1. Counter trade

2. Counter trade means exchanging goods or services which are paid for, in whole or part, with other goods or services, rather than with money

3. variants of counter trade 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. Counter purchase: Sale of goods and services to a country by a company that promises to make a future purchase of a specific product from the country.

4. Buyback: occurs when a firm builds a plant in a country - or supplies technology, equipment, training, or other services to the country and agrees to take a certain percentage of the plant's output as partial payment for the contract. offset: Agreement that a company will offset a hard - currency purchase of an unspecified product from that nation in the future. Agreement by one nation to buy a product from another, subject to the purchase of some or all of the components and raw materials from the buyer of the finished product, or the assembly of such product in the buyer nation

5. Offsets Offsets are divided into two parts. First, direct offsets: McDonnell Douglas sold MD 82 mid-size passenger aircraft to China. The contract included provisions for the Chinese to manufacture aircraft components such as doors to be used for landing gears, passengers, and cargo.

6. Offsets The second form of offsets is indirect offset. These are goods that are not used in the products sold to that country.

7. Other variants  Clearing accounts: This form normally occurs between Eastern European countries and the LDC's (less developed countries). The LDC ships products to one East European nation, creating an accounts payable entry on that country's trade books (country A owes US$ for this product). Country A can then satisfy the entry with either its own products or it can be satisfied by another country that comes along and buys country A's debt. For example, we may sell product to Brazil and receive payment from one of Brazil's trading partners. Sometimes it is part cash and part products from that country

8. Why do we counter trade A majority of companies participate in counter trade due to a requirement of a foreign government or customer. Those companies that have utilized counter trade have found it to be an effective way of expanding sales and improving efficiency in operations.

9. Expand or maintain foreign markets Increase sales Sidestep liquidity problems Repatriate blocked funds Clean up bad debt situations Build customer relationships Keep from losing markets to competitors Gain foreign contracts for future sales Find lower-cost purchasing sources

10. Factors to be considered The Industrial Factor... It is necessary to integrate the possibility of technology transfer and sub-contracting from the very beginning of the product's conception. The design engineers must anticipate that some parts of the product will have to be produced abroad without affecting the good health of the company. All future markets will need to be considered so as to evaluate the possibility of cooperation, the capacity to integrate technologies, and the economic interest of the country to do so. This is not always an easy task, as the country requiring offset is often asking more than it can really do. Offsets should not be considered as an obligation, but as a partnership. The objective is not to do a one-off operation, but to establish a long-term cooperation. It is also necessary to establish close cooperation with the sub- contractors.

11.  The Commercial Factor... It is important to continually monitor the practice and development of the offset requirements in the targeted customer country and to analyze its economic needs.  The supplier will need to study these needs through its network of contacts and to identify suitable partners, in conjunction with a local lobbying task force in order to penetrate local industrial circles which can often influence the decision of the purchaser.  The Financial Factor... An attractive financial package is also part of a successful deal, possibly including investments and joint ventures.  More and more, the fulfillment of the offset requires financial engineering involving the financial department of the supplying company as well as third parties such as banks and investment services companies

12. Advantages of Counter trade Gives additional hard currency Marketing expertise that they may not otherwise have. Technology advances that the country would not otherwise have. It gives access to markets for companies that may otherwise be closed to them. It helps conserve foreign currency reserves of the importing country. It allows access to foreign markets without necessarily setting up marketing companies or programs. It allows the importing country to export products for which markets might not otherwise exist.

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