The conditions under which the nonperforming asset is liquidated can be specified by the client company bartering the asset away. That protects the company from competing with its own deeply discounted product. Sometimes, such deals can even be used to the advantage of the company with the problem asset. For example, barter companies can sometimes help their clients test the potential of a new geographic market.
Barter companies are able to convince service companies to sell services to them at a discount because of the former companies' aggregate buying clout. Service companies can afford to do this because of their low marginal costs--even a deeply discounted sale might be profitable to the service company, but it doesn't want to shout about its discounted services. The intermediary helps the service providers protect their rate structure. Because the face value of the trade credits is usually high enough to preserve at least the appearance of full rates, the service providers do not signal the discount to their nonbarter customers.
As the barter business grows, trade credits are becoming increasingly fungible. Some barter company clients pay trade credits to each other as they exchange merchandise and service, a situation Icon's Lee calls "vendorization" of trade credits.
More companies are making use of cross-border bartering. Faced with a backlog of computers when preparing to introduce its new Aptiva products, IBM Corp. cleared its shelves by selling 2,627 brand new, unneeded computers for trade credits to New Yorkbased Atwood Richards, an international barter firm with 30 offices in 28 countries. In turn, Atwood Richards sold the computers to customers in Mexico and the United States. IBM used the trade credits to offset the purchase price of 120 Volkswagen automobiles, as well as trucking and express-mail services.
For Flambeau Paper Corp., a U.S. papermaker, in St. Paul, Minnesota, Atwood found buyers in the Far East for 400 tons of paper worth $1 million, after Flambeau discovered the unusual colors and finishes wouldn't sell in this country. In another transaction Atwood arranged, Thomas Industries, in Louisville, exchanged chandeliers and residential and commercial lighting products worth $2.25 million for barter credits used to obtain paint, ballasts, packaging, printing, and hotel conference space equivalent to 5,000 room nights. In the bargain, Thomas products were introduced to new markets in South America.
To facilitate cooperation among barter companies, the International Reciprocal Trade Association has begun looking at ways to establish an ongoing exchange rate for trade credits issued by various barter companies. That should make trade credits more liquid, and should also make it easier for the barter companies to trade with one another. The IRTA program could be up and running by year-end, says Active International CEO Alan Elkin.
While international barter trade may be a growing market, some companies have been hesitant to enter it, because of the exponential increase in complications. Elkin notes that language barriers have sometimes been a problem in multicultural trades. His company's solution? Employ local professionals.
Experts predict that the Internet will open a new channel to millions more potential corporate barter customers. IRTA is looking for ways to open that route. You can be sure it's not alone.
Reader Comments» Post a comment