Academic journal article Revue Canadienne des Sciences de l'Administration

A Survey of Canadian Countertrade Practices with Asia-Pacific Countries

Academic journal article Revue Canadienne des Sciences de l'Administration

A Survey of Canadian Countertrade Practices with Asia-Pacific Countries

Article excerpt

Abstract

This study explores the attitudes of Canadian executives toward countertrade with Asia-Pacific countries. This issue is important because many emerging markets in the region that are facing domestic and international pressures to keep country risk ratios satisfactory are expected to seek non-debt-creating trade and financing options like countertrade. Results indicate that while Canadian executives do recognize and appreciate customers' array of motives for countertrade requests, they clearly disregard the competitive advantage of adopting a more proactive and responsive stance. This observed lack of interest in countertrade strategy warrants concern. Countertrade, it will be argued, should represent an important component of Canada's Asia-Pacific market entry strategy if it is to make significant market share gains.

Resume

La presente etude analyse les attitudes des dirigeants canadiens a l'egard du commerce de contrepartie dans les pays de l'Asie et du Pacifique. Plusieurs marches emergents de la region, pour faire suite aux pressions interieures et internationales, se doivent de conserver des ratios de risque satisfaisants. Ces marches doivent chercher a obtenir des echanges qui ne creeront pas d'endettement et qui comportent des choix de financement comme le commerce de contrepartie. Les resultats indiquent que les dirigeants canadiens reconnaissent et apprecient les motifs valables des clients en demandant un commerce de contrepartie, mais qu'ils oublient de sy engager et de reagir activement a l'aspect competitif du marche. Le manque d'interet pour la strategie du commerce de contrepartie que nous avons observe, demontre qu'il y a lieu de s'inquiter. Le commerce de contrepartie devrait representer une composante importante de la strategie du Canada dans sa percee sur les marches de l'Asie et du Pacifique. Cette composante est necessaire pour acquerir rapidement de nouvelles parts du marche.

Heightened domestic and international pressures to keep country risk ratios satisfactory suggest that many emerging markets in the Asia-Pacific, particularly in China, India, Indonesia, Malaysia, South Korea, Thailand, and Vietnam, will be forced to seek non-debtcreating trade and financing options, including countertrade, to ease massive financial burdens. A recent report by the International Monetary Fund (1995) concurs with the notion of enhanced countertrade activity arising from external financial problems and debt accumulation. Canadian firms doing business in the region might therefore face increasing demands for countertrade from defence and commercial customers, especially through offsets and technology transfers.

Without question, countertrade is not an easy way to conduct international trade. Cash or near-cash transactions still remain the optimal methods of doing business. In fact, countertrade may supplement, and not supplant, traditional trade and finance mechanisms (Strizzi & Kindra, 1995, 1996). Mirus and Yeung (1986, p. 27) observed that "in many circumstances countertrade is a rational response to transaction costs, information asymmetry, moral hazard-agency problems, and other market imperfections."

Since countertrade arrangements are subject to neither domestic nor international reporting requirements (Banks, 1983), it is extremely difficult to determine with any accuracy countertrade's share of world trade. Estimates vary widely, ranging anywhere from 1% to 40% of international trade (Banks, 1983; de Miramon, 1982, 1985; OECD, 1985). It was reported by Okoroafo (1988, p. 16) that "the consensus of expert opinion puts the percentage of world trade financed through countertrade transactions between 20-25%."

Furthermore, it is estimated that counterpurchase represents 55% of all international countertrade transactions, followed by offset (24%), buyback (9%), switch trading (8%), and barter (4%) (Special Issue, 1993, p. 10).

The primary purpose of our study is to explore the attitudes of Canadian executives toward countertrade with Asia-Pacific trade partners. …

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