Copyright? 2001 by Harcourt,Inc.,All rights reserved,Requests for permissions to make copies of any part of the work should be mailed to
the following address,Permissions Department,Harcourt,Inc.,6277 Sea Harbor Drive,Orlando,Florida 32887-6777.
INTERNATIONAL MARKETING 6e
Countertrade
Chapter 22
Copyright? 2001 by Harcourt,Inc,All rights reserved,22-2
Countertrade
Countertrade
A parallel transaction involving a direct linkage
between imported and exported goods or services
that is the most advantageous way to exchange
goods rather than the use of money as an
intermediary.
Copyright? 2001 by Harcourt,Inc,All rights reserved,22-3
Why Countertrade?
Advantages
Avoidance of debt and
exchange rate volatility
Covert reduction of
prices
Circumvention of price
and exchange controls
Increasing popularity of
bilateralism concept
A method of market entry
Stability for long-term
sales
Improves quality of
transaction
Disadvantages
Does not reduce
commercial risk
May mask dumping
activities
Does not allow for
multilateral settlements
Trade is restricted to two
parties,each with
specific goods to trade
Is non-competitive and
can erode the quality
and efficiency of
production
Copyright? 2001 by Harcourt,Inc,All rights reserved,22-4
Types of Countertrade
Counterpurchase or parallel barter
simple exchange of goods
reverse reciprocity grants access to resources
Buyback or compensation arrangement
One party purchases the output of another party
that is derived from technology or equipment
supplied by the purchasing party.
Clearing account arrangements
Trading parties maintain restricted
purpose drawing accounts for the
deposits of their countertrade activities.
Copyright? 2001 by Harcourt,Inc,All rights reserved,22-5
Types of Countertrade… continued
Offsets
Purchases by a governmental buyer are matched
(offset) to investments by the seller in non-related
industries in the buyer’s country.
Debt swaps
debt-for-debt swap
debt-for-equity swap
debt-for-purchase swap
debt-for-nature swap
debt-for-education swap
Copyright? 2001 by Harcourt,Inc,All rights reserved,22-6
Classification of the Forms 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)
YesCounterpurchase,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
Source,Adapted from Jean-Fran?ois Hennart,“Some Empirical Dimensions
of Countertrade,” Journal of International Business Studies 21 (2) 1990,245.
Copyright? 2001 by Harcourt,Inc,All rights reserved,22-7
B a r t e r / S w a p s
6%
B u y b a c k
28%
O f f s e t
10%
C o u n t e r -
p u r c h a s e
56%
Countertrade Usage - By Types
Source,Richard Fletcher,“Australian Countertrade in
the Global Economy,” Working Paper Series,January
1996,University of Technology,Sydney,1996.
Copyright? 2001 by Harcourt,Inc,All rights reserved,22-8
Official Positions Toward Countertrade
Official U.S,Policy is mixed
The Treasury Department finds countertrade
noncompetitive.
The Office of the U.S,Trade Representative finds
countertrade the second best option.
The Defense Department maintains a,positive
neutrality” towards countertrade.
The Commerce Department is most supportive of
all government agencies.
The Internal Revenue Service’s concern is valuing
countertrade transactions for tax purposes.
Copyright? 2001 by Harcourt,Inc,All rights reserved,22-9
Official Positions Toward Countertrade
Other foreign government views
Most countries are actively engaged in
countertrade while disparaging its use,
Attitudes of international organizations
Countertrade is uniformly condemned though
recognized as a necessity.
The corporate situation
More public support for countertrade.
Copyright? 2001 by Harcourt,Inc,All rights reserved,22-10
Types of Countertrade Intermediaries
The emergence of new intermediaries
As countertrade has expanded,specialist
companies have developed to handle
countertrade transactions and goods.
The in-house countertrade unit
External intermediaries specializing in
countertrade
International banks
Countertrade information service providers
Copyright? 2001 by Harcourt,Inc,All rights reserved,22-11
In-House Countertrade
Advantages
Lower costs
Customer contact
More control
More flexibility
More learning
Disadvantages
Less expertise
Reselling problems
Recruitment & training
costs
Less objectivity
Problems coordinating
interfunctional staff
Copyright? 2001 by Harcourt,Inc,All rights reserved,22-12
Third Parties for Countertrade
Advantages
Expert specialists
Customer contacts
Reselling contacts
Legal acumen
More objectivity
Disadvantages
May be costly
Distanced from
customer
Less flexibility
Less confidentiality
Less learning
Copyright? 2001 by Harcourt,Inc,All rights reserved,22-13
Preparing for Countertrade
Before engaging in trade,firms should
Determine the import priorities for its products to
the target customer (country).
Identify countertrade arrangements and
regulations in the target country.
Identify the most favored countertrade
arrangement for the selling firm.
Determine goals and objectives of the
countertrading parties.
Match strengths of firm to situation.
Assess countertrade risks and impact.
Evaluate length and importance of the trading
relationship.
the following address,Permissions Department,Harcourt,Inc.,6277 Sea Harbor Drive,Orlando,Florida 32887-6777.
INTERNATIONAL MARKETING 6e
Countertrade
Chapter 22
Copyright? 2001 by Harcourt,Inc,All rights reserved,22-2
Countertrade
Countertrade
A parallel transaction involving a direct linkage
between imported and exported goods or services
that is the most advantageous way to exchange
goods rather than the use of money as an
intermediary.
Copyright? 2001 by Harcourt,Inc,All rights reserved,22-3
Why Countertrade?
Advantages
Avoidance of debt and
exchange rate volatility
Covert reduction of
prices
Circumvention of price
and exchange controls
Increasing popularity of
bilateralism concept
A method of market entry
Stability for long-term
sales
Improves quality of
transaction
Disadvantages
Does not reduce
commercial risk
May mask dumping
activities
Does not allow for
multilateral settlements
Trade is restricted to two
parties,each with
specific goods to trade
Is non-competitive and
can erode the quality
and efficiency of
production
Copyright? 2001 by Harcourt,Inc,All rights reserved,22-4
Types of Countertrade
Counterpurchase or parallel barter
simple exchange of goods
reverse reciprocity grants access to resources
Buyback or compensation arrangement
One party purchases the output of another party
that is derived from technology or equipment
supplied by the purchasing party.
Clearing account arrangements
Trading parties maintain restricted
purpose drawing accounts for the
deposits of their countertrade activities.
Copyright? 2001 by Harcourt,Inc,All rights reserved,22-5
Types of Countertrade… continued
Offsets
Purchases by a governmental buyer are matched
(offset) to investments by the seller in non-related
industries in the buyer’s country.
Debt swaps
debt-for-debt swap
debt-for-equity swap
debt-for-purchase swap
debt-for-nature swap
debt-for-education swap
Copyright? 2001 by Harcourt,Inc,All rights reserved,22-6
Classification of the Forms 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)
YesCounterpurchase,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
Source,Adapted from Jean-Fran?ois Hennart,“Some Empirical Dimensions
of Countertrade,” Journal of International Business Studies 21 (2) 1990,245.
Copyright? 2001 by Harcourt,Inc,All rights reserved,22-7
B a r t e r / S w a p s
6%
B u y b a c k
28%
O f f s e t
10%
C o u n t e r -
p u r c h a s e
56%
Countertrade Usage - By Types
Source,Richard Fletcher,“Australian Countertrade in
the Global Economy,” Working Paper Series,January
1996,University of Technology,Sydney,1996.
Copyright? 2001 by Harcourt,Inc,All rights reserved,22-8
Official Positions Toward Countertrade
Official U.S,Policy is mixed
The Treasury Department finds countertrade
noncompetitive.
The Office of the U.S,Trade Representative finds
countertrade the second best option.
The Defense Department maintains a,positive
neutrality” towards countertrade.
The Commerce Department is most supportive of
all government agencies.
The Internal Revenue Service’s concern is valuing
countertrade transactions for tax purposes.
Copyright? 2001 by Harcourt,Inc,All rights reserved,22-9
Official Positions Toward Countertrade
Other foreign government views
Most countries are actively engaged in
countertrade while disparaging its use,
Attitudes of international organizations
Countertrade is uniformly condemned though
recognized as a necessity.
The corporate situation
More public support for countertrade.
Copyright? 2001 by Harcourt,Inc,All rights reserved,22-10
Types of Countertrade Intermediaries
The emergence of new intermediaries
As countertrade has expanded,specialist
companies have developed to handle
countertrade transactions and goods.
The in-house countertrade unit
External intermediaries specializing in
countertrade
International banks
Countertrade information service providers
Copyright? 2001 by Harcourt,Inc,All rights reserved,22-11
In-House Countertrade
Advantages
Lower costs
Customer contact
More control
More flexibility
More learning
Disadvantages
Less expertise
Reselling problems
Recruitment & training
costs
Less objectivity
Problems coordinating
interfunctional staff
Copyright? 2001 by Harcourt,Inc,All rights reserved,22-12
Third Parties for Countertrade
Advantages
Expert specialists
Customer contacts
Reselling contacts
Legal acumen
More objectivity
Disadvantages
May be costly
Distanced from
customer
Less flexibility
Less confidentiality
Less learning
Copyright? 2001 by Harcourt,Inc,All rights reserved,22-13
Preparing for Countertrade
Before engaging in trade,firms should
Determine the import priorities for its products to
the target customer (country).
Identify countertrade arrangements and
regulations in the target country.
Identify the most favored countertrade
arrangement for the selling firm.
Determine goals and objectives of the
countertrading parties.
Match strengths of firm to situation.
Assess countertrade risks and impact.
Evaluate length and importance of the trading
relationship.
