Countertrade is the practice in international trading of paying for goods in a form other than by hard currency (Oxford,

2002). It can also be described as an alternative means of structuring an international sale when conventional means of
payment are difficult, costly, or nonexistent (Hill, 2006).

In most cases counter trading takes place where a company in a country that has little foreign currency wants to purchase
goods from a company in another country. As the company cannot obtain the appropriate currency to purchase the goods it
wants, it offers goods in return for the goods it needs (Leader et al, 1990)

Countertrade transactions are on the increase. According to West (2002), countertrade makes up an estimated 20 percent of
all world trade. Hence, a significant amount of international transactions now involve some form of countertrade agreement.
This is especially so in the communist countries and also emerging markets where the availability of acceptable hard
currency is poor (Reynolds, 2006).

Studies highlight the role that countertrade may play in helping foreign firms develop relationships with developing
countries. Developing business relationship in such countries may be hindered by their lack of cash or poorly convertible
currency. Foreign firms, however, may be keen to enter rapidly to gain first mover advantages (Bridgewater et al, 2002).

According to Cateora (et al, 2006), countertrade is a pricing tool that every international marketer must be ready to employ,
and the willingness to accept a countertrade will often give the company a competitive advantage. If a company is unwilling
to enter a countertrade agreement, it may lose an exporting opportunity to a competitor that is willing to make a
countertrade agreement.

Given the problems that many emerging markets have short of hard currency to pay for their purchases and they want to pay
with other items instead of cash, countertrade may be the only option available when doing business in emerging markets.
However, the drawbacks of countertrade agreements are substantial.

The main disadvantage in a countertrade transaction is that firms often find themselves handling products with which they
are not familiar. In addition to this, countertrade can be expensive and time-consuming because of requirement of an in-
house trading department to dispose of products profitability.

Countertrade is most attractive to large, diverse multinational enterprises that can use their worldwide network of contacts
to dispose of goods acquired in countertrading (Hill, 2006). Unlike large enterprises, small and medium sized exporters
should probably try to avoid countertrade deals unless they have no other options because they lack the worldwide network
of operations that may be required to profitability utilize or dispose of goods acquired through them (Lecraw, 1989).

With its roots in the simple trading of goods and services for other goods and services, countertrade can be categorized as
four distinct transactions: barter, compensation deals, counterpurchase, and buy-back. Barter is probably the oldest and best
known example of countertrading, however others have also evolved to meet the requirements of a more sophisticated
world economy. Types of countertrade are as follows:

a) Barter:
Barter is the direct exchange of goods between two parties in a transaction (Cateora et al, 2006). This type of countertrade
occurs without a cash transaction. Although barter is the simplest arrangement in international commerce, it is not common
because the parties needs for the goods of the other seldom coincide and because valuation of the goods may be
problematic.

b) Compensation deals:
Compensation deals involve payment in goods and in cash (Cateora et al, 2006). The transaction often involves a certain
amount of the value in hard convertible currency and the rest in goods. An advantage of a compensation deal for the seller
over a straight barter is that a proportion of the invoice value is in hard cash (Reynolds, 2006).

c) Counterpurchase:
Counterpurchase is also known as offset trade. In this situation, seller receives payment in cash but also signs a second
contract to purchase a certain amount of goods from the buyer also in cash. This might be for exactly the same amount as
the first deal therefore completely offsetting the cash handed over for the firs transaction, or it might only be for a
proportion of the value of the first transaction (Reynolds, 2006). This type of countertrade is quite common.

d) Buy-back:
This type of agreement is made when the sale involves goods or services that produce other goods and services, that is,
production plant, production equipment, or technology. The buy-back agreement usually involves one of two situations: The
seller agrees to accept as partial payment a certain portion of the output, or the seller receives full price initially but agrees
to buy back a certain portion of output (Cateora et al, 2006).

REFERENCES
Bridgewater, S, and Egan, C. (2002), "International Marketing Relationships", Palgrave, p.231
Cateora, P.R., and Ghauri, P.N. (2006), "International Marketing", European Edition, McGraw-Hill, p.250-273
Hill, C.W.L (2006), "International Business", 6th Edition, McGraw-Hill, p.546-549
Leader, W.G., and Kyritsis, N. (1990), "Fundamentals of Marketing", 1st Edition, Hutchinson Education, p.130
Lecraw, D.J. (1989), "The Management of Countertrade: Factors Influencing Success", Journal of International Business
Studies, Spring, p.41-59
Reynolds, P. (2006), "Lecture Notes"
West, D. (2002), "Countertrade", Business Credit, April, p.48-51