Dan West On
Countertrade
By Dan West
For
the past 56 years, since the end of World War II,
countertrade and its derivatives have become a part of
international trade. Countertrade has allowed developed
countries to finance their exports in developing countries.
It has also become a tool in the competitive arena.
What is countertrade? Countertrade is listening to the
international customer�s needs and helping them to meet
their needs. These needs could be credit deficiencies,
technology needs, management expertise needs, world-market
information needs or hard currency shortage. Countertrade is
a marketing tool�a creative marketing tool.
Why Countertrade?
Countertrade enables an exporter to gain new customers that
they would not ordinarily have. It is a way of expanding
international business and securing payments where credit is
difficult or nonexistent. Countertrade also opens new
avenues of communication with these customers. These
additional avenues and relationships make expansion of
business easier.
Company Countertrade Organization
There are several different ways a company can organize to
efficiently and effectively conduct countertrade. The
countertrade organization is like an internal trading
company. It may report to the treasury department, the
international sales department or the market development
department. Where is the best place to put the countertrade
organization? This question was asked of members of the
American Countertrade Association in a survey several years
ago. The consensus was to place the countertrade
organization in the department that had the most
entrepreneurial leaders in the highest corporate reporting
position.
Types of Countertrade Company Organizations
Countertrade company organizations can be chartered to
conduct countertrade in different ways. The four most common
organizations are: service centers, profit centers,
reactive organizations and pro-active organizations.
Service Centers,
or facilitator organizations, have the charge to bring the
parties together. The parties are the seller and the
purchaser of the countertraded product. In this type of
department, the countertrade organization has very little
power; it acts only as an advisor.
Profit Centers
are the second type of organization. As the name suggests,
profit is the main goal of this type of organization. This
is the most difficult type of organization to manage from
the countertrade aspect. If the countertrade organization is
put in a position to make a profit, the company may pass up
countertrade opportunities because of the inability to sell
the countertraded products at a profit. Thus, they will not
be interested in performing the countertrade and may be
unable to sell the company�s products. There is also another
problem: Why be concerned with the company�s own product
line when it could make more money by selling other
products?
What is countertrade? Countertrade is listening to the
international customer�s needs and helping them to meet
their needs. These needs could be credit deficiencies,
technology needs, management expertise needs, world-market
information needs or hard currency shortage. Countertrade is
a marketing tool�a creative marketing tool.
Reactive Organizations
are every countertrader�s nightmare. It is very difficult
and costly to perform because the countertrader is at the
mercy of the customer and his/her own company. The
countertrade organization is brought into the negotiation
process in the later stages, after everything has been set
and told to perform. This is often done after the company
has resisted countertrade throughout the negotiation and
only agreed to countertrade as a last negotiating point.
This can very well be the most expensive type of
countertrade fulfillment.
Pro-Active Countertrade Organizations
cost the least, and in the long run are the most
cost-effective. It is best to use countertrade as a sales
tool on the front end of the sales negotiation rather than
being caught off guard with the following line: �Oh, by the
way you must countertrade to get the contract.� In doing
this, a countertrade organization can negotiate for better
quality terms, ask for more products to be included in the
countertrade contract and try to reduce the number of
restrictions imposed by the countertrade contract. The most
effective companies in countertrade have a central person to
direct the countertrade symphony so that everything is
organized and centralized. The salesperson should not also
take on the role of the countertrader. These two jobs have
different goals and functions. At this point, the
countertrader�s job is like that of a purchasing agent,
getting security of supply at the best price and the best
quality. The salesperson�s job is to make the sale at the
best price. If the salesperson is also acting as the
countertrader, it places them in a difficult position, and
neither job will be done to satisfaction.
How to Organize for Countertrade
There is really no single best way to organize for
countertrade. The best way is dependent upon the company�s
objective. Countertrade becomes effective when it permeates
the mindset of everyone in the organization�when everyone
realizes it needs to be considered as an alternative method
of doing business. Top management support is a must. Without
that vital support, there are 1001 ways a countertrader can
be blown off course. Countertraders need to know they have
top management�s support if they countertrade pro-actively,
not reactively. The countertrade initiative needs to come
from top management. Top management must be made aware of
the benefits of countertrading, so they can give their
support.
Company Countertrade Policy
A company�s countertrade policy is made up of at least five
elements: purpose, purchase priority, penalties or gains,
type of product and speculative trade.
Purpose
is the first thing to look at in countertrade. When
pondering the purpose, consider whether it will lead to
profitable and strategically desirable sales. Countertrade
is not for all products. A company�s most profitable and
strategically desirable products should be used in
countertrade activities. To determine what products should
support countertrade, ask these questions: Which products
are going to be sold internationally on a long-term basis?
What is the purpose of this transaction? What needs to be
achieved? How can it be accomplished? The answers to these
questions should support a product that has a long-term
commitment to a profitable international business.
The
second element is purchase
priority. This answers the question of what is to
be done with the products that are countertraded.
Countertraded products can be moved or sold in three areas.
The first area is a company�s raw material needs. If the
purchasing department buys for the company�s raw material
needs, why not use them as leverage to make a sale. The
second area is a vendor�s raw material needs. A company may
not be able to use the products, but some of the company�s
vendors may be buying the countertrade product and
converting it into a raw material for the company. If this
is the case, it may make sense to have the countertraded
product sent to the vendor for conversion into a company�s
raw material. The third area, purchase priority, is other
goods that can be sold. The countertrade profession calls
these products �grass hats and door mats.� They are any
products that can be sold for hard currency.
For
the benefit of the accounting department, a
penalties or gains
on the countertrade transaction must be charged to the
product line benefiting from the countertrade. If this is
not done, then the true cost and resulting profit will not
be known on the product sold.
The
type of product
countertraded (products taken back) must not compete with
the company�s own products. Make sure the products taken
back do not compete in the same industry or in the same line
as the company�s products. If this occurs, countertrade will
be more of a hindrance than help. A countertrader�s life can
be made very difficult by taking back and selling products
similar to those made by his or her company, or competing in
the same market area as his or her company. In order to make
a successful countertrade transaction, a countertrader must
be familiar with the various product lines of his or her
company and the inter-relationships within the company and
its customers.
Countertrade enables an exporter to gain new customers that
they would not ordinarily have. It is a way of expanding
international business and securing payments where credit is
difficult or nonexistent. Countertrade also opens new
avenues of communication with these customers. These
additional avenues and relationships make expansion of
business easier.
A
company should not engage in
speculative trade. Always have a customer before
the countertraded product is purchased. Do not take or
purchase countertrade goods in anticipation that
countertrade will be required. In fact, it is strongly
recommended that a company take title to the countertraded
goods but not possession. By doing this, the goods do not
need to be inventoried or warehoused. Because the title of
the goods is taken, the money does pass through the
company�s hands and can be deposited correctly.
Proposed Countertrade Organization Charter
The countertrade organization is charged with supporting the
marketing department in maintaining and developing business
in those situations where customer needs cannot otherwise be
met. It has the responsibility to establish and manage
export programs at a dollar volume in balance with the
company�s requirements for individual countries. It is also
expected to meet these expanding countertrade requirements
at an acceptable level of commitment. To satisfy this
objective, the organization should be staffed with trade
professionals capable of focusing the resources of the
company.
Reluctance to undertake countertrade can be overcome by
establishing a continuing dialogue with management. This
eliminates the chance of surprise in both liabilities and
opportunities. The countertrade organization needs to start
and maintain an internal selling effort. This can be
accomplished through several activities. Some of these
activities include writing a monthly countertrade
newsletter, attending and making presentations at various
staff meetings, publishing articles in company newspapers
and magazines, or by receiving mention in the company�s
annual report. The countertrader can also organize internal
informational countertrade meetings to get people�s
innovative juices flowing. Schedule periodic meetings with
the marketing, sales, manufacturing, technical and
administration departments to keep them updated and to share
information and status reports with them. All of these
activities are designed with one purpose in mind: to let
people know about countertrading and how it will benefit the
company.
One
word of caution�do not get caught up in the whirlwind of
international trade. Some companies get so excited about
getting into international trade that they forget
rationality and common sense. For example, they forget the
simple rule of using countertrade as a marketing support.
Instead, they use countertrade as a speculation tool and
become traders. Do not use countertrade to become a trader.
Countertrade is a marketing tool that should only be used to
ensure that the company�s products are sold in the
international market.
Activities of a Countertrade Organization
Countertrade organizations can provide many services to a
company in addition to facilitating export sales with an
alternative to hard currency payment. They can also provide
a positive balance of payment position in countries where a
company wants to do business. This corporate positive
balance of trade can be very beneficial when getting special
governmental permits. The positive balance of trade sends
the message that a company is interested in being a �good
citizen.�
For
example, there was a situation in a South American country
where the border was closed. A US company could not import a
raw material into South America because there was a local
manufacturer producing the same product. Furthermore, the
country was in need of hard currency and did not want to use
what little reserves it had for importing a product that was
made in the country. The US company presented a proposal to
the foreign government that called for importing the needed
raw materials into the country and exporting three times as
much in value as imported. The government agreed to the
plan, and it turned out to be a very profitable situation.
It not only saved the country�s hard currency, it generated
additional hard currency.
This is an instance where a countertrader had to listen
carefully to his customer in order to identify the root
cause of the problem and to help meet the need. The real
issue was not the protection of the local manufacturer, but
the country�s incapacity to generate adequate hard currency.
Another activity of the countertrade organization is to
initiate a strategic presence. This can be accomplished by
setting up a base of operation that will allow a company to
work closely with the foreign government and the company
within that country. A company is sending a message to the
foreign government that they are not just selling and
exporting to the country, but working with them. This will
generate a more loyal following of customers, and the
chances are better that the company will not be abandoned if
a competitor comes in with a lower price. This strategic
presence can also be used to develop a more positive
country-marketing image, which, in turn, is another way to
build a closer relationship with a company�s customers.
Conclusion
Countertrade organizations can be very positive forces in
international sales when they are charged to conduct
countertrade in a pro-active manner. Countertrade
organizations must also have a policy statement that covers
products to be countertraded as well as what happens to the
profits and losses associated with each transaction. And
possibly the most important point, the countertrade
organization must report at the highest level possible and
have the blessing of the president of the company.
Countertrade Golden Rule
Do not quote prices until the countertrade situation is
clear.
Dan West is president of West Trade International, a
corporation specializing in international trade consulting
and countertrade. He can be reached at 314/727-5522 or via
e-mail at
danwest@prodigy.net . |