INTERNATIONAL MARKETING 6e Chapter 22 Countertrade 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
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
Countertrade n 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
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
Why countertrade 强个个 Advantages Disadvantages Avoidance of debt and Does not reduce exchange rate volatility commercial risk Covert reduction of May mask dumping pnces activities Circumvention of price Does not allow for and exchange controls multilatera/ settlements Increasing popularity Trade is restricted to two bilateralism concept parties, each with A method of market entry specitic goods to trade Stability for long-term Is non-competitive and sales can erode the quality Improves quality of and efficiency of transaction production Copyright@ 2001 by Harcourt, Inc. All rights reserved 22-3
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
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. o 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
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
n Offsets Purchases by a governmental buyer are matched offset) to investments by the seller in non-related industries in the buyer's country n 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
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
Classification of the Forms of countertrade Does the transaction involve reciprocal Straight Sales commitments(other than cash payments)? (cash or credit) Does the transaction extend Yes Does the transaction Barter involve the use of money? F No over long periods and No evolve a basket of goods? Counterpurchase, buyback or offset Yes Clearing Simple Arrangement Is the reciprocal Does the commitment limited to the N transaction involve Are third purchase of goods? debt? parties N involved? Ye Yes Counterpurchase and buyback SwapsOffsets Switch C learing Tradin Arrangements Are the goods taken back by Buyback the exporter the resultant output of the equipment sold? Counterpurchase Source: Adapted from Jean-Francois Hennart, "Some Empirical Dimensions Copyright@ 2001 by Harcourt, Inc. All rights reserved of Countertrade, "Joumal of International Business Studies 21(2)1990, 245. 22-6
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) Yes Counterpurchase, 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-François Hennart, “Some Empirical Dimensions of Countertrade,” Journal of International Business Studies 21 (2) 1990, 245
Countertrade usage-By Types Barter/Swaps 6% Buyback 28% Counter. purchase 56% Offset 10% Source: Richard Fletcher."Aus tralian countertrade in the Global Economy, "Working Paper Series, January Copyright@ 2001 by Harcourt, Inc. All rights reserved 96, University of Technology, Sydney, 1996
Copyright © 2001 by Harcourt, Inc. All rights reserved. 22-7 Barter/Swaps 6 % Buyback 28% Offset 10% Counterpurchase 56% Countertrade Usage - By Types Source: Richard Fletcher, “Australian Countertrade in the Global Economy,” Working Paper Series, January 1996, University of Technology, Sydney, 1996
Official Positions toward countertrade y 四到时经时和 o 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 a∥ government agencies The Internal Revenue Services concern is valuing countertrade transactions for tax purposes Copyright@ 2001 by Harcourt, Inc. All rights reserved
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
Official Positions toward countertrade y 四到时经时和 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
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
Types of countertrade Intermediaries 到制经 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
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