Annual Global Market Size For Counter Trade example essay topic

CounterTrade PaperCountertrade is a trade between two countries by which goods are exchanged for other goods rather than for hard currency. Countertrade is often the solution for exporters that may not be able to be paid in his or her home currency and according to the text few exporters would desire payment in a currency that is not convertible.'s ome times both parties are happy with the goods they receive, other times one country will liquidate the received asset, ultimately receiving cash in the deal. This is also referred to as 'using barter to complete a trade. ' (web 2004) An example of counter trade is, the former Soviet Union would often counter trade, agreeing to trade, say, Soviet oil for another country's vehicles. After researching this subject, I have learned that counter trade is an umbrella term covering a wide range of commercial mechanisms for reciprocal trade. Reciprocal trading (two-sided trading, trade in return) occurs when the trade customers is also a supplier. The reciprocal trading arrangements may or may not be formally linked.

In practice, reciprocal trade may strengthen an existing trading relationship, and may even create mutual dependencies, which may create new trade relationship. Barter is probably the oldest and best known example of counter trading, however others, such as offset, buyback, tolling and switch trading, have also evolved to meet the requirements of a more sophisticated world economy. All of these generally involve the exchange of goods or services to finance purchases, rather than using cash alone. 'The importance of counter trade as a trading tool has increased since early 1970's -especially in markets where there is a shortage of foreign exchange and counter trade may be the only effective marketing mechanism for doing business. ' (web 2003) 'One of the unique risks of counter trade transactions is that companies often find themselves handling products with which they are not familiar. This is probably the greatest risk in a counter trade transaction. ' ( (web 2003) Approximately 130 out of 192 countries in the world require counter trade, one form or another, in their procurements. Many of them did so after having undertaken intensive and serious studies.

Many global companies have dedicated in-house specialists dealing specifically with counter trade. Some 20% to 30% of world trade is counter trade. The annual global market size for counter trade is estimated to be between US$200 to US$500 billion. No one really knows what are the correct percentages are and how large the true market size is. The potential for its growth is so large that efforts were made by some countries to curb the growth of certain forms of counter trade at the World Trade Organization (WTO). Yet the majority of these very countries are the biggest perpetrators of its practices, restricting their practices within the exceptions contained in the agreement promulgated at the WTO.

(Verariu, 1996) The commodity- and resource-rich countries of Asia know what is barter and derivatives of barter known generally as clearing arrangements although not necessarily that it is but only one form of counter trade. They like their western counterparts too practiced these since time immemorial and the practices continue to be prevalent albeit at government-to-government levels mostly. Soft Currencies Another name for 'weak currency,' there is very little demand for this type of currency and values often fluctuate. Currencies from most developing countries are considered to be soft currencies. (web 2004) Hard Currencies currency, usually from a highly industrialized country, that is widely accepted around the world.

The U.S. Dollar and the British Pound are good examples of a hard currency. (web 2004) There are really two main currency risks. The first is non-convertibility, the currency will not be convertible when received or required. As many counter trade transactions are designed to avoid this problem, this is less of a risk than might be expected. The second risk is that the currency will have fluctuated in value, and that you will receive fewer dollars than you expected. (web 2003) After reading the rEsource text, it explained that there was a notable increase in the volume of counter trade after the Asian financial crisis of 1997. This caused Asian nations to have very little hard currency to finance international trade. Therefore, counter trade was really their only option.

I have also learned that exporters will have to engage in this counter trade technique from time to time to gain access to international markets. While conducting research on counter trading, I have learned that it has changed from being just simple trading of goods and services for other goods and services, counter trade has evolved into a diverse set of activities, according to our text, which include barter, counter purchase, offset, switch trading and payback, which I mentioned earlier in this paper. Many counter trade deals involve not just one arrangement that I have mentioned, but elements of two or three. If a firm is unwilling to enter a counter trade agreement, it may lose an exporting opportunity to a competitor. Most firms would prefer to be paid in hard currency.

If a firm is interested in doing counter trade agreements they really should invest in an in-house trading department to manage all counter trade deals so the firm doesn't get burned with unusable or poor quality goods. Countertrade is most attractive to large diverse multinational enterprises with plenty of assets and worldwide networks of contacts. In conclusion, small and medium size exporters should avoid counter trading unless they have no other options because counter trade is a very complex time consuming and expensive way of doing business globally. Reference sHill, C.W.L. (2003). International Business: Competing in the Global Marketplace (4th ed. ).

New York: McGraw-Hill / Irwin. Obst feld, M. (1997, May). Global Capital Market. IMF, , pp. 114-115. Verariu, P. (1996, May 22). The Changing Role of Countertrade and Other Contract-Based Practices in International Trade.

Barter News, (37) web (2003). Countertrade. : Barter news. Retrieved July 9, 2004 from the World Wide Web: web web (2004). Countertrade. Edmonton, Ca: Equa de Internet Ltd...

Retrieved July 8, 2004 from the World Wide Web: web.