Drawbacks in the Growth of counter Trade

Some other reasons for the growth of counter trade are:

1. The desire to conceal from the domestic public the fact that the sale is being made below its cost. This motive for counter trade is important for many developing countries and also for a number of communist countries
2. A counter trade transaction may provide some slight additional certainty in an uncertain world.
3. Counter trade transactions permit concealed discounting in a period of weak markets. OPEC countries have sold oil at a discount through counter trade transaction without openly breaking the price maintenance provisions of the OPEC. With high unemployment and excess capacity many firms in industrial countries have wanted to sell anything they could above their variable costs – provided such sales did not disturb their normal markets and pricing patterns. In short, counter trade permits price discrimination among customers.
4. Sellers in developing countries or communist countries may feel that they can expand markets for their own products by drawing on someone else’s expertise with respect to world markets – if the counter purchaser of their products indeed sells them in channels that had not seen developed before.


Counter trade transactions are often extremely complex and difficult as compared with straight forward trade particularly if they involve transaction over time and intricate pricing mechanism.

The very complexity of counter trade makes it a less preferred way of doing business. The practice requires planning and commitment unheard of in the traditional cash-for-goods methods of international trade. The pitfalls are numerous. Expertise has to be hired or trained. Complex contracts have to be negotiated and fulfilled. Sometimes goods have to be disposed of at undesirable terms.

Manufacturing firms have to set up subsidiaries to handle counter trade arrangements or employ the services of trading companies specializing in such activities.

In an ideal counter trade deal, a company receives goods that it can use internally or pass along to established customers. Companies considering accepting counter trade obligations should prepare lists of products commodities and services that can be easily used or disposed of. Large chemical corporations, such as Dow Chemical Co., or corporation that do a lot of outside purchasing like Union Carbide Corp., are in a particularly good position to handle counter traded goods.

Export sales linked to counter trade arrangements require careful planning to ensure that the imported products will be of good quality, easily marketable delivered on schedule and reasonably priced to take account of the additional marketing costs that may be involved. But in most cases, when a company exports to a nation requiring counter trade , it must accept goods that the country cannot or would not try to sell in international markets. To unload these goods, the company usually had to cut prices. Since cannot afford to absorb all that loss it may pad the price of goods it sells to its counter trade customers. Very often, to dispose of the goods obtained under counter trade, the counter trade specialists /company manages to split the premiums and discounts. In fact, to be successful, a counter trade must have the avarice and political sensitivity of a crooked bureaucrat and the technical knowledge of a machine tool salesman.

Counter trade is full of risks and uncertainties. Risks increase as counter trade arrangements tend over several years. Uncertainly about availability and quality of products to be purchased in future years is a specially serious disadvantage. Where a large sale of plant, equipment, or technology is involved, a potential change in the potential and national security considerations adds to the uncertainty When counter purchase or buy-back arrangements are concluded exporters may have to obtain bridging finance for themselves or provide it to foreign buyers. This increases the financial costs of counter trade transactions.

Counter trade arrangements are time consuming to conclude and due it the complexities involved, the problems with counter trade and barter is the high ratio of talk to action. For every 10 to 20 deals that are talked about perhaps one gets done.

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