International-Business-Dr-R-Chandran-E-book

13. COUNTER TRADE
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International Business- Dr. R. Chandran
In all the above operations, foreign exchange is necessary for transactions.
For exports, the supplier gets the proceeds in foreign exchange. For joint
ventures, profits are shared in foreign exchange. For international licensing,
the license fee is paid in foreign exchange. The current challenge to many
international business organizations is to get payments in foreign currency.
A vast majority of the countries in the world do not have the necessary
reserves of foreign exchange to remit. However they can still be actively
involved in international business, by using COUNTER TRADE
mechanism. Counter trade came in to existence in the absence of foreign
exchange reserves in a country. Sometimes the country is not willing to pay,
though foreign exchange reserves are with it. Such unwillingness will lead to
non-repatriation of payment. Ultimate solution is to enter in to counter trade
practices.
Counter trade can be classified in to three categories:
1. Pure Barter
2. Buy Back
3. Counter Purchase
Counter Trade
Pure Barter Buy Back Counter
Purchase
Product to
product
exchange
Buy from the
host partner in
setting up unit
Change of
destinations
till finding
FOREX
Only for Private Circulation