Question

. Discuss the advantages of counter trade in international trade and the techniques involved in it's operations.

Answer 1

Countertrade is an alternative means to structuring an international sale when conventional means of payment are impossible, complex or nonexistent. In countertrade transactions, which involve trading in goods and services as opposed to money, cash does not change hands. This is oftentimes referred to as bartering, which forms the oldest countertrade arrangement. Many governments reduce imbalances in trade between countries by use of a countertrade system of international trading.

Regardless of the complexity, companies still use countertrade as a strategy for growth because it:

• Allows for entry into difficult markets.
• Increases company sales where you might not otherwise have business.
• Overcomes credit difficulties.
• Allows for disposal of declining or surplus products.
• Gains competitive advantage over competition (you don’t want to lose a market share as a result of competitors).

Techniques of Counter trade are:

Barter

Bartering is the oldest countertrade arrangement. It is the direct exchange of goods and services with an equivalent value but with no cash settlement. The bartering transaction is referred to as a trade. For example, a bag of nuts might be exchanged for coffee beans or meat.

Counterpurchase

Under a counterpurchase arrangement, the exporter sells goods or services to an importer and agrees to also purchase other goods from the importer within a specified period. Unlike bartering, exporters entering into a counterpurchase arrangement must use a trading firm to sell the goods they purchase and will not use the goods themselves.

Offset

In an offset arrangement, the seller assists in marketing products manufactured by the buying country or allows part of the exported product's assembly to be carried out by manufacturers in the buying country. This practice is common in aerospace, defense and certain infrastructure industries. Offsetting is also more common for larger, more expensive items. An offset arrangement may also be referred to as industrial participation or industrial cooperation.