an international profile of countertrading firms 1997 industrial marketing management
TRANSCRIPT
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NORTH
HOLLAND
An International Profile
of Countertrading Firms
Dorothy A Paun
This research empirically explores an array of international
countertrade issues. The scope of the study is thought to be the
broad est yet publishe d in the counter-tr ade literature in investi-
gating a wide range of countertrade concepts using counter-
trade practitioners from an array of industries 24) spanning
the globe 23 countries).
0
Elsevier Science Inc., 1997
INTRODUCTION
The increasing importance of world trade and magnifi-
cation of both global competition and economic interde-
pendence require that companies pursue innovative mar-
keting strategies. Many industrial companies are utilizing
international counter-trade as a means of achieving and
sustaining competitive differentiation [l-4]. Counter-
trade refers to a variety of trade arrangements in which a
seller provides a buyer with products and agrees to a re-
ciprocal purchasing obligation with that buyer [S]. Many
creative ways of conducting countertrade transactions
have evolved. While several forms of countertrade exist
(Table I), the common characteristic among all is the
linkage of transactions between the seller and buyer. That
Address correspondence to Dorothy A. Paun, University of Washington,
396 Bloedel Hall, Box 352100, Seattle, WA 98195-2100. Email: dap@u.
washington.edu.
is, each exchange partner acts as both a seller and buyer
at some point in the countertrade transaction.
Counter-trade is used when mandated by government
(e.g., policies encouraging bilateral trade to minimize un-
favorable trade balances) [6-l I], economic conditions
favor it (e.g., lack of hard currencies needed for imports),
and innovative marketing strategies are necessary to se-
cure new business (e.g., gaining access to new or difficult
markets, establishing new trading partners). Countertrade
frequently involves industrial firms, entailing either busi-
ness-to-business or business-to-governement transactions.
Examples of countertrade are Mitsui of Japan countertrad-
ing machinery with Dongsheng Cashmere Mill of China;
Levi Strauss providing Hungary with its trademark, de-
signs, and materials in return for jeans made by the Hun-
garian concern; and Boeing exchanging aircraft for Saudi
Arabian oil.
It is estimated that the percentage of world trade utiliz-
ing countertrade lies between 20 and 25% [ 121. Only 15
countries sanctioned countertrade in 1972 while today
the number of countertrading countries, including both
developing and developed countries, has soared to 94
[
111. In terms of the North American market alone, the
International Reciprocal Trade Association reports that
in 1994 countertrade transactions totaled 7.6 billion.
Despite the large volume of both domestic and intema-
I n d u s t r i a l Ma r k e t i n g M anag em en t 2 6 , 4 1 - 5 0
1997 )
0
Elsevier Science Inc., 1997
655 Avenue of the Americas, New York, NY 10010
0019-8501/97/ 17.00
PII SOOl9-8501(96)00030-2
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TABLE 1
Forms of Countertrade
Form
Definition
Example
Barter
Clearing Account
Compensation or
Buyback
Counterpurchase
Offset
This form of counter-trade involves the direct and simultaneous
exchange of products of approximately equal value between two
partners.
The principle is for exchanges to balance without either partner
having to use currencies. Each partner agrees to purchase a specified
value of products. The contract’s value is expressed in universally
accepted clearing units that represent a credit line in the country’s
central bank.
One partner sells capital equipment (e.g., plant equipment,
technology) and agrees to accept a percentage of the output made
possible by the capital equipment as full or partial payment.
Partners buy products of equal value from one another but the
trading of products takes place at different times and involves two
separate contracts.
Offsets enable the buyer to “offset” their purchase by securing the
seller’s purchase of products from the buyer, help the buyer sell
products, or participate in joint ventures (e.g., arrange local
manufacturing or assembly, purchase local components, supply
technology). The concept is to offset the negative effects of large
purchases from abroad on the current account or to avoid hard
currency depletion.
Iraq exchanged crude oil for frigates from Italy’s state-owned
Italcantiere.
The former Soviet Union used clearing account units to purchase
copiers from Rank Xerox of Britain. Rank Xerox had copiers made
in India for sale to the Soviets under the country’s clearing
agreement with India.
Occidental Petroleum built ammonia plants for the Soviets and in
return received ammonia produced by the plants as payment.
Russia bought construction machinery from Komatsu and
Mitsubishi while the Japanese firms bought Siberian timber.
McDonnell Douglas agreed to buy airframe components and other
products from Canadian companies in exchange for a commitment
from Canada to buy jet fighter planes.
tional countertrade transactions, relatively little empirical
research has been published. Of the impressive volume
of several hu ndred articles an d books written on the sub-
ject, only a dozen or so articles (e.g., [13 -181) veer from
anecdotal to empirical insight. W hile anecdotes are often
insightful and interesting, the focus and generalizability
of such research can at times be quite narro w. The main
objective of this research was to broaden the meager base
of empirical studies in international countertrade. This
survey set to differentiate its effort from previously con-
ducted empirical studies in sampling only companies that
use countertrade (as compared to other studies that focus
on differences between coun tertrading and noncoun ter-
trading com panies). Last, this research, a pioneer explo-
ration into a num ber of countertrade concepts, employed
a broad-b ased international samp le that involves counter-
trade practitioners from 23 countries.
RESEARCH METHODOLOGY
Measures
On the basis of a synthesis of the counter-trade litera-
ture, the questionnaire was designed and then underwent
Dorothy A. Paun is Assistant Professor at the University of
Washington.
42
two pretests to assess content validity, clarity, an d com-
prehensiveness. Suggestions regarding questionnaire
length and wording ambiguities were incorporated and
resulted in a revised four-page questionn aire.
Five major dimen sions of international countertrade
were examined in the questionn aire: (1) countertrade ac-
tivity; (2) size of counter-trade transactions; (3) orienta-
tion to counter-trade; (4) importance of and satisfaction
with international countertrade; and (5) countertrade pric-
ing. Questions regarding demographic variables were
also included.
First, counter-trade activity focused on the frequency of
counter-trade at the firm level. The first measure was op-
erationalized by asking wh ether, during the past year, the
company engaged in countertrade not at all, l-5 times,
6-10 times, 1 l-20 times, or more than 20 times. Ch ange
in frequency was measured by asking respondents whe-
ther, over the last 5 years, their sales from countertrade
had increased, remained the same, or decreased.
Second, three questions addressed the size of the
firm’s counter-trade transactions, and these asked about
the amo unt of the company’s average countertrade trans-
action, percentage of total annu al sales accounted for by
counter-trade, and total annu al counter-trade sales.
Third, questions regarding a company’s orientation to
countertrade were also included. Respon dents were
asked if their company typically initiated, respon ded to,
or both initiated and responded to countertrade offers.
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Many companies are utilizing international
countertrade as a means of achieving and
sustaining competitive differentiation.
Another measur e looked at the firm’s appro ach to coun-
tertrade: was it from the buying side, selling side, or from
both sides of the transaction? A third question asked
which co unter-trade forms were used by the company
(barter, buyback, counterpurchase, clearing account, or
offset) an d the degree to which these individual forms of
countertrade were impor tant. Last, practitioners were re-
ported on their use of countertrade specialists, on a usage
scale of 1 or “never” to 5 or “always.”
Fourth, countertrade satisfaction and importance is-
sues were operationalization in the following man ner. To
assess satisfaction with the firm’s experiences, respon-
dents were a sked whether they were 1 or “not at all satis-
factory” to 5 or “highly satisfactory.” To measu re the
overall importance of counter-trade, practitioners were
asked if counter-trade was 1 or “not at all impor tant” to 5
or “ very important.” Building on this measu re of the
overall impo rtance, respond ents were then presented
with 12 countertrade motives [ 191 and asked to report, on
a scale rangin g from 1 or “not imp ortant” to 5 or “ very
impor tant,” the importance of each motive to the com-
pany. The 12 motives for countertrade included: in-
creases sales, increases com petitiveness, gives access to
new or difficult mark ets, helps establish new relation-
ships, increases p rofits, generates goodw ill, secures gov-
ernmen ts contracts, acce sses marketing network s and ex-
pertise, circumv ents an overvalued currency, uses excess
production capacity, and disposes of surplu s products or
obsolete or perishable produ cts.
Fifth, there were two questions concerning counter-
trade pricing. The first of these asked whether the com-
pany usually received more than market v alue, market
value, or less than market value for the produ cts sold in
counter-trade. The second question asked respondents
when prices were established during the countertrade ne-
gotiation process, at the beginnin g, througho ut, or at the
end of negotiations.
Last, several questions in the survey y ielded info rma-
tion on the responding companies, such as line of busi-
ness, total annu al sales, types of international operations,
and country home base of the compan y.
Sample
The Am erican Countertrade Association, Defense In-
dustry Offset Association, and
Countertrade Outlook
were approached for mailing list access. W hile these or-
ganizations were not willing to make pub lic the nam es of
their mem bers and subscrib ers, they agreed to affix their
own mailing labels and mail the surveys. The total num-
ber of nonov erlapping mem bers for these three organiza-
tions w as 668. A total of 123 responses were received,
representing a 18.4% response rate. Fifteen of the 123 re-
ceived question naires were not usable, so data analyses
were based on 108 usable responses, representing a final
response rate of 16.2% . The respond ents are 108 counter-
trade practitioners located in 23 countries. Fifty-three
percent are from firms in the U.S. and 47% are from 22
countries abroad.
The extrapolation method [20] was used to assess pos-
sible nonresponse bias in the data. Nonresponse bias was
examined by analyzing time trend responses across early
and late respondents. Discriminant analysis was per-
formed and no significant differences were found, thus
suggesting that nonresponse bias is not a concern.
Unstructu red, in-depth telephone interview s were also
conducted to explore more richly the subtle nuances of
countertrade activities.
Data An alysis
SPSS software was used to calculate frequencies,
means, and medians for the data. ANO VA was also used
to analyze the data to investigate if statistically signifi-
cant differences exist between response s from U.S. and
non-U.S. companies.
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It is estimated that the percentage of
world trade utilizing countertrade
lies between 20 and 25 .
RESULTS
Countertrade Activity
As Table 2 indicates, a very small part of the sample,
only 3%, had not used countertrade over the preceding
year. The largest number of respondents, 35%, used
countertrade l-5 times last year. The remaining respon-
dents indicated using countertrade as follows: 26% indi-
cated that counter-trade was used 6-10 times, 14% re-
ported 1 -20 times, and 22% participated in countertrade
more than 20 times last year. The median number of
countertrade transactions was 6 to 10 transactions last
year. There was a statistically significant difference, at
the 0.05 level, between the number of countertrade trans-
actions completed by the U.S. and non-U.S. practitioners.
Firms from the United States, on average, countertraded
10 times last year whereas non-U.S. firms used counter-
trade almost twice as often or close to 20 times. Korth
[21] was among the first to discuss why firms from the
United States were more reluctant to use international
countertrade. He suggested that U.S. firms (1) feared re-
ceiving lower quality goods than in the open market, (2)
were less comfortable with and experienced in bilateral
trade as compared to many European countries that had
such arrangements with former colonies, (3) depended
much less on international trade in general, (4) and
TABLE 2
Countertrade Frequency
“During the past year, how
many times did the company
use countertrade?”
None
I-5
f&IO
1 -20
More than 20
Total
Median
Number of Percentage
Respondents of Total
3
2.78
38
35.18
28
25.93
15
13.89
24
22.22
108
100.00
6- 10 times
44
lacked awareness of countertrade as a powerful market-
ing tool. It is also believed that U.S. firms have engaged
in countertrade to a lesser degree because the U.S. gov-
ernment does not encourage countertrade, unlike other
countries that practice govemement-mandated counter-
trade [ll].
Another question asked practitioners if sales from
countertrade for their company had increased, decreased,
or remained the same over the last 5 years. Sixty-two
percent reported an increase in the use of countertrade,
24% experienced no change, 9% experienced a decline,
and 5% said they did not know. In sum, the overwhelm-
ing majority of the respondents, 86%, reported that coun-
tertrade sales had either remained the same or increased
over the past 5 years, thus offering support for claims
that countertrade use is growing.
Size of C ounter trade Transactions
When asked to estimate the value of the firm’s average
countertrade transaction, responses ranged from 25
thousand to 75 million. As Table 3 shows, the mean re-
sponse for the amount of the average countertrade trans-
action was slightly more than 8.36 million. However,
TABLE 3
Size of Countertrade Transactions
“What is the value of the average countertrade transaction?’
Percentile
25 thousand- 500 thousand
25th
1 million- 2 million
50th
3 million- 10 million 75th
12 million- 75 million
100th
Mean
8,360,760
Median
2,000,000
“Total annual sales resulting from countertrade?”
Percentile
100 thousand- 15 million
25th
18 million- 50 million
50th
52 million- 150 million
75th
160 million- 7.5 billion
100th
Mean
214,965,102
Median
50,000,000
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The average number of countertrade
transactions reported was 6 to 10 last year.
the med ian of 2 million is probably a more accurate por-
trait of the average countertrade transaction as the range
extended to an impressive 75 million, sub stantively
skewing upward the mean.
Annual sales resulting from countertrade ranged from
100 thousand to 7.5 billion (Table 3 ) with a mean of
nearly 215 million. Ag ain, because of the magn itude of
the end point of the upper range, it is importan t to note
that the median is 50 million.
Practitioners were also asked about the percentage of
their total annu al sa les accounted for by countertrade.
Responses ranged from 1 to 100% with a mean of 17.4%
and a median of 10.0%. M ean and median are very dif-
ferent because a somewhat large number of firms, 18%
of the samp le, rep orted that counter-trade sales repre-
sented only 1% of total annua l sales. In terms of this vari-
able, it is interesting to note a significant difference, at
the 0.001 level, between U.S. and non-U .S. firms; practi-
tioners from the United States had a mean respo nse of
9.2% of total annual sales attributed to countertrade
while the mean of non-U.S. companies was 27.4%, a
magn itude of more than three times. This offers further
suppo rt for the greater countertrade involvement by non-
U.S. firms, as reported in the previous section that such
firms had more countertrade transactions last year.
COUNTERTRADEORIENT ATION. When asked if their
company typically initiates or respond s to counter-trade
offers, only 6% of the practitioners indicated being initia-
tors. Forty-one percent said their firm usually resp onds to
counter-trade offers initiated by others w hile the remain-
ing 53% both initiate an d respond to countertrade offers.
TABLE 4
Forms of Countertrade Used and Their Importance
“Countertrade forms Number of Percentage “If this form of countertrade
used by your firm?” Respondents of Total is used, how important is it?’
Counterpurchase
78
72.22 3.58
Barter
67 62.04
3.42
Buyback
64
59.26 3.45
Clearing account
59
54.63 3.00
Offset
32
29.63 3.75
Practitioners were then asked if they usually begin
their countertrade transactions from the buying side, sell-
ing side, or both from the buying and selling sides. Only
14% approach countertrade from the buying side while
48% approach from the selling side. Thirty-eight percent
indicated that their firms engage in both, sometimes ap-
proaching countertrade from the selling while at other
times from the buying side.
As Table 4 reports, the mos t frequently chosen form of
countertrade was counterpurch ase, used by 72% of the
sample. This was followed by barter (62%), buyback
(59% ), clearing account (55% ), and offset (30%). (Note
that percentages do not total 100 because multiple re-
spons es were possible.) Practitioners were then asked to
rate the importance of the specific forms of countertrade
practiced on a scale rang ing from 1 or “not at all impor-
tant” to 5 or “ very imp ortant.” The most importan t form
of countertrade was offset with a mean respo nse of 3.75.
Counterpurchase was of secondary importance with a
mean of 3.58, followed by buyback (3.45), barter (3.42 ),
and clearing account (3.00). There were significant dif-
ferences between U.S. and non-U.S. firms. At the 0.001
level, U.S. comp anies rated more highly the importance
of offset (U .S. mean = 2.97 versus non-U .S. = 1.53),
and this is not surprising given that many U.S. firms sell-
ing aerospace or defense equipment must engage in an
offset agreemen t to secure a foreign gov ernment pur-
chase [ 111. Firms from the United States assign a lower
importance to the use of barter (1 .23 versus 3.14) and
counterpurchase (2.23 versus 2.92).
Another question asked practitioners was how often
their company used outside countertrade specialists or
trading comp anies. Surprisingly, many of the practition-
ers, or 40% , reported never using countertrade special-
ists. The mean response to this question was 2.27, sug-
gesting that many firms internally execute intern ational
countertrade transactions.
COUNTERTRADEMPORTANCEAND SATISFACTION. Ta-
ble 5 sugg ests that practitioners are satisfied with their
countertrade experiences. Over 57% reported an above
average level of satisfaction (choosing either a 4 or 5 on
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TABLE 5
TABLE 7
Satisfaction with Countertrade
Importance of Marketing Objectives
“In general, how would you rate your
Number of
firm’s experiences with countertrade?”
Respondents
Percent of Total
1 or not at all satisfactory
I 0.93
2
14 12.96
3
31 28.70
4 38 35.19
5 or highly satisfactory
24 22.22
Total
108
100.00
Mean 3.65
the 5-point scale) and only 1% reported not being satis-
fied with counter-trade. The mean was 3.65, indicating
that practitioners were relatively satisfied with their coun-
tertrade transactions.
Marketing Objectives Mean Response
Increases sales 3.91
Increases competitiveness
3.90
Gain entry to new markets
3.54
Helps establish new trading partners 3.39
Increases profits
3.23
Generates goodwill 2.82
Secure government contracts 2.66
Access to marketing networks and expertise
2.51
Circumvent an overvalued currency 2.03
Use excess production capacity
1.68
Dispose of surplus products
1.64
Dispose of obsolete or perishable products
1.40
When asked to rank the overall importance of intema-
tional countertrade (Table 6), from 1 or “not important at
all” to 5 or “ very im portant,” the mean resp onse was
3.48. Importance of and satisfaction with countertrade
did not differ between domestic and foreign firms,
Another question asked respondents to rank the impor-
tance of 12 comm on motives for countertrade. Answ ers
were based on a scale of 1 to 5, with 1 being “not impor-
tant” and 5 being “very im portant.” As Table 7 indicates,
increasing sales volume and comp etitiveness are mos t
importan t with means of 3.91 and 3.90, respectively.
Gaining entry to new markets (3.54), establishing new
trading partners (3.39), and increasing profits (3.23) were
also viewed as being impo rtant motives for countertrade.
Dispo sing of obsolete or perishable produc ts (1.40), dis-
posing of surplus products (1.64), and using excess pro-
duction capacity (1.68) were the least importan t motives
for international countertrade.
0.10). This is understandable given that many U .S. aero-
space and defense contractors must now engage in coun-
tertrade arran geme nts to secure foreign sales . On the
other hand, non-U.S. firms placed a higher importance on
four motives: e stablishing relationships with new trading
partners (mean of 3.71 for non-U.S. and 3.11 for U.S.,
p = O.Ol), gaining access to closed or difficult mark ets
(mean of 4.02 versus 3.12, p = O.OOl), accessing market-
ing networks and expertise (mean of 2.76 versus 2.30,
p = 0.07), and circumven ting an overvalued currency
(mean of 2.29 versus 1.81,
p =
0.05).
Countertrade Pricing
The importance ratings a ssigned to five of these mo-
tives differed between dom estic and foreign firms. U.S.
firms rated more highly the motive of securing govern-
ment contracts (reported mean of 2.91 versus 2.39 ,
p =
Practitioners were asked when , during the countertrade
negotiation process (beg inning, througho ut, or at the
end), countertrade prices were established. Almo st 54%
of the practitioners reported that countertrade prices were
set at the beginnin g of the negotiation process, while less
than 17% said throughout, and 19% said at the end of ne-
gotiations. Surprisingly, 10% of the respond ents indi-
cated that they did not know when such prices were de-
termined. It seems consistent with the price expectation
literature that most companies prefer to establish price
levels or strategies at the beginnin g of countertrade trans-
actions.
TABLE 6
Overall importance of Countertrade
“Overall, how important
is countertrade?”
1 or not at all important
2
3
4
5 or very important
Total
Mean
Number of
Respondents
9
16
24
32
27
108
3.48
Percentage
of Total
8.33
14.81
22.23
29.63
25.00
100.00
Practitioners were also asked if they usually receive
more than market value, less than market value, or mar-
ket value for the products they sell in countertrade. Sixty-
two percent reported they usually receive market value
for their products, 2 1% sold at a discount or received less
than market value, an d 17% received a premium or more
than mark et value. Statistically significant at the 0.001
level, U.S. firms reported receiving slightly mo re than
market value for their produ cts while non-U.S. firms re-
ceive slightly less than market value.
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W hen asked to estimate the value
of the firm’s average countertrade
transaction, responses ranged from
25 thousand to 75 million.
Company Profiles
Table 8 shows the 24 industries represented in this
study. The largest industry concentration was defense
electronics (14% ), followed by countertrade specialists
(1 l%), aerospace (8%), agriculture (6.5%), and con-
sumer electronics (6.5% ). Ninety-six percent of the re-
spondents represented industrial firms.
Total annu al sales for last year are show n in Table 9.
The variance of the range wa s quite large, from 2 million
upw ard to 150 billion. T he reported mean for total an-
nual sales was 7.3 billion, w ith a median of 1.3 billion.
TABLE 8
Industries Represented by the Responding Firms
Industry
Electronics (defense)
Countertrade specialist
Aerospace
Agriculture
Electronics (consumer)
Chemicals
Conglomerates
Food and beverage
Industrial machinery
Did not indicate industry
Energy
Manufacturing (miscellaneous)
Pharmaceuticals
Banking
Metals and mining
Consumer products (miscellaneous)
Office equipment
Optics
Engineering
Utilities and
power
Computers
Cosmetics
Forest products
Services
Telecommunication
Total
Number of Percentage
Respondents of Total
15
13.89
12
11.11
9
8.33
7
6.48
7
6.48
5
4.63
5
4.63
5
4.63
5
4.63
5
4.63
4
3.70
4
3.70
4
3.70
3
2.78
3
2.78
2
1.86
2
1.86
2
1.86
2
1.85
2
1.85
1
0.93
1
0.93
I
0.93
1
0.93
1
0.93
108
100.00
Wh en asked what types of international operations
were used by their company , only 3% of the practitioners
indicated no international operations (Table 10 ). The
highest frequency of use (89%) w as exporting. Almost
half of the practitioners reported that they engaged in
each of the other international activities: imp orting (69% ),
joint ventures (63% ), overseas s ales branch (5 6%), licens-
ing (56% ), strategic alliances (50% ), and overseas pro-
duction (49%).
Practitioners were asked to indicate w hich country
their home op erations were located in (Table 11). Fifty-
three percent of the practitioners were with comp anies
located in the United States and 47% were from compa-
nies in 22 countries abroad. When this sample is broken
down by continent, European practitioners comp rise
34%, Asian 1 l%, and South American 2%.
MANAGERIAL IMPLICATIONS
It is well known that counter-trade has the potential to
expand sales and increase market share, but many com-
panies have not pursued countertrade business because
TABLE 9
Total Annual Sales
Range Percentile
2
million- 15 million 10th
20 million- 100 million 20th
1 10 million- 250 million 30th
350 million- 600 million 40th
650 million- 1.3 billion 50th
1.5 billion- 2.5 billion 60th
3 billion- 4 billion 70th
5 billion- 7 billion
80th
9 billion- 13.8 billion 90th
19 billion-150 billion 100th
Mean
7,257,555,882
Median
1,300,000,000
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Over 57 of the respondents reported an
above average level of satisfaction with
their international countertrade activities.
the task of mounting such an effort seems daun ting, re-
served only for large blue chip comp anies engagin g in
sizable counter-trades. However, this study offers testi-
mony for the diversity of firms that benefit from coun ter-
trade; not only Boeing, with its large countertrade (off-
set) division, but also sole proprietorships with annu al
sales of only 2 million u se international countertrade.
Additionally, the size of countertrade transactions re-
ported here is of such w ide range as to mak e coun tertrade
feasible for most comp anies. Wh ile some firms report
huge countertrade transactions, up to 75 million, there
are also many sm aller countertrades, some as modest as
25 thousan d. Rega rdless of firm size, age, or financial
resources, comp anies use countertrade for similar rea-
sons. According to one countertrader:
There is no mystique about counter-trade. It is just being
innovative in the way that you finance deals, big and
small. Som etimes it is because countries don’t have bank-
ing systems, cash, legal systems, comm ercial codes, like
in Eastern Europe. You just do your own private deals to
make the trade happen. Other times we countertrade be-
cause the buyer s ays we must or it is government man-
dated; if we don’t entertain a countertrade proposal, we
won’t be able to mak e the trade.
Countertrade is not an all-or-nothing situation requir-
ing constant effort (roughly 50% of the companies use
TABLE 1
Types of International Operations Used
Type of International Operations
Exporting
Importing
Joint ventures
Overseas sales branch
Licensing
Strategic alliances
Overseas production branch
None
Number of
Percentage
Respondents of Total
96 88.89
74 68.52
68 62.96
61
56.48
60 55.55
54 50.00
53 49.07
3 2.83
countertrade less than 10 times a year), but rather it rep-
resents an alternative way of growin g busin ess that is ex-
ercised w hen beneficial. Said another way, a company
can choose w hen and where to countertrade premised on
convenience or potential, perhap s when sales are lean or
an unusua lly attractive counter-trade offer is extended.
One countertrade practitioner had this to say:
Companies try
to find countertrade projects that enhance
the firm’s marketing ability. Having found those, you go
through a cost-benefits analysis. It is easy to assess
wheth er it is worth it to do countertrade. You find out
what the products are that another company wants to
countertrade, you calculate all your costs of doing busi-
ness, and you net the two . If there is a gain fo r your com -
TABLE 11
Countries Represented by Responding Firms
Country
United States
Austria
Germany
Belgium
Netherlands
Hong Kong
Singapore
Switzerland
Brazil
England
Finland
Hungary
India
Malaysia
Channel Islands
France
Greece
Indonesia
Israel
Italy
Japan
Slovenia
Uzbekistan
Total
Number of Percentage
Respondents of Total
51
52.78
8
7.41
5
4.63
4
3.70
4
3.70
3 2.77
3
2.77
3
2.77
2
1.85
2
1.85
2
I
85
2
I
85
2
1.85
2
I
85
I
0.93
I
0.93
I
0.93
I
0.93
I
0.93
I
0.93
I
0.93
I
0.93
I
0.93
108
100.00
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U.S. firms reported receiving slightly
more than market value for their products
while non-U.S. firms receive slightly less
than market value.
pany, and you have the people and time, you say “yes” to
the countertrade deal.
Pricing issues often reside at the core of countertrade
concerns for there is no “sticker price” on a counter-trade
product [22]. Firms wan ting to benchmark their discount-
ing and premium pricing activities can now make com-
parison s with the pricing p ractices reported by firms in-
cluded in this study. Sixty-two percent of the respond ing
firms said that they receive in countertrade the same
amou nt of revenue as would be received for the same
products sold through monetized sales. This means that
an impressive 38% of the products countertraded benefit
from a premiu m price or suffer from discounting below
market value.
Let’s say Turkey is going to buy something from us and
we have to buy from them a half a million gallons of olive
oil. I can see a pricing difference from market value be-
cause of volume. Because I would be buying so much ol-
ive oil, 1 would expect a discount. It all depends on wha t
the two products are that are being exc hanged. If the prod-
ucts are comm odities with known prices, then it tends to
be done at marke t. But if it’s a specialty factory you are
building for them or you are providing a service like up-
grading a refinery, no one knows exactly wha t the price
should be. So it is a negotiated price and there is premium
price in there.
Another countertrade practitioner said:
Mos t countries buying military equipment know that a
premium is included in the price charged. Take the exam-
ple of Boeing and Saudi Arabia. Boeing faced a seven
percent delta, o r the cost of changing oil back into dollars.
Saudi Arabia was willing to pay that seven percent pre-
mium to sell oil. Beca use of OPE C, they could not sell
any more oil. So they were able to sell twenty-five percent
of the total purchase price, about four billion dollars, into
world m arkets, about slightly more than a billion dollars
worth of oil. They had to pay against that a seven percent
premium for that in the price paid for the defense equip-
ment, but on the other hand if they didn’t pay that pre-
mium for wha t they bought they wouldn’t have been able
to dump a billion dollars of oil. Saudi A rabia could think,
then, that it actually bought the military stuff at a billion
dollar discount. The oil they couldn’t sell on the open
market was free money. Also, look at Brazil and coffee.
Brazil is a prime candidate if you want to make a sale.
You tell them tha t you will take part of the payment in
coffee. To Brazil that is free money or a
huge
price dis-
count by the amount of the coffee that they are able to
give in trade instead of cash.
In summ ary, counter-trade is a growing practice in in-
dustrial mark ets because of the increasing importance of
world trade and a heightened awareness of world eco-
nomic interdependence. Unfortunately, there is a dearth
of information in regard to why, how, and when firms
countertrade. This in part is due to the “ competitive si-
lence” toward countertrade activities maintaine d by those
firms that engage in it. To circumvent this lack of disclo-
sure and access countertrade information, previous stud-
ies have often focused on a smaller (num ber of firms or
geograph ic region covered) and narrower (industry type)
samp le of firms. To provide mean ingful guidance to a
wide range of industrial firms seeking to comm ence or
expand international countertrade transactions, this study
was designed to include a vast array of industries (24)
spann ing the globe (23 countries). Because this is the
first know n pub lication to provide such largely g eneraliz-
able findings, a broad base of marketers may now have
access to real world international countertrade activities.
It is hoped that this information on a unique form of a
business -to-busin ess relationship offers meaning ful in-
sight into countertrade practices.
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