate measures and achieve efficiency and profitability.
3. Trade associations can undertake research and development to innovate new products, processes etc. Individual firms face resource constraints in undertaking research and any new innovation would benefit that individual firm. But the fruits of the research and development efforts of trade associations would benefit all the members.
4. Trade associations can engage market research agencies such as IMRB, ORG-MARG, etc. to conduct market research on consumer preferences and expectations. They can sponsor delegations of members to foreign countries to find out the market potential.
5. They play an important role in settling conflicts and disputes among members. They can use the services of members who enjoy a good reputation to settle disputes between members. This saves the members from expensive litigation which might also take up a lot of members’ time.
6. Trade associations prevent members from indulging in unfair trade practices. They ensure that members do not engage in cut-throat competition and promote the orderly development of the industry.