Countertrade is international trade where goods or services are exchanged for other goods or services, rather than for the usual hard currency or money (Verzariu, 2012).A monetary valuation can be used in counter trade for accounting purposes. The exchange must be as fair as possible as the transaction involves exchange of goods or service for something of equal value. Countertrade can be classified into five broad categories: barter, switch trading, counter purchase, buy back and offset CITATION Bon15 \l 1033 (Bondless, 2015).
Barter is the oldest form of countertrade that exists; it involves the direct exchange of goods or services with equal value, without any cash dealings. Switch trading is where a company contracts another to make a purchase from a given company CITATION Kel13 \l 1033 (Kelly & McGowen, 2013). For example country A and B exchange coal and gas, country C (switch trader) decides to buy the gas from country A at a discounted price and uses the proceedings to pay country A as country Bs payment.
In a counter purchase, one country agrees to purchase goods or services from another country up to a predefined amount. In an offset situation, the seller country helps in marketing products manufactured by the buying country, it can also allows part of the assembly of the exported product to be carried out within the buying country CITATION Stu16 \l 1033 (Study, 2016).
Countertrade major advantage is that it facilitates conservation of foreign currency, increases employment, higher sales, better capacity in utilization and ease of entry into rigid markets. A major disadvantage of countertrade is complex negotiations, potentially higher costs, challenging logistical issues and valuing of goods may be unfair, especially where goods being exchanged have fluctuating prices CITATION Kel13 \l 1033 (Kelly & McGowen, 2013).
A firms suitability to countertrade occurs when it lacks sufficient hard currency, or where other types of trade are not possible. Other firms are more likely to use countertrade than others. For example countries with insufficient currencies may prefer countertrade as opposed to countries with sufficient currencies. Countries with enough resources to cater for its population might also not advocate for countertrade CITATION Stu16 \l 1033 (Study, 2016).
References BIBLIOGRAPHY \l 1033
K Boundless. (2016). Countertrade. Boundless Business. Retrieved 19 Apr. 2016 fromhttps://www.boundless.com/business/textbooks/boundless-business-textbook/international-business-4/types-of-international-business-41/countertrade-217-1786/
Kelly, M., & McGowen, J. (2013). "BUSN 5,". Mason, OH. ISBN 1111826730.: South - Western Cengage Learning.
Study. (2016, April 19). COuntertrade. Retrieved April 19, 2016, from Study.com: http://study.com/academy/lesson/countertrade-definition-types-examples.html
Verzariu, P. (2012 ). Trends and Developments in International Countertrade. New York: Business America.
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