c
m


   

   
  mm

mm

!"#mm The purpose of this section is to introduce the student to mm

$c"%&m  the importance of Countertrade and mm
 demonstrate, by example, the different ways Countertrade can be donem

rmm

n introduction to Countertrade, and the forms in

which Countertrade can take place, may be seen on
the website of the London Countertrade Roundtablermm
wwwrlondoncountertraderorg/indexrhtmlm
m

mm

c 
 mmLCR explainsmm
'
 m "Countertrade is inherently an ad hoc activity - practice varies according to local
regulations and requirements, the nature of the goods to be exported and the
current priorities of thee parties involvedr lso, the terms used to describe the main
modes of trading vary, often interchangeably causing confusionr "mm
- which is a fancy way of saying - „
„ 
    
   
mm

permission to quote , and link, given to Profr Richardson by Robert Scallon

robertrscallon@ukrthalesgrouprcom in an email 2004 Dec 02r Copy of the email is on file in Richardson's
permissions binderm

mm

c 
 mmfrom wwwrcobrohio-stateredu/citm/expa/countertraderhtmlmm

mm from Fisher College of Business, Ohio State Universitymm

$
 mm
(
 "Countertrade consists of transactions which have as a basic characteristic a linkage,
m legal or otherwise, between exports and imports of goods or services in addition to, or
in place of, financial settlementsr Countertrade can be used as an effective
international business toolr Countertrade plays a part in 20-25 percent of world trader"mm

forms of countertrademm
http://wwwrcobrohio-stateredu/citm/expa/countertrade_listrhtmlm

rmm
c 
 mm) c 
 *mm

mm
$
 mm r The world debt crisis has made ordinary trade financing very riskyrmm
(
 - large banks and financial institutions are "risk adverse" in many of the hostile
m regions of the world opening to trademm
2r Many countries cannot obtain the trade credit or financial assistance to pay for
desired importsrmm
- the IMF and World Bank are increasingly restrictive in the way they allow
governments to operatemm
3r Countries are increasingly returning to the notion of bilateralism as a way to reduce
trade imbalancesrmm
- some multilateral blocks have developed - but politics is easier on a one2one basis -
so many nations find it easier to cur deals directly with another single countrymm
4r Countertrade is often viewed as an excellent mechanism to gain entry into new
marketsr The party receiving the goods may become a new distributor, opening up
new international marketing channels and ultimately expanding the marketrmm
- especially where 4X problems are challenging to solvemm
5r Providing countertrade services helps sellers differentiate its products from those of
competitorsrmm
- flexibility is key to winning business in a global market that is more and more
competitive to vendorsmm

from Fisher College of Business, Ohio State University - with notes added by witiger m

rmm

c 
 mm) c 
 *mm

mm
$
 mm |lderkin & Norquist, in their book "Creative Countertrade," say that companies
(
 countertrade in order to:mm
m
ë |xpand or maintain foreign marketsm
ë Increase salesm
ë Sidestep liquidity problemsm
ë Repatriate blocked fundsm
ë Clean up bad debt situationsm
ë Build customer relationshipsm
ë Keep from losing markets to competitorsm
ë Gain foreign contracts for future salesm
ë Find lower-cost purchasing sourcesm

rmm

c 
 mm ccording to the LCR, There are mm

mm 

  
  : mm
$
 mm
(
 ë Money - some people cannot pay in the currency you wantm
m
m
"to enable trade to take place in markets which are unable to pay for importsr
 This can occur as a result of a non-convertible currency, a lack of commercial
credit or a shortage of foreign exchange"mm

ë The Political |nvironment - local jobs and industrym

m
"to protect or stimulate the output of domestic industries (including agriculture
and mineral extraction) and to help find new export markets"mm

ë The Political |nvironment - rules and regulations to protect the host countrym

m
"as a reflection of political and economic policies which seek to plan and
balance overseas trade"mm

ë "to gain a competitive advantage over competing suppliersr"m

rmm
mm

c 
 mmfrom http://wwwrbarternewsrcom/american_wayrhtmmm
&
  m By: CrGr lex and Barbara Bowersmm

c 
 &
  mm

 + , r "Companies with a defensive countertrade strategy ostensibly do not

countertrade at all; however, they make many countertrade-type arrangements with
buyer countriesr These companies will avoid any contractual countertrade
obligations, but they make it clear to the country that they will reciprocate in some
way for the saler Some companies will sell their products at rock-bottom prices and
promise to help the country with export developmentr"mm

º
, r "Companies with passive countertrade strategies regard countertrade as a
necessary evilr They participate in countertrade at minimal level, on an ad hoc basisr
Some companies operate this way because they have product leverage (irer, little or
no competition), while others follow the passive strategy because of disinterest in
countertrader"mm


, r "This is the most common strategy among merican companiesr
Companies with reacting strategies will cooperate with the buyer country in
offset/countertrade requirements, they use countertrade strictly as a competitive tool,
on the theory that they cannot make the sale unless they agree to countertrader"mm

º
, - "Companies with proactive strategies have made a commitment to
countertrader They use countertrade aggressively as a marketing tool, and are
interested in making trading an active and profitable part of their businessr They
regard offset and counterpurchase as an opportunity to make money through trading,
rather than as an inconveniencer"m

rrmm
 ccording to the LCR, There are mm
&'
 + 
 mm

 + r Offsetmm

2r Counterpurchasemm
 
 m 3r Tollingmm
4r Bartermm
5r Buybackmm
6r Switch Tradingm

mm

 + s explained by the LCF website F
m

 
 m wwwrlondoncountertraderorg/countertradefaqrhtm mm

- ++ mm

"Offset has traditionally been used by governments around the world when they
have made major purchases of military goods but is becoming increasingly
common in other sectorsr There are two distinct types:mm

- ++ . "the supplier agrees to incorporate materials, components or

sub-assemblies which are procured from the importing countryr In some large
contracts, successful bidders may be required to establish local productionr
Direct offset has been particularly common for trade in defence systems and
aircraftr"mm
$- ++ : "the purchaser requires suppliers to enter into long term
industrial (and other) co-operation and investment but these are unconnnected to
the supply contract and may be either defence related or in the civil sectorr"mm

"The overall objective of offset either, direct or indirect, in the defence sector
generally to promote import substitution and to minimise the balance of
payments deficit for military purchases by developiing an indigenous industrial
defence capabilityr"m

mm

-c 
 mm

 + " foreign supplier undertakes to purchase goods and services from the
 
 mpurchasing country as a condition of securing the orderr Counterpurchase is
generally imposed for two reasons: first, to stimulate exports and second, to
alleviate the balance of payment deficit resulting from imported goodsr"m

mm

 + /-mm

 
 m
Manufacturers, in regions such as the Former Soviet Union, may sometimes be
unable to service customers because they lack the foreign exchange to buy raw
materialsr In a tolling deal, a supplier himself provides the raw material (steel
 ingots, say) and hires capacity of the factory to turn it into finished goods (ergr
steel tubes)r These are then bought by a final customer who pays the supplier in
cash - throughout the process the supplier retains ownership of the material as it
is procecessed by the factoryr" - this is similar to c
0
+
 where
the Contractor provides much of the materialsrm

mm

 + 1-$

 mm
 
 m
Barter is one of the most common methods of Countertrader "In a barter deal,
goods are exchanged for goods - the principal export is paid for with goods (or
services) from the importing marketr single contract covers both flows and in
the simpler case, no cash is involvedr In practice, however, the supply of the
principal export is often released only when the sale of the bartered goods has
generated sufficient cashr"mm
This means if Country sells mining equipment to Country B in return for cigars -
they will probably hold some of the mining equipment back until they have made
some good profit from the cigarsrm

mm

 + -$

2mm
 
 m
"Here, suppliers of capital plant or equipment agree to be paid by the future
output of the investment concernedr For example exporters of equipment for a
chemical plant may be repaid with part of the resulting output from the factoryr
This practice is most common with exports of process plant, mining equipment
and similar ordersr Buyback arrangements tend to be much longer term and for
larger ammounts than counterpurchase or barter dealsr"m

mm

 + 3-& 

mm
 
 m
"Imbalances in long term bilateral trading agreements sometimes lead to the
accumulation of uncleared credit surpluses in one or other country, For example,
Brazil at one time had a large credit surplus with Polandr These surpluses can
sometimes be tapped by third countries so that, for example UK exports to Brazil
could be financed from the sale of Polish goods to the UK or elsewherer Such
transactions are known as µswitch' or µswap' deals because they typically involve
switching the documentation (and destination) of goods on the high seasr"mm

m
m
LCR advises that "rrrdeals seldom fit these categories preciselyr It is not unusual
for a large export deal to involve several countertrade arrangements - for
example, some long term buyback plus counterpurchase or barter to finance
initial down paymentsr"m

mm
 "The London Countertrade Roundtable (LCR) was established in 

as a focal
point for all those involved in countertrade, offset and related activitiesr Its main
 !-c--m objective is "to bring together companies and individuals engaged in the profession
of countertrade in its broadest sense", and to promote co-operation, exchange of
information, and opportunities for networkingr" m

mm
mmm

c 
 mmº 4%2
mm

mm The countertrade arrangement where the rights to sell Russian vodka in the US in
$
 m exchange for Pepsi (to be sold in Russia) was a huge story years agomm

John Gr Swanhaus, Jrr, vice president, Pepsi Cola Companymm

s president of PepsiCo Wines & Spirits International, a major part of his
responsibility was PepsiCo's supply to the UrSr market of Stolichnaya Russian Vodka
as part of a countertrade agreement to sell Pepsi products in the Soviet Unionr mm

Pepsi & Vodka -how did it work, mm

Pepsi-Cola delivers syrup that is paid for with Stolichnaya Vodkar Pepsi has the
marketing rights of all Stolichnaya Vodka in the UrSrmm

Recently Pepsi has made another innovative step by taking  submarines, a cruiser,
a frigate, and a destroyer in payment for Pepsi productsr In turn, this rag tag fleet of
20 naval vessels will be sold for scrap steel, thereby paying for Pepsi products being
moved to the Soviet Unionrmm
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