Magazine article Financial Management (UK)

It's a Fair Swap

Magazine article Financial Management (UK)

It's a Fair Swap

Article excerpt

Barter may be the oldest form of trade, but it is certainly not history. Ruth Prickett finds out what today's sophisticated global barter exchanges and corporate barter firms can offer you

Scenario one -- a bright summer morning a long time ago: Ug comes out of his cave clutching a newly invented stone tool that is great for cutting melon and also has a clever attachment for getting stones out of mammoths' feet. As he admires his handiwork, along comes Og laden with the pelts of freshly slaughtered sabre-toothed tigers. Ug is delighted. Sabre-tooth tiger fur will add the finishing touches to his bachelor pad. Og, meanwhile, has a serious problem with a lame mammoth. The deal is done and trade is born.

Scenario two -- London 2001: George is sitting in the foyer of his West End hotel wondering how a few chrysanthemums can possibly cost that many zeros, and whether those American guests had a point when they said that olde worlde charm would be more enjoyable with air-conditioning. Meanwhile, Jemima is in her City office wracking her brains about where to put up five important clients from Atlanta when she's still waiting for two large accounts to pay up and the hotel she usually uses has closed for refurbishment.

George and Jemima don't know each other. Even if they did, George does not want PR services, although Jemima would be keen to use his hotel rooms. Jemima would be reluctant to pay West End hotel prices upfront. George would not be happy about extending credit to an unknown PR agency.

This, of course, is where modern barter gets more sophisticated than its primitive origins. Both George and Jemima could benefit from joining a barter exchange network.

Suppose George offers his spare hotel rooms, and Jemima offers PR services. This pus them in contact with Cyril, who has 5,000 trade pounds from selling exotic flower arrangements to a chain of leisure centres. He jumps at the chance to use this credit to buy Jemima's PR services. This enables her to buy George's hotel rooms. He then spends his credits on regular supplies of Cyril's flowers -- and works out how many hotel rooms he needs to barter to afford the services of Polly's air-conditioning firm.

All this paints a rosy image of harmonious non-cash transactions -- but how does the system work in reality? For a start, there are two types of barter. At one end is this kind of exchange network. Clients trade surplus time, expertise or product in return for trade credits to use as they please within the network. The transaction takes place in trade credits, but members usually pay a percentage on every transaction, which is partly in cash.

At the other extreme is the corporate barter firm that buys up large amounts of surplus or redundant stock, which the manufacturer would otherwise sell at a loss, and finds new outlets for it at retail price. In return, the client buys services such as media, travel or freight for a split of cash and trade credits.

All this is big business and it is, according to those involved, going to get much much bigger. "We estimate that only about 1 per cent of companies in the world are using this form of trading, so there is clear room for growth," says Paul Mckoen, financial director of trading exchange Tradaq (formerly BarterTrust), which recently moved its headquarters to London from the US and is now looking at expanding across Europe.

"The market is exploding," agrees Frances Dickens, chief operating officer at corporate barter firm Active International. "Barter is here to stay and you should be involved sooner rather than later. If you're not, you'll miss out."

Those involved claim that non-cash transactions have many advantages. "All trading is done at normal market prices and we buy products at full book value," explains Simon Lee, partner at corporate barter firm MRI International. "We re-market the goods according to the firm's wishes -- for example, so that it will not compete in their existing markets and will not be sold from downmarket outlets -- and we give them trade credits in return. …

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