Advantages and disadvantages of countertrade

Countertrade

Advantages and Liabilities of Countertrade

The intent of this paper is to evaluate the advantages and liabilities of countertrade for a given product in a foreign market that has a shortage of foreign currency. By far the most prevalent form of transaction not involving currency, countertrading is practiced prevalently throughout many third world nations of the world where currencies are in short supply. Estimates to be 20 to 30% of world trade involving over 90 nations that comprise an estimated U.S. $100B in trade, countertrading can involve payments of both currency and bartered products or services (Kim, Choi, Millar, Hilton, Cheng, 2006). The main advantages of countertrading is that it is a means of selling around import and expert quotas, can increase the velocity of transactions and therefore be more adept at demand sensing of a given national markets' needs, and also can be instrumental in creating the foundation for strategic sourcing networks, as researchers are finding throughout Eastern European nations (Kim, Choi, Millar, Hilton, Cheng, 2006).

Strategic sourcing by definition requires a highly synchronized cross-functional team of sourcing professionals which necessitates that countertrading networks have begun to emerge, specifically in Eastern Europe, to accommodate the complexity of sourcing needs (Kim, Choi, Millar, Hilton, Cheng, 2006). Countertrading then is gaining in sophistication throughout developing nations' economies and becoming the foundation for procurement needs. The disadvantages of countertrading include the assigning of liability for the product on resale, interference between the countertrade contract and sales contract, in addition to currency fluctuation risks and pricing risks (Angelidis, Ibrahim, 2001). There are also the risks of non-performance the actual countertrade and the potential for fraud if these transactions are completed from long distances with relatively unknown trading partners.