Counter Trade

income tax return Trade Counter Trade Unquestionably, currency is the preferred take overment strength for any export or import executionit is easy, fast, and straightforward to transact. Sometimes, though, companies must(prenominal) adapt to the reality that profaneers in many countries basinnot do so, whether due to the item that their home countrys currency is nonconvertible, the country doesnt scram decorous cash, or it doesnt have sufficient lines of assent. Sometimes companies and countries find it practically impossible to generate enough foreign win over to pay for imports.In recourse, they devise creative ways to buy products. For example, Indonesia traded 40,000 tons of do by oil, worth about US$15 million, with Russia in trade for Russian Sukhoi fighter aircraft. This trade, like others that fall under the comprehensive term countertrade, illustrates that buyers and wanderers often find creative ways of settling payment for imports and exports. Countertrade refers to any one of several different arrangements that realmies negotiate so that they stinkpot trade goods and work with hold in or no use of currency.Technically, countertrade can be divided into two basic types barter, based on clearing arrangements employ to avoid money-based exchange and buybacks, offsets, and counter purchase, which ar used to oblige reciprocal commitments. Countertrade is an inefficient way of doing crinkle. By default, companies prefer the straightforward qualification of cash or credit. In the case of countertrade, rather than simply consulting new foreign exchange rates, buyers and sellers must enter complex and time-consuming negotiations to carry out a fair value on the exchangehow many gallons of palm oil for how many planes, for example.In some situations, the goods that be sent as earnings may be poor quality, packaged unattractively, or ambitious to sell and service. Also, there is a lot of room for worth and financial strain in co untertrade weeds, given that nonmarket forces set the prices of these goods. Ultimately, countertrade and its variations threaten free market forces with protectionism and price fixing that can complicate trade relations with other countries. Still, the jumpy reality of international trade means that countertrade is often unavoidable for companies that urgency to do business in markets that have limited or no access to cash or credit.Complicating matters is the fact that as much as companies may dislike them, many emergent markets prefer forms of countertrade to preserve their limited monetary assets, generate foreign exchange, and improve the balance of trade. In addi-tion, these methods do emerging markets reduce their need to borrow working capital as well as let them access the technology and marketing expertise of MNEs. More significantly, benefits beyond financing the ready transaction do descend to companies.Accepting the option to countertrade shows managers good fa ith and flexibility in the face of taxing conditions. These sensitivities can position the firm to gain preferential access to emerging markets. Philosophically, the idea of countertrade fits with many countries basic notions of business. For example, the idea of barter and trade is part of some African traditions that atomic number 18 reluctant to conform to Euro-centric methods of cash payment. It is difficult to gauge the size of the countertrade market. Estimates in the past have ranged from 10 to 40 percent of total global exports.This figure has proven tough to drift due to inconsistent reporting and disclosure. Countertrade generally increases in economies that are experiencing general economic problems. In Argentina, countertrade among park citizens has increased due to a sinful shortage of cash. There are several types of countertrade. The three most common ares- (1) Barter Barter, the oldest form of countertrade, is a transaction in which goods or services are traded for goods or services of equal value without any exchange of cash or credit.Each term of the exchange is negotiated in terms of the immediate trade of goods or services. For instance, Thailand and Indonesia signed a $40 million deal in which Indonesia would supply Thailand with an agricultural aircraft, train carriages, and fertilizer in exchange for Thai riceno monies were or would be exchanged. There are barter firms that act as an intermediary among the exporter and importer, often fetching title to the goods received by the exporter for a price or exchange the goods for a fee and a percentage of the sales value. (2) redemptionsBuybacks are products the exporter receives as payment that are related to or originate from the pilot export. Buyback arrangements are quite common in the sale of technology, licenses, and even empty turnkey factories. Payment is made in full or in part either by products manufactured in the new instalment or by production from the new license or technology. Buyback countertrade is especially popular for turnkey infrastructure jump outs. For example, the customer pays for the project, opine a steel mill, with government-backed long-term credit.The exporting contractor first guarantees that the project will work when completed and then agree to buy back products or services from the completed facility or to serve as a distributor for products exported from the host country. The host-country buyer uses these hard currency payments to liquidate the original long-term credit. Throughout the relationship, no cash changes hands and no credit arrangements are necessary. The buy-back contract merely states that the output from the newly constructed facility is to be applied to the original price of the exports.This sort of arrangement was worked out between PepsiCo and Russia. Pepsi provided syrup to state-owned bottling plants in Russia and received Stolichnaya vodka in return, which it then marketed in the West. (3) branch Trad e An increasingly important form of countertrade is offset trade, a transaction that takes place when an exporter sells products for cash and then helps the importer find opportunities to earn hard currency. Offsets are most often used for big-ticket items, such as multitude sales.The Czech government made offset the deciding factor, as irrelevant to technical and performance criteria and price, in its jet fighter procurement. Offset arrangements are usually one of two types. 1. Direct offsets include any business that relates directly to the export. Generally, the exporter seeks contractors in the importers country to joint-venture or coproduce certain parts if applicable. For example, an aircraft exporter could abetter _or_ abettor with a company in the importers country to manufacture components that would be used in the manufacture of the aircraft. . Indirect offsets include all business unrelated to the export. Generally, the exporter is asked by the importers government to buy a countrys goods or invest in an unrelated business. Some of the most common direct offset practices in legions sales include coproduction, licensed production, subcontractor production, overseas investment, and technology transfer. Examples of indirect offsets magnate include assisting in the export of unrelated products from the host country or generating tourist revenues for the host country.