Question

3. How might a company make strategic use of countertrade schemes as a marketing weapon to generate export revenues? What are the risks associated with pursuing such a strategy? Your answer should be no less than 300 words and use a case analysis to explain your answer

Answer 1

Countertrade encompasses a variety of barter-like arrangements. This is used mainly when a business sells to a nation whose currency is not readily available and may lack the foreign exchange reserves needed to buy the goods. However, due to developed countries' political and economic constraints, there is always a cap on the amount of countertrade a local business might produce. Such a cap may also complicate the negotiations between the local company and the international company as it does not fulfill the contract that they want to make beforehand. Countertrade offers firms the convenience of entry into a dynamic industry , high productivity and capital use and better profits. Countertrade policy has been popular in the world since 1950–60. This counter trade increased due to the shortage of foreign reserves needed by many nations for business transactions. The effect of counter-trade rises again if there is an economic recession in any of the world or nations.

Such incentives would also turn into the financial figures such as export sales. There are dangers related to using countertrade, though. Companies who typically favor countertrade are those major multinationals with a stable financial history, while small to medium-sized businesses who lack global business networks are more likely to use their capital inefficiently to earn fewer income. Of course, in today 's globalization companies are using this counter-trade as a tactic, primarily this countertrade is better handled by large-scale, diversified, MNC with a solid supply chain. This firms are making dramatic improvements to their export organizational structure and in this case if they fail because to non-admission to counter-trade then this is not appropriate. In addition, there is confusion about the value proposition, particularly in cases where the traded products have considerable market volatility. Countertrade may also come with further aspects of bargaining on deals, infrastructure problems, etc. Many of these possible threats will turn into higher spending on the business involved locally.