Other Countries Where Ormita Is Present India Australia New Zealand South Africa Mexico United States of America United Kingdom Canada China Hong Kong Sweden Turkey Poland Germany Iran Greece Egypt
Country Experience USA Poland Japan Dubai Uzbekistan Peru Italy Denmark UK Panama: Israel Cyprus Turkey Pakistan Ireland Croatia Thailand Norway Iraq Chile Switzerland Norway Indonesia Cape Verde Sweden New Zealand India Canada Sri Lanka Netherlands Hungary Bulgaria Spain Nepal Hong Kong Brunei South Africa Mexico Guatemala Brazil Slovenia Malta Greece Bosnia-Herzegovina Slovakia Maldives Ghana Belgium Singapore Malaysia Germany Belarus Seychelles Macau Georgia Bangladesh Samoa Luxembourg France Bahrain Russia Lithuania Finland Austria Romania Latvia Fiji Australia Puerto Rico Kosovo Estonia Armenia Portugal Kenya El Salvador Argentina
Countertrade preserves scarce hard currency and improves the balance of trade in the importing country.
Lesser developed countries can take advantage of the distribution and marketing networks of the companies they countertrade with to distribute their products.
Countertrade often results in a significant transfer of technology and know how from seller to buyer which upgrades the buyer's manufacturing capabilities. For example, in a countertrade involving cola syrup for vodka, PepsiCo taught a German vodka maker how to make their vodka bottles more marketable through the use of screw caps and different labels.
Global currency volatility and more rigorous counterparty risk assessment contribute to higher cost of trade finance for importers, exporters and financial intermediaries
Countertrade gives unique benefits and advantages to the seller of goods. A company willing to engage in countertrade can penetrate new markets and expand sales potential in existing markets.
Business relationships can be created and strengthened by the willingness to accept the purchaser's domestically produced goods as payment.
Countertrade can be used to obtain a steady, long-term supply of raw materials. For example Occidental Petroleum obtained a reliable, low cost, twenty year supply of ammonia by entering into a countertrade agreement with the Soviet Union
During difficult economic times a seller may face high finance costs and slow movement of product - leading to surpluses and/or the need to reduce staff numbers and/or inventory holdings.
There may be a lack of immediate opportunities to sell for cash.
Where liquidity is a challenge, goods can be sold "in kind" and this credit applied to fixed operational costs of the business (offsetting real cash expenses)
Finding a new cash-paying customer for goods involves a new investment in marketing, versus a low cost for countertrade (especially where marketing and entry costs are offset against new sales via bartering)
Countertrade represents an extremely low opportunity cost to generate new sales
The government of an importing country contemplating using its foreign exchange to buy additional imports may worry that it will not be able to generate sufficient exports to earn the needed foreign exchange.
One way to shift the risk to others is to make imports contingent on offsetting exports.
Hedging currency risks through countertrade rather than financial instruments may be desirable because purchasing financial instruments requires an upfront financial payment and thus drains liquidity.
Financial instruments cannot hedge real exposures effectively because financial value changes with nominal exchange rates, not real exchange rates, and is based on interest earnings not inflation. A countertrade deal can help solve the real price problem.
Because counter-trade involves the exchange of real goods, not financial instruments for real goods, it can solve the inflation risk involved in foreign currency procurements. Thus, it can sometimes provide a superior hedge to financial instruments.
Executive Order 120 directs all government agencies to adopt countertrade (C/T) as a supplemental tool to the importation of foreign capital equipment, machinery products, and goods and services over a certain dollar value.
Decision No. 694 which stipulates that all Foreign Contractors who meet certain criteria, should participate in the Counter-Trade Offset Program.
The GATT, World Bank and DOC claim that countertrade represents between 25% - 30% of all world financial activity and is growing.
Classification of Countertrade Does the transaction involve reciprocal commitments (other than cash payments)? Does the transaction involve the use of money? Does the transaction extend over long periods and involve a basket of goods? Are the goods taken back by the exporter the resultant output of the equipment sold? Is the reciprocal commitment limited to the purchase of goods? No Yes Straight Sales (cash or credit) Yes Counterpurchase, buyback or offset Counterpurchase and buyback Buyback Counterpurchase Yes Yes No No No No Yes Barter type Simple barter Clearing Arrangement Are third parties involved? Yes No Switch Trading Clearing Arrangements Does the transaction involve debt? Yes No Swaps Offsets
Trading parties maintain restricted-purpose drawing accounts for the deposits of their countertrade activities.
The Finnish airforce buys F18 fighter jets from McDonald Douglas Corp. For 2,5 b. The air force pays in dollars. In another but linked contact McDonald promises in return to buy Finnish goods for 2,5 b. dollars.
A long term contract made between a firm which builds and runs a factory to buy the products made in the factory.
One party purchases the output of another party that is derived from technology or equipment supplied by the purchasing party.
A German firm builds and runs a factory in an African country. The factory is owned by the local government but it has no money to pay for it and not skilled staff to run it. Part of the factories output goes to the firm that built and runs it at predetermined price as payment for the factory and as compensation for running it.
A British firm sells machine tools to a Polish firm. The Poles wanted to pay in goods only. The Brits did not need Polish goods but French goods. They find a French firm that needs Polish goods. The French firm receives the Polish goods and sends its own goods to the British firm as payment.
A major restaurant chain was faced with disposing $1 million worth of flavoured ground beef that had tested well but didn't sell well. The chain traded the meat in exchange for spot TV, while the barter shop sold the meat for cash, at a discount, to a state prison system.
A beer company needed to destroy product that was past its sell-by date. It ended up selling the bottles to a barter shop, which then recycled the glass, in exchange for media credits.
Excess guava puree was swapped for media credits through a barter company. The company eventually sold the puree to a beverage company that used it to make orange soda.
Log-home kits, aircraft skeleton frames and poultry have all been swapped for a wide-range of media, including TV, digital, print and radio ads, in the U.S. and abroad.
The Philippine Government is embarking on a program to carry out a barter system for its coffee products with the products of lucrative markets. This will help them promote the exports of their coffee and in turn get defense equipments from former U.S.S.R. member nations like Romania.
In 2009 Saudi Arabia agreed with Pakistan to swap oil for food.
Israel barters Calcium Carbonate, Talc and Dolomite and other raw materials with the USA, UK and many European Union countries.
The Thai Government recently traded fruits for Chinese-made locomotives, passenger buses, and armoured cars.
Malaysia is currently supplying India with palm oil (from six state-owned companies) worth $121 million in exchange for a contract awarded to the Indian Railway Construction International Company. They will lay 31.5 km. of tracks in the southern Malaysian state of Johor.
The Democratic Republic of the Congo and the China Railway Engineering Corporation (CREC) have entered barter. According to this barter the Chinese company will provide Congo the desperately needed infrastructure in exchange for a slice of Congo’s precious natural resources to feed its booming industries.