Countertrading in a Small Business

Countertrade transactions involve trading in goods and services as opposed to money—i.e. bartering. This means cash does not change hand. Governments often use the countertrade system to decrease their trade deficits.

Companies concerned with countertrade typically penetrate the foreign market—usually quickly—by adding sales, building customer bases and supplier relationships and overcoming liquidity issues. Nonetheless, countertrade is primarily used for enabling trade in countries that are unable to pay for imports. Other times, it is used to help look for new export markets.

One supplier I knew used it to get a competitive edge over competing suppliers. He used it to work-around the rules and regulations of a foreign country with almost no access to credit. It helped him generate goodwill. Although it is complex is slightly risky, companies still use countertrade because of that access to less developed markets. In doing so, it add a new dimension of sales which you would not have had. Mostly, it is the developing world solution to the credit problem which entices firms. Other times, it allows firms to get rid of surplus product.

However, countertrades often face significant price volatility since the trade is based on quantities of goods rather than fixed prices. Moreover, these deals are time consuming and can a very long time. This typically results in higher transaction costs because of middle men and liaisons. When commodities are involved you have to really consider the political climate and the logistics involved (if you aren’t screaming OMG, I salute you.)

Is a countertrade the best choice for small businesses? Probably not, but it is an effective strategy to get around credit restrictions. Companies like Coca Cola use it all the time. But hey, that’s coke, not most companies.

About the author

David writes about economic activity throughout Southeast Asia and specializes on international trade relating to China. In addition, he holds a Masters Degree in Economics from Peking University.
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