COUNTERTRADE Jordy Steve Mancilla Castillo Juan David Ocaña Oviedo Course: International Business I Head of the Course: Luis Gerardo Pachon Project Due: 17th/09/2012
¿COUNTERTRADE?• Means exchanging goods or services which are paid for, in whole or part, with other goods or services, rather than with money.
HISTORY OF MODERN COUNTERTRADING• Throughout history countertrading occurred whenever there was a shortage of money, or before money even existed.
NECESSITY• Countertrade also occurs when countries lack sufficient hard currency, or when other types of market trade are impossible.• ¿WHY COUNTERTRADE?Elderkin & Norquist, in their book "Creative Countertrade," saythat companies countertrade in order to:
USES• Main reasons why countertrade is used:
TYPES OF COUNTERTRADE• countertrade can be a lot of things depending on who is involved .• There are six main variants of countertrade:
BARTER• Exchange of goods or services directly for other goods or services without the use of money as means of purchase or payment.
SWITCH TRADING• Practice in which one company sells to another its obligation to make a purchase in a given country.
OFFSET• Agreement that a company will offset a hard - currency purchase of an unspecified product from that nation in the future.• There are two distinct types:
COUNTER PURCHASE• Sale of goods and services to one company in other country by a company that promises to make a future purchase of a specific product from the same company in that country.
BUYBACK• occurs when a firm builds a plant in a country - or supplies technology, equipment, training, or other services to the country and agrees to take a certain percentage of the plants output as partial payment for the contract.
COMPENSATION TRADE• is a form of barter in which one of the flows is partly in goods and partly in hard currency.
PROS AND CONS• Counter-trade offers three major benefits:• Countertrade has its pros and cons. A major benefit of countertrade is that it facilitates conservation of foreign currency. Other benefits include increased employment, higher sales, better capacity utilization and ease of entry into challenging markets.
• Counter-trade also involves significant risks:• A major drawback of countertrade is that the value proposition may be uncertain, especially in cases where the goods being exchanged have significant price volatility. Other disadvantages of countertrade include complex negotiations, potentially higher costs and logistical issues.
REFERENCES• Countertrade. (2005) London countertrade round table, Available: http://www.witiger.com/internationalbusiness/countertrade.htm Last accessed 9th September 2012.• Definition of countertrade. (2012) (I) Investopedia, Available: http://www.investopedia.com/terms/c/countertrade.asp#axzz260E nBRns Last accessed 9th September 2012.• Pros and cons of countertrade. (2011) Impexpedia blog, Available: http://impexpedia.com/blog/2011/09/09/pros-cons-counter- trade/. Last accessed 9th September 2012.• The History of Countertrading (2012) eHow.com, Available: http://www.ehow.com/facts_7151203_history- countertrading.html#ixzz260LkXGsE. Last accessed 9th September 2012.