COUNTERTRADE

What Is Countertrade?
• A Countertrade refers to a
range of barter-like
agreements that facilitate the
trade of goods and services
for other goods and services
when they cannot be traded
for money.
The Forms Of Countertrade
Barter

A direct exchange of goods

and/or services between two
parties without a cash
transaction. The most restrictive
countertrade arrangement. Used
primarily for one-time-only
deals in transactions with
trading partners who are not
creditworthy or trustworthy.
Example:
Malaysia is rich
in palm oil and uses
its surplus in this
product to acquire
equipment as well as
other as other goods
under a trade barter
with other countries.
Counter purchase
• a reciprocal buying agreement.
This occurs when a firm
agrees to purchase a certain
number of materials back
from a country to which a sale
is made.
Example:
Country X sold a thousand
metric tons of rice Country Z.
Unfortunately, a very strong
typhoon hit Country X nearly
bringing total destruction on
its rice production sector.
The two countries agreed to
allow Country X to buy a
portion of the rice it sold to
Country Z.
Offset – A contractual arrangement
between a buyer and a seller where
the seller agrees to undertake
certain obligation to compensate the
buyer for the purchase of goods and
services. These obligations typically
involve the seller making investment
in the buyer’s country, such as
transferring technology creating
jobs, or sourcing materials locally.
Example:

A concrete example of an offset agreement can

be seen in the defense industry. When a country
purchases military equipment from a foreign
defense contractor, the seller may be required to
fulfill offset obligations as part of the deal. For
instance, the seller may agree to:

1. Investment: establish a manufacturing facilities

or research centers in the buyer’s country to
create jobs and transfer of technology.
2. Technology Transfer: Transfer advanced
technology or know-how to the buyer to
enhance the country’s domestic capabilities.
3. Training: Provide training programs to local
workers to enhance their skills and expertise.
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 a partial
payment for the
contract.
Example:
Company RTZ of Taiwan entered into
a USD 500,000 agreement with the DEF
University of Malaysia for the supply of
desktop computers in its two laboratories.
With students paying a Computerization
fee, RTZ will collect a portion of said fees
as partial payment for the contract while
DEF will pay the other portion of the P
500,000 contract price in cash.
5. Switch trading - the use of a
specialized third-party trading
house in a countertrade
arrangement. When a firm
enters a counter purchase or
offset agreement with a country,
it often ends up with counter
purchase credits which can be
used to purchase goods from
that country. Switch trading
occurs when a third-party
trading house buys the firm’s
counter purchase credits and
sells them to another firm that
can better use them.
 OF
COUNTERTRADE
GLOBAL PRODUCTION, OUTSOURCING AND
LOGISTICS
Questions that an international businessman
man be asked:
1. Where should we produce our products?
2. For how long?
3. Should we do the production, or should we engage in
outsourcing?
4. How can we manage the global supply chain?
5. Should we manage the global logistics efforts or outsource this
management responsibilities
Deciding on where to produce
1. The Country Factor
2. The Technology Factor
3. The Product Factor
 1. The availability of needed resources
( materials and supplies needed to
produce the products)
2. Presence of sufficient skilled
workforce
3. The quality of the supporting
infrastructure (roads, bridges, etc.)
The Country and needed utilities (water,
electricity, communication, etc.)
Factors 4. Laws and regulations of the country
(especially those that affect FDIs)
5. Political stability and peace and
order.
6. Trade barriers connected with the
country
 The Technology Factors

• The level of fixed costs

• The minimum efficient scale
• The flexibility of the technology
The Product factor

• The product's value-to-

weight ratio.
• Whether the product serves
universal needs.
Strategies for Locating Production Facilities
Strategies for • Concentrating them in the optimal location

Locating and serving the world market from there.

Decentralizing them in various regional or
Production
•

national locations that are close to major

Facilities markets.
Best Countries for Foreign Investment
• United States
• Denmark
• Sweden
• Finland
• United Kingdom

Worst Countries for Foreign Investment

• Afghanistan
• Venezuela
• North Korea
• Syria
• Libya