an international profile of countertrading firms 1997 industrial marketing management

8/20/2019 An International Profile of Countertrading Firms 1997 Industrial Marketing Management

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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.

43


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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


100th

Mean

8,360,760

Median

2,000,000

“Total annual sales resulting from countertrade?”

Percentile

100 thousand- 15 million

25th


50th


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

45


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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.

46


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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



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


1 10 million- 250 million 30th


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

47


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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


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



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

48


9/10

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.

49


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