Source: International Business. Czinkota, Ronkainen, and
Moffet. The Dryden Press, Harcourt Brace College
Publishers. ISBN: 0-03-022378-4.
THE BOOMING
BUSINESS OF
COUNTERTRADE
• Several MNCs are turning to barter or
countertrade arrangements to clear their
warehouses of everything from corporate
jets to boxer shorts and dinner mints.
• Barter allows companies to become more
flexible and quicker in the face of
international business
I - A Definition of Countertrade
• Countertrade is a sale that encompasses more
than an exchange of goods, services, or ideas
for money.
• Countertrade
transactions
are
those
transactions that have as a basic characteristic a
linkage, legal or otherwise between exports and
imports of goods or services in addition to, or in
place of, financial settlements.
• Countertrade transactions
have therefore
always arisen when economic circumstances
made it more acceptable to exchange goods
directly rather than to use money as an
intermediary.
• Conditions that favor countertrade: lack of
money, lack of value or faith in money, lack of
acceptability of money as an exchange medium.
• In the 1950s, Eastern Europe
• Time Horizon: in 1972, 15 countries were
pursuing countertrade, today more than a 100.
• 25% of the global trade is countertrade related.
• American Countertrade Association
II - Pros of Countertrade
1. The world debt crisis has made ordinary trade
financing very risky.
2. The use of countertrade permits the covert
reduction of prices and therefore allows the
circumvention of price and exchange controls.
3. “You scratch my back and I’ll scratch yours” –
Bilateralism
4. Excellent mechanism to gain entry into new
markets
5. Countertrade can be a good way to attract new
buyers.
6. Countertrade also can provide stability for longterm sales.
III - Cons of Barter
1. “Instead of there being a double coincidence of
wants, there is likely to be a want of
coincidence.”
2. The ability of countries and their industries to
adjust structurally to more efficient production
may be restricted.
IV - Types of Countertrade
Barter: In barter arrangement goods are exchanged
directly for other goods of approximately equal value.
Counterpurchase: the participnat parties sign two
separate contracts that specify the goods and
services to be exchanged. In this way one transaction
can go forward even though the second transaction
needs time.
Buy-Back or Compensation Arrangement: One party
agrees to supply technology or equipment that
enables the other party to produce goods with which
the price of the supplied products or technology is
repaid.
Offset: offset arrangements are designed to offset
the negative effects of large purchases from abroad
on the current account of a country. Ex: a country
buying an airplace may demand that parts and
components be acquired in the local economy.
Debt-For-Nature Swap: firms or entities buy what are
otherwise considered to be nonperforming loans at
substantial discounts and return the debt to the
country in exchange for the preservation of natural
resources.
V - Official Attitudes Toward
Countertrade
U.S. VIEWS:
1. Transactions are purely bilateral in nature and
are not competitive since they squeeze out
competition from a third market or specify the
export market.
2. Countertrade is a second-best solution
3.
Concerns
regarding
the
valuation
of
countertrade transactions and with ensuring
that appropriate tax payments are made.
OTHER GOVERNMENTS:
1. Indonesia: over US$ 500,000 countertrade is
mandatory
2.
Japan and
countertrade.
European
Nations
favored
VI - The Corporate Situation
• In the past U.S. companies viewed and claimed
that countertrade was a hindrance to
international business.
• Increasingly
companies
are
formulating
international business strategies and are
planning to acquire market share from their
competition by seeking out countertrade
opportunities.
• Companies and countries imposing countertrade
requirements believe that there are more merits
to the transactions than purely conserving
foreign currency.
VII - Prepating for Countertrade
• Developing an in-house capability for handling
countertrade should be done with great caution
Steps:
1. Determine the import priorities of its
products
2.