A bank guarantee, in a sense, is somewhat like a performance bond and a standby letter of credit, but very few banks will issue such documents, other than in a form which really will operate as a standby letter of credit. They had to stumble through their early countertrade transactions--learning on the job by trial and error. Countertrade can be separated into five variants: 1. Performance bonds are usually cheaper than letters of credit, and are less likely to be used successfully by another party. The company's needs may include entering a new market, maintaining market share, or releasing blocked funds. A performance bond is really a contract of insurance, and therefore provides some security. You need to ensure that the corporate records and the requirements for corporate existence are maintained.
Sometimes the company is simply new to countertrade, and wants to move cautiously until it builds up expertise. These are agreed limits on the volume of product that can be imported into a country. They may also want to decrease the risk of a hostile takeover by reducing the number of shares for sale, or to discourage short-term trading by driving up the share price. This trade, like others that fall under the umbrella term countertrade, illustrates that buyers and sellers often find creative ways of settling pay¬ment for imports and exports. There are standard definitions for trade terms and you should ensure that both parties are using the same definitions. In many jurisdictions it is impossible to contract away liability for this damage. If the company has encountered corrupt foreign officials, slow delivery or non-delivery of counterpurchase products, poor quality products, sudden changes in product availability, demands for the moon secret product formulas, proprietary technology, etc.
This can be problematic where the trader has an immediate export opportunity, and you do not have an opportunity to obtain confirmation that the exporter will qualify under your countertrade or offset contract. They use it aggressively as a marketing tool. Itoccurs when a firm agrees to purchase a certain amount ofmaterials in future back from a country to which a sale ismade. Events of force majeure must directly impact the parties preventing their performance, not merely making their performance more difficult or expensive. One such example is a deal proposed by the Philippine Government where they offer to trade Philippine coffee for essential products. However, it is often difficult to obtain permission to use third parties, especially in offset contracts.
And this could have a negative impact on your profitability. As for the difference in mentalities, this can be best handled by an intermediary, such as an in-house countertrade coordinator in either the industrial company or the trader, who understands the difference in approaches and mentalities, and can smooth over the relations. It's not as complicated as it may sound. In the event that there are problems with the countertrade transaction and the supplier of the goods has a claim against your company or your trader , it is obviously not in your company's interest that your countertrade partner or buyer of your industrial goods or services interfere with the contract of sale. Furthermore, during negotiation stage of a barter deal, the seller must know the market price for items offered in trade. No matter what kind of deal is made, however, these companies will insist that they do not countertrade.
The entire company's countertrade related sales performance suffers because of a lack of coordination and teamwork. Unlike buybacks, counterpurchases involve hard currency. This is why large firms tend to aggressively explore new export possibilities. The safest route is to use a reliable trader. Countertrade is often viewed as an excellent mechanism to gain entry into new markets.
Agreement by one nation to buy a product from another, subjectto the purchase of some or all of the components and rawmaterials from the buyer of the finished product, or the assemblyof such product in the buyer nation. The products might have changed but the basic concept is still the same as the underlining need which brings together two nations in a trade relationship still exists. More than 80 countries nowadays regularly use or require countertrade exchanges. The idea behind an indirect offset is the same as a direct offset, but the offset doesn't involve the same trade transaction. In sales implementation, the company should adhere to the promised delivery schedules. A letter of credit instills trust as a bank is involved.
Otherwise you will need to hire an additional legal adviser or advisers. Deposit of product with a third party may be a more attractive option for your partner as this does not appear to him to be a deposit of money. More often, however, the policy evolves slowly, growing out of the company's experiences in trading with different companies. Countertrade and Barter - an introduction Why Countertrade? You must ensure through careful review, negotiations, and drafting of your contract with the trader that the risks are passed on to the trader, or that they have been identified and you have a strategy to handle those risks which are not passed on. An umbrella concept that has come to mean all forms of reciprocal or compensatory trade arrangements.
If arbitration or litigation is necessary it is cheaper for your legal advisers to work with a law with which they are familiar. Companies with proactive strategies have made a commitment to countertrade. Currency Risks There are really two main currency risks. One such method of trading between nations is called counter trade. In 1972, it was estimated that countertrade was used by business and governments in 15 countries; in 1979, 27 countries; by the start of the 1990s, around 100 countries Verzariu, 1992. These do not ensure performance, but rather provide security that you will recover something in the event of the other party's failure to perform.
The company should estimate the cost of: 1 human resources, which is the cost of doing the entire transaction in-house versus giving it to a trading company or other service provider, or a combination approach, and 2 other costs such as legal, insurance, shipping, and financing. It is less attractive to small and medium sized exporters who lack a similar network. It is not surprising then, that many U. But this is arguably too simplistic an interpretation of how markets operate in the real world. Recovery only occurs through shortfalls in delivery, whether expected or unexpected. Avon does not accept counterpurchase products. When a company has an ambiguous countertrade policy, the divisions are left to interpret the policy as they see fit, and they will develop strategies on a trial and error basis.
The first step the company must take in developing a countertrade strategy is to define its policy clearly to its divisions. The effect of a penalty is fairly obvious, however in certain circumstances you could pay a penalty and still be obligated to complete your obligations. If you are dealing with an entity which is not insurable through political risk insurance, you may be able to obtain insurance on the government guarantee although not on the contract itself. Compensatory Arrangements: Also referred to as countertrade, reciprocal trade, offset, or counter purchase. If your contract does not allow you to use third parties you may be faced with accepting more risks than you might prefer, as you will be obligated to complete the transaction on your own. Passive strategy companies regard countertrade primarily as a form of export financing.