Companies engage in countertrade for three main reasons: (1) to satisfy a foreign-government mandate , (2) to hedge against price and currency fluctuations, and (3) to repatriate profits from countries that limit the amount of currency that can be taken out of the country.
What is countertrade when can it be best used?
Countertrade is a means to help countries with trade imbalances trade by means other than the use of hard currency. It’s often used when the foreign currency of the potential exporter is in short supply in the foreign country or when the country has imposed limitations on the use of foreign currency for imports.
Why is countertrade so popular?
Companies that consider countertrade typically want to expand into a foreign market, increase sales, build customer and supplier relationships, and overcome liquidity challenges. With that being said, countertrade is used primarily to: Enable trade in countries that are unable to pay for imports .
What country uses countertrade?
A number of countries now include countertrade as an acknowledged and important element in their trade strategy; this extends beyond the socialist countries and the major oil exporters to such countries as Brazil, Pakistan, Malaysia, Colombia, Argentina and Turkey .
Why would a company be interested in countertrade?
Companies with proactive strategies have made a commitment to countertrade. They use countertrade aggressively as a marketing tool, and are interested in making trading an active and profitable part of their business . ... regard its use as an opportunity to make money through trading rather than as an inconvenience.
What are the pros and cons of countertrade?
A major benefit of countertrade is that it facilitates the conservation of foreign currency . Common disadvantages of countertrade are complex negotiations, higher costs, and logistical issues.
Does Barter still make sense in the modern world?
A barter system is an old method of exchange. ... Today, bartering has made a comeback using techniques that are more sophisticated to aid in trading; for instance, the Internet. In ancient times, this system involved people in the same area, however today bartering is global .
Is not a form of countertrade?
Offset is a countertrade wherein transactions are set off in future or off set. In counter purchase both parties agree to purchase and sell goods to one another under different contracts. Kaizen Blitz isn’t a form of counter trade .
Why do firms use countertrade What problems do they face?
Companies that consider countertrade typically want to expand into a foreign market, increase sales, build customer and supplier relationships, and overcome liquidity challenges. With that being said, countertrade is used primarily to: Enable trade in countries that are unable to pay for imports .
Why is countertrade considered inefficient?
Countertrade has been viewed as an inefficient way of doing business primarily because of problems associated with such things as quality variations and increases in transaction costs . ... As such, countertrade can supplement standard money-mediated trade and contribute to the growth of international business.
What is considered the most restrictive form of countertrade?
The most restrictive countertrade arrangement. Used primarily for one-time-only deals in transactions with trading partners who are not creditworthy or trustworthy. A reciprocal buying agreement . ... It may involve the trade of some poor quality or unusable goods, that the firm cannot dispose of profitably.
What type of firm is most likely to engage in countertrade Why?
5) What type of firms is most likely to engage in countertrade? Why? Countertrade is most attractive to large, diverse multinational enterprises that can use their worldwide network of contacts to dispose of goods acquired in countertrading.
Which of the following is a drawback of countertrade?
A drawback of countertrade is that: it may involve the exchange of poor-quality goods that cannot be disposed of profitably .
What is a characteristic of countertrade?
Basically counter-trade is an umbrella term for a whole range of commercial mechanisms for reciprocal trade. ... The common characteristic of counter- trade arrangements is that export sales to a particular market are made conditional upon undertakings to accept imports from that market .
Is switch trading like bartering?
Barter: Exchange of goods or services directly for other goods or services without the use of money as means of purchase or payment. Switch trading: Practice in which one company sells to another its obligation to make a purchase in a given country.
What form of a counter trade appears to offer the most purchase flexibility Why?
The offset method in the form of countertrade appears to offer the most purchase flexibility.
