1. Countertrade involves bartering goods and services instead of cash payments, and takes various forms like barter, counterpurchase, offset, buyback, and switch trading.
2. India has engaged in countertrade deals, such as exchanging wheat and rice for Iraqi oil.
3. While countertrade can enable trade when cash payments are difficult, it also poses drawbacks like acquiring unwanted goods and needing expertise to handle diverse product categories.
Exporting provides opportunities to increase profits by accessing larger markets. However, it also presents challenges such as navigating foreign regulations, financing, and cultural differences. Export management companies can help smaller firms overcome these challenges by providing expertise in market analysis, distribution, and paperwork. Establishing trust is also important in export transactions, which is why letters of credit, drafts, and bills of lading involving reputable banks are commonly used. Countertrade arrangements, such as bartering or offset agreements, provide an alternative means of trade for countries with liquidity constraints.
1. The document discusses several strategies for entering foreign markets, including exporting, piggybacking, countertrade, licensing, joint ventures, ownership, and export processing zones.
2. Countertrade involves indirect exporting where goods or services are exchanged instead of currency due to currency or trade barriers. It can take forms like barter, counterpurchase, compensation, and switch trading.
3. Licensing, joint ventures, and full foreign ownership represent increasing levels of commitment and control in foreign markets, with tradeoffs around costs, risks, and benefits.
This document discusses various counter trade practices such as barter, switch trading, counter purchase, buyback, compensation trade, and offset. It defines each practice and provides examples. Counter trade refers to exchanging goods or services for other goods and services rather than money. Companies often engage in counter trade due to foreign government requirements or to expand sales and improve efficiency. The document outlines reasons for counter trade such as shortage of convertible currency and developing new markets. It also discusses advantages of counter trade like accessing otherwise closed markets and conserving foreign currency reserves.
The document discusses different entry mode strategies for international market expansion. It focuses on trade-related strategies like exporting, subcontracting, and countertrade (barter, counterpurchase, offset, buyback). Exporting has benefits like lower risk but disadvantages like tariffs and transportation costs. Countertrade strategies allow trade without cash by exchanging goods or services. The document also briefly introduces transfer-related strategies like international franchising which involve transferring ownership or rights in exchange for royalty fees.
This document provides an overview of international financial management. It discusses key topics like the balance of payments, determinants of entry modes for international business like exports and counter trade, differences between international and domestic finance, events that increased global trade volumes, and trade agreements. International flow of funds is examined, specifically India's balance of trade. Outsourcing is also discussed as having impacted international trade through increased cross-border purchasing.
Counter trade refers to exchanging goods or services for other goods or services instead of money. Common types of counter trade include barter, counter-purchase, buyback, offset, tolling, and clearing arrangements. Counter trade can help countries with foreign exchange shortages import needed goods and services. However, it also presents challenges in finding appropriate goods to exchange and managing long term agreements. Government organizations like India's STC help facilitate large counter trade agreements between domestic firms and international partners.
1. The document discusses various methods for entering international markets, including exporting indirectly through an export house, direct exporting, foreign manufacturing through assembly, contract manufacturing, licensing, joint ventures, and wholly owned foreign production.
2. It also covers identifying potential international markets through analyzing foreign trade statistics from sources like the UN and customs shipment records.
3. The best method of entry depends on a thorough analysis of the foreign market conditions, opportunities, strengths and weaknesses of the business. Flexibility is important to adapt to changing environments in different markets.
Exporting provides opportunities to increase profits by accessing larger markets. However, it also presents challenges such as navigating foreign regulations, financing, and cultural differences. Export management companies can help smaller firms overcome these challenges by providing expertise in market analysis, distribution, and paperwork. Establishing trust is also important in export transactions, which is why letters of credit, drafts, and bills of lading involving reputable banks are commonly used. Countertrade arrangements, such as bartering or offset agreements, provide an alternative means of trade for countries with liquidity constraints.
1. The document discusses several strategies for entering foreign markets, including exporting, piggybacking, countertrade, licensing, joint ventures, ownership, and export processing zones.
2. Countertrade involves indirect exporting where goods or services are exchanged instead of currency due to currency or trade barriers. It can take forms like barter, counterpurchase, compensation, and switch trading.
3. Licensing, joint ventures, and full foreign ownership represent increasing levels of commitment and control in foreign markets, with tradeoffs around costs, risks, and benefits.
This document discusses various counter trade practices such as barter, switch trading, counter purchase, buyback, compensation trade, and offset. It defines each practice and provides examples. Counter trade refers to exchanging goods or services for other goods and services rather than money. Companies often engage in counter trade due to foreign government requirements or to expand sales and improve efficiency. The document outlines reasons for counter trade such as shortage of convertible currency and developing new markets. It also discusses advantages of counter trade like accessing otherwise closed markets and conserving foreign currency reserves.
The document discusses different entry mode strategies for international market expansion. It focuses on trade-related strategies like exporting, subcontracting, and countertrade (barter, counterpurchase, offset, buyback). Exporting has benefits like lower risk but disadvantages like tariffs and transportation costs. Countertrade strategies allow trade without cash by exchanging goods or services. The document also briefly introduces transfer-related strategies like international franchising which involve transferring ownership or rights in exchange for royalty fees.
This document provides an overview of international financial management. It discusses key topics like the balance of payments, determinants of entry modes for international business like exports and counter trade, differences between international and domestic finance, events that increased global trade volumes, and trade agreements. International flow of funds is examined, specifically India's balance of trade. Outsourcing is also discussed as having impacted international trade through increased cross-border purchasing.
Counter trade refers to exchanging goods or services for other goods or services instead of money. Common types of counter trade include barter, counter-purchase, buyback, offset, tolling, and clearing arrangements. Counter trade can help countries with foreign exchange shortages import needed goods and services. However, it also presents challenges in finding appropriate goods to exchange and managing long term agreements. Government organizations like India's STC help facilitate large counter trade agreements between domestic firms and international partners.
1. The document discusses various methods for entering international markets, including exporting indirectly through an export house, direct exporting, foreign manufacturing through assembly, contract manufacturing, licensing, joint ventures, and wholly owned foreign production.
2. It also covers identifying potential international markets through analyzing foreign trade statistics from sources like the UN and customs shipment records.
3. The best method of entry depends on a thorough analysis of the foreign market conditions, opportunities, strengths and weaknesses of the business. Flexibility is important to adapt to changing environments in different markets.
Counter trade refers to exchanging goods or services for other goods or services instead of money. There are several variants of counter trade including barter, switch trading, counter-purchase, buybacks, and offsets. Offsets involve one company agreeing to purchase a certain amount of products from another country in the future in exchange for a major contract. Counter trade is commonly used to expand into foreign markets, increase sales, access blocked funds, build relationships, and gain future contracts. However, it also presents financial, industrial, and commercial challenges that require careful planning. Trends suggest counter trade is growing in emerging markets and military deals and that obligations are becoming more difficult and costly for companies to fulfill.
Modes of entry to international businessHarsh Bansal
The document discusses different modes of entry into international business, including exporting, licensing, franchising, contract manufacturing, management contracts, foreign direct investment (FDI) without alliances, and FDI with alliances. It provides details on the key characteristics, advantages, and disadvantages of each mode. Exporting allows gradual market entry at relatively low financial risk but with logistical complexities. Licensing and franchising provide low-cost ways to assess markets but have dependence on partners. FDI through greenfield investment gives full control but requires high expenses. Strategic alliances through mergers, acquisitions, and joint ventures combine strengths but also carry shared ownership risks.
Foreign direct investment (FDI) can take several forms, including equity joint ventures, mergers and acquisitions, and wholly owned subsidiaries. The main forms of non-equity collaborative arrangements are management contracts, turnkey projects, franchising, licensing, and sales contracts. Joint ventures are a popular form of investment that involve two or more partner companies. FDI is undertaken for various reasons such as gaining access to markets, resources, strategic assets, or to benefit from operating efficiencies. While licensing can be an alternative, FDI allows for tighter control which is sometimes necessary to maximize profits. China, the United States, and Hong Kong are among the largest sources of outward FDI in recent years.
The document discusses international equity markets. It provides statistics on market capitalization, liquidity, and concentration of major stock exchanges in 2018. It describes how secondary markets allow for trading of shares and outlines different market structures. It discusses factors that drove greater global integration of capital markets in the 1980s and describes cross-listing of shares, Yankee stock offerings, and American Depository Receipts. It also summarizes empirical findings on cross-listings and provides an overview of international equity market benchmarks and iShares MSCI funds. In closing, it outlines macroeconomic factors, exchange rates, and industrial structure that can influence international equity returns.
Foreign direct investment (FDI) takes several forms, including equity joint ventures, management contracts, turnkey projects, franchising, and licensing. Companies pursue FDI for various reasons, such as to avoid trade barriers, gain control over operations, or protect proprietary knowledge. The amount of global FDI has increased substantially in recent decades as more countries liberalize their investment policies. Major sources of outward FDI now include large emerging economies like China. [/SUMMARY]
This document discusses various modes of international trade that companies can use to enter foreign markets. It describes exporting, franchising, licensing, joint ventures, countertrade, turnkey contracts, contract manufacturing, mergers and acquisitions, and third country locations. For each mode, it provides details on what they are, examples, and potential advantages and disadvantages from the perspective of the company. The key modes covered are exporting, franchising, licensing, joint ventures, and mergers and acquisitions.
This document provides an overview of textbook chapters 16-19 which cover topics related to global business including exporting, importing, countertrade, global production, outsourcing, and logistics. Key points include: exporting can increase market size and profits but requires navigating challenges like foreign exchange risk and regulations; common pitfalls of exporting include poor market analysis and underestimating differences in foreign markets; firms can use export management companies or government resources to help with exporting; countertrade arrangements like bartering can help finance exports but involve risks of unusable goods; factors like costs, quality, and responsiveness should influence where companies locate production; outsourcing production requires evaluating make vs buy decisions based on efficiency and asset investments.
Countertrade is the exchange of goods or services between countries without the use of currency, instead using direct bartering or offsets. It provides a mechanism for trade when countries have limited access to hard currencies or other trade is impossible. The main types of countertrade include barter, switch trading, counter-purchase, buyback, and offset agreements. While it enables trade that otherwise may not occur, countertrade also has disadvantages like increased complexity and reduced transparency compared to traditional cash-based trade.
There are several options for entering a foreign market. These options vary in cost, risk, and the level of control they provide. One important strategic decision is the mode of market entry. The document then discusses various market entry strategies such as exporting, licensing, franchising, joint ventures, contract manufacturing, mergers and acquisitions, fully owned subsidiaries, countertrade, turnkey contracts, and third country locations. For each strategy, it provides details on how the strategy works, examples, advantages and disadvantages.
Chapter20 International Finance ManagementPiyush Gaur
This document provides sample answers and solutions to end-of-chapter questions and problems about international trade finance. It discusses key concepts like letters of credit, time drafts, bills of lading, banker's acceptances, and different types of countertrade transactions. The document aims to help students understand the basic documents and processes involved in conducting international trade and different payment options for exporters.
Countertrade is the exchange of goods or services without using money, where payment is made in whole or in part through other goods or services. It occurs when countries lack hard currency or when traditional market trade is impossible. There are several types of countertrade, including barter, switch trading, offset, counterpurchase, buyback, and compensation trade. While countertrade can help conserve foreign currency and facilitate entry into new markets, it also brings risks like uncertain value, complex negotiations, and higher costs.
The document provides an overview of exporting, importing, and countertrade. It discusses the promise and pitfalls of exporting, improving export performance, export strategy, export and import financing including letters of credit and bills of lading. It also covers export assistance programs, countertrade arrangements including barter, counterpurchase, offset, buyback, and switch trading.
This document discusses various market entry strategies for globalization, including exporting, franchising, licensing, joint ventures, contract manufacturing, turnkey contracts, counter trade, third country location, and mergers and acquisitions. It provides definitions and examples for each strategy, noting they vary in costs, risks, and degree of control. A successful international market entry strategy requires considering factors like target markets, goals, entry mode, timing, and performance monitoring.
The document discusses various non-equity and equity-based modes for foreign manufacturing strategies without direct investment. Non-equity options include indirect exporting, direct exporting, turnkey projects, licensing, franchising, management contracts, and contract manufacturing. Equity-based options are wholly owned subsidiaries, joint ventures, and strategic alliances. Each option is described along with associated costs, control levels, and other considerations for using the different entry strategies without full foreign direct investment.
This document contains the presentation slides from a group project on multinational financial management. It includes chapters on topics like the goals of multinational corporations, international capital flows, foreign exchange markets, and methods for analyzing country risk. Each chapter section is presented by a different member of the group, whose name and student ID are listed. The document provides an overview of key concepts in multinational finance.
International business involves the exchange of goods and services between countries. There are several reasons why countries engage in international business, including unequal distribution of resources and differences in labor productivity and costs between nations.
International business differs from domestic business in several ways, such as requiring more documentation, incurring higher transportation costs, and settling accounts in foreign currencies. The main forms of international business include merchandise exports and imports, service exports and imports, licensing and franchising, and foreign direct investment.
There are various benefits to both nations and firms from engaging in international business, such as earning foreign exchange, more efficient use of resources, higher profits, and prospects for growth. Common modes of entry into international business include exporting and importing, contract
Event Report - SAP Sapphire 2024 Orlando - lots of innovation and old challengesHolger Mueller
Holger Mueller of Constellation Research shares his key takeaways from SAP's Sapphire confernece, held in Orlando, June 3rd till 5th 2024, in the Orange Convention Center.
Counter trade refers to exchanging goods or services for other goods or services instead of money. There are several variants of counter trade including barter, switch trading, counter-purchase, buybacks, and offsets. Offsets involve one company agreeing to purchase a certain amount of products from another country in the future in exchange for a major contract. Counter trade is commonly used to expand into foreign markets, increase sales, access blocked funds, build relationships, and gain future contracts. However, it also presents financial, industrial, and commercial challenges that require careful planning. Trends suggest counter trade is growing in emerging markets and military deals and that obligations are becoming more difficult and costly for companies to fulfill.
Modes of entry to international businessHarsh Bansal
The document discusses different modes of entry into international business, including exporting, licensing, franchising, contract manufacturing, management contracts, foreign direct investment (FDI) without alliances, and FDI with alliances. It provides details on the key characteristics, advantages, and disadvantages of each mode. Exporting allows gradual market entry at relatively low financial risk but with logistical complexities. Licensing and franchising provide low-cost ways to assess markets but have dependence on partners. FDI through greenfield investment gives full control but requires high expenses. Strategic alliances through mergers, acquisitions, and joint ventures combine strengths but also carry shared ownership risks.
Foreign direct investment (FDI) can take several forms, including equity joint ventures, mergers and acquisitions, and wholly owned subsidiaries. The main forms of non-equity collaborative arrangements are management contracts, turnkey projects, franchising, licensing, and sales contracts. Joint ventures are a popular form of investment that involve two or more partner companies. FDI is undertaken for various reasons such as gaining access to markets, resources, strategic assets, or to benefit from operating efficiencies. While licensing can be an alternative, FDI allows for tighter control which is sometimes necessary to maximize profits. China, the United States, and Hong Kong are among the largest sources of outward FDI in recent years.
The document discusses international equity markets. It provides statistics on market capitalization, liquidity, and concentration of major stock exchanges in 2018. It describes how secondary markets allow for trading of shares and outlines different market structures. It discusses factors that drove greater global integration of capital markets in the 1980s and describes cross-listing of shares, Yankee stock offerings, and American Depository Receipts. It also summarizes empirical findings on cross-listings and provides an overview of international equity market benchmarks and iShares MSCI funds. In closing, it outlines macroeconomic factors, exchange rates, and industrial structure that can influence international equity returns.
Foreign direct investment (FDI) takes several forms, including equity joint ventures, management contracts, turnkey projects, franchising, and licensing. Companies pursue FDI for various reasons, such as to avoid trade barriers, gain control over operations, or protect proprietary knowledge. The amount of global FDI has increased substantially in recent decades as more countries liberalize their investment policies. Major sources of outward FDI now include large emerging economies like China. [/SUMMARY]
This document discusses various modes of international trade that companies can use to enter foreign markets. It describes exporting, franchising, licensing, joint ventures, countertrade, turnkey contracts, contract manufacturing, mergers and acquisitions, and third country locations. For each mode, it provides details on what they are, examples, and potential advantages and disadvantages from the perspective of the company. The key modes covered are exporting, franchising, licensing, joint ventures, and mergers and acquisitions.
This document provides an overview of textbook chapters 16-19 which cover topics related to global business including exporting, importing, countertrade, global production, outsourcing, and logistics. Key points include: exporting can increase market size and profits but requires navigating challenges like foreign exchange risk and regulations; common pitfalls of exporting include poor market analysis and underestimating differences in foreign markets; firms can use export management companies or government resources to help with exporting; countertrade arrangements like bartering can help finance exports but involve risks of unusable goods; factors like costs, quality, and responsiveness should influence where companies locate production; outsourcing production requires evaluating make vs buy decisions based on efficiency and asset investments.
Countertrade is the exchange of goods or services between countries without the use of currency, instead using direct bartering or offsets. It provides a mechanism for trade when countries have limited access to hard currencies or other trade is impossible. The main types of countertrade include barter, switch trading, counter-purchase, buyback, and offset agreements. While it enables trade that otherwise may not occur, countertrade also has disadvantages like increased complexity and reduced transparency compared to traditional cash-based trade.
There are several options for entering a foreign market. These options vary in cost, risk, and the level of control they provide. One important strategic decision is the mode of market entry. The document then discusses various market entry strategies such as exporting, licensing, franchising, joint ventures, contract manufacturing, mergers and acquisitions, fully owned subsidiaries, countertrade, turnkey contracts, and third country locations. For each strategy, it provides details on how the strategy works, examples, advantages and disadvantages.
Chapter20 International Finance ManagementPiyush Gaur
This document provides sample answers and solutions to end-of-chapter questions and problems about international trade finance. It discusses key concepts like letters of credit, time drafts, bills of lading, banker's acceptances, and different types of countertrade transactions. The document aims to help students understand the basic documents and processes involved in conducting international trade and different payment options for exporters.
Countertrade is the exchange of goods or services without using money, where payment is made in whole or in part through other goods or services. It occurs when countries lack hard currency or when traditional market trade is impossible. There are several types of countertrade, including barter, switch trading, offset, counterpurchase, buyback, and compensation trade. While countertrade can help conserve foreign currency and facilitate entry into new markets, it also brings risks like uncertain value, complex negotiations, and higher costs.
The document provides an overview of exporting, importing, and countertrade. It discusses the promise and pitfalls of exporting, improving export performance, export strategy, export and import financing including letters of credit and bills of lading. It also covers export assistance programs, countertrade arrangements including barter, counterpurchase, offset, buyback, and switch trading.
This document discusses various market entry strategies for globalization, including exporting, franchising, licensing, joint ventures, contract manufacturing, turnkey contracts, counter trade, third country location, and mergers and acquisitions. It provides definitions and examples for each strategy, noting they vary in costs, risks, and degree of control. A successful international market entry strategy requires considering factors like target markets, goals, entry mode, timing, and performance monitoring.
The document discusses various non-equity and equity-based modes for foreign manufacturing strategies without direct investment. Non-equity options include indirect exporting, direct exporting, turnkey projects, licensing, franchising, management contracts, and contract manufacturing. Equity-based options are wholly owned subsidiaries, joint ventures, and strategic alliances. Each option is described along with associated costs, control levels, and other considerations for using the different entry strategies without full foreign direct investment.
This document contains the presentation slides from a group project on multinational financial management. It includes chapters on topics like the goals of multinational corporations, international capital flows, foreign exchange markets, and methods for analyzing country risk. Each chapter section is presented by a different member of the group, whose name and student ID are listed. The document provides an overview of key concepts in multinational finance.
International business involves the exchange of goods and services between countries. There are several reasons why countries engage in international business, including unequal distribution of resources and differences in labor productivity and costs between nations.
International business differs from domestic business in several ways, such as requiring more documentation, incurring higher transportation costs, and settling accounts in foreign currencies. The main forms of international business include merchandise exports and imports, service exports and imports, licensing and franchising, and foreign direct investment.
There are various benefits to both nations and firms from engaging in international business, such as earning foreign exchange, more efficient use of resources, higher profits, and prospects for growth. Common modes of entry into international business include exporting and importing, contract
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Implicitly or explicitly all competing businesses employ a strategy to select a mix
of marketing resources. Formulating such competitive strategies fundamentally
involves recognizing relationships between elements of the marketing mix (e.g.,
price and product quality), as well as assessing competitive and market conditions
(i.e., industry structure in the language of economics).
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Content acquisition strategies are also discussed, highlighting the dual approach of purchasing broadcasting rights for existing films and TV shows and investing in original content production. This section underscores the importance of a robust content library in attracting and retaining subscribers.The presentation addresses the challenges faced by OTT platforms, including the unpredictability of content acquisition and audience preferences. It emphasizes the difficulty of balancing content investment with returns in a competitive market, the high costs associated with marketing, and the need for continuous innovation and adaptation to stay relevant.
The impact of OTT platforms on the Bollywood film industry is significant. The competition for viewers has led to a decrease in cinema ticket sales, affecting the revenue of Bollywood films that traditionally rely on theatrical releases. Additionally, OTT platforms now pay less for film rights due to the uncertain success of films in cinemas.
Looking ahead, the future of OTT in India appears promising. The market is expected to grow by 20% annually, reaching a value of ₹1200 billion by the end of the decade. The increasing availability of affordable smartphones and internet access will drive this growth, making OTT platforms a primary source of entertainment for many viewers.
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2. Key Discussion Points/Key Learning Objectives
• To discuss the Forms of Countertrade.
• To understand the Pros and Cons of
Countertrade.
• To discuss the challenges of International
Market
3.
4. Why Export?
• Exporting is a way to increase market size and
profits (LPG)
– lower trade barriers under the WTO and regional
economic agreements such as the EU and NAFTA
make it easier than ever (ISLFTA, SAARC,SAFTA)
• Large firms often proactively seek new export
opportunities, but many smaller firms export
reactively
4
5. Why Export?
• Exporting firms need to
– identify market opportunities
– deal with foreign exchange risk
– understand the challenges of doing business in a
foreign market
5
6. What Are the Challenges of
Exporting?
• Common Problems include
– poor market analysis
– poor understanding of competitive conditions
– a lack of customization for local markets
– poorly executed promotional campaigns
– problems securing financing
– an underestimation of the export documentation and
procedures
– a general underestimation of the differences and
expertise required for foreign market penetration
6
7. How Can Firms Improve Export
Performance?
• Many firms are unaware of export
opportunities available
• Firms need to collect information
• Firms can get direct assistance from some
countries and/or use an export management
companies
– both Germany and Japan have developed extensive
institutional structures for promoting exports
7
8. What Is Countertrade?
• Countertrade - a range of barter-like agreements
that facilitate the trade of goods and services for
other goods and services when they cannot be
traded for money
– emerged as a means purchasing imports during the1960s
when the USSR and the Communist states of Eastern
Europe had nonconvertible currencies
– grew in popularity in the 1980s among many developing
nations that lacked the foreign exchange reserves required
to purchase necessary imports
– notable increase after the 1997 Asian financial crisis
8
9. EG-S
• Countertrade also occurs when countries lack
sufficient hard currency, or when other types of market
trade are impossible.
• In 2000, India and Iraq agreed on an "oil for wheat and
rice" barter deal, subject to United Nations approval
under Article 50 of the UN Persian Gulf War sanctions,
that would facilitate 300,000 barrels of oil delivered
daily to India at a price of $6.85 a barrel while Iraq oil
sales into Asia were valued at about $22 a barrel. In
2001, India agreed to swap 1.5 million tonnes of Iraqi
crude under the oil-for-food program.
9
10. What Are the Forms of
Countertrade?
• There are five distinct versions of countertrade
1. Barter - a direct exchange of goods and/or services
between two parties without a cash transaction
– the most restrictive countertrade arrangement
– used primarily for one-time-only deals in transactions
with trading partners who are not creditworthy or
trustworthy
10
11. BARTER SYSTEM
• The Malaysian government purchased 20 diesel
electric locomotives from General Electric against
the supply of about 200,000 metric tons of palm
oil over a period of 30 months. (Source:
www.citeman.com)
• Minerals and Metals Trading Corporation of India
(MMTC) imported 50,000 tons of rails value of
about $38 million from a Yugoslavian company
against iron ore concentrates and pellets of the
same value.(Source: www.citeman.com)
11
12. Counterpurchase
2. - a reciprocal buying agreement
– occurs when a firm agrees to purchase a certain amount
of materials back from a country to which a sale is made
12
13. • In counter purchase agreement seller receives the full amount in
cash, but agrees to spend an equal amount of money in that
country within a given time. In contrast to bartering, both parties
pay for their purchases in cash but agree to fulfill their counter
commitments.
• At the same time, transactions do not become part of a single
contract, but are entered into two different contracts. Counter
purchase is also called “Parallel Trading” or “Parallel Barter”.
Example:
• Pepsi Cola sold concentrates in the USSR and got paid in
Rubles, which according to the agreement with Russia, these
Rubles were spent for purchase of Russian products like Vodka
and wine (Source: www.citeman.com)
•
13
14. What Are the Forms of
Countertrade?
3. Offset - similar to counterpurchase - one party
agrees to purchase goods and services with a
specified percentage of the proceeds from the
original sale
– difference is that this party can fulfill the obligation
with any firm in the country to which the sale is
being made
14
15. OFFSET
• Offset is the type of countertrade, which is mostly related to
very high value of exports and/or medium to high
technology capital goods supplied by a multinational
corporations or a major manufacturer. It may be in many
forms such as coproduction, license production,
subcontractor production, technology transfer, overseas
investment, research and development, technical assistance
and training, or patent agreements etc.,
•
• Offset activity can be divided into two main categories
direct and indirect:
15
16. DIRECT OFFSET
• The offset is said to be direct when some
components of the item sold are to be
manufactured within the buyer’s country and
that the seller agrees to buy those
components to use them in-house.
•
• .
16
17. • Let us take an example
that an aircraft
manufacturer sells a
passenger plane to a
buyer in another
country and agrees with
the buyer that some of
the spare parts of the
plane will be ordered
and purchased in
buyer’s country and
attach to the plane. The
below diagram will
make the example
easier
17
18. • The offset is said to be indirect when the
buyer requires the seller to enter into a long
term industrial or other co-operation and
investment, but this co-operation or
investment is not related to goods supplied by
the seller.
18
19. • Let us take the same
example of
direct offset in which an
aircraft manufacturer
sells a passenger plane
to a buyer in another
country but here instead
of buying the spare
parts of passenger plane
from the buyer’s
country, the seller
agrees to invest in a
chipboard factory in
buyer’s country. Now
the chipboard is not
related to passenger
plane. This is
called Indirect Offset. 19
20. OFFSET
• The benefits of offset agreement is that the importing country
can save the foreign exchange on high value imports, avoid an
increase in foreign debt, increase local employment, introduce
state of the art technology in local industries, reduce
dependence on foreign suppliers, and increase the level of
foreign investment.
• Offset has been popular among the governments all over the
world, as they have been purchasing heavy military
equipments, but now it is gaining momentum in other sectors
also.
• Typically, offsets deals are common in defense, aerospace and
telecommunications sectors and also the local content “offset”
is usually not more than 20% to 30% of the deal value.
20
21. BUYBACK
4. A buyback occurs when a firm builds a plant in a
country or supplies technology, equipment,
training, or other services to the country
– agrees to take a certain percentage of the plant’s
output as a partial payment for the contract
21
22. BUYBACK
• Example:
• National Textiles Corporation of India signed a buy
back agreement of Indian Rupee 200 million with the
Soviet Union to buy 200 sophisticated looms. The
buyback ratio was 75% textile produce from these
looms and the remaining was in
cash. (Source: www.citeman.com)
22
23. What Are the Forms of
Countertrade?
5. Switch trading - the use of a specialized third-party
trading house in a countertrade arrangement
– when a firm enters a counterpurchase or offset agreement
with a country, it often ends up with counterpurchase
credits which can be used to purchase goods from that
country
– switch trading occurs when a third-party trading house
buys the firm’s counterpurchase credits and sells them to
another firm that can better use them
23
24. • Switch Trading involves the role of third party
in a countertrade transaction. If a seller in the
countertrade does not want goods offered by
the buyer as payment, it may bring in third
party to dispose of the merchandise offered by
the buyer.
24
25. For example: An exporter in Poland exports transport
equipments to Greece and in return does not want
processed food from the importer of Greece as payment.
It can sell the processed food to a German company,
which will pay in Euros to the Polish exporter, which is
hard and convertible currency.
25
26. In a typical switch trade transaction a switch dealer or trader is
involved. If we again take the above example, the switch dealer
will pay the Polish exporter in hard currency less the switch
dealer’s fee (disagio). The switch trader will find a German
company, which will buy processed food from Greece importer
and pay the switch trader in Euros.
26
27. What Are the Pros of
Countertrade?
• Countertrade is attractive because
– it gives a firm a way to finance an export deal
when other means are not available
– it give a firm a competitive edge over a firm that is
unwilling to enter a countertrade agreement
• Countertrade arrangements may be required
by the government of a country to which a
firm is exporting goods or services
27
28. What Are the Cons of
Countertrade?
• Countertrade is unattractive because
– it may involve the exchange of unusable or poor-
quality goods that the firm cannot dispose of profitably
– it requires the firm to establish an in-house trading
department to handle countertrade deals
• Countertrade is most attractive to large, diverse
multinational enterprises that can use their worldwide
network of contacts to dispose of goods acquired in
countertrade deals
28
29. 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 products
• Provides sources of attractive inputs
• Gain competitive edge over competition
29
30. Drawbacks of Countertrade
• The goods, which are offered by customers does not
have an in-house use.
• For example a manufacturer or supplier of consumer
goods will receive medical equipment in exchange.
Now, the business does not have any experience of
handling and marketing of medical equipment.
• Expertise has to be hired or trained and
manufacturing firms have to set up subsidiaries to
handle countertrade arrangements or employ the
services of trading companies specializing in medical
equipments. All this cost more and is time
consuming effort.
30
31. DRAWBACKS
• Lot of time is required to plan and research,
what should be taken in exchange of the goods
supplied. For every 10 to 20 deals that are
talked about perhaps one gets done.
• Countertrade deals are full of risks and
uncertainties, especially when the deals are
spread over number of years. There is a risk of
availability and quality of goods to be
delivered in future years.
31
34. Major Imports items of India
• Fertilizers, Edible Oil, Sugar, Pulp and waste paper, metal
scrap, Iron and Steel, and petroleum products, Pearls,
Precious and Semi-Precious stones, Machinery, Project
Goods, Pulses, Coal and its derivatives, etc….!
35.
36. Major Importing Partners of India
• China which stands at 11.1%.
• Saudi Arabia i.e. 7.5%,
• USA 6.6%,
• UAE 5.1%,
• Iran 4.2%,
• Singapore 4.2%
• Germany 4.2%.
38. IMPORTANCE OF IMPORTs AND EXPORTs
• Indian economy has seen a paradigm shift in the
past decades as the focus has shifted from
agricultural sector to Export-Import. Now a days,
there are many companies that are engaged in
an exchange of varied goods ranging from heavy
machinery, precious metals, agro-products,
garments to electronic goods and so on. .