Counter trade is a trade related entry mode.

Definition : Definition LCR explains "Countertrade is inherently an ad hoc activity practice varies according to local regulations and requirements, the nature of the goods to be exported and the current priorities of the parties involved. Also, the terms used to describe the main modes of trading vary, often interchangeably causing confusion. " - which is a fancy way of saying countertrade can be a lot of things depending on who is involved Need of Countertrade : Need of Countertrade Shortage of convertible currency Liquidity problems Develop new markets Stimulation of jobs and Industry To balance overseas trade Ensure future selling contracts (Counterpurchase) To gain a competitive edge over other suppliers. It has become popular as a means of financing international trade to reduce risks or overcome problems associated with various national currencies. Types of Countertrade : Types of Countertrade Barter Counterpurchase Offset Buyback Switch Trading Tolling Barter : Barter Goods or services are exchanged for goods or services In principle, no cash involvement Exchange maybe delayed Only one contract involved Examples : Indo Iraq Wheat and Rice for Oil deal Example of Barter Trade : Example of Barter Trade Country A Country B Cigars Mining Equipment This means if Country A sells mining equipment to Country B in return for cigars - they will probably hold some of the mining equipment back until they have made some good profit from the cigars. . Indo-Iraq Barter Deal : Indo-Iraq Barter Deal In 2000, India and Iraq agreed on an "oil for wheat and rice" barter deal, subject to UN approval under Article 50 of the UN Gulf War sanctions, that would facilitate 300,000 barrels of oil delivered daily to India at a price of $6.85 a barrel while Iraq oil sales into Asia were valued at

about $22 a barrel. In 2001, India agreed to swap 1.5 million tonnes of Iraqi crude under the oil-for-food program. Counterpurchase : Counterpurchase Counter purchase is a reciprocal buying agreement. It occurs when a firm agrees to purchase a certain amount of materials in future back from a country to which a sale is made. Volume of trade does not have to be equal (may be covered by cash) Covered by two separate contracts. More flexible than barter Under one of the contracts, the sale of goods between an exporter and importer is negotiated and paid for in a specified currency. The second contract obligates the exporter to purchase goods from the importer at a specified value over a period of time. Unlike buybacks, counterpurchases involve hard currency. Offset: Offset A party agrees to purchase goods and services with a specified percentage of its proceeds from its original sale Generally used in case of Military Equipment. Direct Related Products Indirect Unrelated Products Example: Example DIRECT - E.g. Shanghai Aircraft manufacturing corp china may buy jets from boeing using its proceeds from manufacturing the tail sections of the jets from Boeing. INDIRECT suppose Japan supplies a Chinese company with capital inputs and asks China to promote its other services like tourism and trade etc. Buyback : Buyback Occurs when a firm provides a local company with inputs for manufacturing products (mostly capital equipment) and agrees to buy a part of the produce in return for the payment. It may also include technology transfer Two separate contracts involved : Sales and purchase contract Example of Buyback : Example of Buyback Chinatex, a Shanghai based clothing manufacturer and Japans Fukusuke Corp., arranged a buyback whereby the latter sold 10 knitting machines and raw materials in return for 1 Million pairs of underwear to be produced on the knitting machines Chinatex benefitted from Fukusukes instructions on how to use the equipment and its excellent after sales service In Turkey, Coca-Cola set up a joint venture to produce

tomato paste for the American market and other markets, providing management and technology for the plant. Switch Trading : Switch Trading It involves atleast three parties. This means a country may barter goods from another country which may be of no use to itself so it sells the goods to other country for hard cash Expands Exports Enables party to achieve satisfactory outcome May be difficult in brokering. Example- Switch Trading : Example- Switch Trading Brazil exported corn to East germany (before Unification) and received products in return. Germany did not use corn , so it sold the corn to other countries for hard cash. Tolling : Tolling Manufacturers, in regions such as the Former Soviet Union, may sometimes be unable to service customers because they lack the foreign exchange to buy raw materials. In a tolling deal, a supplier himself provides the raw material (steel ingots, say) and hires capacity of the factory to turn it into finished goods (e.g. steel tubes). These are then bought by a final customer who pays the supplier in cash - throughout the process the supplier retains ownership of the material as it is processed by the factory." - this is similar to Contract Manufacturing where the Contractor provides much of the materials.