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How Corporate Trading Helps Exporters Protect The Bottom Line
 

IOMA

Barter is making a big comeback under the new name of corporate trading. Half of the Fortune 1000 now uses this tool-accounting for $7.5 billion in bartered goods in 1999, and corporate trading, fueled by the Internet, is growing at a rate of 8% a year. Instead of liquidating inventories or assets that are valued considerably higher on your books than they are worth in the marketplace on a cash basis, your export company can receive full value for the goods. You receive a guarantee that the goods won't be resold in markets that will damage your brand image.

How Does Corporate Trading Work?

Under this system, your company receives close to full wholesale value for its excess inventories and other undervalued assets in exchange for Trade Credits or Asset Purchase Credits. These are forms of currency used on a dollar-for-dollar basis to partially pay for your normal prebudgeted goods and services. There are many such trade exchange currencies, including "trade dollars" and "cash equivalent credits," depending on the corporate trading (barter) firm through which you negotiate.

The barter firm then helps your company use these Trade Credits toward the purchase of a wide range of products and services used in your business-from raw materials and packaging to printing, Advertise, and travel.

Barter Solves Two Potential Scenarios

Corporate trading deals can help exporters not only with asset problems, but with capacity problems as well: Asset problem: This is the situation in which an exporter is stuck with goods that are no longer worth book value or original cost. Capacity problem: In this case, the exporter is running its manufacturing operation at less than capacity. The corporate trading option gives such an exporter the option producing additional goods in exchange for trade credits. Many exporters have discovered that corporate trading is a way to raise bottom line profitability by reducing inventory and "carrying costs." The U.S. Commerce Department now estimates that barter accounts for approximately 30% of world trade.

Internet Revolutionizes Barter

This trade finance tool has also benefited from Internet. Exporters can expose their products to buyers worldwide and take advantage of massive online auctions and product listings. Some barter firms even allow exporters to create their own online auctions (see TradeBanc's Asset Auction in the accompanying sidebar). Tens of thousands of companies involved in corporate barter create an enormous pool of products and services that are instantly searchable electronically by your company.

As part of these developments, a new generation of sophisticated corporate trading companies has come into existence, with far-flung networks of global offices and contacts. Your use of financial trade credits, is not limited to the inventory of the corporate barter firm that has purchased your excess goods or capacity for trade credits. Most barter companies will now conclude trades with approved suppliers of the trade credit holder, or develop new qualified sources of supply that will trade. Thus, multiple players and a number of products may be involved in a single transaction.

5 Advantages of Corporate Trading

In discussing the potential of this trade finance tool with upper management, export professionals can use the following five-point checklist.

  1. The corporate trading firm does not find your company a buyer-it is the buyer.
  2. Not only can your company avoid "distress value" or closeout prices for excess inventory due to canceled orders or other causes, but also cash tied up in excess inventory gets freed up for ongoing operations. Services or goods bought with the trade credits have already been budgeted for.
  3. Barter companies and exchanges agree to restrictions on distribution to avoid dislocations of your firm's market channels. For example, exporters are guaranteed their goods will not be distributed in countries where they have license or distribution agreements. Nondiversion contracts can even be arranged with the end-users of your product, mandating that they cannot resell the goods.
  4. While Fortune 1000 firms are active in barter, there has been an explosion of participation by smaller to midsize exporters in recent years. In the past, typical transaction values were in the $50 million to $100 million range, they now include many in the $500,000 range and lower.
  5. Corporate trading firms will meet with your firm's export, purchasing, and marketing management to discuss your company's expenditure areas so that your trade credits can go toward offsetting those major expense categories.

Corporate Trading Services & Resources

International Reciprocal Trade Association, Chicago- based industry group for corporate trading, 312-461-0236; fax: 312-461-0474; e-mail: admin1@irta.net; Web site: www.irta.net. The Association has 190 members in 25 countries, including corporate barter companies, trade exchanges, and barter brokers.

Corporate Barter Council, New York-based trade associate for corporate trading industry, 800- 949-5531; fax: 800-949-5532; e-mail: cbcintl@ibm.net; Web site: www.corporatebarter.com.

Atwood Richards Inc., New York, 212-490-1414; fax: 212-455-1729; e-mail: clientservices@arintl.com; Web site: www.atwoodrichards.com. Atwood Richards has offices in New York, Paris, Germany, UK, Italy, Finland, Belgium, Switzerland, Portugal, Spain, Poland, Hungary, the Czech Republic, Russia, Romania, and Yugoslavia.

BarterCorp, a Chicago-based barter exchange (just purchased by San Francisco-based BarterTrust.com), 800-589-2278; fax: 630-953- 8101; e-mail: info@bartercorp.com; Web site: www.bartercorp.com.

TradeBanc's Asset Auction, Web site: www.tradebanc.com/asset_auction.html. Asset Exchange allows exporters to create their own online auctions. Corporate barter companies and barter exchanges participate as affiliates on TradeBanc.

Active Media International, 914-732-8600; fax: 914-735-6448. Tradewell Inc., New York, 212-888-8500; fax: 212-755-6312; e-mail: gr@tradewell.com; web site: www.tradewell.com. (Source: Managing Exports)

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