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Definition: Countertrade International
Countertrade is defined as trade exchange of goods between two countries where one country pays another country with goods or services rather than real currency. Countertrade may be profitable for developing countries to reduce trade imbalance as they can pay with goods or services rather than real currency exchange. Countertrade is also useful in situations where foreign exchange controls are applicable creating hindrance in foreign exchange. Countertrade is used to increase production of industries within the country and also increases export of surplus production by finding new international markets.
Countertrade accounts for 15-25% of international trade. The peculiar characteristic of countertrade is its form of payment. Countertrade can be of one of the following types:
- Barter: Under this system, goods are directly exchanged between the buyer and seller. This does not involve any money or any third party. This form is not practiced widely in industry because of the difficulty of finding and valuing the products to exchange.
- Compensation deal: The buyer offers some percentage in cash and the rest of the amount is paid in goods.
- Buyback arrangement: This is mostly used in purchase of machinery or technology. The buyer buys a machine and agrees to pay in form of the goods produced from the machine bought.
- Offset: In this case the seller receives full payment in cash for the traded goods, but the seller has to spend a fixed percentage of the received amount in the seller’s country. This form is mostly applicable to trading of aircrafts.
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