Counter trade is an effective business tool and plays an important part in world trade.It basically comprises transactions of import or exports of goods or services with financial settlements or an agreement for other modes of payment. This would depend on type of counter trade such as, Barter, Switch trading, counter purchase or buyback. Buyback is essentially a model of counter trade whereby, a company may build a plant or supply technology, machinery, training or other inputs. In return for this the company accepts a percentage of the output as payment. This makes the setup viable and beneficial for both as it provides superior quality of input, and a confirmed sale of a percentage of it's output for one and a quality product at low price for the other.
As an example, Occidental Petroleum Corporation signed a deal with the russian government to set up several Ammonia plants in Russia and as partial payment receive Ammonia over a 20 year period.
National Textiles Corporation of India purchased 200 looms from russia for Rs 200 million. The buyback ratio was 75% meaning Russia received 75% of the textile material produced from use of these looms and remaining was paid in cash.
Buyback agreements are used extensively in the petrochemical industries in Iran and other Gulf nations.
Get Answers For Free
Most questions answered within 1 hours.