January 10th, 2018
Managing Risks with Countertrade
The opportunities provided by non-traditional markets for business expansion necessitate the consideration of countertrade as a means of market entry and firm growth. The risks involved however make it disadvantageous to utilize these opportunities without a prior evaluation of long-term benefits to be derived from the market, products that are acceptable for repayment and when a countertrade offer may not be necessary.
A primary consideration for exporters would be the way to deal with countertraded items. In-house use of products in the production process especially where raw materials are the subject of countertrade or sourcing the market for items received provides alternatives for firms dealing with countertrade. In such cases then, a strategy to minimize risks would be accepting only those products that the firm has adequate resources – production or marketing – that ensure items received do not result into massive losses to the company. Alternatively having access to switch-trading partners, who can purchase the countertraded goods/ services that the firm does not have adequate in-house resources to deal with, would provide the firm with extended capabilities to conduct countertrade activities in foreign markets thus expanding the consumer awareness of its products.
Countertrade agreements, though in a limited way, have provided alternatives for companies wishing to establish growth in global markets. In markets where the governments have for instance restricted imports to preserve their foreign reserves, countertrade could prove the only way for firms to generate a competitive advantage in the market. However, since countertrade arrangements may involve an exchange with inferior quality goods or those that may require substantive in-house investment to deal with, evaluation of the ultimate benefit to the firm would be necessary. However firms that have access to third party entities which provide switch back services for countertraded products could effectively increase their market coverage in foreign countries while reducing the adverse impact of fluctuations in exchange rates or lack of convertible currency in those markets.
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