Countertrade

15-17

Countertrade

Trade carried out wholly or partially in goods rather than money.

McGraw-Hill/Irwin

© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

15-18

Countertrade as a Share of World Trade Value

50 % 40 30 20 10 0 1975 1985 1990 1992 2000

McGraw-Hill/Irwin

© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

Types of Countertrade

Barter- direct exchange of goods or services having equivalent values without a cash transaction Counterpurchase: involves 2 simultaneous separate transactions between 2 parties with or without cash Buyback or compensation: involves repayment in the form of goods derived from directly from, or produced by, the technology, plant, or equipment provided by the seller

1

Types of Countertrade

Offsets: involves an arrangement whereby the seller is required to assist in or to arrange for the marketing of products produced by the buying country or to allow some portion of the exported product to be assembled or manufactured by producers located in the buying country. Switch-trading: refers to a switch in the country of destination goods

15-19

Countertrade Practice

100

Percent of companies engaged in each countertrade practice

80 60 40 20

73 60

Offset Switch Trading Barter Buyback Counterpurchase

19 3

22

Figure 15-5

0

O ffse t

S w itc h T ra d in g

B a rte r

B u yb a c k

C o u n te rp u rc h a se

McGraw-Hill/Irwin

© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

Why countertrade?

shortage of hard currency lack of credit BOP problems low commodity prices - low export income surplus capacity arms trade lack of a well developed private sector lack of international trading experience LDCs - low share of manufactured goods I intl trade

2

Benefits of Countertrade

Allows entry into difficult markets Increases company sales Overcomes currency controls & exchange problems Increases sales volume Overcomes credit difficulties Allows fuller use of capacity Allows disposal of declining...