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Barter as a Commercial Instrument

October 18, 2012

At various points in my career, I was involved in business proposals that included elements of barter. In some cases, they were about counter-trade (for example, fertilizer in exchange for tractors); in others they were about off-sets (free staff travel in exchange for discounts on aircraft purchase). Sometimes these discussions led to commercially viable transactions; often they did not.

There are many reasons why barter can be commercially challenging. Among them are considerations such as tax implications; identifying and managing counter-parties; setting undesirable precedents in the market; upsetting other customers and potential to create a ‘grey’ market.

Therefore it was interesting to read in the Financial Times (October 11th, 2012) that barter has seen a resurgence in Western markets since the onset of the recession. Given economic conditions, the shortages of cash, the difficulties of reducing stock or forecasting demand, it is perhaps not surprising that organizations have moved to exceptional methods to clear inventory. The process has been facilitated by the growth of intermediaries and the use of networked technologies that allow faster and more diverse matching of supply and demand. This expansion of the potential market also removes some of the historic concerns, since the supplier can be more specific about conditions of sale (for example, the nature of the eventual customer or the location in which goods will be used).

As this medium matures, it is likely to become an increasingly viable alternative to traditional sales techniques. It may allow not only faster and safer disposition of unwanted goods or excess inventories, but could in many cases offer entry to emerging markets where cash or financing is in short supply. It represents another area which will require strong commercial and contracting skills, to ensure full evaluation of the opportunity, its realization and potential consequences.

Perhaps it is time for a new IACCM training module!

One Comment
  1. John Tracy permalink

    Tim, my view of barter is it usually was a process that came of necessity rather than strategy. While it may be used today to facility business where cash and financing was in short supply, it has also been used as a way to repatriate foreign profits from countries that have strict currency controls.They couldn’t take the cash out of the country, but they could use those profits to buy goods they could then export and sell to recover their profits. Except in those situations my experience with barter was ofter they did not work many times there was a middleman involved that wanted a significant percentage. I think a training module that describes all the potential issues, benefits, risk, and costs would be a good idea but it may be for a limited audience

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