Disadvantages of Countertrade
Countertrade is a good business transaction if you know every corners of it. However, there are also some disadvantages of countertrade so a business owner must understand them and know how to manage them.
In this way, they can be able to achieve the company’s goal and succeed in their business with the use of countertrading.
What is Countertrade?
Countertrade is a term used in business that describes many variations of transactions. The transactions in countertrade are when the seller provides the buyers with goods/services and in return promise to buy goods/services from the buyers. The use of currency may or may not be involved in the process, as in the barter process. Today, the biggest indirect way of exporting is the countertrade. Organizations may be able to expand their operations by running their business in the market where there is less competition and the exchange in currency is not possible. Countertrade can be used in terms of stimulating home industries or where there is a short supply in raw materials.
Main Disadvantage of Countertrade
The main disadvantage of countertrade is that companies have the possibility of handling goods that they are not familiar with. For example, you are a manufacturer or supplier of mechanical products, thus, if you have received medical equipments, raw materials, consumer goods, etc. in a countertrade, you can quite have a difficulty in legal claims and very costly learning lessons. Also, if you have acquire certain product title that have caused damages to third parties, your company will then be liable to these third parties which is a very disturbing and a lot of hassles in your business.
Tips on How to Manage Countertrades Risk
First in avoiding the risk of countertrade is to never take a product title. You can use other intermediary or trader who can manage the potential liability of acquiring the title of a product. Another option that can avoid you to take titles of products is to use an in-house company for trading. Acting as a broker will prevent you from taking the title. If you can possibly not take the title of a product as payment for countertrade, you must do so. This will prevent you from any possible problems and liabilities in the future.
However, if you must acquire the title, you must ensure that you have an insurance to cover the liability and the risk of the product. The insurance can be very costly since it is not your usual product. You can also make your supplier pay for the insurance coverage if you will take their product title. This will allow you to obtain legal claims if there are any liabilities that may occur in the future. Corporate protection can be established by the use of the subsidiary corporation that is properly established.
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